Mozambique - ProMaputo : The Maputo Municipal Development Program

Document of The WorldBank FOROFFICIAL USEONLY ReportNo: 37535-MZ PROGRAM APPRAISAL DOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OF SDR20MILLION (USD30 MILLIONEQUIVALENT) TO THE REPUBLIC OF MOZAMBIQUE FOR PROMAPUTO: THE MAPUTOMUNICIPALDEVELOPMENT PROGRAM December21,2006 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 disclosedwithout World Bankauthorization.  CURRENCY EQUIVALENTS (Exchange RateEffective December 14,2006) CurrencyUnit = New Meticais (MTn) 26.15 MTn = US$1 US$1 = SDR1.50435 FISCAL YEAR January 1 - December31 ABBREVIATIONS AND ACRONYMS AfDB African DevelopmentBank ANT AdministrapToNacional deEstradas (National Roads Authority) APL Adaptable ProgramLending CAS Country Assistance Strategy CMM City Council of Maputo DCU Department o f Urban Construction DMF MunicipalFinance Directorate DPFP DecentralizedPlanning and Finance Program ECE Eastern and Central Europe EDM Electricidade de Moqambique (Power Supply of Mozambique) ERR Economic Internal Rate of Return ERR Economic Rate of Return ESMF Environmental and Social Management Framework FPAG Fundo deInvestimentoe Patrimonio do AbastecimentodeAgua (Water Supply InvestimentFund) FMR FinancialMonitoringReport FMS Financial Management System GCM Global Change Model GDEI Office of Strategy and InstitutionalDevelopment GDP Gross Domestic Product GIS Geographic Information System GoM Government o f Mozambique GPN General Procurement Notice GTZ Cooperap7oAlema"para o Desenvolvimento (German DevelopmentCooperation) HDM Highway Development and Management Model IDA International DevelopmentAssociation IHRMS IntegratedHuman ResourcesManagement System IMF International Monetary Fund P A Imposto Pessoal Autarquico (Head or Pool Tax) IPRA Imposto Predial Authrquico (Property Tax) IRR Internal Rate of Return  FOROFFICIAL USE ONLY JICA JapanInternational Cooperation Agency JPC Joint Program Committee MAE Ministdrio deAdministraqio Estatal (Ministry of StateAdministration) MCC Marginal Capacity Cost MDB Multilateral DevelopmentBanks MDP MunicipalDevelopment Program ProMaputo Programa Para Maputo (Name ofMaputo MunicipalDevelopmentProgram) MICOA National Environment Agency MTn New Meticais (Mozambique currency) NGO Non Governmental Organization NPV Net PresentValue NWII National Water I1 PARPA I1 Poverty Reduction Action Plan PPF Project Preparation Facility PPIAF Public-Private Infrastructure Advisory Facility PPP Public Private Partnership PROL Program for the Reform o f Local Public Administration RAP Resettlement Action Plan RPF Resettlement Policy Framework RUE Renamo UniioEleitoral (Renamo Electoral Union) SISTAFE Government Financial System SCT Strategic Coordination Unit S W M Solid Waste Management TAE Taxapor Actividade Econbmica (Fee on Economy Activity) TDM Telecomunicap5esdeMoqambique(Telecommunications of Mozambique) TPM TransportesPublicos deMaputo (Public Transports of Maputo) voc Vehicle OperatingCost Acting Vice President: Hartwig Schafer Country Managermirector: Michael Baxter Sector Manager: Jaime Biderman Task Team Leader: Kate KuDer This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.   MOZAMBIQUE ProMaputo:The MaputoMunicipalDevelopmentProgram CONTENTS Page A. . STRATEGIC CONTEXT AND RATIONALE ................................................................ 4 1 Countryandsectorissues ................................................................................................. 4 2 Rationalefor Bankinvolvement ...................................................................................... 7 3 .. Higherlevelobjectivesto which the projectcontributes .............................................. 8 B PROJECTDESCRIPTION . ... ................................................................................................. 9 1 Lendinginstrument .......................................................................................................... 9 2 Programdevelopmentobjective andkey indicators................................................... 10 3 ProgramDescription ...................................................................................................... 11 4 Lessonslearnedand reflectedinthe projectdesign.................................................... 13 5 .. Alternativesconsideredand reasonsfor rejection....................................................... 15 C. . IMPLEMENTATION ........................................................................................................ 15 1 PartnershipArrangements ............................................................................................ 15 2 InstitutionalandImplementationarrangements ......................................................... 16 3 .......................................................... 18 4 ... MonitoringandEvaluationof outcomeshesults Sustainability .. ................................................................................................................... 18 5 CriticalRisksandpossiblecontroversialaspects ........................................................ 19 6 .. CreditEffectivenessConditions ..................................................................................... 21 D. APPRAISAL SUMMARY ................................................................................................. 21 1 EconomicAnalysis ......................................................................................................... 2 FinancialAnalysis .......................................................................................................... 23 3 TechnicalAnalysis .......................................................................................................... 24 4 .... 21 Fiduciary .......................................................................................................................... 25 5 Social................................................................................................................................ 27 6 .. Environment .................................................................................................................... 29 7 a .. Safeguardpolicies ........................................................................................................... 29 PolicyExceptionsandReadiness ................................................................................... 30  Annex 1: Country andSector or ProgramBackground ......................................................... 31 Annex 2: Major RelatedProjectsFinancedby IDA and/or other Agencies ......................... 35 Annex 3: ResultsFrameworkandMonitoring ........................................................................ 36 Annex 4: DetailedProjectDescription ...................................................................................... 43 Annex 5 ProjectCosts . ................................................................................................................ 53 Annex 6: ImplementationArrangements ................................................................................. 55 Annex 7: FinancialManagementArrangements ..................................................................... 58 Annex 8: ProcurementArrangements ...................................................................................... 69 Annex 9: EconomicandFinancialAnalyses ............................................................................. 79 Annex 10: SafeguardPolicyIssues ............................................................................................ 93 Annex 11:ProjectProcessing .................................................................................................. 103 Annex 12: Documentsin the ProjectFile ............................................................................... 105 Annex 13: Statementof LoansandCredits ............................................................................ 106 Annex 14: Countryat a Glance ............................................................................................... 108 Annex 15: Letterof Sector Policy ........................................................................................... 110 Annex 16: Anti-corruption Strategy ....................................................................................... 115 Annex 17: HIV/AIDS Work Plan ............................................................................................ 117 Annex 18: PovertyAssessment andReportCard .................................................................. 120 Annex 19: CapacityBuildingStrategy .................................................................................... 123 MAP: IBRDNo 33451 .  MOZAMBIQUE ProMaputo: The MaputoMunicipalDevelopmentProgram ProgramAppraisalDocument Africa Region AFTUl Date: December 21,2006 Team Leader: Katherine Kuper Country Director: Michael Baxter Sectors: Sub-national government Sector ManagerDirector: Jaime M.Biderman administration (46%); Solid Waste Management (29%); Roads and Highways (25%) Themes: Municipal governance and institution building(P) Project ID: PO96332 Environmental screening category: Partial Assessment Lending Instrument: Adaptable Program Lending (APL) [ 3 Loan ProjectFinancingData [XICredit [ ] Grant [ 3 Guarantee [ 3 Other: For Loans/Credits/Others: Total Bank financing (US$m.): Phase 1- 3 years (30.00) 30.0 Borrower: Republic o fMozambique Maputo Mozambique ResponsibleAgency: Maputo City Council Maputo Mozambique 1  Project implementation period: Phase I- Start March 1,2007 End:February 28,2010 Expected effectiveness date: March 1,2007 Expected closing date: August 31,2010 Does the project depart from the CAS incontent or other significant respects? Re$ PADA.3 [ No Does the project require any exceptions from Bankpolicies? Re$ PAD D.7 [ ]Yes [XINO Have these been approvedby Bank management? [ ]Yes [XINO I s approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated "substantial" or "high"? Re$ PAD C.5 [X ]Yes [INo. Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ] N o Project development objective Re$ PAD B.2, TechnicalAnnex 3 APLPhase 1: Strengthenthe Maputo CityCouncil's institutional andfinancial capacityto support achievement o f long term service delivery goals, and to implement selected priority investments, Project description: Re$ PAD B.3.a, Technical Annex 4 Component A on institutional development and municipal governance aims at: rationalizing the municipality's internal processes for service delivery; improving the performance o f the municipality's functional units; and improving governance. Component B on municipalfinance will improve the municipal public finance systems by increasing its own-source revenues (local taxes and fees) and enhancing the budget planning, execution, and control functions. The component will do so through a series o f interlinked activities inthe areas o fboth revenues and expenditures. Component Conplanning, infrastructure rehabilitation and service delivery improvements will support urbanplanning andtarget investments to improve andrehabilitate critical urban services, including roads and drainage, solid waste management, a cemetery and street lighting. Which safeguard policies are triggered, ifany? Re$ PAD0.6, TechnicalAnnex I O Environmental Assessment (OP4.01) InvoluntaryResettlement (OP4.12) 2  Significant, non-standard conditions, if any, for: Re$ PAD C.7 Boardpresentation: Loadcredit effectiveness: The C M M will have established an adequate financial management system capable of producing Financial Monitoring Reports in form and substance satisfactory to the Association to ensure proper accounting andmonitoring o fprogram funds. The C M M will have adopted: (i) financial management manual; (ii) procurement a a manual; and (iii) a Project implementation manual, all inform and substance satisfactory to the Association. The CMM's 2005 audited financial statements will have been submitted in a manner satisfactory to the Association. The C M M will have issued a request for proposals for selection o f independent auditors for the audit o f its 2006 financial statements, in form and substance satisfactory to the Association. The C M M will have established the office o f strategic and institutional development and appointed its head. The C M M will have hiredthe institutional development advisor, with terms o f reference satisfactory to the Association The C M M will have established a procurement department duly staffed by a qualified department head supported by a senior procurement specialist and a procurement officer with terms o freference satisfactory to the Association. C M Mwill have executed a SubsidiaryAgreement with the Recipient. Covenants applicable to project implementation: 0 Byno later than 1September, 2007, the CMMwill prepareand submit to the Association, inform and substance satisfactory to the Association, a strategy (including relevant hiringcriteria and modalities) to retainqualified andtrained staff contracted to enhance its capacity. The C M M will implementthis strategy by absorbing within its workforce the qualified and experienced staff, at the end o fthe initial two years o f each staff contract. 0 By 1September, 2007, the C M Mwill enter into an agreement with the Electricidude de Mocambique (EDM) for the purposeso f collectingthe solid waste fee under Component c3. 0 No later than 1September, 2009, prepare and agreewith the Association, suitable biddingdocuments (including qualification criteria) for the competitive selection and employment o f contractors to carry out Components C.2 and C.3 o fthe Project, and thereafter apply the agreed selection procedures. 3  A. STRATEGICCONTEXT AND RATIONALE 1, Country and sector issues 1. Mozambique, like most African countries, i s undergoing rapid urbanization. The urban populationrepresents about 30 percent o f the national total and i s growing at about 5 percent per year. By 2020 more than half o f Mozambicans will live in urban areas. By 2010, the urban population of Maputo City i s expected to increase from 1.3 million to 1.7 million, more than twice the size o f Beira, the second largest city. Recent studies show that over half o f the urban population can be considered poor, usingconsumption-based indicators. While urbanpoverty i s slightly less (52 percent) than in rural areas (55 percent) the difference is startlingly small; notably poverty has also fallen more rapidly inrural than urban areas due to post-war agricultural gains. InMaputo, the capital city and single largest population center, there has been no decrease inpoverty since 1997 despite overall economic growth. 2. Over 70 percent o f the urban population in Mozambique lives in settlements that are informal and have slum characteristics including dense unregulated growth; a lack o f common infrastructure services such as water, sanitation, drainage and electricity; and homes made o f precarious materials. Even the "cement city" (originally the planned colonial urban core) has seen almost no investment or maintenance since independence in 1975 leaving drainage systems inoperative, a major solid waste crisis, inadequate water and sanitation services and an almost complete lack o f physical planning. Unplanned settlements are also often built on unsuitable terrain that i s prone to flooding, erosion, and the accumulation o f solid waste. The high rates o f malaria and frequent cholera outbreaks in Maputo (1997, 2000) are results o f this lack o f infrastructure necessary for improvedhealth outcomes. 3. As early as 1982, the first NationalMeetingon UrbanPlanningdiscussed these problems and decided that "structure plans" should be prepared for each city. A year later the civil war and generalized economic crisis led to a shift away from investment inurbanareas to a focus on rural production. Yet by the late 1980s people were flocking to towns and cities to flee the war, leaving early planningor small improvements ininfrastructure overwhelmed under the weight o f incoming migrants. The private sector and organized civil society hardly existed under the socialist era government of the time, leaving any urban development efforts only to a weakened state and its appointed municipal executive committees. 4. After the war, government and donors focused attention on rural reconstruction and development. By 1997, the government had passed two significant laws for urbandevelopment, the new Land Law which kept state ownership but granted effectively transferable usufruct rights, and the Municipal Legislation package (Pacote Autbrquico) which established 33 urban local governments with limited but autonomous powers and democratically elected mayors and assemblies. Municipal elections have since been held in 1998 and 2003. Inaccordance with the 1997 Municipal legislation, municipalities are responsible for solid waste management, basic water and sanitation services, environment, urban roads, urbanization, land use, housing and construction licensing, municipal security etc. Some o f these services are provided in conjunction with state bodies. This legislation is currently being revised (with input from the new Municipal Association currently chaired by Maputo's mayor) and new municipalities are expected to be establishedin2008. 4  5. While the law foresees that municipalities would take over more functions (including health and education) as their capacities and financial base increase, all 33 remain extremely weak interms o fhumanand financial resources. Municipalities spend on average only US$5 per year per capita compared with US$15 per capita on average in sub-Saharan Africa, US$249 per capita in Asia and US$252 per capita in Latin America. Mozambican municipalities are highly dependent on the state for operating costs and almost entirely on donors for capital investment. Property taxes are the main untapped source o f revenues but this requires updated property registers, valuation rolls and strong political commitment to increase coverage and collection. Local fees and user charges are also outdated and difficult to collect. In addition, the laws governing municipal fiscal autonomy are very restrictive. 6. The municipalities are also constrained by a centralized culture and a skills shortage not suited to decentralized management and service delivery. They remain miredin an environment largely dependent on a state which provides them with only approximately 1% o f the national budget. Maputo City is no exception: duringthe first municipal mandate Maputo was considered among the poorest performers in terms o f service delivery improvements. It provides a microcosm o f the problems facing cities inMozambique. MaputoCity 7. Maputo i s the gateway for investors, tourists and migrants from rural areas and surrounding countries. Maputo contributes over 40 percent o f the national Gross Domestic Product having an estimated GDP per capita o f US$1,250 compared to a National GDP per capita o f US$310 in 2005. It i s also a city o f extreme and growing inequality. Approximately 70 percent o f Maputo City's residents live in informal settlements and 54 percent live below the poverty line o f US$l.50 per day. The low level o f investments in urban areas over many years has reducedthe quality and quantity o f service delivery, especially inthe maintenance o f existing infrastructure. Coverage rates are low for solid waste collection (25-50%), drainage (20-30%), road maintenance (15% o f unpaved, 47% o fpaved) and cemeteries (80% exhumation rate due to inadequate capacity exacerbated by the HIV/AIDS scourge). Private investors have expressed their dissatisfaction with the seriously deteriorated service delivery and infrastructure inMaputo through the Investment Climate Assessment, the Corruption Survey, the media and other survey instruments. Citizens have expressed concern about the quality and coverage o f virtually all municipal services through the first municipal CitizenReport Cardinlate 2005/early 2006. 8. Inefficiencies and resource constraints limit the ability o f the City Council o f Maputo (CMM) to provide quality services to its citizens. CMM's highly centralized and bureaucratic organizational structure ledto fragmented and cumbersome planningand management functions. Weak operational supervision and information systems also limit the management's ability to achieve improvements in service delivery. The C M M has only recently begun modest involvement o f sub-municipal officials (District Administrations) and neighborhood structures in participatory planning and service assessments, which are important in advancing accountability and transparency and thereby foster greater citizen confidence intheir local government. CMM has also begun to implementpublic private partnerships and has benefited from financing from PPIAF to develop a framework for PPPs, establish a PPP unit and equip it with the methodological instruments and skills necessary to effectively implement PPPs for service delivery. 5  9. The C M M is severely constrained by a lack o f qualified personnel. In 2005, only 1.5 percent o f the CMM's over 2500 staff had some higher education and only 7 percent had any technical training: substantially less than the Ministry's o f State Administration's national target o f 20 percent qualified municipal personnel. Even in key units such as the Municipal Finance Directorate (DMEF) qualified technical staff are extremely scarce: only 54 o f 102 approved DMEFstaffpositions are filled; only 18 ofthese 54 were assessedby independent consultantsin 2005 as qualified, 11 o f whom occupy management or supervisory positions: thus only 7 qualified staff work innon-supervisory roles to across the DMEF's 7 departments and sections. Twenty-six o f the remaining thirty-six DMEFnon-supervisory staff has only primary education. This dire situation is not atypical; in fact the DMEF i s better staffed than most o f Maputo directorates. 10. In2005 the total budget of the City of Maputo amounted to an extremely low US$6 per capita. C M M faces serious constraints in both revenue generation and budget planning and control. Currently, it i s estimated that only approximately 20 percent o f properties o f brick and with piped water and 5 percent o f the total properties in the city are being taxed. The municipality lacks an updated cadastre and other tools to increase property tax revenues as well as other local taxes and fees. On the expenditure side, despite recent improvements, weaknesses remaininplanning, execution, and control o f expenditures. Total revenues ofthe Municipalityof Maputoby year in millionsof currentUSD I 2003 I 2004 I 2005 A. Own-Source revenues 2.3 3.6 4.4 a.1.Fiscal revenues 0.6 1.1 1.4 a.2.Non-fiscal revenues 1.7 2.5 3.0 B. Transfers 2.7 3.5 4.2 b.1.Municipal CompensationFund(FCA) 1.5 1.8 2.0 b.2. Local Investment and Initiative Fund(FIIL) 0.6 0.8 1.o TOTAL 5.0 7.0 8.6 11. The City must urgently establish a sound organizational and financial base in order to reverse the decline in service provision and infrastructure, or the standard o f living and cost o f doing business in Maputo will worsen. This will not only increase poverty, marginalization and crime but further inhibit the growth o f smaller and medium sized businesses inparticular, which are critical to income generation andpoverty reduction inthe country as a whole. The City's Response:"ProMaputo" the MaputoMunicipalDevelopmentProgram - 12. The CMM, led by Maputo's second elected mayor, has recognized the crisis facing Maputo City. The mayor and his team have conducted a series o f workshops and consultations with various stakeholders to develop the vision, mission and development program for the City o f Maputo. These stakeholders included the private sector, civil society, national government and members o f the Municipal Assembly (legislature) and City Council (Executive). Findings fi-om the Municipal Citizen Report Card and various studies on the state o f the city were the inputsto these forums. 6  13. As a result o f these inputs and consultations, the city has developed and widely disseminated its vision for the city as well as the Council's mission statement. The vision for Maputo i s for a "prosperous, attractive, clean, secure and unitedcity". The mission statement o f the Council i s "To lead the process o f raising the quality o f life o f municipal citizens; creating an environment conducive for investment and job creation through improved delivery o f services; andthrough the mobilization o fcitizens and coordinatedaction betweendiverse actors". 14. Based on these vision and mission statements, the City developed a 10 year Maputo Municipal Development Program ("ProMaputo" or the Program) that forms the basis for the Adaptable Program Loan (APL). The first phase o f ProMaputo recognizes that the City has extremely limited capacity to raise its own revenues and to provide quality services to its citizens. Therefore, the priority for the APL's Phase Ii s to achieve a basic level o f functionality interms of good governance, financial stability and institutionalcapacity inorder to provide a platform for subsequent sustainable improvements to service delivery. 2. Rationale for Bankinvolvement 15. The success o f Mozambique's cities is crucial for the development o f the country as a whole. Urbanization and economic development go hand-in-hand as a country moves from a rural-agricultural base to an urbanbase. Migration i s a favorable element inincome growth and poverty reduction, both for urbanandrural populations. Rural and urbanboundaries are artificial distinctions to households, who often distribute members across different spatial and economic activities to diversify income sources and reduce risk. Urban poverty i s also nearly as high as rural poverty and unlike the rest o f the country has not seen any decline inMaputo. 16. Inthe development literature the "Williamson Effect" demonstrates that a highdegree of urban concentration in the early stages o f economic development is helpful. By spatially concentrating industrialization, often in coastal cities, the economy conserves `economic infrastructure' - physical infrastructure capital and managerial resources. Such spatial concentration also enhances information spillovers and knowledge accumulation at a time when the economy i s `information deficient' (Davis and Henderson, 2003). Furthermore, the per capita costs o f many forms o f infrastructure and social services are generally lower in large cities, as many more people can be reached. However, unreliable infrastructure and high transactions costs undermine firms domestically and can be fatal to potential exporters. Urban local governments can also become the vanguard for good governance and sustainable public finance, as their performance i s highlyvisible and they are the front line o f public administration for citizens. 17. Development partners have been supporting the Government o f Mozambique for nearly 15 years but are now realizing that more emphasis on sub-national authorities is needed in order to build long term and sustainable service delivery capacity in the country. Municipalities are the only decentralized elected entities in Mozambique and are important to democratic stability (DFID Strategic Conflict Assessment 2006). However, they are still nascent, weak structures that require considerable investment over a sustained period o f time to make them into functioning local governments. The two earlier Bank-supported projects in the area o f urban development focused on the establishment o f municipalities in Mozambique and on national level frameworks, although IDA channeled small grants to eight cities through the Ministry o f State Administration (MAE) under the MDP. These earlier projects successfully supported the establishment o f a legal and institutional framework for municipalities inMozambique and drew 7  important lessons in capacity building. They also provided significant information on the binding constraints for more effective municipal development strategies, including the need to work more directly with cities and avoid project structures. However, IDA has provided very limited resources targeted directly at municipalities. The few partners operating in the local government sector are working mainly with smaller municipalities and districts and primarily in the north and center ofthe country. Maputo i s the "hole inthe donut" interms of donor support, despite its similar poverty profile and critical importance to the country as awhole. 18. The World Bank i s one o f the few development partners (along with DANIDA, USAID and the Swiss Development Cooperation), that is actively supporting the area o f urban development inMozambique. It i s well positioned to invest inprograms that require a long term approach to governance and capacity building, in order to lay the foundations for large-scale investments in service delivery in the future. The World Bank's involvement also creates the basis for leveraging additional partner financing, not only from other development partners but from the private sector as well. Municipal development i s a complex and multi-faceted field. Requiredmunicipal investmentsrange from "soft" institutional improvements to large, lumpy infrastructure investments (e.g. landfills, sewage systems, major road rehabilitation) which demand resources at a scale many donors are unable to provide. Also, municipal development i s fundamentally about good governance and capable city management, areas in which the World Bankis a leading development agency, particularly at asub-national level. 3. Higher level objectives to which the project contributes 19. The Government's Five Year Plan refers to the ongoing program o f decentralization as "one o f the pillars o f the process o f modernization o f the state". The Plan also sets as an objective the consolidation o f the municipalities and improving access to municipal services. Under the objectives o f improving access to housing and land tenure with services, the government intendsto ensure the approval o f urban land use plans and to promote the effective coordination o f institutions involved in urbanization and infrastructure provision. Recent progress has been made with the Council o f Ministers approving the first Land Use Planning Law in Mozambique (Lei de Ordenamento do Territdrio) and a regulation on urban soil use, which provides a legalbasis from which to move forward. 20. Mozambique's second Poverty Reduction Strategy Paper (PRSP) (Programa da Acqio da Reduqio da Pobreza Absoluta, PARPA II)includes the areas o f public administration, public finance reforms, decentralization and popular participation as core elements o f its Governance pillar. It also links poverty with poor environmental conditions, including a lack of drinking water and sanitation, and mentions the need to overcome urban environmental degradation through urban planning and upgrading, including greater investment in infrastructure such as roads and drainage and solid waste management. The International Monetary Fund (IMF) recently issued its support for PARPA 11, commending its focus on several priorities, which are directly reinforced by ProMaputo, such as an emphasis on infrastructure; fiscal decentralization; strengthening o f local administrative capacity, including financial auditing and reporting; private sector development; governance, transparency and the fight against corruption. These are also at the fore o f the Africa Action Plan o f the Africa region o f the World Bank. Decentralization i s also a focus o f the next PRSC series and as such ProMaputo is a complementary program to the budgetsupport. 8  21. The Municipal Development Policy o f the Mozambican Government, recently prepared by MAE at national level, highlights key priority actions for urban development including the following: 0 Strengthen leadership and boost the motivation o f staff to ensure their commitment to support municipal policies andprovide communities with highquality services. 0 Increase efforts to ensure that municipalities secure an adequate financial basis from their own revenue sources, includingtaxes and fees 0 Strengthen the role o f municipal authorities in coordinating strategic planning activities that reflect the long-term objectives and priorities o f community representatives and other local socio-economic actors. 0 Develop and improve the legal framework o f State institutions to enable technical support particularly in the areas o f urban and spatial planning, service delivery, municipal infrastructure and finance. 22. In Maputo, IDA would finance the majority of improvements in institutional development and governance, financial management and selected priorities inthe area o f service delivery. The Country Assistance Strategy (CAS) notes that strengthening local government i s a key factor in improving service delivery. The CAS mid-term review reinforced the point that ProMaputo was fully in line with the CAS objectives and with the Africa Action Plan. The program will be included in the new Country Partnership Strategy under preparation. ProMaputo will build on prior Bank support for the Municipal Development Project which funded preliminary consultancies and limited civil works in the City. An ancillary objective of ProMaputo i s to create a vanguard inMaputo City that will demonstrate to the rest o f the country successful municipal reform, capacity building, and development strategies while contributing to national growth andpoverty reduction agendas inthe urbancontext. B. PROJECTDESCRIPTION 1. Lendinginstrument 23. The proposed program would be an Adaptable Program Loan (APL) comprising an IDA Credit for Phase I(APL1) o f three years o f US$30 million and Phase I1(APL2) o f five years where the IDA contribution will be defined at a later stage. Phase I1will be subject to the conditions for Phase Ibeing met (see Annex 3). The new mayoral term begins in 2009 which would allow the new municipal team to demonstrate commitment to continuation o f the Program and prepare the second phase o f the APL. 24. The long term objectives o f the Program are to strengthen the capacity o f the City Council (CMM) to develop, manage and maintain quality service delivery to its citizens. The PDO for Phase Iis to strengthen the CMM's institutional and financial capacity to support achievement o f long term service delivery goals, and to implement selected priority investments. Phase I(three years; US$43 million o f which US$30millioninIDA) will focus on: 0 institutional development andmunicipal governance 0 municipal finance reforms inboth revenues and expenditures 0 low cost, quick win infrastructure and service delivery improvements 0 planningfor Phase I1larger infrastructure and service deliveryinvestments 9  Phase I1(five years, IDA contribution to be defined) will focus on: 0 consolidation o f Phase Iinstitutional and financial reforms by the subsequently elected municipal assembly and mayor 0 investment in infrastructure and service delivery improvements on a larger scale subject to financial viability (especially sustainability) and funds leveraged 0 greater involvement o f non-IDA financing (private sector, AfDB, bilaterals etc.) due to lower risk 25. The scope and cost o f Phase I1will be determined by various analyses, reviews and the census and the availability o f IDA will also be a major factor. The financing strategy for Phase I1o fthe programis to usethe institutional andfinancial foundation laidduringPhase Iwith IDA support to leverage funds fiom other partners and the private sector in order to meet the significant investment that will be required to improve service delivery. The APL will remain the core o f the financing strategy not only by encouraging difficult reforms but also by encouraging other partners to support the C M M going forward. Phase Ishould also provide a better environment to attract other partners since it will already have improved the transparency andperformance o fits fiduciary systems. Basedonthe h d s available andthe census o f2007 in particular (results available only in2008), the scope, objectives and outcome indicators for APL Phase I1will be defined. 2. Programdevelopmentobjective and key indicators 26. The development objective o f the City's 10 year ProMaputo Program i s to "Increase the coverage and quality o f Maputo City's services to its citizens by strengthening the City Council's institutional and financial capacity". The PDO for Phase Io f the APL is "to strengthen the Maputo City Council's institutional and financial capacity to support achievement o f long term service delivery goals, and to implement selected priority investments". The Program recognizes that Maputo City i s starting fiom a position o f extremely limited resources, human and financial, a very weak institutional context where most systems (financial, strategic, urban planning, property registry, information technology, etc.) are lacking and where there i s almost no basic equipment for the functioning o f the C M M itself for the delivery o f services to the citizens. 27. The first phase focuses mostly on restructuring and strengthening o f the capacity o f the CMM, with approximately US$13 million (of which US$11 million is IDA) allocated for institutional development and financial reforms, and approximately US$26 million (of which US$15 million in IDA) for some quick win investments in visible infrastructure rehabilitation and service delivery. These investments will deliver tangible results that will help maintain political credibility to continue and provide incentives to deepen the reforms. They will also demonstrate that with increased resources and capacity, the city can deliver more services, therefore encouraging citizens to pay taxes and fees to initiate a virtuous cycle. 28. By the end o f Phase 11, significant improvements in service delivery will be visible in areas that citizens themselves have identified, such as: solid waste management, street lighting, road rehabilitation and drainage, and cemeteries. A large share o f these investments will take place inthe poorer urbandistricts that are mostly informal settlements with slum characteristics, employing a slightly different focus in each district based on the report card priorities, the poverty assessment done for the program and various economic analyses. Maputo i s the gateway 10  for investors and tourists into Mozambique and therefore some o f the investments will also target the "cement city" to remove bottlenecks to productive investments, inorder to increase the city's competitiveness for foreign and local investors and increase employment opportunities. These areas constitute the principal tax base o fthe city. 29. Progress towards the CMM's goals will be measuredannually through indicators detailed in the Program Results Matrix. The Program's design emphasizes monitoring as an integral function o f the line management, with overall responsibility restingwith the Mayor supported by the Municipality's Office o f Strategic Planning and Institutional Development (GDEI). The governance structures that the mayor has established, such as the mayor's Consultative Council o f high level local business and community leaders as well as the annual Citizens Report Card, willprovide additionalmechanisms for monitoringprogress. 30. Most importantly, the conditions for initiating Phase I1will be measurable indicators that demonstrate whether the institutional and fiscal fundamentals are inplace, and whether they are contributing to some improvements in service delivery in prioritized areas such as solid waste management. Conditions for initiating Phase I1include all three indicators for achievement o f the PDO presented in the Results Framework (Annex 3) and two o f the four Intermediate Outcome Indicators presented inthe same Results Framework. Inyear three o f Phase I, specific outcome indicators for Phase I1will be determined based on the achievements under Phase Iand updated performance targets informedby data provided from the 2007 Census. 3. ProgramDescription 31. Program objectives and activities were selected through a process o f prioritization undertaken by the CMM through dialogue with its major stakeholders, including a number o f multi-stakeholder meetings held at various levels to discuss the issues facing the City. Further research was done to assess the state o f the City and the perceptions o f its citizens which, combined with a practical assessmentby the C M M o f its internal capacity and various economic andtechnical analyses, generated a set o fpriorities. These assessments includedmultiple aspects o f institutional and financial performance along with municipal governance. Targeted beneficiaries are balanced between the private sector and residents o f the poorer neighborhoods inorder to establishthe virtuous circle of service delivery inreturnfor tax and fee revenues, and to make progress towards both growth and poverty reduction objectives. To identify its role in supporting the Program, the World Bank's comparative advantage and the potential for synergy with other donor projects were also carefully considered. The IDA support therefore focuses on Institutional and Financial Reform and complements the GTZ Technical Assistance provided in Solid Waste Management and support for road investments from the Arab Development Bank, JICA and possibly AfDB. Component A: Institutional Develoument and Municipal Governance (US$8million of which US$6.2million in IDA) Sub-component A.1: Institutional Reform and Strengthening 32. The objective o f this subcomponent is to enable CMM processes and structures to effectively face the challenges o f municipal development. It entails six specific objectives: (a) to simplify C M M organization and management which entails restructuring administrative and technical directorates and redefining functional responsibilities linked to new staffing tables for 11  their subordinate units; (b) to implement strategic human resource management which includes workforce restructuring and reforming incentives systems to attract, retain and motivate qualified and well-performing personnel; to mitigate the impact o f HIV/AIDS; (c) to improve the performance o f support systems and service delivery processes through the implementation o f simplified administrative procedures; (d) to decentralize and integrate planning and management o f C M M programs by building capacity o f municipal districts to formulate basic plans, provide essential documents to citizens, and maintain and manage simple infrastructure and the neighborhood environment; (e) to ensure adequate material resources for CMM operations through procurement, allocation, and maintenance o f municipal buildings, vehicles and office equipment. Sub-component A.2: Improved Municipal Governance 33. The objective o f this subcomponent i s to improve C M M transparency and responsiveness by increasing the involvement o f various stakeholders inmunicipal governance. It entails five specific objectives: (a) to increase the transparency of resource management and improve C M M communication with internal and external actors to better respond to community concerns through improved citizen consultation and awareness campaigns; (b) to improve the interaction between the CMM and the Municipal Assembly by training Assembly members and enhancing information flows with the Council; (c) to improve coordination between C M M andother public sector actors by institutionalizing collaborative mechanisms with central government, de- concentrated bodies and agencies, and public utility companies; and (d) to increase the number and effectiveness o f partnerships between C M M and nongovernmental actors by developing and implementing public-private partnerships and improving collaboration with NGOs and civic associations. Component B. Municipal Finance (US$4.7million, all IDA) Sub-component B.1: Improved Revenue Collection 34. The objective o f this sub-component i s to increase municipal revenues by enhancing the capacity o f the municipality to better utilize its own revenue sources. It entails five specific objectives: (a) an intermediate solution to improve the current systems o f billing and collection o f taxes and fees, through the involvement o f a private company to distribute property tax bills; and the increasing participation o f urbandistrict administrations inrevenue related activities; (b) a medium and long term solution to improve the systems o f taxes and fees; design o f a single consolidated database and a new systems for billing, distributing and collecting taxes and fees; (c) to improve the internal management and capacity o f the service-provision units to collect more fees; (d) to improve the capacity o f the municipality to attract additional revenues, including through the revision o f existing tax legislation; and (e) to provide training and equipment to improve the municipal revenue system. Sub-component B.2: Improved Expenditure Management 35. The objective o f this subcomponent i s to ensure that the municipality has an integrated financial management system. To do so, the following five specific objectives will be pursued: (a) to improve the process o fbudgetary planning, inorder to ensure that the different units submit their budgets ina timelyand accurate fashion; (b) to improve the distribution o f financial resources, inorder to ensure that budgets are executed according to the plans; (c) to improve the 12  procurement and asset management systems; (d) to improve the budgetary execution and control systems (including audits o f the municipality's financial statements -including all IDA financed activities); and (e) to provide general support to improve the municipal expenditure system. Component C. Planning and Service Delivew Improvements (US$26.3 million of which US$15.1 million in IDA) Sub-component C.1:Planning and Management of Urban Space 36. This sub-component will provide support to the municipality to improve the efficacy o f the management and the planning o f services through the development o f Spatial and Sector Plans andthe implementation o f a City Information Management System (with spatial mapping). It will provide the municipality with the methodological tools, training, technical assistance and mentoring to undertake strategic, spatial and sector planning. It will also support improvements to the management o f urban space, facilitate the updating o f the existing basic cadastre to be u s e h l for property registration, taxes and other uses, assist in the approval o f infrastructure plans, develop spatial and sector plans, as well as restructure the processes and procedures related to the granting o f land use rights and land ownership, and the implementation o f an information system for these purposes. It entails two specific objectives: (a) to improve the management o f urbanspace; and (b) to improve the design andplanningo f municipal services. Sub-component C.2:Infrastructure and Service Delivery Improvements 37. The objective o f the sub-component i s to increase the availability and quality o f infrastructure and equipment to show tangible improvements in service delivery through appropriate management o f investments. The sub-component will include the following results and associated activities: (a) Rehabilitation o f existing paved and unpaved roads and associated drainage, and establish conditions for future expansion; (b) construction o f a cemetery; (c) increase in public safety through improved street lighting and traffic lighting; and (d) construction o f markets. Sub-component C.3: Solid WasteManagement Services 38. The objective o f the sub-component i s to increase the quality and coverage o f solid waste management services through improvements inthe CMM's Solid Waste Management (SWM) operations as well as through partnerships with the private and non-government sector. 4. Lessonslearnedand reflectedin the project design 39. There have been two urbanprograms inMozambique with World Bank financing to date, PROL (Program for the Reform o f Local Public Administration) (1994 -1999) and the MDP (Municipal Development Project) (2003 - 2007). These projects contributed significantly to the establishment o f the legal framework for local government in Mozambique and to the introduction o f good municipal management practices such as fair, transparent procurement procedures and regular municipal audits. There are numerous lessons to be learned from these projects and others in Mozambique including PDDM (GTZ-financed) and PADEM (Swiss- financed) which focused on smaller municipalities and DPFP (IDA-financed) which focuses on rural districts. Lessons have also been drawn from an emerging body o f practice in World Bank projects for other primate cities inAfrica, includingKampala, Dar es Salaam and Dakar. 13  Political Leadership and Commitment 40. Political leadership and commitment from the mayor and management team i s a necessary precondition for program preparation. Support for a City's program from national government i s also important. Agreedfocus on institutional andjnancial reforms: 41. An agreed focus on institutional and financial reforms as the basis for sustainable cities and improved service delivery, with specific targets and triggers, is necessary before large investments in infrastructure can be absorbed and sustained. Sustainable urban development i s inseparable from local government capacity-building and cannot be achieved simply through investment in urban infrastructure - or by relying on practices introduced for less complex institutional settings (such as social funds and community driven development). Implementation Arrangements 42. The implementation capacity should be within the structure o f the municipality itself and not in a project unit, since this limits internalization o f reforms by the whole municipality and undermines ownership and sustainability. It may therefore require more time to achieve outputs thaninthe case of a project unit, but since the objectives o f the program are mostly to do with institutional development as an intermediate outcome in order to achieve associated service delivery, this more sustainable approach i s required. Balance between institutional and service delivery improvements (over time) 43. Even when it i s clear that the focus needs to be on institutional and financial reform, these can only be undertaken in the context o f political leadership and credibility. As such, the mayor needs to demonstrate improvements in services and greater responsiveness to the citizens o f the city. These "quick wins" are necessary to establish the first step in a virtuous cycle o f citizen payments for service delivery, and thus strengthen the "social contract". Furthermore, these investments must also be balanced between the poor neighborhoods, and the areas where the private sector and wealthier residential areas are located, since this i s the main tax base for the city and services are therefore expected in return, and there i s also a need to reinforce the ability o f the city to attract andretaininvestmentsby local and foreign firms. Separateprogramfor major cities 44. Experience in many countries shows that capital cities need to be treated distinctly from other local authorities due to the complexity o f issues and reforms and the scale and lumpiness o f investments needed. In most African countries, capital cities are many times larger than the secondary city and Maputo i s no exception. Capital cities face problems of urbanization on a uniquescale that requires specific attention, different to that givento other units o fgovernment. 14  5. Alternativesconsideredand reasonsfor rejection 45. The approach o f working directly with the City as implementing agency and focusing on financial and institutional reforms was chosen based on the lessons learned above. Some alternatives were as follows: 46. Include Maputo in a second phase of the Municipal Development Project or Decentralized Planning and Financing Project. This option was rejected based on the experience o f the MDP, where working through an interlocutor ministry proved less effective than working directly with municipalities, where the mayor has much greater ownership and direct responsibility and accountability. Furthermore, including the capital city ina program that dealt with cities o f all sizes, particularly smaller ones that are more like villages, provedto be too broad a scope to achieve results. The capital cities need a separate level o f attention giventhe scale and nature o f their specific challenges, and the institutional complexity associated with these. Combining Maputo into the DPFP was out o f the question since municipalities are decentralized, autonomous governments unlike the districts, which have a completely separate, de-concentrated status. As such there i s no common framework or institutional context inwhich to combine these programs andthe policy and implementation challenges are vastly different. 47. Include more than one large city in the APL. The program does not include additional cities, although this might be revisited for Phase 11, since it was felt that the challenges o f Maputo were so extensive and that resources were not available to work across two cities at once. It was decided that Maputo would be the vanguard for the new approach and that opportunities would be created to utilize Maputo's experience as a learning curve for the other cities. A successful capital city and a successful port city are also demonstrated drivers o f growth, and as such Maputo is a priority for the country's overall development agenda. Maputo province (mostly the City itself) was also the worst performer in terms o f reduction in poverty and a special effort is required to reverse this trend and manage the urbanization and its impact as a matter o f priority to minimize the risk o f an urbanization-without-growthscenario. It i s also important to reduce complexity o fprogram design. 48. APL versus Investment Project. An APL was chosen as the proper instrument given the necessity to focus on institutional and financial reform in the first phase. Without a second phase, however, and the commitment o f the World Bank as a primary partner over the medium term, there would be limited incentive for the difficult reforms to be undertaken during the first phase, and limited scope for investment in improved service delivery on the scale needed to demonstrate pay-offs from the institutional and financial reforms inthe first phase. C. IMPLEMENTATION 1. PartnershipArrangements 49. The first phase of the program will be financed by a credit from IDA for US$30 million, funds from the Central Government (US$6.5 million) and own revenues generated by CMM (US$6.5 million). This financing is intended to catalyze interest from the Recipient's development partners in supporting Maputo City in future. GTZ has assisted the City with critical technical assistance for solid waste management since 2001 and has agreed to continue this support conditional on the IDA credit being inplace to finance muchneededinvestments. 15  50. Maputo has seen limited partner fhding to date, with the exception o f investment in roads by the Arab Development Bank and IDA MDP Grant Fundfinancing through the Ministry o f State Administration. It has also received indirect support to the water sector (NWII) from the Ministry o f Public Works. There have been some other minor investments in specific neighborhoods (bairros) but no comprehensive program focused on city management and service delivery. However, several development partners are beginning to be interested in the City based on its Program and management team as well as expectations o f the IDA credit and its focus on the institutional and financial reforms o f the City. AfDB and JICA have both expressed interest in providing possible future financing for roads and drainage. These investments would be additional to the Program as the Program was designed within a secured financing envelope. It i s important to note that the coordination o fpartners i s a function o f the mayor's office and regular coordination meetings are held. The program i s also in line with the Paris Declaration as its contributions are integrated with the City's annual budget, approved by the Municipal Assembly, and executed by the Municipal Finance Directorate. There i s no Project Implementation Unit and it uses (and improves) the City's own systems to the extent possible rather than establish parallel ones. 51. At the partner level, there is a Municipal Development Working Group inMozambique inwhich the World Bank is anactive member. The Group shares project experiences, discusses policy and coordinates interaction with government at key events such as the Joint Review through the Decentralization Working Group and Governance Pillar. The Working Group i s converging towards a programmatic approach for future partner support for municipal development while maintaining a strong direct link with municipalities themselves. The experiences o f various partner-funding projects to date, the ProMaputo approach being taken by Maputo, and the various policy and institutional changes in the municipal development landscape need to be carefblly analyzed and lessons and implications drawn. As such, the Group intends to work closely with the Government and the Municipal Association (ANAMM) to undertake analytical work in 2007 that could lay the groundwork for an eventual sector-wide approach. 2. Institutionaland Implementationarrangements 52. The credit will finance activities to be carried out by the City Council o f Maputo (CMM) as the implementing agency for the Program. IDA will enter into: (i)Financing Agreement a with the Republic o f Mozambique for which the representative is the Ministryo f Planning and Development; and (ii)Project Agreement with the CMM, as Program implementingagency. a 53. Preparation has been led by the CMM Secretariat, made up o f five executive councilors and the Advisor to the Mayor. Program coordination and monitoring functions will be taken over by the CMM's Office o f Strategic and Institutional Development (GDEI) that i s being established in the first set o f institutional reforms (by effectiveness) based on the CMM Restructuring Plan as approved by the Municipal Assembly on October 25, 2006. GDEI will report directly to the President and the Council will be responsible for overall coordination o f ProMaputo as well as liaison with line departments who will manage and implement specific program activities. The GDEI will include CMM technical staff, contracted advisors and consultants, some o f whom are already inplace and others that will be recruited by effectiveness. GDEIwill be supported by an Implementation Coordination Team (ICT) comprised o f selected Executive Councilors to ensure both operational integration with line structures and strategic 16  integration o f Program activities with municipal policies and priorities. Given the capacity constraints o f the municipality, a number o f long term advisors to the mayor and the council are envisaged for the duration o f the first phase: some will support the GDEI while others will strengthen the Municipal Finance Directorate (DMF) until new systems and adequate capacities for financial management and procurement are established. Other technical advisors, short term technical assistance, and consultancies will be contracted as necessary to support specific program activities and provide technical services to the Council. (Annex 19 provides further details on the Programs' Capacity BuildingStrategy). 54. Financial management will be undertaken by the Municipality's own Finance Department, which will gradually introduce an integrated financial management system. The procurement function will similarly be performed by a Procurement Department within the Finance Directorate staffed by municipal personnel supported initially by contracted procurement specialists. As such, no dedicated program management structures will be created. Rather, the GDEI and DMF will integrate municipal management and ProMaputo management within the same structures and routines. Separate procedures will only be required for establishment and replenishment o f the Special Account. Reporting will be done on the C M M budget as a whole and ProMaputo audits will be included within the annual audits o f the municipality's budget and accounts by external auditors. 55. The ProMaputo design specifies which organizational units will be responsible for the coordination and implementation o f the activities foreseen in the work plan. Each component and subcomponent has a designated coordinator, just as each activity has a designated implementer/implementation manager. The Institutional Development and Municipal Governance Component (A) will be coordinated by the Office o f Strategic and Institutional Development (GDEI), the Municipal Finance Component (B) will be coordinated by the Municipal Directorate o f Finance (DMF), and the Planning, Infrastructure Rehabilitation and Service Delivery Improvement Component (C) will be coordinated by the Directorate o f Infrastructure. 56. Municipal Governance - include a full restructuring o f the city council in order to put into place The institutional reforms envisaged under Component A - InstitutionalDevelopment and an organization capable not only o f managing ProMaputo but o f integrating ProMaputo activities and approach into the Municipality's own structures, systems and processes for governance and service provision. Staff strengthening through both recruitment and training is therefore a core subcomponent o f the program and a key to the sustainability o f municipal development in Maputo when technical assistance i s reduced at the end o f Phase I;thus capacity building will demand a large amount o f the effort during the first phase. As such, the service delivery ambitions for Phase Ineed to be modest. 57. The Municipality is divided into seven Municipal Districts. Part o f the Phase Ieffort will also be devoted to define a new role for these Urban Districts, drawing on a slum upgrading pilot that was funded by Cities Alliance, and in others a deconcentration approach that will give the Districts additional responsibilities and resources. Inall districts, some very basic functions will be deconcentrated (street cleaning, lightingmaintenance etc.) inorder to improve efficiency and accountability as well as build capacity at these levels for more effective collaboration between citizens and their local authorities. An evaluation will be made o f these experiences during the program and lessons learned incorporated into Phase 11, including possibly a larger, more decentralizedrole for the Municipal Districts. 17  3. Monitoring and Evaluation of outcomes/results 58. The City Council will be responsible for the monitoring and evaluation o f its program. The GDEIwill have direct responsibility to ensure the programresults matrix i s being monitored and overall accountability for this function will be undertaken by the mayor himself. The line managers o f each department will be responsible for the collection o f monitoring data relevant for their area and to report these to the GDEI through its respective component coordinator. Regular evaluations o f municipal performance such as the Report Card will be conducted by independent consultants contracted by the City. The results o f Program monitoring and evaluation will be published along with the municipal budget as part o f the C M M communication strategy, and will be presented to the Stakeholders' Forums and the Municipality's Consultative Council. A full review o f Programperformance will be done inyear three o f the Program. 59. Baseline indicators are being collected through activities financed under the PPF. Capacity to collect monitoring data will be strengthened within the C M M itself, while independent consultants will be responsible for evaluation instruments. Costs o f M&E will be covered under the credit. Program indicators are designed to enable better decision making by CMM managers as well as to permit adjustments inProgram work plans duringimplementation. As the city establishes a sound financial management system, it will also be able to move towards activity based budgeting and thereby gather information that will enhance decision making on cost-effectiveness across its range o f investments and services. 60. Specified ProMaputo outcomes have been chosen on the basis that they (i) achievable are within the first phase; and (ii) they provide an objective, quantifiable basis for assessing that performance o f the key elements o f the three components. 4. Sustainability 61. The development objective o f the program i s the improved delivery o f services in a sustainable manner, based on an institution that is increasingly capable o f acting autonomously the program by the leadership o f the municipality - the mayor, the CMM, and their staff - have through its own financial and organizational capacity. The commitment to, and ownership of, been demonstrated during formulation o f ProMaputo. There i s also considerable support from the central government, and in particular the Ministry o f Finance, Ministry o f Planning and Development and Ministry o f State Administration. The agreed importance o f program implementation via CMM's own systems rather than by any project-specific structures, along with the significant level o f effort dedicated to capacity buildingthrough organizational reform and staff strengthening, will contribute significantly to the sustainability of processes initiated under ProMaputo. The priority given to increasing municipal revenues, evidenced by the key APLtrigger, further indicates that financial sustainability andincreasedautonomy o fthe city is a key concern o fthe program. Together these factors - the commitment o fthe central government, the mayor and his executive, municipal leaders, mainstreamed management, a focus on capacity building,and an emphasis on revenue enhancement - reflect the priority givento sustainability in the ProMaputo design. 18  5. Critical Risks and possible controversial aspects Potential Risks Risk Mitigation/Minimization Measures Phase 12007-2009 To Project Development Obiective Political commitment to Program Active involvement by leadership and key officials already i s not sustained, at national or local demonstrated and commitment to ongoing engagement from Municipal M / S level. Various laws governing Assembly andNational Government. municipal autonomy (particularly Broad-based buy-inby municipal stakeholders will help sustain political financial) are revised in a manner c o m t m e n t . prejudicial to the program. Program to be included in next CAS, thus affirmed by national government. City and Municipal Association actively involved inadvocacy regarding revisions to laws and regulations. Lack o f support from citizens, Initial involvement i s already high in early stages of program private sector, and NGOs, preparation. particularly for revenue raising Effective stakeholder participation indeveloping the rest o f the Program M activities. and its implementation, including greater participation insub-municipal governance. Consultative Citizens' Report Cards are bemg undertaken and should gamer increased engagement and support from citizens, the private sector andNGOs. "Quick Wins" investmentsor actions visible to citizens. Public Awareness Programs to explain any tax or fee increases. Ongoing commitment from Mayor and Assembly members (demonstrated already through passage o f increased rates for SWM). Implementation o fMunicipal Anti-Comption Strategy. Ineffective implementation o f institutional strategy - lack o f Secretariat established to lead preparation and implementation, and consists o f highlevel officials. SA4 effective systems andor HR Restructuring Plan approved by Municipal Assembly inOctober 2006. capacity. Support and commitment from Ministry o f State Administrabon and Ministryof Finance to undertake necessary HR reforms within existing legal framework. Commitment from mayor already demonstrated 111 removing non- performing staff and recruiting new highcapacity staff. Specific targets and measurable indicators o f systemic improvement in institutional and financial areas. Emphasis on capacity building investments for C M M line units, including contractingo fnew qualified techcal personnel. HIViAIDS pandemic limits City's Strategy for institutional reform will include an HIV/AIDS C M M M human resources and revenue base, working place policy and three-year plan, with funding and technical while creating increased demands support for implementationto come from National Aids Council. and burdens. 19  Lack o f qualified staff in the Procurement Department to be established within Finance Directorate M procurement department and no and staffed with permanent municipal personnel. prior experience with Bank A Procurement Specialist with qualifications and experience acceptable procedures. to the Bank recruited and should be responsible for training the procurement staff o f the Municipality. Establish a flow o f documentation and conditionality for prior to payment certification o f invoices and templates for contract execution monitoring byprocurement. A Procurement Manualproduced, acceptable to the Bank. Ineffective implementation o f the 0 International advisors are being pared with local team, including new S improved financial management recruits, inrevenue and expenditure areas for 2 years. systems and revenue collection Financial Management Manual has been prepared with mechanisms. recommendations for process changes to be done d m g program. Conditions for APL 2 include an integrated financial management system inplace and functioning. Overall RiskRating Modest to Substantial (H)High(S) Substantial(M)Modest (N)Negligible 62. The programrisk overall i s rated as modest to substantial given the lack o f comprehensive integrated (non-project-specific) financial and procurement systems in the municipality and the limited human resources capacity to date. These are a result o f the recent establishment o f municipalities in Mozambique and the objective o f the program i s principally to reduce these risksby focusing onthese aspects as the core o fPhase Io fthe APL. Possible Controversial Aspects. Public Private Partnerships 63. The contracting out o f services in the City o f Maputo could be politically difficult as the Municipal Assembly has shown some reluctance inthis area based on previous bad experiences but the Assembly also recently approved the Solid Waste Management rate increase and associated strategy that includes private contractors. As such, if rate or tariff increases and private sector involvement can be shown to significantly improve service delivery, this resistance i s likely to lessen. A new PPP framework and unit has been set up and a second phase i s under way to train the staff and pilot small PPPs (e.g. public parks and gardens and bus stopskiosks) duringPhase Io fthe APL. Tax andfees rate changes 64. It is normal that any increases intax rates and fees will be contested. Property tax rates and coverage in Maputo are extremely low relative to other countries and property value reassessmentswill result inhigher tax obligations. Most opposition i s likely to be encounteredin the "Cement City", where the most valuable properties are located and where elite citizens have a louder voice. This will need to be mitigated by political leadership, citizen consultation, awareness campaigns (already under way) and improvement in services. Exemptions or other mitigation measures for low income households will be made to ensure there i s no adverse impact on the poorest segments o f the city's population. 20  6. Credit EffectivenessConditionsand Covenants Effectiveness Conditions The CMM will have established an adequate financial management system capable o f producing Financial Monitoring Reports in form and substance satisfactory to the Association to ensure proper accounting and monitoringo fprogram fimds. The CMM will have adopted: (i) financial management manual; (ii) procurement a a manual; and (iii) a Project implementation manual, all in form and substance satisfactory to the Association. The CMM's 2005 audited financial statements will have been submitted in a manner satisfactory to the Association. The CMM will have issued a request for proposals for selection o f independent auditors for the audit o f its 2006 financial statements, in form and substance satisfactory to the Association. The CMM will have established the office o f strategic and institutional development and appointed its head. The CMM will have hired the institutional development advisor, with terms o f reference satisfactory to the Association The CMM will have established a procurement department duly staffed by a qualified department head supported by a senior procurement specialist and a procurement officer with terms o freference satisfactory to the Association. C M Mwill have executed a Subsidiary Agreement with the Recipient. Covenants 0 By no later than 1 September, 2007, the CMM will prepare and submit to the Association, in form and substance satisfactory to the Association, a strategy (including relevant hiring criteria and modalities) to retain qualified and trained staff contracted to enhance its capacity. The CMM will implement this strategy by absorbing within its workforce the qualified and experienced staff, at the end o f the initial two years o f each staff contract. 0 By 1 September, 2007, the CMM will enter into an agreement with the Electricidude de Mogmzbique (EDM) for the purposes o f collectingthe solid waste fee under Component c3. 0 No later than 1September, 2009, prepare and agree with the Association, suitable bidding documents (including qualification criteria) for the competitive selection and employment o f contractors to carry out Components C.2 and C.3 o f the Project, and thereafter apply the agreed selection procedures. D. APPRAISAL SUMMARY 1. EconomicAnalysis(see annex9) 65. The program consists o f three components: (A) institutional, (B) financial and (C) small- scale capital investments. Only components B and C are subject to an economic and financial analysis. For the base case, the overall Net Present Value (NPV) o f components B and C i s US$39.7 million and its Economic Rate o f Return (ERR) i s 61 percent. An increase o f 25 21  percent intotal costs and a reduction o f 25 percent intotal benefits results in a NPV o f US$11.3 million and an ERR o f 23 percent. These results show that overall the program has a robust return on investment. The summaryo f the results o f the sub-components i s presentedbelow, and expanded in annex 9. The analysis was done on the basis o f pre-appraisal budget figures although these do not vary substantially from the final budget. ComponentA: InstitutionalDevelopmentandMunicipalGovernance 66. This component lays the necessary conditions for realizing the benefits from the investment in the other two components. This component addresses a number o f constraints related to institutional reforms, capacity building and improvements in municipal governance. This component will generate benefits arising from improvements in the execution o f the program and these will be captured inthe other two components. ComponentB: MunicipalFinance 67. See financial analysis below. Component C: Planningand ServiceDeliveryImprovements 68. Sub-component C.l: Planning and Management of Urban Space. It is difficult to quantify the benefits o f this subcomponent. However, benefits are expected to arise over a long period o f time as a result o f improvements in the management o f urban spaces. Such improvement will mostly come from reforms in the distribution o f land use rights and land ownership as well as improved investment decisions for infrastructure and its management, and through the adoption o f an information system to expedite these processes. Sub-component (2.2: Infrastructureand ServiceDeliveryImprovements a) Roads and associateddrainage 69. Most o f these benefits will come from savings inVehicle Operating Cost (VOC) and also from the generation and diversification o f traffic. There are additional potential benefits that are not included in this analysis such as: savings in travel time; additional income coming from rental properties that would have improved access; and savings from the prevention o f damages in roads, properties and structures, due to improvement in drainage. Sensitivity analysis was carried out by (a) increasing the investment by 25 percent; (b) decreasing the benefits by 25 percent; and (c) combining both (a) and (b). For the road investment as a whole the base case has an ERR o f 106 percent and a NPV o f US$38.6 million. The worst case scenario (c) has an ERR o f 65 percent and a NPV o f US$28.6 million. These results show that overall the program has a robust return on investment. b) Construction of a cemetery 70. The basis o f evaluation o f this intervention i s cost-effectiveness and reasonable cost recovery. CMM has plans to reduce the subsidy which i s about US$1 per burial to a minimum through partnership with the private sector. However, even if costs cannot be recovered in the near future such an investment i s socially justified on humanitarian grounds. There is a social 22  obligation o f the state to provide basic cemetery services to its population and the current exhumation rate and its negative cultural impact i s serious. c) Improvementin street lighting 71, The objective o f this activity i s to meet ina cost-effective way the concerns o f citizens to enhance public safety through an increase in street lighting. The investment in this area i s not too high and its associated benefits measured as savings in crime are difficult to quantify. However, in addition to any savings arising from crime reduction, this investment may have associated benefits from an extension inthe provision o f electricity and waste collection services. This investment is planningto provide 500 electric poles at a distance o f 40 meters apart along the urban streets. This creates potential for residential access o f electric services to about 2,000 households. Expanding the electricity network would help CMM to charge US$0.6 per household inwaste collectionfees. Sub-component C.3: Solid Waste Management 72. This subcomponent is designed to increase the quality and coverage o f solid waste management both through internal improvements in the CMM's solid waste management operations, as well as in partnership with the private and non-government sectors. Currently CMM collects less than 253 todday or 30 percent o f the solid waste generated daily. The revenue generated from the current residential fee covers less than 30 percent and the total revenue from all fees covers less than 50 percent o f total recurrent costs excluding salaries. Affordability relative to the fee i s low at 29 percent. C M M i s committed to adopt a sustainable waste management scheme that is designed to achieve full cost recovery by 2016. CMM also is renegotiating the collection commission that EDM charges. Assuming the new fee increases for residential waste collection (approved subsequent to this analysis) are implemented on schedule (0.15 MTdkWhper household for 2007, 0.20 MTdkWh for 2009 and 0.25 MTdkWhby 2013) and that C M M succeeds in lowering EDM commission charges, the solid waste management operation can achieve fbll cost recovery by the end o f APL2 (2016). The net present value o f the cash flow at a discount rate o f 12 percent i s positive US$0.65 million; and the internal rate o f return i s 20 percent. Both the NPV and IRR are sensitive to variations in residential waste collection fees and EDM service charges. The sustainability o f the waste management system therefore rests on the timely execution o f the scheme as planned. 2. Financial Analysis (see annex 9) 73. A financial analysis was prepared for component B o f the program that deals with local revenues and expenditures. The analysis made revenue and cost projections "with" and "without" the program intervention. The financial analysis calculated the net revenues during the first phase o f the program and its payback period. All the performedcalculations support the financial viability o f the investment incomponent B. 74. Net revenues were calculated under a number o f scenarios and the analysis found that by the second year o f the program (2008) net revenues are positive under all scenarios. It is calculated that the expected net revenue gain o f the program may vary from US$700,000 to US$2.2 million depending on the scenario. The calculations for the payback period estimated that in the first two years o f the program, costs go beyond the projected revenues. By the third year revenues become higher than the costs, and they stay this way in subsequent years. Inthe 23  first phase o f the program the additional revenues generated by the programwill finance between 67% and 85% o f the total investment o f the public finance component. However, it i s expected that by 2010, one year after the first phase of the program, the City o f Maputo will be generating more additional revenues than the total cost o f the investment. 3. TechnicalAnalysis: ComponentC Planningand Service Delivery - Improvements 75. Inthe last 30 years, andmore strongly duringthe long civil war period, Maputo suffered the impact o f an intense rural exodus. The city population growth multiplied by five the occupation rate o f outlying areas vulnerable to flood or erosion, and even inner city streets or squares located in already urbanized neighborhoods were quickly occupied without any possibility o f urbanspace management. Subcomponent C1 Planningand Managementof Urban Space - 76. The currently available information about Maputo urbanplanningi s limited and incomplete; therefore, subcomponent C1proposals are consistent with the development o f modem urbanplanningthat takes advantage o f the inputs from previous projects financed by the World Bank (PROL, MDP, etc) inorder to resume the activities at a more intense pace. 77. The subcomponent i s intended to finance a range o f activities aimed at supporting the Maputo City Council in strengthening its planning and management. The proposals submitted follow the rational sequence foreseen in the various prior studies and proposals to improve Maputo's urban space management. Subcomponent C2 Infrastructureand Service DeliveryImprovements - 78. Several technical studies from the early 1990shave indicated that due to lack o f periodic maintenance nearly all urban-infrastructure i s severely degraded. The studies show that the rehabilitation o f such infrastructure should be prioritized among all investments. Recently, by applying some funds from both the IDA-supported roads project and MDP, C M M completed a series o f interventions prioritizing the rehabilitation o f the sewage system and asphalt paving on several streets and avenues inthe downtown area and inurbanneighborhoods. 79. These investments have not only rehabilitated a significant part o f the roads system, but also allowed the municipal technicians to learn by doing in the areas o f procurement, management o f fimds from international agencies, and also acquiring the technical know-how for execution and supervision o f works. 80. This subcomponent will include financing for construction o f works, and consultancies, to prepare detailed designs, supervise works, and design a process to ensure the maintenance o f these investments, particularly inroads and drainage. A number o f roads are being rehabilitated based on various economic and social criteria, including some in the urban core and a major rehabilitation o f Avenue Sebastiao Mabote, aimed at connecting poorer suburban areas to the industrial and commercial center in order to maximize employment opportunities and reduce transport costs and pedestrian accidents. New roads use paving technology that is lower cost over their lifetime while rehabilitated roads will still use bitumen for cost-effectiveness reasons. 24  81. Regarding the short-term deterioration o f infrastructure, the C M M will contract a consultancy to design a maintenance strategy/plan and it will allocate its own source revenues to finance the current expenditure budget, as shown by the target and monitoring indicators set up in the results matrix. It is therefore expected that Phase Iwould make considerable progress towards improving the historical backlog o f non-maintained investments. Finally, the investments in public lighting, although small, are necessary from a social standpoint to reduce crime and improve livability insuburban andpoor areas. 82. The results o f the 2005 Report Card show that funeral services are a priority for citizens. With the purpose o f solving, at least in the short term, the critical lack o f funeral services, the Municipality requested resources for the construction o f a new cemetery. The proposal to finance the construction o f a cemetery not only responds to the immediate and urgent needs o f the population; the investments are also technically sound and meet environmental standards. The construction o f a new cemetery, although not a long term solution to the problem, will reduce the number o f exhumations to a more acceptable levelinthe short term. Sub-component C3 -SolidWaste Management 83. This component builds on the results o f the 2005 Citizen Report Card as well as other relevant technical studies. The collection of solid waste i s a principle priority for citizens, which has long been the subject o f discussion among the members o f the Assembly and the CMM. 84. C M M studies show that the poor delivery o f solid waste services i s due to a number o f aspects that cannot be solved in isolation, ranging from the use o f aged and obsolete equipment without appropriate maintenance conditions, to equipment poorly operated by unskilled employees. With the purpose o f significantly improving the solid waste collection and disposal system the Municipality requestedresources to improve SWM. 85. After many years o f frustrated attempts to directly operate the S W M collection and waste disposal system, as well as a failed attempt at contracting in a private company, the C M M has now decided to follow a more comprehensive plandesigned with the technical assistance o fGTZ and to transfer nearly all public service operation for S W M to the private sector. The private operation of S W M i s one o f the most widely used public service models in the world, as it i s a model that can work well provided there i s good contract management in the city and a competitive private sector supply response. The proposals to finance the contracting o f S W M collection services not only respond to the immediate and urgent needs o f the population; the investments are also technically sound. The privately operated S W M collection services will be provided in compliance with the international quality standards and will be closely monitored through performance-based contracts. 4. Fiduciary FinancialManagement (see Annex 7) 86. The program will make use o f the institutional framework o f the Maputo Municipal Council (CMM), as well as arrangements in place for procurement and financial management. The program will be embedded in the CMM's operations, to be implemented by the relevant departments o f the CMM. The finance department will support additional supervision and 25  guidance activities, including clear guidelines and definition o f roles o f the department, its staff andrelationships to other unitso fthe CMM. 87. The CMM i s a continuing entity with an existence independent o f the implementation of the program to be financed by the IDA credit. Therefore, the annual financial statements IDA requires will be for the entity as a whole, and not just for the program. Inthis regard, the C M M will submit a hll set o f financial statements (balance sheet, income statement, etc.), with additional disclosure (for example, by way o f note or supporting schedule or statement) o f sufficient information on sources anduses o f funds associated with the IDA-financed activities. 88. The auditor's report will be submitted to the Bank no later than six months after the end o f each fiscal year together with a management letter, highlightingany identified internal control weaknesses, which will contribute to the strengthening o f the control environment. The annual financial statements will be required to be prepared in accordance with the "Financial Management Practices in World Bank-Financed Investment Operations (November 3, 2005)". Acceptable accounting standards are: (a) International Financial Reporting Standards and International Accounting Standards (IFRS/IAS) issued by the International Accounting Standards Board (IASB); or (b) InternationalPublic Sector Accounting Standards (PSAS), issued by the Public Sector Committee o f the International Federation o f Accountants (IFAC-PSC). A broad outline o f the expected contents o f the annual financial statements has already been agreed upon and confirmed duringnegotiations. 89. The Bank has assessed the financial management and accounting systems o f the CMM. The risk rating for the program inthe area o f financial management i s substantial, reflecting the general weak control environment within the CMM. As a core component o f the program, therefore, capacity i s being strengthened to address identified weaknesses and provide the necessary expertise. Mitigating factors to address identified risks include strengthening existing structures not only during the program implementation, but well beyond. The proposed Finance component under the program aims at improving the accounting practices, as well as addressing the long term staffing and other resource requirements o f CMM. 90. The conclusion i s that the accounting and financial management systems o f the municipality need to be upgraded to comply with the minimum requirements. These currently comprise o f separate and non-integrated accounting and manualprocesses, including widespread use o f spreadsheets. A number o f initiatives are already in progress, including a draft financial procedures manual documenting financial procedures and internal controls to help staff in the execution o f their duties. Additional staff i s also being recruited in the finance department. In the meantime, an action plan has been agreed with the client to ensure that acceptable financial management arrangements are put inplace inreadiness for implementation. See Annex 7. Procurement(see Annex 8) 91. Procurement activities under the program will be carried out by the Procurement Department (Departamento de Aquisip3es) within the Municipal Directorate o f Finance. The Procurement Department i s vested with the overall responsibility for procurement activities within the Municipality, including those activities financed by other BiMultilateral Donors as well as the Municipality's own h d s . The Department will receive specialized support from the beneficiary DepartmentsDirectorates in the preparation o f technical specifications and or terms o freference as well as incontract supervision. 26  92. The Department will be staffed with a head o f Department, reporting to the Municipal Director o f Finance, and at least three full time procurement officers ledby a Senior Procurement Specialist with qualifications and experience with procurement procedures from Multihilateral Development Banks including the World Bank. Some o f the procurement officers are currently involved inthe procurement activities financed by the on-going Municipal Development Project. 93. Under the decentralized structure o f the Municipality it i s likely that minor procurement activities funded by the Program will also be procured at the level o f Municipal Directorates and Municipal Districts. The overall responsibility for supervision and oversight o f the decentralized procurement will rest with the Procurement Department. The procedures to be used by the decentralized unitswill be laid out inthe OperationsProcurement Manual. 94. The key issues and risks concerning procurement for implementation o f the programhave been identified and include no prior experience in large technical assistance contracts, needed improvement o f filing and record keeping systems, increased work load and adoption o f proper incentives by the Municipality to motivate staff. 95. The staff will require that adequate capacity building and more acquaintance with Multilateral Development Banks (MDB) procedures be provided before and through effectiveness o f the program and subsequently on an intermittent basis to monitor and provide on the job support. To ensure that adequate skills will be provided to permanent municipal procurement staff, a Senior Procurement Specialist and a procurement officer will be recruited under TOR satisfactory to IDA, before program effectiveness. 5. Social Political context 96. The elected Municipal Presidente (mayor) appoints members o f the executive branch o f the municipal government. Named Vereadores, these 16 members o f the CMM are the President's executive councilors and are divided in two groups made up equally o f appointed staff and from elected councilors, the latter being those in charge o f the seven administrative temtories named Distritos Municipais (municipal districts). Below this structure are local structures representing neighborhoods at political, territorial or administrative level. These include, in order o f importance vis-a-vis their relation with the CMM: Secrethios de Bairros, Chefes de Quarteirces, Chefes de 10 Familias. The Muncipal Assembly has approved a CMM proposal to formalize these structures inorder to reduce any ambiguities intheir relationships. 97. The legislative branch i s made o f a Municipal Assembly that has the mandate to pass local legislation. The assembly has a President, appointed by the majority party. There are currently three politicalparties represented inthe Assernbleia:Frelimo (majority), Renamo Uniio Eleitoral (RUE) (the largest opposition party) and Joint Program Committee (JPC) (a citizens' movement). The legal and judicial branch includes the municipal police. There are currently some grey zones o f authority between municipal and national police (particularly in respect o f zoning issues, tax collection, justice) that require greater clarity or coordination. 27  Stakeholder Participation 98. The current CMM has consistently used different forms o f inclusion in governing the city. Among the most significant are: Municipal Assembly sessions are formally open to the public. Open Presidency. Twice a year, the President and his Executive (especially Vereadores) organize thematic open discussions with the population on the issues o f interest for them. These meetings serve different purpose, among them as a tool used by the C M M to pass information about rights and obligations o f the population; it has also been used as an instrument for the CMMto assess the people's perception and their actual performance inthe field. Public Accountability Meetings for Vereadores. At least once a year the members o f the executive meet with the populationto report on their activities. The "Provedor" is the "municipal ear" of the population inthe C M M and when well usedcan help bridge the distance between the authorities and the population. He reports to the Mayor once a week. The Consultative Citizen's Report Card. This is a very effective tool that helps the Council assess its own performance in a more systematized and scientific manner which has been employed since 2005. The C M M Budget is a public document and the annual "Conta de Gergncia" is sent to the Administrative Court that publishes it. The Mayor reports to the Municipal Assembly, quarterly, and these sessions are open to the public. HIV/AIDS strategy 99. HIV/AIDS poses a significant risk to the C M M human resources and therefore to its service delivery and revenue raising efforts. The Mayor and C M M have the political commitment to address the HIV/AIDS pandemic institutionally but need to establish internal structures and processes that will enable the implementation o f the CMM HIV/AIDS workplace policy and plans. CMM will temporarily be supported by technical assistance that will facilitate the implementation o f the policy and plans and strengthen the institutional capacity of the structures to be established. In addition, it is also expected that the C M M will receive the necessary financial resources to implement its plans from the National HIV/AIDS Council, which has expressed its willingness to provide this support. 100. Buildingon the work that the C M M has initiated to address the issue o f HIV/AIDS at the municipal level, and given the importance o f creating a strong response plan that will address HIV/AIDS internally, a working group was formed during preparation whose primary objective i s precisely to develop the working place policy and three year implementation plan that will be submitted to the National AIDS Council for funding. (See Annex 17) Social Safeguards 101. Under sub component C2: Infrastructure Rehabilitation and Service Delivery Improvements, the objective o f the sub component is to increase the availability and the quality o f infrastructure and equipment to improve service delivery through an adequate management o f investments to show tangible improvements. The associated activities are (a) Rehabilitation o f existing paved and unpaved roads and associated drainage, and establishment o f conditions for 28  future expansion; (b) increase the quality and coverage o f solid waste management services through improvements in the CMM's internal S W M operations as well as partnerships with the private and non-governmental sector; (c) improve the quality of cemeteries provided by municipalities; and (d) increase public safety through increased street lighting. These activities will have positive social impacts as a result o f the planned improvements and all o f the actions will yield positive social benefits. However, it is envisagedthat some o fthe activities mayresult intriggering the World Bank's safeguard policy OPBP 4.12, Involuntary Resettlement and as such, the Borrower has prepared a Resettlement Policy Framework to ensure that should there be loss o f economic activity, landtake and/ or acquisition due to any o f the above activities, a well costed Resettlement Action Plan (RAP) will be prepared by effectiveness and appropriately implemented. 6. Environment 102. Environmental impacts are likely to arise from the proposed activities albeit insignificant as the negative environmental impacts are construction related and short-lived. To protect people and the biophysical environment from the negative impacts and minimize their potential damage to the environment, the programhas prepared an Environmental and Social Management Framework (ESMF) which outlines the institutional arrangements and related environmental training needs for the implementation and monitoring o f the mitigation measures. The ESMF provides environmental guidelines and a screening mechanism for contractors and qualified members o f the Municipality to ensure that construction and subsequent operation and maintenance o f the infrastructure are carried out in an environmentally and socially sustainable manner. Under component C2, the ESMF draws on the experience gained during the implementation o f the Environmental Management Plano f the Municipal Development Project. To consolidate the environmental management achievements of the Municipal Development Project, the programwill involve the National Environment Agency (MICOA) at all stages o fthe program all through implementation. A memorandum o f understanding will be signed between the Municipality o f Maputo and the MICOA to collaborate and to assist in enhancing the institutional and human resources capacity o f the Municipality o f Maputo for environmental management. As the second phase o f the program will involve much more infrastructure development activities, it i s envisaged that the ESMF and the RPF will need to be revisited and updated where necessary. 7. Safeguardpolicies 103. The program has triggered safeguard policies OP 4.01 Environmental Assessment and OP4.12 Involuntary Resettlement. The safeguard screening category is S2 and the environmental screening category i s B. These rating are due to the proposed infrastructure activities as well as the site identification and establishment o f cemeteries. Potential safeguard related issues are likely to be air pollution, noise, loss o f vegetation, soil erosion and on the social side loss o f economic activity may occur. In the case o f the proposed cemeteries, a feasibility study is being camed out to select the most appropriate and environmentally and social acceptable site(s). Cemetery sites that were considered before carrying out the technical , environmental and social due diligence resulted in their abandonment as it was discovered that the ground water table was too close to the surface and therefore impossible to use as burial grounds. The Bank and Borrower have agreed that should the technical studies result in land take, loss o f economic activities whether temporarily or permanently or to relocation, a Resettlement Action Plan will be prepared and disclosed in country and at the InfoShop prior to 29  Project Effectiveness. Likewise, after the completion o f the design o f a five kilometer stretch o f road under Component C2 i s complete and the design indicates that the Bank's OP on involuntary resettlement will be triggered, the requisite actions (design and disclosure o f abbreviated RAP) will be taken prior to program effectiveness. Safeguard PoliciesTriggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [XI Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revised as OP 4.11) [ ] [XI Involuntary Resettlement (OPBP 4.12) [XI [I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety o f Dams(OP/BP 4.37) [I [XI Projects inDisputedAreas (OP/BP/GP 7.60)' [I [XI Projects on International Waterways (OP/BP/GP 7.50) [I [XI 8. PolicyExceptionsand Readiness 104. The Program does not require any exceptions from Bank policies; 0 The ESMF and RPFwere disclosed on October 21 in-country and October 24 inInfoshop. 0 The results matrix has been completed andbaseline data collected. 0 Procurement documents for the first year's activities are complete and ready for the start o f program implementation. The engineering design documents for the first year's activities are complete and ready for the start o f programimplementation. 0 Program Implementation Plan has been appraised and has been found to be realistic and o f satisfactory quality. 30  Annex 1: Countryand Sector or ProgramBackground Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram 1. By 2004 Mozambique's populationwas estimated at 19.4 million o f which 30 percent is urbanized. Maputo, the capital city and single largest population center, will grow from 1.3 to 1.7 million people by 2010, given the high growth rate o f the city. By 2010, the city will be more than twice the size o f Beira, the second largest city in the country. Approximately 70 percent o f Maputo City's residents live in informal settlements, reflecting a national trend, and 54 percent live below the poverty line. Maputo is the nucleus o f the country's economic, political and administrative activities. Legal and Policy Framework 2. Urban planning has been on the national agenda since 1982 when the first National Meeting o f Urban Planning discussed the many problems faced by Mozambican cities. A key decision from that meeting was that "structure plans" for each city should be prepared. However, the civil war and a generalized economic crisis that characterized the country throughout the 1980s up to the mid-1990s led to a shift in investment from urban to rural areas. At the same time there was a rapid increase in the urban population from new migrants fleeing the war, overwhelmingthe already poor and nascent planningframework. After the peace agreement, the government passed the new Land Law in 1997 which kept state ownership but granted effectively transferable usufruct rights, and the Municipal Legislation package (Pacote Autcirquico) which established 33 urban local governments with limited but autonomous powers and democratically elected mayors and assemblies. In accordance with this legislation, municipalities are responsible for solid waste management, basic sanitation, environment, urbanization, land use, housing and construction licensing, etc. Some o f these services are provided in conjunction with other state bodies and there i s some uncertainty regarding responsibilities ina number o f areas. 3. Under the municipal legislation municipalities take on many hnctions that should be increased as their capacities and financial base grow. Yet all 33 municipalities remain extremely weak in terms o f human and financial resources. Municipalities are also constrained by a centralized culture with skills set unfit for decentralized management and service delivery, and are highlydependent on the 1percent o f the national budget providedby the state. Economic Simificance o f Maputo 4. Maputo i s the gateway for investors, tourists and migrants from rural areas and surrounding countries and plays an important role in the overall economy. Maputo contributes over 40 percent o f the national Gross Domestic Product. Despite its economic contribution, the city displays severe socio-economic characteristics that need to be addressed if the city is to strengthen its economic position and boost economic growth in Mozambique. The combination o f a high number o f Maputo residents who live in informal settlements (approx. 70 percent), most o f whom belong within the 53.6 percent that are classified as living below the poverty line, and a noted lack o f investment inurbanareas for manyyears has led to increasing inequality and the reduced quality and quantity o f service delivery, notably in the maintenance o f existing infrastructure. The situation seriously impedes the interest and investment o f the private sector, 31  and contributes to the rise o f strong concerns from citizens about the quality and coverage o f virtually all municipal services. Inefficiencies and resource constraints limit the ability o f the City Council o fMaputo (CMM) to provide quality services to its citizens. 5. The City must urgently establish a sound organizational and financial base in order to reverse the decline in service provision and infrastructure, otherwise crime and the cost o f living and doing business in Maputo will worsen. This will not only increase poverty and marginalization but further inhibit the growth o f smaller and medium sized businesses in particular, that are critical to income generation andpoverty reduction inthe country as a whole. 6. Addressing these challenges requires designing and implementing institutional reforms aimed at strengthening municipal governance and service delivery. This is essential for improved financial management, increased revenues, and enhanced planning, execution and control functions. Past Bank Support to Maputo 7. AAer nearly 15 years of providing support to the Government o f Mozambique, Development partners are now putting more emphasis on sub-national authorities in order to build long term and sustainable service delivery capacity in the country. Municipalities are the only decentralized entities in Mozambique but their functioning i s impeded by their weak structures. Despite two earlier projects in the area o f urban development, cities have had no direct support from the World Bank, except for the pilot grants fund administeredby MAEunder the MDP, targeted at the 8 largest cities. Despite sharing a poverty profile o f critical importance similar to the country as whole, Maputo has hadvery limited Donor support. The World Bank is one o f the few development partners, and certainly the largest, that i s supporting the area o f urban development in Mozambique. It i s well positioned to invest in programs that require a long term approach to governance and capacity building, in order to lay the foundations for large-scale investments in service delivery in the future. The World Bank's involvement also creates the basis for leveraging additional partner financing, not only from other development partners but from the private sector. The Maputo Municipal Development Program 8. The GOMpoverty reduction strategy (PARPA 11) links poverty with poor environmental conditions, including a lack o f drinking water and sanitation, and mentions the need to overcome urban environmental degradation through urban planning and upgrading, including greater investment ininfrastructure. Buildingon this national strategy as well as the GoM's 5 Year Plan that endeavors the ongoing program o f decentralization a status as a "key pillar" in the "modernization" of the state, the City Council o f Maputo recognized the crisis facing Maputo City and undertook a series o f consultations and opened discussions with the various stakeholders to develop and disseminate its vision for Maputo as a "prosperous, attractive, clean, secure and unified city". The CMM also adopted its mission statement which i s "To lead the process o f raisingthe quality o f life o f municipal citizens; creating an environment conducive for investment andjob creation through improved delivery o f services; and mobilization o f citizens andcoordinated actionbetween diverse actors". 32  9. Based on these vision and mission statements, the City developed a 10 year Maputo Municipal Development Program ("ProMaputo") that forms the basis for the Adaptable Program Loan (APL). The priority for the APL's Phase Ii s to achieve a basic level o f hnctionality in terms o f good governance, financial stability and institutional capacity in order to provide a platform for sustainable improvements to service delivery. Thus the first phase (APL 1 for 3 years) o f ProMaputo aims to address the City's extremely limited capacity to raise its own revenues and to provide quality services to its citizens. The second phase (APL 2 for 5 years), which will be subject to the conditions for phase Ibeing met and will focus on consolidation o f the reforms and financial viability, will trigger larger investment in infrastructure and service delivery than under the first phase based on a greater involvement o f non-IDA financing as risk i s lowered. 10. InMaputo, IDA will finance the majority of improvements ininstitutionaldevelopment and governance, financial management and selected priorities in the area o f service delivery. The 2003 Country Assistance Strategy (CAS) notes that strengthening local government i s a key factor in improving service delivery and the CAS mid-term review reinforced that ProMaputo was hlly in line with the CAS objectives and with the Africa Action Plan. It complements the next PRSC series focus on Decentralization. ProMaputo will build on prior Bank support for the Municipal Development Project which funded preliminary consultancies and limited civil works inthe City. An additional objective o f ProMaputo is to create a vanguardinMaputo City that will demonstrate to the rest o f the country successful municipal development strategies while contributing to national growth andpoverty reduction agendas inthe urbancontext. 11. Development Obiectives, Prorrram Outline and Conditions for the Two Phases o f the promam ProgramPhases Phase 1 Phase 2 Years 2007-2010 2010-2015 Development Component Outcomes Outline Objective The PDO for Phase I A. Strategic, effective, participatory and transparent Consolidation o f fust phase is to strengthen the mumcipal governance. reforms by the subsequently Maputo City elected municipal assembly Council's Improved citizen satisfaction with service quality and mayor institutional and Reduction inaverage response time to clients Investment ininfrastructure financial capacity to Improved organization o f CMMwithrespect to and service delivery support achievement definedstaffing andpersonnel redeployment improvements on a larger o f long term service Improved support processes performance scale subject to financial delivery goals, and viability (especially to implement Improved staffing at C M M with increased sustainability) and funds selectedpriority competencies leveraged investments Implementationo f steps o f DecentralizationPlanto Municipal Districts Greater involvement o f non- IDA financing PDO for full Improved interactionwith stakeholders through program i s to report cards Conditions for APL Ito APL increasethe Increased transparency through communication and 2: coverage and quality contact with citizens (1) 120% n o m a 1increasein o f Maputo City's own-source revenues services to its B. ImprovedMumcipal financial management, (2) amount o f solid waste citizens by increasing revenues and promoting efficiency and deposited inthe waste dump strengthening the Effectiveness inexpenditure reaches 600 tonslday City Council's (3) Integrated Financial institutional and m Increased financial self-sufficiency Management Systeminuse and 33  inancialcapacity. Improvedplanning, budgetingand executionof fully functionalas designed investmentspending IncreaseinCMM's own source revenue Two of the following four Improvedrevenuebase (taxpayers) indicators must also be Improvedbudgetaryexecutionof investment achieved: spending of MunicipalDirectorates (1) 100%of Organizational Units withthe new staffingtable definedand existingpersonnel redeployed (2) Citizen Reportcard conductedindependentlyand disseminatedregularly(1 per (3)Year) 80% of investment budget spent (4)in 50 kmofunpavedroads goodcondition I 34  Annex 2: Major RelatedProjectsFinancedby IDA and/or other Agencies Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram BADENOPEC Rehabilitation of some streets inthe centre o f Maputo 20,000,000.00 USD 35  Annex 3: Results Framework and Monitoring Mozambique ProMaputo:The MaputoMunicipalDevelopment Program 3.1 Results Framework Project Development Objective Project Outcome Indicators Use of Project Outcome Information The PDO for Phase Iis to 120% nominal increase inown- These three conditions are indicative o f strengthen the Maputo City source revenues overall reform Council's institutional and YR1-YR2Measure the achievement o f financial capacity to support the KPIs achievement o flong term service Increase the amount o f solid waste delivery goals, and to implement deposited inthe waste dump from YR3 Lead into the implementationo f selectedpriority investments 253 to 600 todday the secondphase o fthe program A n IntegratedFinancial Management System inuse and filly functional as designed Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring Cestructured and simplified CMM 100% o f Organizational Units with Monitor institutional reform and xganization and management for the new staffing table defined and political commitment to difficult mproved effectiveness existingpersonnel redeployed decisions mproved C M M communication Report card conducted and results Monitor ongoing commitment to withinternal andexternal actors to disseminated annually transparency and community ietter respond to community participation :oncems .mproved financial management 80% o finvestment budget spent Monitor progress towards increased iftheMunicipalitybyincreasmg revenues ts revenues and enhancing the iudget planning, execution, and :ontrol fhctions and systems. Increasedavailability and quality 50 kmo f unpavedroads ingood Improve credibility through better o f infrastructure to improve condition service delivery to bothbusiness service delivery distnct and poorer areas o fcity 36  3.2 Arrangements for Results Monitoring and Conditionsfor APL The three overall outcome indicators for Year 3 are requiredconditions for APL 2. Inaddition at least 2 o fthe 4 component indicators for Year 3 will needto be achieved as conditions for APL2. APL 1 Target Conditions for Values APL 2 Outcome Baseline YRl YR2 YR3 Frequency Data Responsibility Indicators 2007 2008 2009 and reports collection for data Instruments collection % nominal Quarterly Financial increase in USD 3.5 20% 60% 120% progress data own-source million reports Audits DMF- CMM revenues Annual (over baseline) audits 253 400 ton/day 500 ton/day 600 tonlday Quarterly Field data amount of solid tonlday Progress collected DMSS-CMM waste Reports daily at deposited in the from dump dump waste dump No Specifications Implementation An Quarterly Financial integrated finalized and of at least Integrated progress data DMF- CMM an Integrated system contract budget Financial reports Audits Financial signed for execution Management Audit Management implementation functions System in System in use use and fully and fully functional as functionalas designed designed ResuIts indicators for each component Component A % of Organizational Units with the 0% 20% ou 50% ou 100% ou Quarterly Consultant GDEVDRH new staffing implemented implemented implemented Progress Reports table defined Reports Department and existing reports personnel redeployed Report card Report Report 2007 Report2008 Report 2009 Consultant's Fieldwork CMM conductedand 2006 report for survey Consultantfirm disseminated Meetings to regularly present findings Component B: Quarterly Financial DMF Yo of progress data investment 60% 70% 75% 80% reports Audits budget spent Annual Audit Component C: Reports and DMI 9dditionalkrn 0 Quarterly Statisticsof ,f unpaved 15Km 15 Km 20 Km progress DMI 'oads in good reports mndition per fear This is the truncated version of the results matrix for ProMaputo (see 3.3 below). 37  . m 5, -0 sC 0 0 (D . 5, -0 m sC 0 0 I I ln . P U C B 0 0 e -0 cv) m m  h b w b N w5 P 7 b R 0 s 0 bP r " I m  I c c C a a 5 0 U0 .-ES ahg 0 g! n h 0 d 0 2 U z0 c UU- U a 0 cv) m m c 0  co 0 0 N I 0 3 d U0 + 0 z0 c h m  s!C 0, 0 . 2 '0 H Y E o! r 0 nr sC t9 0 v) 0 3 (0 . m" U I Y E h! C 7 E B 69 0 v) 0 m 3 . v) m % H E .P u C . I - W '0 Y Y E s % ? g g 0 C 8 0 B 69 W c c n v) 0 0 3 v) d -- I E0 E k 0 Y 69 0 E -0 0 Y c v) 3 0 z0 5.c W m m c0 c 0  Annex 4: DetailedProjectDescription Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram 1. The objective o f the Project i s to support the Recipient inthe development o f the Maputo Municipality through the strengthening o f Maputo City Council's institutional and financial capacity to achieve long term service delivery goals and to implement selected priority investments. Component A: InstitutionalDevelopment and Municipal Governance (US$8 million total of which US$6.2 millioninIDA) 2. The objective o f this component i s to ensure strategic, effective, participatory and transparent municipal governance. Subcomponent A-1: Institutional Reform and Strengthening. (US$6.6 million total of which US$4.8million in IDA) 3. The objective o f this subcomponent i s to enable CMM processes and structure to effectively face the challenges o f municipal development. It entails six specific objectives: 1. to simplifyCMMorganization andmanagement, 2. to implement strategic humanresource management, including HIV/AIDS mitigation 3. to improve the performance o f support systems and service delivery processes, 4. to decentralize and integrate planningand management o f C M Mprograms, 5. to improve CMMinformation systems and technology, and 6. to ensure adequate materialresources for C M Moperations. 4. The Municipal Assembly approved the C M M Restructuring Plan on October 25, 2006. Restructuring the CMM will improve its administrative and service delivery capacities. Reducing the number o f organizational units and improving the allocation o f responsibilities and functions among them within a streamlined structure will provide the foundation for workforce redeployment. Strategic planning capabilities linked to the monitoring o f organizational performance and services delivered will allow the CMM to more effectively set priorities, establish effective operational systems, allocate resources, and steer line operations. 5. As CMM reorganization proceeds, a new staffing structure with clearly defined job descriptions and associated qualifications will provide the basis for gradual staff redeployment including recruitment, reassignment and separation from service for under-qualified municipal staff. Based on the CMM's Human Resource Policy, a partially computerized Integrated Human Resources Management System (MRMS) will be developed and implemented, to the extent possible based on adaptation of existing elements employed by the national civil service; including recruitment, career and remuneration, training, and performance evaluation subsystems. The recruitment o f technical staff as part o f the organizational restructuring will be supported by IDA funds. These staff will be paid out o f the credit for a fixed term as contract staff at C M M staff salary levels i.e. not civil servants, for a maximumo f two years per staff 43  member, after which the qualified and experienced staff will be absorbed by the C M M budget and incorporated into the CMM's regular staff system. This follows a model that has been employed in Mozambique under the Decentralized Planning and Finance Project since 2004 and has demonstrated significant success in sustainable increasing the technical capacity o f local administration. In the case o f ProMaputo, this initiative i s further linked to a reform o f the Human Resource Management and Remuneration System as well as supported by increased municipal revenues, therefore the likelihood o f sustainability i s even higher. The full cost o f this initiative isUS$4.3 million over phase I,o f which US$2.5 million from IDA and US$l.8 million to be provided by CMM's own revenues on an increasing basis. Financial projections for municipal own source revenues strongly suggest that the US$l.8 million per annum required to fully sustain the increasedwage bill after APL phase Iare well within CMM's revenue capacity. 6. A comprehensive staff training program will be financed, including both job-relevant courses and longer term investments in the professional development o f C M M personnel. In addition, the training program will also entail a strategy that will allow CMM to benefit from the short and, in particular, the long-term technical assistance that will hire, in terms o f human resource capacity building. The objective i s to have a clear exit strategy for the technical assistance once the institutional capacity i s created or reinforced in order to promote sustainability and avoid disruptions between phases Iand I1 o f the APL (See Annex 19). An institutional policy and plan to prevent and fight HIV/AIDS within the CMM will be developed and implemented inconcert with the National AIDS Council (see Annex 17). 7. Both cross-cutting processes and those linked to the delivery o f specific services will gradually be redesigned to enhance quality and efficiency. One key objective o f CMM's administrative reform i s to improve the articulation between core support systems - for financial and human resource management - and the line directorates which deliver services. As CMM revises and optimizes institutional procedures, clear user friendly manuals will be developed to serve as both training aids and workplace references. A computerized system for document management will include the digitization o f existing archives and the development of new, computer-based administrative tools and routines. Later in Phase I,an Information Systems and Technology Master Plan will be formulated to serve as the basis for more consistent investments in hardware, software, and training to support increasingly computer-based and networked municipal management. 8. Strengthening the role o f municipal districts i s a key pillar o f C M M reform. The introduction o f participatory spatial planning will link governance reform with the gradual deconcentration o f selected services to the districts. Beginning with routine infrastructure maintenance and the provision o f essential documents, district capacity to manage front-line service delivery will be cumulatively strengthened through a comprehensive capacity building program. By linking the deconcentration o f service delivery to improved transparency and accountability at local level, a foundation will be developed for later enhancements o f district roles in the collection o f municipal revenues and in the management o f modest expenditures relatedto the delivery o f basic services. 9. Activities to be financed by IDA under this subcomponent include: a) Development and implementation o f an institutional reform and capacity building program and o f change and strategic planningprocesses. b) Establishment o f an integrated human resource management system and staffing structure. 44  c) Support for staff recruitment o f a number no larger than 200 for a period o f no longer than24 months for each contract. d) Training o f municipal staff on municipalnorms and governance, cross-cutting municipal systems and procedures, andjob-specific professional services. e) Establishment and operation o f municipal information systems for staff communication and for document management, includingthe creation o f aninternet page. f, Carryingout ofworks to rehabilitate municipaladministrationoffices. g) Incremental Operating Costs for the Project. 10. Activities to be financed by C M M under this subcomponent include: h) Support for retention o fthe staffmentioned under c) above following the periodreferred to therein. i)SupportforincreasedremunerationforProjectImplementingEntity'sexistingstaff, Subcomponent A-2: Improved Municipal Governance. (US$1.4million total, in IDA) 11. The objective o f this subcomponent i s to improve CMMtransparency and responsiveness by increasing the involvement o f various stakeholders inmunicipal governance. It entails four specific objectives: 1. to increase the transparency o f resource management and improve CMM communication with internal and external actors to better respond to community concerns through improved citizen consultation and awareness campaigns, 2. to improve the interaction between the C M M and the Municipal Assembly, 3. to improve coordination between CMMand other public sector actors, and 4. to increase the number and effectiveness o f partnerships between CMM nongovernmental actors. 12. The CMM's capacity to communicate effectively with its various audiences will be strengthened as a basis for improved governance. A crosscutting communication strategy will guide provision o f timely and relevant information aimed to engage citizens in the management o f their urban environment and to enhance their participation in municipal governance. Accessible messages will be developed and disseminated regarding municipalpolicies, programs and regulations as well as the rights and responsibilities o f citizens and municipal officials. Improved information flows between the CMM and key local political officials, including members o f the Municipal Assembly and Bairro Secretaries, will improve the consistency and quality o fmunicipal policies and their implementation. 13. Municipal Service Report Card will be conducted annually and its results - identified citizen To ensure responsiveness o f CMM to citizens' needs and priorities, a full, Consultative service priorities and citizens' evaluation o f municipal governance and service quality - will be widely disseminated. To enhance citizen participation in public decision-making, CMM capacity for preparing budget, expenditure and procurement information in an understandable form will be strengthened. Mechanisms to channel this information regularly to citizens, including not only Maputo's intellectual and private sector elites but also peri-urbancommunity leaders and neighborhood residents with little formal education, will be improved. Efforts to include citizens' input in the budget formulation process will be strengthened. Complementing the supply o f this information, the capacity ofmunicipal citizens and community-based 45  institutions to articulate their concerns and to contribute to municipal planning and budgeting will also be strengthened, progressively linkedto CMM's decentralizationprocess as the roles o f district and bairro structures are gradually enhanced. 14. Cooperation between the C M M and key public sector actors will be strengthened to support better service delivery. Coordinating arrangements will be improved between the C M M and the "Government o f the City o f Maputo" (GCM), the State's deconcentrated structure sharingthe CMM's jurisdiction, and where necessary with related line ministries. Collaborative arrangements with public utilities such as EZectricidade de Mogambique (EDM), FIPAG and Aguas de Mogambique (AdeM), Transportes Pziblicos de Maputo (TPM), and Telecomunicap5es de MoGambique (TDM) will also be improved. 15. The capacity of CMM to formulate, negotiate, and manage public-private partnerships (PPPs) will be strengthened. A PPP framework has been prepared and two specialists recruited during preparation o f the Program. A PPP unit will be supported within the CMM's top management structure to promote partnershipsand to assist line service provision directorates to formulate, negotiate, manage, and monitor partnership agreements with both private sector and nonprofit service providers to ensure that they result in increased coverage, improved quality, andgreater cost effectiveness o f service delivery. Training o fthis unitis underway. 16. Activities to be financed by IDA under this subcomponent include: a) Development and implementation o f a communication strategy including dissemination and informationcampaigns and civil society consultations; b) Carryingout o fannual Municipal Report CardSurveys; c) Training to C M M staff and Municipal Assembly members on all aspects o f municipal management and oversight; d) Development o f partnerships to provide investment and management capacity for services between the CMMandboth key public sector actors and private sector firms. Component B.MunicipalFinance(US$4.7million total, in IDA) 17. The objective o f this component i s to improve the financial management o f the Municipality by increasing its revenues and enhancing the budget's planning, execution, and control functions and systems. Sub-component B.1: Improved Revenue Collection (US$2.6million, in IDA) 18. The objective o f this sub-component i s to increase municipalrevenues by enhancing the capacity o f the municipalityto better exploit its own revenue sources. It entails five specific objectives: 1.to enhance the collectionoflocalrevenues inthe short term, 2. to improve the overall systems o ftaxes and fees, 3. to improve the internal management of the different municipal fees, 4. to strengthenthe capacity o f the municipality to attract additional revenues, and 5. to provide training and technical support inthe area o f municipalrevenues. 46  19. The first objective seeks to create an intermediate solution to improve the current systems o f taxes and fees in the short term. It will do so by selecting a private company to distribute property tax bills; increasing the role o f the district administration in the distribution o f tax and fee information and notifications, and by reassessing about 14,000 valuable properties (once this i s legally permitted). The second objective consists o f a medium and long term solution to improve the systems o f taxes and fees. This i s the main objective o f the revenue sub-component. It seeks to create a single consolidated database, and to review and redesign the systems for billing, distribution and collection o f taxes and fees. It will also review and redesign the mechanisms to collect arrears and fines. Inaddition, the program will promote communications' campaigns to make tax legislation more easily accessible and understandableto citizens. 20. The third objective is to improvethe internal management o f the different municipal fees. Currently, fees are administered by each o f the different service-provision units without much coordination with the finance department. However, since the provisions o f a number o f municipal services are revenue-generating activities, the program will also make sure that specific activities are undertaking to increase the collection o f fees. The fourth objective i s to improve the capacity o f the municipality to attract additional revenues. This will be done by enhancing the capacity o f the C M M to collect and manage donations and provide adequate working conditions. The last objective seeks to provide general support to improve the municipal revenue system. This will entail both training and provision o f equipment. Due to the importance o f revenue enhancement for the program, an increase in own-source revenues was selected as a trigger for the second phase o f the program. 21. Activities to be financed by IDA under this subcomponent include: a) Design o f systems for assessingproperties andbilling, distributingand collecting taxes and fees, including arrears and fines; b) Designandimplement a single consolidateddatabase for localtaxes and fees: c) Carrying out of: (i) a communications campaigns to make tax legislation accessible to citizens, (ii) property tax bills distribution; (iii) reassessment o f about 14,000 valuable the properties; and (iv) hndraising andmanagement o f activities for grants and donations; d) Carryingout o ftrainingto municipal staffontax and fee revenue collection. Sub-componentB.2: Improved Expenditure Management (US$2.1 million total, in IDA) 22. The objective o fthis subcomponent is to ensure that the municipalityhas an integrated financial management system. It will do so through the following specific objectives: 1.to improvethe process o fbudgetaryplanning, 2. to improve the distribution o f financial resources, 3. to improve the procurement and asset management systems, 4. to improve the budgetary execution and control systems, and 5. to provide training and technical support inthe area o f municipal revenues. 23. The first objective is to improve the process o f budgetary planning. It seeks to ensure that the different departments, units, and districts o f the municipality submit their budget plans in a timely and accurate fashion. This will be done by conducting a thorough revision and simplification o f the whole budgetary process to make it more effective and efficient. The second objective i s to improve the distribution o f financial resources in order to ensure that 47  budgets are executed according to the plans. This will be done by designing and implementing methodologies and instruments to improve the cash-flow systems and, more broadly, the implementation o f new methodologies to improve the internal distribution o f financial resources. 24. The third objective seeks to improve the financial, procurement, and management systems. This will be achieved by increasing the municipal departments, units, and districts' knowledge o f the guidelines and procedures o f asset and financial management. The program will also support the creation o f a procurement unit, andthe design o fmechanisms for procuring, controlling, and managing municipal assets. The fourth objective i s to improve the budgetary execution and control systems. This will be done by increasing the Municipal departments, units, and districts' knowledge o f the norms and procedures o f budget execution. The systems o f budget controls will also be strengthened by reviewing and improving the information and accounting systems o f the municipality, and by creating capacity to perform financial and performance audits. 25. The last objective seeks to provide general support to improve the system o f municipal expenditures. This will entail both training and provision o f adequate technical equipment. The different municipal units will be trained inthe areas o f budgetplanningand execution, financial and asset management, and internal control. Due to the importance o f having an integrated financial management system inplace, its full operation was selected as a trigger for the second phase o f the program. 26. Specific attention will be placed to the integration and coordination o f all the budgetary systems operating inthe municipality. Financial Statements o f the Municipality will be audited every year and finalized and disseminated within 6 months o f the financial year end. These will include audits o f all IDA funds under the Program. 27. Activities to be financed by IDA under this subcomponent include: a) Carryingout o f an analysis to assess the current financial systems o fthe municipality; b) Design, implement and support anintegrated financial management system; c) Designo fmechanisms for the procurement and management o f municipal assets; d) Establishmento f a procurement department and training o f its staff; e) Dissemination o f the guidelines, procedures andnorms o f the integrated financial management system; f) Carrying out of training to CMM staffto perform financial and performance audits, budget planningandexecution, financial and asset management, and internalcontrols; g) Support for international studytrips for municipal staffto observe the operation o f integrated financial management systems ina number o fmunicipalities; h) Carryingout ofaudits for the Project. Component C: Planning and Service Delivery Improvements (US$26.3 million total of which US$15.1million in IDA) 28. This component will support urban planning and targeted investments to construct or rehabilitate critical urban services, including roads and drainage, solid waste management, a cemetery and street lighting. 48  Sub-component CI: Planning and Management of Urban Space (US$5.3 million of which US$3.7million in IDA) 29. This subcomponent entails the following objectives: 1. to improve the efficacy o f the management and planning o f services through the development o f spatial and sectoralplans, 2. to provide the methodological tools, training, technical assistance and mentoring to undertake urbanplanning, and 3. to identify and undertake the tasks necessary to improve the management o f urban space, including updating the cadastre, processes and procedures, and establishment o f an information system necessary for the granting o f land use rights and land ownership. 30. This sub-component will provide support to the municipality to improve the efficacy o f the management and the planning o f services through the development o f Spatial and Sectoral Plans and the implementation o f a City Information Management System (CIMS) that includes georeferencing. It will provide the municipality with the methodological tools, training, technical assistance and mentoring to undertake planning. It will also review the tasks that are neededto improve the management o f urbanspace, assist inthe approval o f infrastructure plans, develop spatial and sectoral plans, as well as the restructuring o f the processes and procedures related to the granting o f land use rights and land ownership, and the implementation o f an information system for these purposes, buildingupon the existing very basic cadastre. 31. Improved management and planning o f services and the CIMS will help improve the design and quality o f services and products, optimize the design process, and prioritize infrastructure maintenance within the activities o f the municipality. CIMS will benefit the municipality in terms o f urban planning, land use planning, and infrastructure improvements with the landandtax registry. 32. The CMMwill achieve these results through coordinated steps and actions involving key officials in charge o f Services together with their counterparts inthe Finance Department, GDEI and municipal districts, to ensure a harmonization o f views and actions on elaborating and finalizing hndamental documents such as spatial and sectoral development plans and other important documents for implementing an effective urbanplanningstrategy. 33. This sub-component will include several activities that address various issues in specific sectors as well as Urbanization, Cadastre and Geographic Information Systems, Monitoring and Quality Assurance. 34. Activities to be financed by IDA under this subcomponent include: a) Carrying out o f a review o f the Urban Development Plan for the metropolitan areas o f Maputo andMatola; b) Designo fan urbanplan for the areawithin the boundaries defined bythe Port o f Maputo, Avenue Josina Machel, Ponta Vermelha and Marginal Avenue; c) Designo f a territorialurbanplan for the neighbourhood o f Magoanine; d) Design and implementation of the City Information Management System with spatial georeferencing, for land use rights, ownership and infrastructure planning; including: (i) 49  the carrying out o f training o f local technicians, and (ii) development o f an urban the space planningandmanagement strategy and implementation plan. 35. Activities to be financed by CMMunder this subcomponent include: e) Designo f a territorial urbanplan for the neighbourhood o f Zimpeto; f ) Design o f an Ecological Zoning Plan and for the protection o f environmental reserves in the area o fMaputo. Subcomponent C2: Sub-component C.2: Infrastructure Rehabilitation and Service Delivery Improvements (US$13.8million of which US $8.2 million in IDA) Infrastructure Rehabilitation and Construction 36. This entails the following objectives: 1. to rehabilitate existing paved and unpaved roads and associated drainage and establishment o f conditions for future expansion, and 2. to increase public safety through street lighting 3. to increase network o f traffic lights 4. to construct and rehabilitate markets 5. to construct a new cemetery 37. The component will support improvement o f the conditions o f existing paved and unpaved roads and associated drainage and ensure conditions for future expansion (including minimizing erosion o f coastal areas). These are a combination o f paved roads nearer the urban core and key to economic activity o f the private sector and the main tax base o f the city, and a major trunk road connecting more suburban, poorer areas to the commercial and employment center o f the city, thereby reducing transport costs and increasing access to employment. 38. The component provides support for construction o f a new cemetery. This will help CMM to effectively start tackling the economic and social burden resulting from increasing health issues stemming from cemeteries. It will also reduce the high level o f exhumations currently occurring (mostly due to HIV/AIDS), which are culturally unacceptable in Mozambique. Cemeteries will be better managed as processes and procedures for their management will be systemized through the development o f various types o f support such as manuals, software, and related equipment. Inaddition a humanresources development planwill be designed and a system o fmonitoring and control o f cemeteries will be implemented. 39. The component will also support C M M to increase public safety through increased street lighting: partnership with EDM will be established to enable the extension o f the electrical network and expansion o f street coverage and maintenance in urban areas. Through improved management and involvement o f the District in maintenance, CMM will build partnerships to benefit from EDM's existing potential. The component will also support improvements to the system o f traffic lights inMaputo. 40. Activities to be financed by IDA under this subcomponent include: a) Implementation o f a 5.6 km long urban transport corridor for connecting the neighborhoods o fMagoanine, Albasine, and Guava to the existing road system; b) Designofa planand specifications for access roads to outlying neighborhoods; 50  c) Carrying out o f independent supervision o f highways; d) Development o f project design and inspection procedures for Maputo's traffic light system; e) Carryingout o f works to complete Maputo's traffic lights system; f) Design o f an implementation strategy for a maintenanceprogram for CMM; g) Installation andor connection o f public lights on about 30 km o f streets in suburban areas; h) Carrying out of works for the construction and rehabilitation of market premises and structures; i)CarryingoutofworksfortheconstructionofanadditionalcemeteryforMaputo. 41. Activities to be financed by the Central Government under this subcomponent include: j) Carryingout ofworks for rehabilitation ofMaputo's sewage systems, roads andoverhead crossings. Under (j)above, activities to be financed include: carrying out o f works to rehabilitate Maputo's sewage systems and paving o f streets in the urban neighborhoods o f Coop, Malhagalene, and Polana; canying out o f works to rehabilitation the paving in suburban areas belonging to districts 4 and 5; carrying out o f works to rehabilitate approximately 50 km o f unpaved roads in several outlying neighborhoods, inorder to improve the access and urban transportation; carrying out o f works to rehabilitate the overhead crossing connecting av. Julius Nyerere to Avenida 25 de Septembro; carrying out o f works to rehabilitate Nelson MandelaAvenue. Subcomponent C 3: Improvements in Solid Waste Management Services (US$7.2 million of which US$3.2million to befinanced by IDA). 42. This entails the following objectives: 1. to increase the quality and coverage o f solid waste management services by implementing a sustainable plan for solid waste management through the collection o f an earmarked fee added to electricity bills. 2. to establish an efficient solid waste collection system with private operators, with decreasing annual financial contributions from IDA as earmarked revenues increase. IDA'Scontribution will finance 80% o f the costs in the first year, 65% inthe second year and 50% inthe third year. 43. This component seeks to increase the quality and coverage o f solid waste management services: the quantity o f solid waste collected will be increased through the expansion and improvement o f solid waste collection services made available to the public. Public education and sensitization o f the citizens on solid waste collection will be implemented to increase community participation. The C M M will therefore encourage and increase local participation through the implementation o f an integrated civic education program by building partnerships with communitybased organizations; it will also enter into PPPswiththe private sector. 51  44. Activities to be financed by IDA under this subcomponent include: a) Collection o f solid waste in Maputo's urban, suburban and marginal zones including those fiom markets; b) Transportation and disposal of solidwaste collected inMaputo; c) Elimination o finformal dumps; d) Establishment of anupgradedrefuse dump; e) Carrying out o f works to rehabilitate workshops and offices for the solid waste managementdepartment. 52  Annex 5. Project Costs Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram Table 1: TotalEstimatedProgramRequirements (US$ millionper calendar year) Table2: EstimatedProgramCosts per Component (US$ millionper calendar year) Table3: EstimatedProgramCosts per Component to be financed by IDA (US$ millionper calendar year) ITotalProgramCosts (IDA)I 6.9I 15.7I 7.2 I 0.4 30 I 100I 53  Table 4: EstimatedProgramCosts per ComponentinForeignand Local Currency (US$million) ProgramCost By Table5: EstimatedProgramCosts per ExpenditureCategory by Source (US$ million) ProgramCost By I I 1 Central ExpenditureCategory IDA CMM Government Total (a) for subcomponentC3 (solid waste management) 54  Annex 6: ImplementationArrangements Mozambique ProMaputo:The MaputoMunicipalDevelopment Program 1. The credit will finance the activities to be carried out by the City Council o f Maputo (CMM) as the implementing agency for the Program. IDA will enter into: (i) a Financing Agreement with the Republic o f Mozambique for which the representative i s the Ministry o f Planning and Development; and (ii)a Project Agreement with the CMM, as Program implementing agency. This Project Agreement recognizes the legal and institutional autonomy o f the C M M as a democratically elected local government. 2. The C M M became an autonomous local government in 1997 under the Pacote Autarquico and the first municipal elections were held in 1998. During the first mandate little improvement in municipal services was achieved and the C M M was constrained by a near complete lack o f human and financial resources. Since 2003, the Municipal Development Project provided a small amount o f financing to assist Maputo with some small-scale infrastructure under the pilot Grants Fund, and during the final year of MDP Maputo has benefited from project-financed consultancies and basic equipment which along with the PPF, financed preparation o f its 10 year Municipal Development Program, ProMaputo. 3. Duringprogram formulation, the C M M established a Program Secretariat which reported to the Mayor, comprised o f five Executive Councilors and the Secretary to the Council. The Secretariat has been responsible for the overall coordination and management o f the formulation phase as well as liaison with their respective departments. An Advisor to the Mayor on Strategy and External Relations chaired the Program Secretariat and a facilitation consultant and technical advisor to the Secretariat assisted respectively in the process and substantive aspects of formulation. These organizational arrangements were considered provisional, subject to revision for program implementation. 4. Insofar as the planning o f CMM's institutional reform was undertaken as part o f ProMaputo formulation process, the development o f institutional arrangements and the assurance of adequate management and technical capacity for program implementation were an integral part o f the municipality's new organizational design. To ensure adequate capacity to implement the Program, the C M M reorganization - which was approved by the Municipal Assembly on 25 October 2006 - establishes an Office o f Strategic and Institutional Development (GDEI) which reports directly to the President and the Council. The GDEI includes C M M technical staff, contracted advisors and consultants, and will be supported by an Implementation Coordination Team (ICT) comprised o f selected executive councilors. 5. The GDEI is responsible for overall coordination and management o f ProMaputo as well as liaison with line departments who will manage and implement specific ProMaputo activities. Given the capacity constraints o f the municipality, a number o f long term advisors to the mayor and the council are envisaged for the duration o f the first phase: some will support the GDEI while others will strengthen the Municipal Finance Directorate (DMF) until new systems and adequate capacities for financial management and procurement are established. Other technical advisors, short term technical assistance, and consultancies will be contracted as necessary to support specific program activities and provide technical services to the Council. (The Program's Capacity Building Strategy i s described inAnnex 19.) 55  6. The ProMaputo design specifies which organizational units will be responsible for the coordination and implementation o f the activities foreseen in the workplan. Component coordinators are responsible for supervising the planning and reporting processes undertakenby implementing units, then integrating these contributions into overall component plans and budgets. In addition, component coordinators oversee and monitor implementation. Coordinators also assist implementing units in resolving management problems and bottlenecks which may slow implementation by line units. 7. As overall Program coordinator the GDEI is responsible for the preparation (based on contributions by implementation managers o f specific activities channeled through component coordinators, as described above) o f annual plans andbudgets; for supervision and monitoring o f implementation activities; and, when needed, the provision o f strategic and management assistance to coordinators and implementation managers. The GDEI reports directory to the Mayor and the CMM and serves as their executive agent to ensure effective program implementation. 8. Each component (and subcomponent) has a designated coordinator, just as each activity has a designated implementerhmplementation manager. The Institutional Development and Municipal Governance Component (A) will be coordinated by the Office o f Strategic and InstitutionalDevelopment (GDEI), the Municipal Finance Component (B) will be coordinated by the Municipal Directorate o f Finance (DMF), and the Planning, Infrastructure Rehabilitation and Service Delivery Improvement Component (C) will be coordinated by the Directorate o f Infrastructure. 9. The following table summarizes other coordinating and implementation management responsibilities by component Subcomponent Subcomponent Activity Implementation Coordinator Managers GDEI A1 Institutional Human Resource Directorate Reformand Office of Strategic and Information Systems Directorate Strengthening Institutional Development (GDEI) Finance Directorate A Health and Sanitation Directorate (for HIV/AIDS) GDEI Office of Communication A2 Improved Office of Strategic and Secretariat o f C M M MunicipalGovernance Institutional Development (GDEI) Municipal Districts Economic Activities Directorate (for PPPs) Office o fthe Municipal President Finance Directorate Economic Activities Directorate B1ImprovedRevenue Infrastructure Directorate Collection FinanceDirectorate UrbanPlamng and Envlr.Directorate Health and Sanitation Directorate B Markets and Fairs Directorate Municinal Districts B2 Improved Finance Directorate Expenditure FinanceDirectorate Information Systems Directorate Management GDEI 56  UrbanPlanningandEnvr.Directorate I C1Planningand Information Systems Directorate Managementof Urban UrbanPlanning and EnvironmentDirectorate GDEI C Space Infrastructure Directorate Municipal Districts C2 Infrastructure InfrastructureDirectorate Rehabilitation and Healthand Sanitation Directorate Service Delivery Infrastructure Directorate Markets and Fairs Directorate Improvements MunicipalDistricts 10. Financial management will be undertaken by the Municipality's own Finance Department, which will gradually introduce an integrated financial management system. The procurement h c t i o n will similarly be performed by a Procurement Department within the Finance Directorate staffed by municipal personnel supported initially by contracted procurement specialists. As such, no dedicated program management structures will be created, rather the GDEI and DMF will integrate municipal management and ProMaputo management within the same structures and routines. Separate procedures will be required only for establishment and replenishment o f the Special Account which will flow into the municipal account. However, once funds have left the Special Account reporting will be done on the CMM budget as a whole and ProMaputo audits will be included within comprehensive annual audits o f the municipality's budget and accounts by external auditors. 11. The institutional reforms envisaged under Component A include a full restructuring o f the city council in order to put into place an organization capable not only o f managing ProMaputo but o f integrating ProMaputo activities and approach into the Municipality's own structures, systems and processes for governance and service provision. Staff strengthening through both recruitment and training i s therefore a core subcomponent o f the program and a key to the sustainability o f municipal development inMaputo when technical assistance i s reduced at the end o f Phase I;thus capacity building will demand a large amount o f the effort during the first phase. As such, the service delivery ambitions for phase Ineed to be modest. 12. The Municipality is divided into seven Municipal Districts. Part o fthe Phase Ieffort will also be to define a new role for these districts by learning from a slum upgrading pilot that was funded by Cities Alliance and a deconcentration process that will give Districts additional administrative and operation and maintenance responsibilities along with modest increases in resources. In all districts, some very basic functions will be deconcentrated (such as street cleaning, maintenance o f surface drains, refuse removal, etc.) in order to improve efficiency and accountability as well as build capacity at these levels for more effective collaboration between citizens and their local authorities. 13. The private sector and civil society will play important roles inthe implementation o f the Program. A Municipal Framework for Public Private Partnerships (PPPs) has been developed and two staff recruited. A department will be established in the Directorate o f Economic Activities to develop and manage initiatives and to provide specialized expertise to the other departments incontracting out and contracting invarious municipal services. 57  Annex 7: FinancialManagementArrangements Mozambique ProMaputo:The MaputoMunicipalDevelopment Program 1. This report summarizes the assessment o fthe financial management arrangements for the proposedMaputo Municipal Development Program (ProMaputo). The program will make use o f the institutional framework ofthe Maputo Municipal Council (CMM), as well as arrangements to be put in place for procurement and financial management. The work in the area o f financial management focused on the assessment o f the financial management arrangements o f the CMM, both as the implementing agency o f the proposed program, as well as a beneficiary under the program. As the proposed program progressedto appraisal, and inorder to help the C M M focus on immediate critical issues, a distinction was made between those financial management arrangements required to meet the Bank's minimum requirements and which needed to be attended to immediately, and those that would specifically be addressed under the program to improve the accounting practices o f the CMM. 2. An initial financial management review was carried out at pre-appraisal in August 2006 and the conclusion then was that both inherent and control risks existed that may have implications for efficiency, effectiveness, and accountability in the use o f program resources. Specific weaknesses were identified and summarized in an action plan to complete a series o f activities to address the noted weaknesses. Once this time-bound action plan was carried out successfully, the CMMwould have inplace financial management systems that would be able to properly account for program resources, as well as produce the required level o f financial management reports ina timely fashion. 3. The purpose o fthe November 2006 appraisal review therefore was (a) to assess the extent o f preparedness by the CMM in terms o f financial management arrangements; and (b) identify any necessary additional time-bound action plan for strengthening the financial management systems inreadiness for project implementation. FinancialManagement in the Government of Mozambique 4. A Public Financial Management Assessment conducted in September 2004 as follow-on to the 2001 Country Financial Accountability Assessment (CFAA) concluded that the overall public sector financial management risk in Mozambique remained high. Management o f the economy was quite satisfactory, but comprehensiveness and transparency o f the budget needs to be strengthened, the medium-term planning and budgeting was weak, while budget execution and accounting andreportingpresentedquite serious weaknesses. 5. At the same time, a number o f reforms were moving ahead in a very structured and comprehensive manner. The government has completed a number o f key preparatory reforms and has: (i) issuedregulations for the Financial Management law; (ii)initiatedthe introductiono f a new and more-detailed functional classifier into the budget; (iii) to formulate the budget started in current prices; (iv) introduced restrictions on bank accounts held by public institutions; (v) started to incorporate off-budget revenues as well as donor-hded expenditures into the budget; (vi) initiated training for budget staff in double-entry accounting; and (vii) established a consolidated electronic treasury account to improve control of treasury operations and cash management. 58  6. One key reform has been the introduction and implementation o f a computerized integrated financial management information system, e-SISTAFE. This has been rolled out initially in selected ministries at central government. It i s planned to roll out this system to all government agencies including sub-national entities. The Bank i s part o f a group o f donors which has financed selected components o f the system, and i s also part o f a Quality Assurance Group established to provide an independent view o f the management, progress, and achievements o f the SISTAFE project. A report o f this grouping issued in November 2005, noted the satisfactory production o f budget execution reports for the period January to August 2005. 7. A report on the Assessment o f Financial Management for 2004/05 using the Public Expenditure and Financial Accountability (PEFA) methodology concluded that there have been improvements in a number o f important areas which were beginning to have an impact. The budget was a credible document with final out-turns reasonably close to initial approvals; there was also a steady improvement in revenue collection and administration. Fundamental weaknesses remained in the quality o f the public financial management systems (PFM) especially in internal control systems, limited coverage o f the external audit, and the high-level o f off-budget spending mainly from external project finance. The report noted that the quality o f the PFM was expected to continue improving as a natural consequence of ongoing reforms such as e-SISTAFE; however, this would take time. RiskAssessment oses the institutional reform o f the CMM's Budget M Budget preparation well defined, and there is some M regular monitoring on the use o f funds Accounting S Accounting policies/procedures now documented ina S financial manual. Capacity o f staff is weak but to be increased following approval from the Mayor to recruit 10 additional finance staff Internal Controls S Policies now documented. Reconciliations now S updated on all bank accounts althoughthere are still outstanding reconciling items; fixed assets register not updated FundsFlow M Relatively simple funds flow with centralized M procurement and payment for programactivities. However, changes to transfer hnds to cost centers at 59  lower levels would pushthis to Substantial Financial Reporting S Compilation o f accounting information regular and S timely. However, data integrity questionable as this i s obtamed from fragmented systems. Auditing S Institutional arrangements for external audit not clear. S Delays inaudit reports. OVERALLCONTROLRISK S H-High S - Substantial M-Modest L-Low 8. The risk rating for the program inthe area o f financial management has been appraised as substantial, reflecting the general weak control environment within the CMM alluded to above. Capacity and experience i s being strengthened to address identified weaknesses and provide the necessary expertise. Mitigating factors to address identifiedrisks are detailed below andinclude strengthening existing structures not only during the program implementation, but well beyond. Inaddition, anactionplanhas also been agreedwith the client to ensure that acceptable financial management arrangements are put inplace inreadiness for program implementation. Country-Specific 9. Pre-2002 assessments have alluded to the weaknesses in the public financial management (PFM). However, a number o f reforms instituted by the government have started to yield gains in the quality o f PFM. This i s confirmed by recent independent reviews which have noted the continuing improvements in important areas o f PFM, as well as the expected continued improvement as a natural consequence o f ongoing reforms such as e-SISTAFE. Entity-Specific 10. The program will be implemented by various cost centers o f the C M M as part o f its annual program o f activities. The CMM i s a municipality which operates fairly autonomously under the guidance and supervision o f a Council headed by an elected President. However, some o f the funding for the CMM comes from the central government; this arrangement has implications for the ability o f the C M M to achieve the desired financial self-sufficiency. It also has staffing shortages in critical areas o f the finance department. The above may have an impact on the timely preparation and submission o f regular reporting requirements for program implementation. During appraisal, the Bank mission was informed that approval has now been given for the recruitment o f additional staff in the finance department, which should go a long way towards the enhancement o f the department. Program Specific 11. The program i s embedded in the CMM's operations, to be implemented by the relevant departments o f the C M M o f varying degrees of capabilities. The program would also involve numerous transactions. There i s therefore need for an effective control and coordination by the finance department o f these departments especially in the use and accounting for the use o f funds. The finance department will support additional supervision and guidance activities, including clear guidelines and definition o f roles of the department, its staff and relationships to other units o f the CMM. 60  Planning and Budgeting 12. The activities o f the program to be funded by the Bank will be embedded inthe CMM's budget settingprocess. Budgetpreparation inthe C M M i s well defined and there i s some regular monitoring on the use o f funds. However, this i s mainly routine comparison o f actual expenditures to original budget estimates - there i s no concerted effort to determine whether the funds are economically used. The annual budget is prepared based on the policy guidelines and regulations issued by the Ministry o f Finance. A program budget has been drawn up and i s included in the PAD. This includes identification and costing o f major activities to be carried out under the program. Financial Monitoring Reports (FMRs), which include activity reports, will be preparedon a quarterly basisto monitorprogram implementation. Accounting Systems and Internal Controls 13. The C M M generates a number o f financial transactions on a daily basis and from different sources using both manual and computer systems, including spreadsheets. The different levels o f sophistication o f these systems make it difficult to have a complete picture o f the performance o fthe municipality. It is also not possible to determine whether at any point, all the transactionso fthe municipality are complete. 14. The CMM has now provided a written manual o f financial procedures that describes the accounting systems, internal control procedures, basis o f accounting, standards to be followed, and policies and procedures that guide activities o f the municipality and ensure staff accountability. A draft manual was made available to the Bank team and the C M M management has been provided with both written and oral comments on issues that have not been adequately addressed inthe current version o f the manual. 15. The conceptual framework behind the e-SISTAFE was that o f upgrading the computerized accounting system o f the government o f Mozambique at central and provincial levels. It was not originally formulated to address the specific circumstances o f quasi- governmental but legally separate entities such as municipalities. In discussions with the government agency responsible for the roll-out o f e-SISTAFE, issues were identified inmeeting the specific requirements o f the CMM, which in some cases, would require significant customization to the current modules o f the e-SISTAFE before they are rolled out to the CMM. The CMM management has recognized the potential delays as well as the likely impact on the accounting systems and financial controls o f the CMM, and has now opted for the long-term financial management requirements o f the municipality to be addressed under the proposed program. Component B.2 for Municipal Finance aims at improving the planning, execution and control o f budgetary functions and systems, and includes an upgrading o f the CMM's financial management system to achieve this. Reporting and Monitoring 16. The financial transactions relating to this program would be recorded and monitored using the CMM's management and accounting system. The contents o f the reports would include all the activities o f the CMM. The CMM i s used to reporting on a regular basis on the use o f funds to the President and Council, as well as the Ministryo f Finance. However, the use o f information from fragmented accounting systems to compile these reports raises the question 61  o f data integrity, as well as the accuracy and speed o f reporting facilities. The enhanced integrated financial management system alluded to above will also address the long-term reportingrequirements of the CMM. 17. Details o f the reporting requirements, including the formats, content, as well as frequency, have been defined inthe draft financial manual. These include FinancialMonitoring Reports (FMRs) which will comprise o f (i) Financial Reports, including a statement o f sources and uses o f funds by funding source, and a statement o f uses o f funds by program component and sub-component; (ii) Physical progress (output monitoring) report, and (iii) procurement a plan and progress report. FMRs will cover all program activities, including those provided by the CMh4 and the government. Quarterly FMRs are due within 45 days following the end o f each calendar quarter. Auditing Arrangements InternalAuditing 18. The C M M has an internal audit department which was created by the current President about three years ago. It reports to the President. However, the internal audit does not currently audit donor finances, and the work i s limited to the audit o f the CMM's own resources as well as those from the government. The proposed program will use the existing structures o f the CMM, including those of the internal audit. There will therefore be need to expand the current limited scope o f the internal audit function. The frequency and extent o f the internal audit reviews and testing o f the internal controls should be consistent with the nature, complexity and risk o f the relevant activities. With this mind, the internal audit function should be appraised o f the specific objectives o f the proposed program, as well as enhanced, in order to prepare for these added responsibilities. ExternalAuditing 19. The required annual financial statements will be those o f the C M M as whole, covering the entire operations o f the municipality. These financial statements will be audited by independent auditors, acceptable to the Bank, in accordance with acceptable auditing standards. Auditors will be required to issue a single opinion on the program's financial statements, as per the guidelines ``Financial Management Practices in World Bank-Financed Investment Operations", o f November 3, 2005. Inaddition, auditors will be required to issue a management letter, highlighting any identified internal control weaknesses, which will contribute to the strengthening o f the control environment. The auditor's report will be submitted to the Bank no later than six months after the end o f each fiscal year. The proceeds o f the IDA credit may be used to finance audit costs. 20. The CMM i s one o f eight selected municipalities that are beneficiaries from an on-going Bank-financed project, the Municipal Development Project (MDP) that i s expected to close in February 2007. One o f the requirements is for the beneficiary municipals to prepare audited financial statements, with the audit costs covered by the MDP. This i s not a covered covenant and there i s no set time limit inwhich to prepare these financial statements. At the time o f the Bank's mission inNovember 2006, the latest audited financial statements were for 2004, with the 2005 audit still to be completed. Under the proposed program, the CMM will be required to submit audited financial statements within six months following the end o f each fiscal year. The lack o f completion o f the 2005 audit may impact on the timely submission o f audit reports for 62  the proposed program. There i s therefore need to complete the 2005 audit as soon as possible, while makingpreparation for the audit o f the financial statements for year ending on December 31,2006. Impact of Procurement Arrangements 21. The overall program risk for procurement has been assessed as high due to lack o f prior experience inlarge technical assistance contracts, filing, contract monitoring and record-keeping, as well as the expected increased work load. The C M M management has decided to establish a procurement unit within the finance department; in additional, the payments for goods and services procuredby the CMM's cost centres will be made through a centralized payment system at headquarters. The proposed fund flows recognize the requirements for resources to be available as close as possible to where most o f the program activities will be taking place. Procurement arrangements will therefore be crucial to the smooth implementation o f the program. FinancialManagementAction Plan ProposedActions Agreed Current Status Deadline Clear the back-log o f accumulated reconciling February 28, Progress has beenmade. However, there transaction items onbank reconciliations and 2007 are still numerous outstanding items on the update the cash books accordingly. Revenue Account. C M M to clear these in consultationwith their bankers by February 2007. The finance department should amend February 28, The Returns still do not contain the bank instructions to ensure the cost centers include 2007 statements and bank reconciliations. C M M bank reconciliations on monthly returns. to incorporate this requirement inthe revised manual. The finance department should define policy on February 28, C M M to recruit an IT expert as part o f the back-up and storage o f computer files o f financial 2007 institutional reformunder the program. information o f CMM. The finance department shouldprepare and February 28, This i s still inprogress implement training plan for accounting staff, 2007 including staff workmg inthe cost centers. There is needto select an independent audit fm Effectiveness Fundsto complete the 2005 audit have to carry out an audit o f the C M M accounts for the beensourced andwork is to commence year endedDecember 2005. C M M must also soon. The completion o f the 2005 audit as prepare an actionplan to address the weakness in well as the issuance o f a request for the C M Minternalcontrols notedbythe auditor in proposals for selection o f independent the last audit report and management letter. auditors for 2006 audit is an effectiveness condition. Conditionality 22. The following actions have been identifiedto be completed prior to credit effectiveness: e The C M M will have established an adequate financial management system, and adequate capacity to produce FMRs, in form and substance satisfactory to the Association, to ensure proper accounting andmonitoring o fproject funds; e The CMM will have adopted a Financial Management Manual, in form and substance satisfactory to the Association; 63  a The CMMwill have submitted its 2005 audited financial statements to IDA; a The CMMwill have issued the request for proposal for selection o f independent auditors for the 2006 financial statements, inform and substance satisfactory to the Association; 64  Funds Flow andReportingChart (MTn) 4 I I I I Designated Investment Recurrent Account L (US$) J L J \ J t A I I - I I I / \ Other Account (MTn) L J Foreign Local Currency Provide:s of Goods and Services Bank Accounts 23, The CMM maintains separatebank accounts for programresources as follows: Designated Account: A Designated Account (formerly called Special Account) with Millenium BIM Bank inUnited States Dollars which would be used to deposit advances fiom the IDA Credit Account; make payments in foreign currency to suppliers; and transfer the local currency equivalents to the Other Account in local currency noted below; Other Account: An account in local currency, preferably in the same bank as above to which draw downs from the Designated Account should be credited for financing eligible local currency expenditures under the program; 0 Revenue Account: Denominated in local currency, revenue from the central government (both capital and recurrent) as well as that generated by the C M M i s deposited into this account; 65  0 Investment Account:-Funds in respect o f investments (capital expenditures) are transferred from the Revenue account to meet approved expenditures are indicated inthe budget; 0 Recurrent Account: Funds to meet recurrent expenditures are transferred from the Revenue account to meet approved expenditures. 24. The CMM intends to consolidate these accounts into one account in line with the requirements o f the SISTAFE, but this i s not likely to happen inthe implementation period o f the program, and the depicted funds flow and reporting will be applied to the program. Disbursement o f IDA Funds 25. The program will use a combination o f Advance, Direct Payment and Special Commitments disbursement methods to access finds from the IDA credit. Supporting documentation to provide evidence that withdrawals from the credit are for eligible expenditures will be in the form o f original records and/or a summary report in the form o f statements o f expenditure (SOEs), providing information on payments for eligible expenditures. 26. Under the Advance disbursement method, the CMM will be required to submit a withdrawal application for the initial deposit to a separate Designated Account in an amount to be specified in the disbursement letter. Replenishment o f funds to the Designated Account will be made upon evidence o f satisfactory utilization o f the advance, reflected inSOEs and/or on full documentation for payments above SOE thresholds. The same Designated Account opened for the Project Preparation Facility (PPF) may continue to be used for the follow-on IDA credit. Any amount outstandinginthe DesignatedAccount at the time the PPFis refinanced is treated as a partial advance o f the amount agreed underthe follow-on credit. 27. Proceeds on deposit inDesignated Account may be transferred to another account o f the program if the need exists and if appropriate arrangements are in place to ensure that the proceeds so advanced will only be used for the purposes intended. These advances may be appropriate, among other things, to facilitate the payment o f large batches o f expenditures inthe local currency. Any advances from the Designated Account, such as to the Other Account, would be limited to amounts needed to cover 30 days forecasted local expenditures. Such advances would be reconciledback to the DesignatedAccount at the end o f each month. 28. Replenishment applications would be required to be submitted monthly. The program will prepare FinancialMonitoring Reports (FMRs) to track expenditures for the program, while there will be scope to continue exploring opportunities for the program to provide supporting documentation usingsummary reports inthe form o f interimunaudited financial reports. 66  Table A 1 Disbursementper ExpenditureCategoryto be financed by IDA - (USDmillionand YO) Category Allocated Expendituresto Be (1)Works under PartsA1 (h); C2; and C3 (e) (2) Goods 2,300,000 100% (3) Consultants' Services 6,400,000 100% (including audits) except for Parts C1 (d) and (f)) (4) Training 1,200,000 100% (5) Services (other than 80% in2007; Consultants' Services) for 65% in2008; and (a) Part C3 o fthe Project 3,200,000 50% thereafter (b)for all other Parts o f the 1,200,000 100% Project (6) Incremental Operating Costs except for Parts A1 (d) and (e) (7) Refundo f Project 1,200,000 Preparation Advance (8) Unallocated TOTAL AMOUNT 30,000,0000 I ForeignExchange Pavments 29. Any required payments inforeign currency will be made at the center by the C M M using the funds in the Designated Account. The option of disbursing the funds through direct payments and special commitments from IDA will only be made for expenditures above a certain threshold to be specified inthe DisbursementLetter. Withdrawal applications for suchpayments will be accompanied by relevant supporting documents such as copies o f the contract, contractors' invoices and appropriate certifications. 67  Conclusion 30. The overall conclusion o f the financial management assessment i s that in order to establish an acceptable control environment and mitigate the financial management risk, measures outlined inthe Financial Management Action Planshould be taken. Supervision 31. Financial management supervision will be carried out regularly by the Bank Financial Management Specialist (FMS) at least twice a year in line with the substantial risk rating. The initial supervision will be a review o f the implementation progress of agreed action plans noted above. The FMS will also: 0 Conduct a financial management supervision before effectiveness/disbursement; 0 Review the financial component o f the quarterly FMRs as soon as they are submitted to the World Bank; and, 0 Review the annual audit reports and management letters from the external auditors and follow-up on material accountability issues by engaging with the TTL, Client, andor auditors. 68  Annex 8: ProcurementArrangements Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram A. General 1. Procurement for the proposed program would be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described ingeneral below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank inthe Procurement Plan. 2. The Procurement arrangements for the Project are adequate. The Procurement Planwill be updated at least annually or as required to reflect the actual project implementation needs and improvements ininstitutional capacity. 3. Procurement of Works: Works procured under this program would include: Rehabilitation and extension o f roads network, rehabilitation o f sewage and drainage systems, construction and rehabilitation o f municipal office premises, rehabilitation and construction o f new traffic lights system, rehabilitation and construction o f markets, construction o f a cemetery. The procurement will be done usingthe Bank's Standard BiddingDocuments (SBD) for all ICB and National SBD agreed with or satisfactory to the Bank. Small works may be procured by requesting at least three writtenquotations from qualified contractors. 4. Procurement of Goods: Goods procured under this program would include: office furniture, office equipment, information technology equipment, vehicles, solid waste collection equipment (containers and tractors), landfill machinery (bulldozer and compactor), work tools and equipment (for primary collection), materials for rehabilitation and maintenance of street lights, and didactic materials (including books). Vehicles may be procured through IAPSO (United Nations agency). The procurement will be done using the Bank's SBD for all ICB and National SBD agreed with or satisfactory to the Bank. Small value goods may be procured under shopping procedures. United Nations Agencies and Direct Contracting may also be consideredwith the Bankprior review and approval 5. Procurement of Services (other than consultants' services): Services (other than consultants' services) to be procured under the program will include services for contracts for solid waste collection in urban and peri-urban areas, services for installation and technical support o f computerized systems, awareness campaigns, distribution o f notices for taxes payments, tax collection, field surveys and data aggregation. The procurement will be done usingthe Bank's SBD for all ICB andNational SBD agreed with or satisfactory to the Bank. 6. Selection of Consultants :Consultants' services required would cover consultancies for: works supervision; urban plans and detailed designs; review and upgrade City's directorate development plans; human resource management systems; training providers; institutional reforms; design o f a database and tax collection system to enhance revenue collection; 69  development o f urban space planning and management using a city information management system; advisory services. 7. All consulting service contracts costing more than US$100,000.00 equivalent for firms will be awarded through Quality and Cost Based Selection (QCBS) method. Contracts for highly specialized assignments estimated to cost less thanUS$lOO,OOO.OO equivalent may be contracted through Consultants' Qualification (CQ). 8. Least-Cost Selection (LCS) will be used for selecting consultants for assignments o f a standard or routine nature (audit services) where well-established practices and standards exist estimated to cost less thanUS$100,000.00. 9. Single Source Selection (SSS) maybe employed with prior approval o f the Bank and will be inaccordance with paragraphs 3.9 to 3.12 o f the Consultant Guidelines. 10. All services o f individual consultants (IC) will be procured under individual contracts in accordance with the provisions o fparagraphs 5.1 to 5.4 of the Guidelines. 11. Short lists o f consultants for services estimated to cost less than US$100,000.00 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o fparagraph 2.7 o f the Consultant Guidelines. 12. Training: This category would cover all costs related to the carrying out training courses and workshops, i.e. hiring o f venues and related expenses, stationery, and resources required to deliver the workshops as well as costs associated with financing the participation o f C M M sponsored personnel in short-courses, seminars and conferences including associated per diem and travel costs. Training programs would be part o f the Annual Work Plan and Budget and will be included in the procurement plan. Prior review o f training plans, including proposed budget, agenda, participants, location o f training and other relevant details, will be required only on annual basis. The C M M may, with prior approval, reimburse direct costs incurred by existing public sector institutions which provide training within their areas o f specialized expertise to municipalpersonnel. 13. Operating Costs: Operating costs shall consist o f office supplies; operation and maintenance costs for vehicles and equipment; financing o f salaries o f only newly recruited staff up to a maximum of 2 years for each staff member; travel expenses and subsistence expenditures; among others. 14. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, are presented in the OperationsProcurement Manual preparedby the Borrower. B. Assessment of the agency's capacity to implementprocurement 15. Procurement activities under the program will be carried out by the Procurement Department, Departamento deAquisiq6es, within the Directorate o fMunicipal Finances. 70  16. The Procurement Department i s vested with the overall responsibility for procurement activities within the Municipality, including those activities financed by other Bimultilateral Donors as well as the Central Government and the municipality's own funds. The Department will receive specialized support from the beneficiary DepartmentsDirectorates inthe preparation o f technical specifications and or terms o f reference as well as inContract supervision. 17. The Department will be staffed with a head o f Department, reporting to the Director for Municipal Finance, and at least three full time procurement officers lead by a Senior Procurement Specialist with qualifications and experience with procurement procedures from Multihilateral Development Banks including the World Bank. Some o f the procurement officers are currently involved inthe procurement activities financed by the on-going Municipal Development Project (MDP). 18. Under the decentralized structure o f the Municipality it i s likely that minor procurement activities funded by the Program will also be procured at the level o f Municipal Directorates and Distritos Municipais. The overall responsibility o f supervision and oversight o f the decentralized procurement will rest under the Procurement Department. The procedures to be usedby the decentralized unitswill be laid out inthe OperationsProcurement Manual. 19. An initial assessment o f the capacity o f the Implementing Agency to implement procurement actions for the project has been camed out by Ant6nio Chamuqo, CO Procurement Officer, under the supervision o f Mr. Slaheddine Ben-Halima, Senior Procurement Specialist and Hub-Coordinator on February 16, 2005. The assessment reviewed the organizational structure for implementing the project and the interaction between the program staff responsible for procurement financed under MDP and the Directorate o fMunicipal Finances. 20. The key issues and risks concerning procurement for implementation o f the Program have been identified and include: no prior experience in large technical assistance contracts, needed improvement o f filing, contract monitoring and record keeping systems, increased work load. 21. The permanent procurement staff will require that adequate capacity building and more acquaintance with Multilateral Development Banks (MDB) procedures be provided before and through effectiveness o f the program and subsequently on an intermittent basis to monitor and provide on thejob support. 22. To ensure that adequate skills will be provided to permanent municipal procurement staff, a Senior Procurement Specialist and a procurement officer will be recruited under TOR satisfactory to IDA. 71  ProcurementManagementAction Plan Works, Goods, Consultant's Services for staff inthe arlyin Program ocurementUnit 23. The overall project risk for procurement i s high. AEter one year o f Program implementation, the Bankwill conduct procurement post-review to re-assessthe Project risk. C. ProcurementPlan 24. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on 8 December 2006 and i s available at the City Council of Maputo (CMM), Praqa da Independencia, Maputo. It will also be available in the project's database and inthe Bank's external website. The Procurement Planwill be updated inagreement with the Project Team annually or as required to reflect the actual project implementation needs andimprovements ininstitutionalcapacity. D. Frequencyof ProcurementSupervision 25. Inaddition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended semi-annual supervision missions to visit the field to carry out post review o fprocurement actions. 72  Table A -Project Costs by ProcurementArrangements(IDA funds) Amounts in US$ million Expenditure TOTAL Category ICB NCB IOTHER IDA Works 5.5 8.3 Goods 1.5 2.5 Consultants' Services I7.3 7.3 Services (other than Consultants' services) (a) For subcomponent C3 Solid Waste Management 5.2* 3.2 (b) For other subcomponents 1.2 Training 1.4 Incremental Operating Costs 2.1 2.1 *TOTAL 12.2" 2.7 17.1 30.0 $3.2 million financed by Table A 2 -ConsultantSelection Arrangements(All Sources) Amounts inUS$ million Consultants' Method Services QCBS CQS LCS I C TOTAL FIRMS 4.2 1.1 0.2 0.0 5.5 IND 0.0 0.0 0.0 2.5 2.5 73  Table B: Thresholds for ProcurementMethods and PriorReview' Expenditure Contract Procurement Contracts Subject to Prior Category Threshold Review (US$> Method (US$) 1.Works >1,000,000 ICB All >500,000 - 1,000,000 NCB All 50,000 - 500,000 NCB PostReview <50,000 3 quotations PostReview (small works) 2. Goods and >200,000 ICB All Services (other 50,000-200,000 NCB First two contracts than <50,000 Shopping None Consultants' DC All Services) 2. Consultants' Services >100,000 QCBS All Firms ~100,000 QCBS,LCS and CQ First two contracts >50,000 IC All Individuals <50,000 IC none E. Detailsof the ProcurementArrangements InvolvingInternationalCompetition 1. Goods, Works, and Services (other than Consultants' Services) Bid Package Estimated Funding Procurement PriorlPost Closing- Number Description Amount Method Review Opening date A-O8/06/G Supply o f30 light vehicles 702,000.00 IDA IAPSO Prior Apr-07 Site survey andincorporationof B-O2/06/S data inthe system 884,900.00 IDA ICB Prior Jw-07 Supply ofIT equipment for DP, B-l1/06/G Municipal Inspectionand 212,600.00 IDA ICB Prior Jan-07 disbursement CollectionofMSW (Municipal C-O1/06/S Solid Waste) inthe highdensity 1,695,000.00 IDNCMM ICB Prior Jan-07 cement city (3 years contract out) RehabilitationandWidening C-O1/06/W Works ofAvenue General 5,500,000.00 IDA ICB Prior Apr-07 SebastiloMarcosMabote Secondarycollectionof SW in c-03'06's suburb areas and collection of MSW at marketsand fairs (3 years 2,710,000.00 IDNCMM ICB Prior Jan-07 contract out) C-05/06/G Bulldozerand compactor for HuleneDumpSite 622,000.00 IDA ICB Prior Sept-07 Supply ofphotocopymachines (15 A-01/06/G average size and 1heavy duty) for RAFandDP andaudiovisual 85,100.00 IDA NCB Post Aug-07 equipment(training) 74  Bid Package Estimated Funding Procurement Prior/Post Closing- Number Description Amount Method Review Opening date A-06106IG Furniturefor CMM and 15 RAF 40,500.00 IDA NCB Post Ju-07 Architectural equipment and A-O7/06/G software andcomputer network 150,000.00 IDA NCB Post NOV-07 mcludinglicenses during 3 years C-04106iG Supplyof 2 dumptrucks and2 tractors 180,000~oo IDA NCB Post Apr-07 Services for the marketing B-03106iS campaignnr. 1oftributary 100,000.00 IDA NCB Post Jul-07 schedule Installationo felectrical anddata B-05106iW networksandinterconnection 140,000.00 IDA NCB Post Aug-07 (a) Contracts estimated to cost above US$500,000 for works and US$200,000 for goods and servicesper contract and all direct contracting will be subject to prior review by the Bank. 75  2. Consultants' Services 76  Bid Package Estimated Funding Selection PriorPost Closing- Number Description Amount Method Review Opening date B- 5/06/cs Short TermConsultingServices-Bid evaluations 36,000.00 IDA IC Post NOV-07 B-16/06/CS Short TermConsultingServices - software development 9,000.00 IDA IC Post Jw-07 Designand Tender Documentsfor the B-19/06/CS Installationof Electrical anddata networksand interconnectionbetween 10,000.00 IDA IC Post Apr-07 buildings B-21/06/cs HiringofInternationalConsultant for sub component B2 192,000.00 IDA IC Prior Feb-07 C-O8/06/CS UrbanPlamng Advisor 96,000.00 IDA IC Prior Mar-07 c-14/06/cs Supervisiono fRehabilitationWorks for the Viaduct 21,000.00 GOM IC Post Ju~-07 C-l5/06/CS Elaborationof Traffic Lights Project 45,000.00 IDA IC Post Mar-07 C-l6/06/CS Hiring Supervisionfor Traffic Lights Pro.ect I 15,000~oo IDA IC Post NOV-07 c-17/06/cs ConstructionSupervisionof the new Directorate - DMSS 15,000.00 IDA IC Post May-07 ConsultingServices for the closing C-20/06/CS down and-rehabilitationofHulene- 50,000.00 IDA IC Pnor Jul-07 Dump Site C-22/06/CS TechnicalAdvisor for Infrastructures 128.000.00 IDA IC Prior Feb-07 (a) Consultancy services estimated to cost above US$100,000.00 equivalent per contract for firms and US$50,000.00 equivalent per contract for individuals and single source selection (SSS) ofconsultantswill be subject to prior review bythe Bank. 77  (b) Short lists composed entirely o f national consultants: Short lists o f consultants for services estimated to cost less than US$100,000.00 equivalent per contract, may be composed entirely of national consultants in accordance with the provisions o f paragraph 2.7 of the Consultant Guidelines. 78  Annex 9: EconomicandFinancialAnalyses Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram 9.1 EconomicAnalysis 1. Maputo's Municipal Development Program ("ProMaputo") i s being supported by an Adaptable Program Loan comprising an IDA Credit for the first phase (APL 1) o f 3 years o f US$30 million, The second phase (APL2) i s expected to last 5 years and to have an investment from IDA to be defined later, and subject to the conditions o f phase 1being met. This analysis was done on the basis o f the pre-appraisal budget and therefore differs somewhat from the final program budget. With regard to revenues, the data used were slightly more conservative at pre- appraisal than subsequently. This analysis is only based on the first phase (APLl) o f the program that comprises three components: Component (A) Institutional Development and Municipal Governance (US$8.9 million or 20 percent o f the total program baseline cost); (B) Municipal Finance (US$6.11 million or 14 percent); and (iii)Improved Service Delivery (US$29.35.8 or 66 percent). The total investment for the program i s estimated in US$44.39 million. 2. Component (A), Institutional Development and Municipal Governance lays the foundations for realizing the benefits from the investment in the remaining components. This component lays the necessary conditions for realizing the benefits from the investment in the other two components. This component addresses a number o f constraints related to institutional reforms, capacity building and improvements in municipal governance. This component will generate benefits arising from improvements in the execution o f the program and these will be captured inthe other two components. 3. Component (B), Municipal Finance has two subcomponents B1: Revenues and B2: Expenditures. Subcomponent B1 i s comprised o f a number o f revenue generating activities and its financial analysis i s presented in annex 9. The financial analysis o f component B shows an internalrate o freturn (IRR) o f 42 percent and a net present value (NPV) o f US$4 million. 4. The economic analysis o f ProMaputo focuses primarily on Component C: Planning, Infrastructure Rehabilitation and Service Delivery Improvements. Component C has 2 subcomponents: (Cl) Planning and Management o f Urban Space and (C2) Infrastructure and Service Delivery. Improvements (C2), which has four major activity areas (i) and Roads Drainage; (ii)Increased Quality and Coverage o f Solid Waste Management Services; (iii) Improve the Quality o f Cemeteries; and (iv) Enhance Public Safety through an Increase in Street LightingandTraffic Lighting. Component C: ImprovedService Delivery (US$29.3 million). Sub-component C.l: Planningand ManagementofUrbanSpace (US$5.7million): 5. It is difficult to quantify the benefits of this subcomponent. However, benefits are expected to arise over a long period o f time as a result o f improvements in the management o f urban spaces. Such improvement will mostly come from reforms in the distribution o f land use 79  rights and land ownership, and better planning and management o f infrastructure, and through the adoption o f an information system to expedite these processes. Sub-component C2:Infrastructureand Service DeliveryImprovements. C2-1: RoadWorks andAssociatedDrainages(US$10.9 million): 6. The rate o f road expansion in the City o f Maputo i s insufficient to cope with the continuous expansion road traffic demand. Moreover, existing road facilities continue to suffer progressive deterioration due to inadequacy and delay inmaintenance. To address this situation a Master Plan and Feasibility Study for the Road Sector inthe City o f Maputo (target year 2020) was completed in October 2001, and also some priority investments in the sector have been completed. The Study covers the entire area o f the City o f Maputo (excluding Inhaca) and some ofthe roadsections identified inthe Study are included inthe APLl. 7. The first phase o f the program includes investments in 16.4 km o f street roads and 11.6 km of rehabilitation of arterial roads. The roads were selected on the basis of improvements in traffic management, the opening o f access to new settlements, and enhancement in property values through improvements inaccess. This subcomponent i s expected to provide Maputo City with improved access to properties and integrated road networks for more efficient traffic flow management. 8. Methodology: The methodology used i s cost-benefit analysis o f a "with-project" and "without-project" cases. The investments cover priority streets and main urban arterial roads. The economic analysis i s based on homogenous road sections, in terms o f traffic and road condition. The roads considered in the economic analysis are grouped around the main streets noted in the first column of Table 1. The main assumptions used in estimating the Net Present Value (NPV) and the Economic Internal Rate o f Return (ERR) are as follows: 9. Investment costs. The investment costs for both periodic maintenance and upgrading are shown in Table 1. The costs for periodic maintenance range between US$58,000ikm and US$123,000ikm. The investment costs o f the upgrading works ranges between US$158,000/k~n and US$840,0OOh. Road maintenance unit costs is on average US$1,675/km for paved roads andUS$7,56Oh for gravel roads. No. of side streets 80  Tramc Length (km) Total Cost Periodic Maintenance Routine Maintenance Count cost cost Av. Marginal 16,382 3.000 546.00 319.80 5.02 G. Sebastiao 19,084 5.600 4,704.00 688.80 42.34 Sub-total 11.600 8,597.85 2084.52 98.68 10. The construction period for most work is expected to be about one year, although some o f them may be completed in shorter periods. The cost-benefit analysis o f the civil works i s based on detailed cost and traffic data that the CMM collected as part o f the Appraisal o f APL 1. The discount rate used was 12 percent and the expected economic life was set at 15 years with periodic maintenance every 7 years. 11. Program Benefits. The main benefits o f the road works and associated drainage are due to savings in Vehicle Operating Cost (VOC) and accidents, and benefits from generated and diversified traffic. Net benefits estimates were calculated with the Highway Development and Management Model (HDM-4/ RED), which stimulates highway life cycles; vehicle operation conditions; and costs for multiple road designs and maintenance alternatives. There are number o f potential benefits associated with the investment but they were not quantified due to lack o f data. These benefits arise from savings in travel time; additional income coming from rental properties that would have improved access; and savings from the prevention o f damages in roads, properties and structures, due to improvement in drainage. Vehicle Operating Costs were calculated for four categories o f vehicles: light vehicles (91 percent o f the traffic count), buses (2 percent o f the traffic count), medium size trucks (3 percent o f the traffic count) and heavy trucks (4 percent o f the traffic count). Light Vehicle Bus Medium HeavyTruck PavedIRI=3 Good 0.245 0.270 0.474 0.760 Paved IRI=12 Poor 0.325 0.380 0.710 0.1.150 Difference 0.080 0.110 0.236 0.390 Weighted 0.073 0.003 0.007 0.015 Table4: Structureof traffic 81  12. Traffic Count. The post-construction traffic is based on traffic counts in main streets made in 2006 for the purpose o f the appraisal o f the program. The traffic counts on the minor streets are estimated at 5 percent o f those o f the main streets. The improved access is expected to generate 2 percent and to divert another 2 percent o f the projected traffic on minor streets. It i s assumed that post-construction traffic will grow from 2006 levels at annual rate o f 4.1 percent for the economic life o f the program. This rate is in line with the GDP projections for Mozambique. 13. Accident savings. The improvement in foot paths will have a positive impact on the reduction o f accidents among pedestrian. However, there i s not sufficient data to quantify the full impact of these savings. Regarding Savings in Travel Time, the potential benefits due to travel time savings are not includedfor the calculations o f the minor streets. 14. Results of the Cost-benefit analysis. Table 5 presents the results for the base case. Sensitivity analysis i s carried out by (a) increasing the investment by 25 percent; (b) decreasing the net benefit by 25 percent and (c) by combining both (a) and (b). For the road investment as a whole the base case has an ERR o f 106 percent and a NPV o f US$38.6 million. The worst case scenario (c) has an overall return o f 65 percent and a NFV o f US$28.6 million. All these results show that overall the programhas a robust return on investment. Investment Investment Benefit +25% and Roadsections ERRs/NPV Base Case +25% -25% Benefits-25% ERR Ave. Vladmir b i n 18% 13% 11% 6% NPV $180,627 1 $23,163 I ($21,993)I ($179,457) ERR 18% 12% 10% 5% ERR Ave. Julius Nyrere 24% 18% 16% 11% NPV $388,797 $219,474 I $122,275I ($47,047) ERR 20% 15% 13% 8% ERR Ave G. Popular& Rua 25% 19% 18% 14% daBeira NPV $436,848 $309,605 $200,392 $73,149 ERR 17% 12% 10% 6% NPV $166,522 ($6,818)I ($48,448)I ($221,787) ERR Ave. G.Sabasteo. 100% 80% I 75% I 60% NPV $3,172,755II $3,009,061 I $2,215,873I $2,052,179 ERR 106% 85% 80% 65% 82  C2-2: Solid Waste Management (US$9.1 million): 15. This subcomponent i s designed to increase the quality and coverage o f solid waste management both through internal improvements in the CMM's solid waste management operations, as well as in partnership with the private andnon-government sectors. As currently organized C M M collects less than 253 todday or 40.5 percent o f the daily generated solid waste. The revenue generated from the residential fee covers less than 30 percent o f the total cost and the total revenue covers less than 50 percent o ftotal costs. Affordability relative to the fee i s low at 29 percent. C M M i s committed to adopt a sustainable waste management scheme that i s designed to achieve fbll cost recovery by the end o f APL2 (2013). The basis o f the cost recovery i s as follows: 16. Changes infees: C M M plans to base its residential waste collection fees on the amount of electricity consumed. The proposed monthly rates were 0.15 MTn/kWh per household for 2007, 0.25 MTn/kWh for 2009 and 0.25 MTn/kWh by 2013. (These rates were approved after this analysis). 17. Renegotiation of the EDM commission: CMM also plans to renegotiate the collection commission that EDMcharges from 20 to 10percent. 18. Revenue: Revenue estimates are based on a set o f assumptions on the growth rates of: population, economy, number household EDM can reach, electric consumption, and level o f EDM's commission charged. 19. Investments: Investments are foreseen on basic hand carts, roll-on-roll-off small containers, dump-trucks, containers, compactors, etc. A detailed schedule o f investments for the sustainable management o f solid waste inthe City o f Maputo has been worked out. 20. Operation and Management: Inline with the policies o fpublic-private partnerships and the participation of non governmental bodies, the design o f the solid waste management system calls for contracting out the disposal o f solid waste. The program includes the financing of such contracts. Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Revenue 908.9 1,718.9 2,640.1 3,803.4 4,288.1 4,593.1 4,970.0 6,027.3 6,230.0 6,441.0 6,659.6 (`000) Investment 586.2 1,163.1 302.7 333.5 934.6 185.3 963.7 1,049.9 300.2 319.2 404.8 (`000) Operation 1,040.90 1,813.7 2320.5 2,825.6 3,587.6 4,053.9 4,484.2 4,625.5 4,758.6 4,871 4,985.6 & Manag.. (`000) Cash flow -718.20 -1,257.9 16.9 644.3 -234.1 353.9 -477.9 351.8 1,171.2 1,250.8 1,269.2 Cumulative -1,976.1 -1,241.0 -596.7 -830.8 -476.9 -954.8 -602.9 568.2 1,819.0 3,088.2 cash flow 21. Assuming, the proposed fee increases for residential waste collection is implemented on schedule (0.15 MTn/kWh per household for 2007, 0.25 MTn/kWh for 2009 and 0.25 MTn/kWh by 2013) and that C M M succeeds in lowering EDM commission charges, the solid waste management operation can achieve full cost recovery by the end o f APL2 (2013). The net 83  present value of the cash flow at a discount rate o f 12 percent is positive US$0.65 million; and the internal rate o f return is 20 percent. Both the NPV and IRR are sensitive to variations in residential waste collection fees and EDM service charges. The sustainability o f the waste management system therefore rests on the timely execution o fthe scheme as planned. C2-3: Constructionof a new cemetery (US$1.1 million): 22. The current cemetery inthe City o f Maputo has reached its full capacity. The CMM has an urgent need to develop a new site for providing adequate cemetery services. The current monthly revenue and operation maintenance costs o f the city cemetery are as follows: Table 6: Revenues and costs of cemetery services Receipts Monthly(Mtn) 1 Burial semces (75Mtn- 25Mtn bunal, 5OMtn markings) 40,000 ExpenditureItems 1 Salaries 299,650 2 Water 70,000 3 Electricity 6,000 4 Other expenses(fuel, materials, etc) 40,000 5 Stationenes 1,000 6 Sub-total 416.650 I Subsidy -376,650 23. On the average, burial services are provided for 40 people every day. To fill the financing gap the CMM i s considering a number o f alternatives, including the participation o f the private sector. The participation o f the private sector will be determined by a study that will be carried out. It i s possible that the financing gap would be narrowed with the participation o f the private sector in cemetery services. Nevertheless, even if costs cannot be hlly recovered there i s a social obligation o f the state to provide basic cemetery services to its population. Local customs and traditions as well as the low income level o f manyo f the residents of Maputo do not seem to support significant increases in cemetery fees, not even to cover the operating cost. Therefore, it i s likely that the C M M will have to increase its revenue through the provision o f other services to cover the cemetery subsidy, which i s now estimated at about US$1per burial. C2-4: Increasepublicsafety through an increasestreet lighting(US$0.3 million): 24. The objective o fthis activity i s to meet ina cost-effective way the concerns o f citizens to enhance public safety through an increase in street lighting. The investment inthis area i s small compared to the overall cost o f the program and its associated benefits measured as savings in crime are difficult to quantify. However, inaddition to any savings arising from crime reduction, this investment mayhave associated benefits from an extensioninthe provision o felectricity and waste collection services. This investment i s planningto provide 500 electric poles at a distance o f 40 meters apart along the urban streets. This creates potential for residential access o f electric services to about 2,000 households. Expanding the electricity network would help CMM to charge US$0.6 per household inwaste collection fees. 84  9.2 FinancialAnalysis I.Summary 25. A financial analysis was prepared for component B o f the program. All the results from the analysis support the financial viability o f the investment in component B. According to the calculations by the second year o f the program (2008) the expected revenues will be higher than the projected administrative and collection costs. The analysis also shows that by 2010, which is one year after the termination o f the first phase o f the program, the investment o f this component will become sustainable. Based on the program costs and revenue projections, the analysis calculated an IRR o f 42 percent and a NPV o f US$4 million. Such results are the product o f a number o f assumptions and calculations that are discussed below. 11. Revenueprojections 26. The revenue projections o f the program were calculated as the difference in projected revenues "with" and "without" the program intervention. Both projections, with versus without the intervention, were based on a number o f assumptions. 2005 was used as a baseline year. The revenue projections used for the different calculations o f this analysis are the net or marginal increases that result from the program intervention. The "with" and "without" project scenarios were prepared according to a number o f assumptions mostly coming from: R. Faber and M.L. Rodrigues (2006) "Study to determine the revenue potential o f the Municipality o f Maputo". The assumptions used in this analysis were selected very conservatively so as to calculate low case scenarios. Thus, in case more revenues are actually generated during the program, then the financial analysis here presentedwill improve. Own source-revenues 27. The taxes and fees used inthe analysis are: (1) Heador polltax: Imposto Pessoal Authrquico (PA) (2) Property tax: Imposto Predial Autdrquico (PR4) (3) Fee on economic activity: Taxapor Actividade Economica (TAE) (4) Market fees: Taxa do mercados (5) Parkingfees: Taxa do estacionamento de veiculos (6) Fees for the use o fpublic space: Taxadepublicidade 28. These taxes and fees, together with the waste collection fee (Taxa de Lixo), represent more than 90 percent o f the total own source revenues o f the City o f Maputo. This financial analysis o f component B excludes the waste collection fee, because this fee i s being considered in the calculations of the economic analysis o f the investments covered in component C. However, notice that this fee i s highly significant as a proportion o f total own source revenues (18 percent) and including it inthe analysis would render the investment under this component sustainable by the second year o f the program. Revenueprojections withoutprogram intervention 29. For these projections a number o f calculations were made using a different number o f assumptions. Finally, it was decided prudentlyto project the revenues with a 10 percent annual 85  increase, which amounts to roughly the average inflation rate o f 2004 and 2005 - the only two revenues were projected for ten years - until 2015. These same assumptions were used for years for which reliable data i s available. The baseline year for the projections was 2005 and projecting all the six own-sources o frevenueconsidered inthis analysis. Revenueprojections withprogram intervention IPA 30. The P A projections were calculated at a fixed rate o f 5OMTn per year for the three years. No rate increasewas considered. An expansion of the base o f 50,000 persons per year (150,000 total) was assumed. This implies an absolute increase in the tax base from 105,000 persons in 2005 (base year) to 250,000 persons in 2009. This represents 60 percent o f the total calculated universe of this tax base (410,000 persons) and is considered to be a conservative and realistic estimate o f taxpayers who can be identified, billed and collected from. Following the same assumption, by 2012 the tax base would reached 400,000 taxpayers. From 2012 onwards, no mher expansion of the base was considered, so the total number of taxpayers from 2013 to 2015 was taken as 400,000 per year. IPRA 31. PRAisthemunicipaltax withthehighestrevenuepotential. However, the current legal framework o f municipalities limits this potential in a number o f ways as explained below. For this reason, the projections made for this tax are based on very low-case scenarios that do not require any type o flegal changes. 32. In 2005 (baseline year) the municipal cadastre of PRA had 13,127 registries. It was calculated that the City o f Maputo has 223,888 properties o fwhich 56,061 are made o f brick and have a water connection (Faber and Rodrigues, 2006). From the current cadastre o f 13,127 properties, only about 300 properties pay taxes basedon a close to market value. The rest o f the properties make very low payments, whose values are calculated on the sale prices at the time when these properties were sold by the state. Taken all together, the taxes paid by the 13,127 properties result in an average payment o f 1,766MTn (US$71), and excluding the high-value properties o f 950MTn (US$38). 33. Dueto the legalrestrictions inplace to reassessthe properties to aclose to market values and to adjust the tax rates, ' two scenarios were calculated according to the following assumptions. Both scenarios usedthe most conservative average payment value o f 950MTn for their calculations. Both scenarios only consider for the duration ofthe program the properties o f brick and with piped water (56,061) as the total number o f taxable properties. The remaining 167,000 existing properties may also have some value and could pay a property tax (perhaps a very low flat rate); however, they are only included inthe calculations after the year 2009. 'Currently, there are a number o f legalrestrictions inplace that prevent the CCM to take full advantage of its potentialproperty taxes. These restrictions apply bothto properties that still belong to the state as well as to those properties that used to belong to the state, but that now are privately owned. Concerning the properties that still belong to the state, the main restriction i s that there are manyproperties that are pnvately occupiedbutbecause they formally belong to the state, they are exempted from IPRA. The problem withthe pnvately owned properties that usedto belong to the state is that the value o fthese properties (which is used to calculate the IPRA) i s the one set at the time when the state sold these properties, which is far lower than the market value o f these properties. 86  34. From the existing 56,061 properties of brick and with piped water, 13,127 are already registered inthe cadastre. This means that there are about 42,000 taxable properties that can and should be incorporated into the cadastre. Scenario 1, considers that only half o f that potential (about 20,000) are incorporated into the cadastre during the three years o f the program, and the remaining 20,000 properties are incorporated during 2010 and 2011. Scenario 2 considers that all the 42,000 properties are registered and taxed during the three years o f the program. Both scenarios consider that once all the properties o f brick and with piped water are incorporated into the cadastre the very low value properties will also become taxable inthe remaining years of the analysis-until 2015. There are 167,827 properties o f very low value, and it was assumed that only half o f those properties (83,913) will make a payment, the other half will pay no tax at all. For the paying properties, calculations were made assuming a very low fix payment o f 1OOMTn per property. 35. These revenue projections o f IPRA are very conservative. Not only i s the expansion o f the base i s basically limited to the properties o fbrick andwith pipedwater, but most importantly, the average payment value assumed i s quite small (950 MTn). Once legislation i s passed to reassess properties at a close to market values and the municipality has autonomy to adjust the rates, at least to keep up with inflation, the revenue potential o f IPRAwill increase substantively. TAE 36. The TAE projections assumed for economic activity tax a total increase inthe base o f this fee from about 2,000 to 9,500 taxpayers. After 2009 the total number o f taxpayers kept at a constant number o f 9,500. Due to lack o f credible data, it was assumed, on the basis o f Faber and Rodrigues' (2006) study, that at least 10,000 properties inthe city are subject to this fee which - i s less than 5 percent o f the total number o f properties in the city. The projections assumed that 2/3 o f the "new" taxpayers will pay the lowest rate o f 2,000MTn and 1/3 the highest rate o f 9,000MTn. Market Fees 37. The projection for the market fees assumed a fixed nominal increase o f 40 percent inthe rates from the baseline year o f 2005 to the first year o f the program. From 2008 onward the same constant value o f 2008 was assumed. This increase o f 40% has been approved by the Municipal Assembly, and there i s a belief that this rate increase will be approved. This projectiondoes not consider any increase inthe tax base. Parkingfees and fees for the use of publicspace 38. The current view o f the City's Finance Department i s that responsibility for the collection o f these fees mostly depends on each specific department. Because o f this, no additional increase was assumed for any o fthese fees aside from the 10percent increase already considered inthe projections without the programintervention. 111.costs 39. The cost projections involved two different types o f calculations. One i s the calculation o f the total cost of the program by component, sub-component and activity, and the other calculations involve the administrative and collection costs o f taxation. 87  Total cost ofprogram investment 40. The costs used inthis analysis come from an internal exercise inwhich the City Council o f Maputo estimated the costs o f each component, subcomponent, and activity o f the program under the overall credit envelop. This financial analysis only considers the activities o f component B1 (revenues) and B2 (expenditures) that have associated costs and which will be incurred during the three years o f the duration o f the first phase o f the program - excluding the costs incurred by the Project Preparation Facility. The total cost o f the component and subcomponentsby year i s as follows: 2007 2008 2009 1st phase B1.Revenues 1,912,300 1,082,300 731,600 3,726,200 B2. Expenditures 1,088,720 644,360 308,800 2,041,880 Total (Bl and B2) 3,001,020 1,726,660 1,040,400 5,768,080 41. The total estimated cost o f the program i s US$44.4 million o f which 68 percent (US$30 million) will be financed by IDA. The distribution o f the IDA financing by component does not form part o f this analysis, but it i s assumedthat all the financing o f component B will come from IDAresources. Administrative and collection costs of taxation 42. The financial analysis also made a rough calculation o f the administrative and collection costs associatedwith each o f the six revenue source considered. Since the precise calculation o f such costs requires much more detailed information than i s readily available, such calculations derive from a number o f assumptions. The only available information to prepare these cost estimates came from the budgetary allocation by municipal department in 2005. With only this data available, the first step o f the exercise consisted inidentifying the municipal departmentsin charge o f the administration o f each revenue source. After that, the analysis made a rough estimate o f the proportion o f the municipal department's budget assigned to the administration and collection of the taxes and fees. That was calculated according to a number o f simple parameters explained in the table below. As o f the budgetary allocations to which the factors were applied, the total budgetaryallocation of each department consists o f three items: personal expenses (mostly wages and other remunerations), goods and services, and capital expenses. The budgetaryallocations to which the factors were applied excluded capital expenses, as it was considered that they do not directly incur any administrative or collections cost. Although it i s difficult to give precise estimates relaying on such general assumptions, it is believed that the cost estimates are on the high end, as they represent about 40 percent o f the total current budget o f all the municipal departments that are involved inthe administration o fthese taxes and fees. Table 2: Factors for calculating administrative and collection costs of taxes and fees Revenue source MunicipalDepartment Factor Explanation l l IPA I1VEREACAODE ECONOMIA II0.10 IIItis estimatedthat nomore than 10% E FINANCAS ofthe resources of this department are appliedto this end. I VEREACA-OESDISTRZTAIS I 0.25 It is estimated that about 50 percent of  the districts' budget is spent on the collection o f IPA (25%) and TAE (25%). The remaining 50% o f the districts' budget goes to activities related to the management of public space. IPRA VEREACAODE ECONOMIA 0.30 Factor basedon the number o f people E FINANGAS working inthe IPrA department that is about 30% o f its total personnel. TAE VEREACAODE ECONOMIA 0.05 It is estimated that no more than 10% I E FINANCAS of the resources o fthls department are applied to this end. VEREACA-OESDISTRITAIS 0.25 It is estimatedthat about 50 percent o f the districts' budget i s spent on the collection o fIPA (25%) and TAE (25%). The remaining 50% of the districts' budgetgoes to activities relatedto the management o f public space. Market fee VEREACA-0PARA 0.50 This is an important function o fthe ABESTECIMENTO, department, so it i s assumed that MERCADOSE FEIRAS accounts for half o f its budget. Parkingfee VEREAC~O DE 0.10 This department has very many TRANSPORTESE activities inaddition to the collection COMUNICA GOES ofparking fees, so it was calculated that only 10%goes to that end. Fee for the use of VEREACAODE 0.10 This factor represents 30% o fthe public space DESENVOLVIMENTODE budgeto fthe Municipal Unit o fworks INFRAESTRUTURAS and publicity, which inturnrepresents (direcp7o Municipal de Obras about 30% of the total budget o fthe e Publicidade) Department. Thus, it was estimated that the collection o f these fees represents about 10percent o f the total budget o f the Department. IV. Financial analysis 43. This financial analysis consists o f three parts. Part one calculates the net revenues o f the projected taxes and fees, discounting its associated collection and administration costs; part two estimates the payback period for the investment; and part three calculates the internal rate o f return and net present value o f the investment incomponent B. Net revenues 44. For the net revenue calculations, the analysis estimated the total administrative and collection cost per year for all the taxes and fees considered in this analysis. The baseline year for these calculations was 2005. The analysis projected these figures for the three years o f the program assuming a net percent yearly increase startingin2007. The net increase was calculated as the absolute difference between the regular cost increase "without" the program and the cost increases due to the program intervention. Two scenarios o f net increases were calculated, one for a 10percent net increase and one for a 20 percent net increase. The projections o f these costs per source o frevenue are presentedinappendix table A1, 45. To calculate the benefits o f the program, the analysis calculated the total amount o f net (additional) revenues by subtracting the "without-intervention" fiom the "intervention" revenue 89  projections. These revenue projections come from the revenue sources that are expected to increase as a consequence o f the intervention. Note that all these net revenues come from activities related to component B1that deals with revenues. The activities o f component B 2 that deal with expenditures are not expected to generate any direct revenue increase. 46. The financial analysis compares two scenarios o f the total costs with two scenarios o f the benefits or total expected revenues. Scenario 1 o f the total costs assumes a 10 percent net increase and scenario 2 a 20 percent net increase. On the benefit side, scenario 1 assumes that the expansion o f the IPRA base in the last two years o f the program will include half o f the unregistered properties o f cement and with piped water, and scenario 2 considers that all those types o f properties will be registered (see appendix table A2). Usingthese highand low cost and benefit scenarios (see appendix table A3), the analysis produced four combined scenarios, as presentedinthe table below: 47. According to this analysis the net revenue (benefit) o f the total investment i s positive under all scenarios. Only in the first year o f the program costs are higher than the expected benefits. By the third year, the program becomes financially sustainable and remains like that in the subsequent years. That i s in 2008 and 2009, as in the total first phase o f the program, net revenues are positive. It i s calculated that the expected net revenue gain o f the program may vary from almost US$700,000 in the lowest case scenario, to US$2.2 million in the highest case scenario presented above. I t is important to recognize that the highest case scenario still remains a conservative estimate. Paybackperiod 48. For calculating the return on investment o f the program, the analysis calculated the total cost per year for all the activities o f the municipal finance component for each o f the three years o f the program. For the revenue projections, the analysis estimated the total amount of'net (additional) revenues by subtracting the projections o f the "without-intervention" from the "with- intervention" projections. These revenue projections come form the revenue sources that are expected to increase as a consequence o f the intervention. Note that all these net revenues come from activities related to component B1 that deals with revenues. The activities o f component B2are not expectedto generate any direct revenue increase. 49. The financial analysis compares the total costs with the total expected revenues o f two scenarios. Scenario 1 assumes that that the expansion o f the IPRA base in the last two years o f the program will include half o f the unregistered properties o f cement and with piped water, and scenario 2 considers that all those type o fproperties will be registered. The result o f the analysis shows that inthe first two years o f the program, costs go beyond the projected revenues. By the third year, the program becomes financially sustainable and remains like that inthe subsequent years, at least until2015, the last year to which revenue projections were made. 90  I Totalcost I 3,001,020 I 1,726,660 I 1,040,400 I 5,768,080 I Total revenue (Scenario2) I 778,814 I 1,549,793 I 2,566,419 1 4,895,025 Cost -Revenue I(2,222,206) I (176,867) I 1,526,019 I (873,055) 50. According to the results presentedinthe previous table, inthe first phase o f the program the additional revenues generated by the program will finance between 67 and 85 percent o f the total investment of the municipal finance component. Because o f the initial costs o f expanding the tax registries and installing more efficient tax systems are high, the investment cannot be fully recovered in the three years o f the program. However, once tax bases expand and tax systems improve the different revenue sources will report additional resources every year, then the investment becomes sustainable one year after the termination o f the first phase o f the program. According to the revenue projections presented in the following table, by 2010 the municipality will be generating more additional revenues than the total cost o f the investment. Also, note that all the revenue projections were calculated on very conservative assumptions. Basically, no changes in rates and in the value o f properties were assumed. Thus, if rates increase, even if only to keep up with inflation, or the taxable value o f properties i s adjusted to close to market values, then financial sustainability can be ensured during the first phase o f the program. The program i s an APL o f 8 years, but calculations have not been made for the full program given the lack o f detailed informationo f investments for APL2. Table 5: Pavback Deriod (%US) 2007 2008 2009 2010 2012 2015 Accumulatedcosts 3,001,020 4,727,680 5,768,080 Accumulatedrevenues (Scenario 1) 778,814 1,986,607 3,869,025 5,965,333 10,448,003 15,591,150 Accumulatedrevenues (Scenario 2) 778,814 2,328,607 4,895,025 7,389,273 12,067,731 17,294,770 Internal Rate of Return and Net Present Value 51. Based on the program costs and revenue projections, the analysis calculated an IRR and NPV for the investment in component B. Using the revenue projections o f the conservative scenario 1(see above) and the total costs for the component result in an IRR o f 42 percent and a NPV o f US$4 million. The discount rate used was 12 percent. Sensitivity analysis was performed both on a 25 percent cost increase and a 25 percent benefit reduction (see table 6). Combining these cost increases and benefit reductions the investment in component B has an IRR o f 16 percent and a NPV o f US$600,000. All these calculations support the financial viability o f the investment incomponent B. Table 6: IRR and NPV Total Costs +25% Benefits- 25% Costs +Benefits IRR 42% 29% 25% 16% NPV($US) 4,054,524 2,855,399 1,841,768 642,642 91  V: Appendix Figures are in$US. Benefits-Scenario B1(half no. properties) 2007 2008 2009 1' Phase IPR4 227,390 473,261 709,518 1,410,169 IPA 127,885 210,674 291,741 630,301 TAE 86,832 233,948 642,725 963,505 Market fees 336,706 289,910 238,435 865,051 Fees for use of public space Total I778,814I1,549,793I2,566,419I4,895,025 Figures are in$US. 2007 2008 2009 1' Phase Costs-Scenario C1 (10%) 798,916 878,808 966,689 2,644,413 Costs-Scenario C 2 (20%) 871,545 1,045,854 1,255,025 3,172,424 Benefits-Scenario B1(half no. properties) 778,814 1,207,793 1,882,419 3,869,025 Benefits-Scenario B2 (total no. properties) 778,814 1,549,793 2,566,419 4,895,025 92  Annex 10: SafeguardPolicy Issues Mozambique ProMaputo:The MaputoMunicipalDevelopment Program 10.1 ExecutiveSummary-Environmentaland Social Management Framework(ESMF) 1. Maputo City Council i s preparing a program - the Maputo Municipal Development Program (ProMaputo) - to support improvements in institutional and organizational development, financial management and implement certain priorities in the area o f service delivery inthe municipality. 2. The program is envisaged to cover 10 years with an 8 year APL from IDA to support it in two phases. Phase 1 (3 years) will focus on institutional and financial restructuring as well as low cost, quick-win infrastructure and service delivery improvements. Phase 2 (5 years) will consolidate the achievements o f Phase 1 and i s likely to finance larger scale infrastructure and service delivery improvements inrelation to roads, markets, water supply, sanitation, solid waste management, gardens, public transport, traffic lights andpublic lighting. 3. The program has been classified by World Bank as a Category B project based on the types o fprojects it comprises. 4. The objective o f the present ProMaputo's ESMF is to define a process that will ensure that all infrastructure activities includedinthe program are implemented ina way that safeguards both the biophysical and social environment. A Resettlement Policy Framework (RPF) has also been prepared under separate terms o f reference, and will be implemented in conjunction with this ESMF. 5. This ESMF is anupdate o fan earlier Environmental andSocial Management Framework carried out in the context o f the Municipal Development Program during the year 2000 which included Maputo and seven other municipalities (as per the Terms o f Reference). This update takes into consideration all relevant Mozambican legislation as well as World Bank safeguard policies. This updated ESMF has been prepared by a Borrower Consultant and reviewed and approved by the World Bank's Safeguard Specialist who i s a member o f the project team and who advises on all safeguard related matters. Both the ESMF and the RPF were disclosed in country and at the World Bank's InfoShop prior to Appraisal o f the Project. The purpose o f the Environmental and Social Management Framework (ESMF) i s to provide a strategic guide for the integration o f environmental and social considerations inthe planning and implementation o f the ProMaputo activities. 6. The development objective o f Phase 1 o f ProMaputo is to "Strengthen the Maputo City Council's institutional and financial capacity to support achievement o f long term service delivery goals and improve solid waste management". The Program recognizes that Maputo City is startingfrom a position o f extremely limited resources, humanand financial, a very weak institutional context where most systems (financial, strategic, urban planning, property registry, information technology, etc.) are lacking and where there was almost no basic equipment for the functioning o f the city council itself (faxes, internet) for the delivery o f services to the citizens, 93  7. The first phase focuses mostly on the restructuring o f the CMM, with approximately US$14.5 million for institutional development and financial reforms, and US$26 million for some quick win investments in visible infrastructure rehabilitation and service delivery. These investments will deliver tangible results that will help maintain political credibility to continue the reforms. They will also demonstrate that with increasedresources and capacity, the city can deliver more services, therefore encouraging citizens to pay taxes and fees to initiate a virtuous cycle. Phase Iwill also evaluate and possibly scale up pilot exercises in slum upgrading and public private partnerships that were financed by Cities Alliance and PPIAF (respectively). 8. By the end o f Phase 11, significant improvements in service delivery will be visible in areas that citizens themselves have identified, such as: solid waste management, street lighting, road rehabilitation and drainage and cemeteries. The bulk o f these investmentswill take place in the poorer urban districts that are mostly informal and have slum characteristics, with a slightly different focus per district based on the report card priorities identified in each and the poverty assessment done for the program. Maputo i s the gateway for investors and tourists into Mozambique, as such, some o f the key investments will also target the "Cement City" to remove bottlenecks to productive investments and to increase the city's competitiveness for foreign and local investors. 9. Progress towards the CMM's goals will be measured annually through indicators detailed inthe results framework and a more comprehensive matrix for the C M M to monitor itself. The Program's design emphasizes monitoring as an integral function o f the responsibility o f the line management, with overall responsibility resting with the Mayor supported by the Office o f Strategic Planning and Institutional Development (GDEI). The governance structures that the mayor has established, such as the mayor's Consultative Council o f highlevel local business and community leaders as well as the annual Citizens Report Card, will provide additional mechanisms for monitoringprogress. 10. Most importantly, the conditions for initiating Phase I1 will be concrete measurable indicators that demonstrate whether the institutional and fiscal hndamentals are in place, and whether they are leading to some (realistic) improvements in service delivery inprioritized areas such as solid waste management. Inyear three o f Phase I,specific outcome indicator figures for Phase I1will be determined based on the achievements under Phase Iand updated performance targets informed by data provided from the 2007 Census. 11. According to Mozambican Environmental Law, the World Bank's safeguard policy OP4.01and Mozambique's Environmental Impact Assessment Guidelines, ProMaputo would fall under the list o f projects for which environmental impact assessment i s mandatory, prior to implementation. The basis i s that the proposed program constitutes several components o f activities, which would generate environmental impacts albeit insignificant and which effect needs to be mitigated. 12. The proposed ProMaputo activities have been categorized as By according to the Environmental Assessment Operational Policy; and therefore, the need to carry out the ESMF. Since the infrastructure investments and their potential negative localized impacts will only be firmed up at appraisal, the ESMF has been prepared to ensure appropriate mitigation o f potential negative environmental and social impacts. Although the program activities will vary in size, location, scope and the approach in implementation, most o f these activities will involve civil works which might have generic environmental impacts. 94  13. As designs for identified investments are finalized, the complete proposal shall be screened on its environmental and social merits including the environmental category o f the investment. For category B investment proposals requiring an EA, the proposal shall include the EA report and proof o f its approval by MICOA and the World Bank Safeguard Specialist o f the project team. For category B proposals that do not require the preparation o f a separate EA, the completed environmental and social checklist will be attachedto the investment proposal. 14. The ESMF has been prepared as a guide for the initial screening o f the proposed activities o f both Phases Iand 2, and for negative environmental and social impacts, which would require attention prior to investment implementation. The ESMF outlines a number o f strategies inundertaking the exercise. These include: e an outline o f a comprehensive checklist for the potential environmental and social impacts and their sources; e systematic procedures for participatory screening processes for investment sites and program activities for environmental and social considerations; e a step-by-step procedure for forecasting the main potential environmental and social impacts o f the planned investments; e a typical environmental management plan for addressing negative externalities in the course o f investment implementation and operations within environs; e a monitoring system for implementation o fmitigationmeasures; and e an outline o f recommended capacity-building measures for environmental planning management and monitoring o fthe program activities. 15. The framework also suggests that for successful implementation o f this ESMF, involvement and participation o f local communities i s paramount. Specifically the framework recommends: e using the screening process o f both the ESMF and RPF prior to any infrastructure investment o f ProMaputo; e environmental and social awareness and education for the key stakeholders and affected communities; e training the local community structures to implement the screeningprocess o f the ESMF; e regularly updating this ESMFto respond to changing local conditions particularly during Phase I1when there will be much more activities that may impact on the environment ; e building capacities for developing appropriate information management systems to support the environmental and social management process; providing the necessary resources and equipment for the Local Government Authority (LGA) to be able to produce the necessary documentation and forms for the implementation o f the ESMF; and 0 empowering the relevant environmental officers particularly MICOA Staff to adequately administer and monitor the implementation o fthe ESMF. 16. The Capacity Building required for environmental management i s part o f the bigger capacity building framework, which will be funded by the program. As indicated below, a budget will be set aside to honor the Memorandum o f Understanding (MOU) signed between 95  MICOA and the Municipality o f Maputo to ensure their participation in the implementation o f the ESMF and to also ensure that the required institutional and human resources capacities are builtfor sustainable environmental management ofthe City o fMaputo. 17. As a reference material, the framework will be useful to several stakeholders who will be involved inplanning, implementation and monitoring o f the proposed program. Some o f the key users o f this framework are: funding agencieddonors for the proposed Municipal Development Program; Municipal Environmental Management Officers and Committees; Sector Environmental management Coordinators; participating agencies inthe implementation o f ProMaputo; politicians and local traditional leaders; senior central government officials responsible for policy making and investment planning; central government officials responsible for environmental planning and management; NGOs and the private sector involved inthe implementation o f the Program; planners and engineers for preparation o f plans and designs o f the investments; engineers and contractors to be involved inimplementation o f the investments. 18. Annual reviews should be undertaken after implementation o f the recommended actions o f the ESMF report and at the closing o f each year o f the Program. It i s expected that each review would require 3-4 weeks o f field work (interviews, examination o f investment proposals), and that the review report would be completed within 2 weeks o f completing the fieldwork. The reviews will have to include a costing. 10.2 Executive Summary -Resettlement Policy Framework 19. The Municipal Council o f Maputo with financing from an Adaptable Program Loan (APL) comprising a two-phase IDA Credit, has prepared its ProMaputo development program. It aims to support implementation of the Municipal Council's 10 year widely inclusive and ambitious proposal to improve municipal governance through restructuring and improving accountability, improve municipal planning capacity, services and infrastructure. The IDA credit will be used to provide funds in two phases: the first for three years o f priority urban development planning and capacity development with a few investments in rapid impact infrastructure and service improvements, and the second for five years which will consolidate the initial capacity development, emphasizing deconcentration o f services, improved governance, and scaling up infrastructure investments. 20. Municipal citizens are to play an important role in developing municipal plans for land- use, urbanization, and service and infrastructure management. The Council has already started to involve its citizens in an iterative process used to develop a more open governance style, beginning with consultations during the Mayor's election process and then refined through a process o f diagnostic analysis o f the Council and its governance relationships. The Program focuses initially on developing a communication strategy that will prepare the mechanisms for a wide and productive flow o f informationbetweenthe Municipal Council and the urban citizens, particularly those with less resources living in peri-urban areas. Using this and a more flexible and better structured management system, in the longer term citizens will become directly 96  involved inpartnerships, monitoring and ensuringthe sustainable management o f urbanservices, responsive governance, and the upgrading o f living conditions and public facilities. 21. Main Program activities include an institutional and organizational development component aiming at rationalizing the municipality's internal processes for service delivery, improving the performance o f the municipality's functional units and improving governance. A component on revenue and expenditure reforms aims to improve municipal financial performance, increase income and budget management. A third component will support urban planningand targeted investments to improve and rehabilitate critical urban services. This will be carried out intwo main ways: by improving the planningand management o f urbanspace and by strengthening service delivery inpriority sectors. 22. Key issues relating to community well-being implied in the design, development and implementation o f ProMaputo include: a) clarification o f the role o f municipal authorities in relation to the central and provincial governments that also have jurisdiction extension over Maputo; b) the emphasis on development o f a systematic communication strategy to secure effective stakeholder participation in developing and implementing the Program, greater participation in sub-municipal governance, and broad-basedbuy-inby municipal stakeholders to help sustain political commitment; c) institutionalizing participatory spatial planning linking governance reform with the gradual deconcentration o f selected services to the districts; d) decentralization o f some very basic functions to the Municipal Districts. 23. This Resettlement Policy Framework covers the first and second phases o f ProMaputo. In Phase Ionly the development o f a cemetery could cause displacement o f people from their homes and livelihood sources. Phase I1will focus on broader improvements o f living conditions and use o f urban space and services. This may cause larger scale displacement and land use rights may have to be acquired for larger scale construction works and possibly for displaced people's resettlement. Presently the location, nature and scope o f displacement are not yet known. 24. When, the details o f involuntary resettlement and acquisition o f land use rights are not fully known, a Resettlement Policy Framework (RPF) that establishes the policy principles for the development o f specific Resettlement Action Plans (RAPS) i s developed for public information and discussion. As, subsequent to the RPF, outlines o f different initiatives are known in sufficient detail, when deemed relevant, a RAP will be developed for each one based on the framework agreed upon inthis RPF. 25. Resettlement covers physical displacement and economic displacement. Thus the need for resettlement and compensation refers to the impact o f the development causing the loss of, or loss o f access to, any assets growing on or permanently affixed to the land, such as shelters, businesses, buildings and crops and also to the impact causing loss o f or access to an economic resource base or local communities' means o f livelihood. Losses may be total or partial. According to World Bank policy the absence o f legal title to use and benefit from the land does not limit rights to compensation. The Bank also emphasises that land-based resettlement strategies should be used for displaced people whose livelihoods are land-based. Inthe case o f Mozambique this must be interpreted as access to land for use for livelihood support, thus if sufficient alternative land i s not available, other options built around opportunities for employment or self-employment should be provided in addition to cash compensation for assets lost. 97  26. inMaputo. Houses, businesses and other structures - some temporary others permanent, as well Encroachment onproject sites duringprolonged planningprocesses i s becoming common cultivation in open areas are common. People displaced by ProMaputo developments should be assisted to improve or restore their livelihoods in a manner that maintains the sustainability o f their interaction with the economic resources available to them. Mitigation actions 27. A preliminary review carried out for the preparation o f this Resettlement Policy Framework has identified that inPhase Ipotential displacement i s only possible at a low level at a cemetery development site but may occur on a very minor scale at other sites. 28. The costs o f resettlement can add significant amounts to investment budgets and wherever possible resettlement should be avoided. Where it i s not possible to choose another location alignment o f boundaries for an investment, activities should be defined so that the least amount o fpeople i s affectedwithout affecting the viability o fthe investment. 29. ProMaputo includes inputs to the design o f zoning and detailed land-use plans, the implementation o f which will define community use and access to economic resources in different areas. Urban land-use changes may cause loss o f property and the need for local residents to relocate to other areas. It may marginalise some o f the weaker members o f households affected by these changes who are unable to take up the alternatives offered easily. Planning together with local people should identify vulnerable people and address their needs as early as possible inthe investment preparation process. Ifplans to improve low-income areas o f the city can incorporate the resettlement that may be necessary into the direct benefits o f the Program, resettlement solutions may include voluntary relocation as part o f a location's social upliftprogram. 30. When an activity that causes displacement is identified, alternative designs must be prepared to minimize the impact wherever possible. If activities carried out by a program unavoidably cause displacement or require the acquisition o f land use rights the C M M should conduct a concise Land Acquisition Assessment (LAA) as a screening mechanism to identify if resettlement planning will be required. Although this World Bank requirement i s not legally applicable in Mozambique since land cannot be acquired, the screening process i s a useful mechanism for an investment program where the enforcement o f Municipal land use rights i s likely to cause displacement o f local people, and it i s an obligatory World Bank requirement. Thus where encroachment over the past few years means that physical andor economic displacement will occur, an adapted simple LAA can be incorporated into the screening process to be used for these investments. Ifthis screening device detects the likelihood o f displacement then it must be submitted to the World Bank for identification o f what type o f resettlement planningwill be necessary. This RPF and World Bankpolicy OP 4.12 will be used to guide the development o f an action plan. 31. Under Mozambican law all projects must be screened using a standard checklist to identify whether an environmental assessment (EA) i s necessary. Should screening identify the displacement o f any people, this fact will necessitate an EA. A simple EA or more complex Environmental Impact Assessment (EIA) may be undertaken depending on the nature and size o f the potential environmental and social impacts. In all cases a scoping phase to define the terms o f reference for the EIA will identify the scale o f displacement likely to be caused by an investment project and general potential impacts o f this. The EIA will present details o f likely 98  socio-economic impacts on people o f investment project development and any associated facilities required for construction or operation. It will also identify probable induced impacts, includinglikelihoodo f in-migrationto the investment project area. 32. The EIA itself will include a social impact assessment (SIA) that will identify and quantify impacts and the numbers of people affected or displaced by the investment project. A socio-economic baseline survey should include a census o f all displaced people and provide the basis for estimation o f impacts on the population. EIAs require extensive and reported public consultation during preparation. Mitigating action plans are also required to be prepared as part o f the EIA. 33. E W S I A mitigation plans should outline the procedures used to minimize the negative impacts on the community as a whole or on part o f it or on single households. Where these require resettlement, according to World Bank requirements, these procedures will be defined in detail ina Resettlement Action Plan(RAP). 34. IfinPhaseI1concessions involvinglanduse rightsacquisition are awardedfor example, once a concessionhas been demarcated, it should be subject to a LandAcquisition Assessment. 35. An abbreviated RAP is used ifthe scale o f resettlement is low. It describes the activity and actions to minimise resettlement; it provides an officially certified survey o f displaced persons, an asset inventory and valuation and, if appropriate, a socio-economic survey. It describes in detail the compensation and other resettlement assistance including entitlement to participation in alternative livelihoods development activities to be provided. It also describes the results o f consultations with displaced people about acceptable alternatives. It must identify institutional responsibility for implementation and procedures for grievance redress, as well as arrangements for implementation and monitoring. An implementation schedule and detailed budget are required. 36. In cases where an activity will cause involuntary resettlement or negative impacts on people's livelihoods o f a significant scale, the C M M will prepare a full RAP for that particular activity. The scope and level o f detail o f a RAP will vary with the magnitude and complexity o f the resettlement involved. The organization and minimum o f information required for a RAP should conform to requirements in the World Bank's policies on Involuntary Resettlement OPBP 4.122and this Framework. Institutional organization screening 37. Screening o f an investment project that may require resettlement planning i s initiatedby the municipal department or other agency responsible for proposing the project. InPhase Ithis may include the Cemetery Management Department o f the Municipal Council (CMM), the Transport Department, and the Solid Waste Management Department. In Phase I1there will be broader involvement o f the Municipal Markets and Fairs Department and Urban Planning Department as projects developed by them trigger resettlement activities. Two simple checklists must be completed, one for the World Bank and another for the Ministry for Coordination o f Environmental Action. Once completed the Environmental Management Department o f the CMMwill ensure that ifany displacement is registered, the checklists are submitted to the World BankandMICOA respectively. *Also see Annex 10.1. 99  RAP development 38. Responsibility for ensuring the production o f a RAP lies with the Environmental Management Department delegated by the Office for Institutional and Strategic Development (GDEI). A consultant may be contracted to carry out socio-economic studies, an SIA and the RAP. The consultant would be responsible for stakeholder consultation, facilitating and supervising compensation negotiations and agreements and producing the draft RAP document. The Phase Iconsultants would also be involved in developing capacity o f municipal personnel responsible for resettlement inthe Environmental Management Department. Resettlement implementation 39. Responsibility for resettlement implementation lies with the GDEI, which will task the Environmental Management Department to organize technical support from the various municipal departments for site demarcation and acquisition o f use rights for land for resettlement ifnecessary. The Environmental Management Department may onbehalfof the GDEIcontract additional assistance to facilitate resettlement such as contractors for house design and/or construction, consultants to oversee the process and facilitators o f the consultation, compensation negotiation and resettlement processes with the displaced people. 40. It maybe usehl to convene a small advisory group o fresettlement specialists who canbe called upon to assist the GDEI and the municipal technical departments in monitoring and preventing negative outcomes duringresettlement implementation. 41. The Environmental Management Department (DGA) is expected to be created and its capacity built during Phase I.It i s recommended that capacity i s also developed in the Environmental Management Department to supervise and manage the social inputs to the resettlement process during Phase Io f the Program. Until capacity is developed in the Environmental Management Department to manage the social aspects o f resettlement, the RAP consultants in Phase Iand the resettlement advisory group may help provide inputs and special guidance inthese aspects to the Department. 42. A specific person in the Environmental Management Department should be designated by the ProgramAuthority andattributed no less than 75 percent o fhisher time to organizing and directly supervising resettlement implementation at project sites, and be provided with field facilitators. If this i s not possible, other facilitators active in the city should be contracted to carry out the social and organizational aspects o f resettlement. The participation o f the same facilitators inthe consultation process required to prepare the RAP would be advantageous. 43. At community level a resettlement committee should be established to represent the interests o f those who will be displaced. The local Resettlement Committee (RC) will be identifiedby the local Neighborhood(bairro) Collective and include a sub-group o f its members as well as other trusted local influence leaders and representatives o f the displaced people. It will be a key forum for linking community issues, including resettlement and grievances with the social facilitator, the Municipal District, the Department for Environmental Management and ultimately the Municipal Assembly or Law Courts. 44. For the implementation of a RAP, an ad hoc Working Group o f the Municipal District (DM) Consultative Committee (CC) should be set up with community and local leader membership (drawn from the local resettlement committee) from an affected area inthe DM 100  territory. RCs and CC Resettlement Working Groups should be trained in social and management issues and supported by social facilitators where possible. At DM level, the DM Administrator will be responsible for leading the district CC Resettlement Working Group, a group o f stakeholders concerned with ProMaputo activities in the DM. The district CC Resettlement Working Group will coordinate, monitor and supervise community consultation andparticipation inRAPimplementationat district level. The Working Group should coordinate its activities with the CMM's Environmental Management Department, and must ensure a copy o f all information collected locally i s deposited at the referred to department and the Communication Office. Intra- and interdepartmentalcoordination will be overseen by the GDEI. The GDEI will also be responsible for ensuring compliance concerning public consultation and disclosure. Public consultation and grievances 45. A local communication strategy stressing awareness-raising activities about the program and resettlement procedures and entitlements should be carried out throughout preparation and implementation o f resettlement in order to promote dialogue and to reduce misunderstandings and grievances. Communities will be involved in awareness-raising and training concerning their rights and obligations; how to obtain legal advice and representation, and how to seek redress against what they regard as unfair practices. Training for technical personnel from the CMM, the district CC Resettlement Working Group members and local leaders in conflict management can assist inminimizing the negative impact o f conflicts. 46. The Resettlement Policy Framework and RAP preparation processes are participatory. Via consultation during the socio-economic studies and impact assessments, potential conflicts and communication channels for grievances should be identified. The consultation process must involve all potentially displaced people. During and after resettlement, individual and group consultation should be continued by social facilitators to verify progress inpeople taking up new livelihoods activities and inrestoring their lives to the levels they were prior to resettlement. 47. Displaced people's and host community grievances concerning proposed or actual resettlement arrangements can initially be presented for localredress to the Quarter Chief, a local influence leader or the local Resettlement Committee. Failing resolution at community level, issues may be presented to the district CC Resettlement Working Group for resolution or transmission via the Environmental Management Department to the ProgramAuthority or it may be formally taken to the Municipal Assembly to investigate and coordinate appropriate solutions. 48. Grievances may also be taken to the social facilitator working with the affected community. This channel may assist in local resolution or provide a rapid channel for timely resolution involving the CMM's Environmental Management Department. 49. Unresolved issues, dissatisfaction with solutions or if a community i s in conflict with a private-sector contractor, may require formal recourse to the Municipal Assembly via the customary presentation and hearing o f a municipal citizen's petition. Failing resolution there, it will be taken to the Ministryor agency with titular responsibility for the investment. Provisions to appeal concerning sectoral grievances to higher levels o f government such as National Directors and Ministers exist in most legislation. Should any party be dissatisfied, the grieved party may take the complaint to court where it will be dealt with under Mozambican's law. 101  50. The costs o f resettlement including compensation and mitigating activities inPhase Iare approximately US$14,000. This figure was revised during project appraisal. Phase I1costs will be estimated at the end o fPhase I. 51. Community consultation and participation in the RAP planning process will identify progress and impact indicators. These will be used to formulate the RAP, and subsequently for monitoring and external audits during the implementation of the RAP. Communities will also participate inexternal evaluation o f outcomes o f resettlement. 52. The activities implied in any written agreements between the CMM and community representatives will be jointly monitored and where possible community organizations will be responsible for ensuring the compliance of community members. The GDEIwill be responsible for ensuring the adequate design, development and oversight of general resettlement monitoring and evaluation systems. 102  Annex 11: Project Processing Mozambique ProMaputo:The MaputoMunicipalDevelopment Program IDA CreditPreparationTimetable Program Identification e November 2005 PCNManagement review + January2006 Preuarationmission + Februarv2006 Quality at EntryReview d June 2006 Pre-appraisal mission + August2006 DecisionMeeting * November 2006 Appraisal e November 2006 Negotiations e December 2006 BoardApproval e January2007 Credit signing e February2007 Credit effectiveness and first allocation to the Special e February2007 Account Program launching and starting execution * March2007 Roberto Santoro Rafael Saute 249187 Communications Specialist EXT Serigne Omar Fye 98790 Sr. Environmental Spec. AFTS1 DiepNguyenVan-Houtte 182816 M&ESpecialist AFTQK Anne Louise Grinsted 309657 Junior Professional Officer AFc02 103  Quality Assurance Team: Catherine Farvacque, Mats Andersson, Roberto Chavez, Guenter Heidenhof, Julio Carrilho (University of Eduardo Mondlane, Mozambique), Nick Devas (University ofBirmingham, UK),Cecile Ramsay Bankfunds expended to date onprojectpreparation: 1. Bank Resources US$115,000 (variable) 2. TrustFunds US$175,000 Estimated Approval and Supervision Costs: Estimated annual supervision cost: US$95,000 Mid Term Review The C M Mwill carry out a MidTermReviewjointly with IDA and the GOM (ifthe latter deems necessary) before 1 March 2009. The M T R will assess overall progress made during implementation o f the first phase and the results o f the monitoring and evaluation activities. Within thirty days o f this review, the C M M will start to implement its recommendations as agreedwith IDA. 104  Annex 12: Documentsinthe ProjectFile Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram Project Documents Project Concept Note Project Concept Note- Review Meetingminutes Project Concept Note Data Sheet-PCN IdentificationMission, Aide Memoire, h e x e s and Management Letter PreparationMission, Aide Memoire, Annexes andManagement Letter Pre-appraisal Mission, Aide Memoire, Annexes and Management Letter Project Appraisal Document Project Appraisal Document Data Sheet-Technical DecisionMeetingminutes Concept ReviewPackagefor Mozambique-ISDS Project InformationDocument- PID Integrated SafeguardData Sheet-ISDS MinutesofNegotiations QualityAssurance Quality Enhancement ReviewMinutes, June 2006 Background Studies CESO, Analysis of Current Human Resources of Maputo City Council, 2005 Deloitte & Touche, Studies on Maputo City Council Revenues, 2005 Metier Consultoria & Desenvolvimento, City of Maputo, Municipal Scorecard on Urban Services,2006. Faber, Robbert and ManuelLourenqo Rodrigues, Study to determine the revenuepotential of the Municipality of Maputo, 2006 Noronha, Joao, Study on Revenuesfrom Markets and Fairs, 2006 Brandberg, Bjom, Sanitation and Hygiene Study,2005 SAL & Caldeira Pty (ltd), PPIAF Public PrivatePartnerships Framework Study, 2006 UEMFacultyofArchitecture, CitiesAlliancePhaseIReport, 2006 Consortium Usec, Ibam, Multiservicos, FunctionalAnalysis of CMM,2006 Cruz, Catarina, Enlargement of the Cadastral Base of IPRA Contributors,2006 Borges, A1fredo, Study on Information Technology System for reform of Municipal Finances, 2006 Dray, Madalena, Environment and Social Management Frameworkfor ProMaputo, 2006 Thompson, Gaye, ResettlementPolicy Frameworkfor ProMaputo, 2006 Metier Consultoria & Desenvolvimento,City of Maputo, Basic Poverty Assessment, 2006. Buendia, Miguel, City of Maputo Anti-Corruption Strategy, 2006 105  Annex 13: Statement of Loansand Credits Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram ~ _ _ _ _ ~ ~ _ _ _ _ Differencebetween expectedandactual Ongmal Amount in US%Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Ong. Frm. Rev'd PO93165 2006 MZ-Market Led Smallholder Dev (FY06) 0.00 20.00 0.00 0.00 0.00 20.75 0.7 1 0.00 PO71465 2006 TFCA & Tounsm Dev (FY06) 0.00 20.00 0.00 0.00 0.00 28.66 -0.63 0.00 PO87347 2006 M Z Tech & Voc Edu & Training (FY06) 0.00 30.00 0.00 0.00 0.00 29.62 1.74 0.00 PO86169 2006 MZ-Financial Sector TA Project 0.00 10.50 0.00 0.00 0.00 9.82 -0.10 0.00 PO82618 2005 MZ-BeiraRailway SIL (FYO5) 0.00 110.00 0.00 0.00 0.00 91.16 -1.76 0.00 PO69183 2004 MZ EnergyReformand Access SiL - 0.00 40.26 0.00 3.09 0.00 42.91 24.57 0.00 (FY04) PO01807 2004 MZ-Decentr Planning&Fin SIL (FY04) 0.00 0.00 0.00 0.00 0.00 28.32 8.23 0.00 PO72080 2003 Pub Sec Reform(FY03) 0.00 0.00 0.00 0.00 0.00 24.62 21.53 0.00 PO78053 2003 MZ-HIV/AIDS ResponseSIL (FY03) 0.00 0.00 0.00 0.00 0.00 39.27 0.83 0.00 PO69824 2002 MZHigher Education SIM (FY02) 0.00 60.00 0.00 0.00 0.00 26.37 10.27 0.00 PO01806 2002 MZ-Municipal Dev SIL (FY02) 0.00 33.60 0.00 0.00 0.00 10.83 14.42 5.96 PO73479 2002 MZ-Corn Sec Reform 0.00 14.90 0.00 0.00 0.00 7.80 4.37 0.00 PO0I785 2002 MZ-Roads & Bndges MMP (FY02) 0.00 162.00 0.00 0.00 0.00 43.52 17.98 -11.28 PO01808 2001 MineralNRMCP (FYO1) 0.00 18.00 0.00 0.00 0.00 1.57 -0.36 0.00 PO70305 2000 MZ-Coastal & Manne Biodiv Mgmt 0.00 5.60 0.00 0.00 0.00 1.oo 0.51 -0.86 (FYOO) PO42039 2000 MZ-Railway & Port Restr (FYOO) 0.00 100.00 0.00 0.00 0.00 25.36 20.46 11.98 PO35919 2000 GEF Coastal & Manne SIL (FYOO) 0.00 0.00 0.00 4.1 1 0.00 1.39 4.10 3.15 P052240 1999 Natl Water 2 (FY99) 0.00 75.00 0.00 0.00 0.00 42.58 21.64 3.27 PO01799 1999 MZ-AmSec Per,(FY99). - . . 0.00 30.00 0.00 0.00 0.00 2.64 2.25 2.08 Total: 0.00 729.86 0.00 7.20 0.00 478.19 150.76 14.30 106  MOZAMBIQUE STATEMENT OFIFC's HeldandDisbursedPortfolio InMillionsof US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2004 ENH 0.00 18.50 0.00 0.00 0.00 13.37 0.00 0.00 GTFP BDC 0.11 0.00 0.00 0.00 0.11 0.00 0.00 0.00 1997 MOZAL 29.70 0.00 58.50 0.00 29.70 0.00 58.50 0.00 2001 MOZAL 10.12 0.00 0.00 0.00 10.12 0.00 0.00 0.00 2000 SEF Ausmoz 0.72 0.00 0.00 0.00 0.72 0.00 0.00 0.00 1997 SEF CPZ 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 2000 SEF Cab0Caju 0.58 0.00 0.00 0.00 0.51 0.00 0.00 0.00 2001 SEF GrandPnx 0.33 0.00 0.00 0.00 0.33 0.00 0.00 0.00 2004 SEF Merec 1.02 0.00 0.00 0.00 1.02 0.00 0.00 0.00 Total portfolio: 43.58 18.50 58.50 0.00 43.51 13.37 58.50 0.00 ApprovalsPendingCommitment FY Approval Company Loan Equity Quasi Partic. Totalpending commitment: 0.00 0.00 0.00 0.00 107  Annex 14: Country at a Glance Mozambique ProMaputo:The MaputoMunicipalDevelopment Program Sub- POVERTY and SOCIAL Saharan Low. Mozambique Afrlca income DeveloDment diamond' 2005 Population, mid-year(millions) 8.8 741 2,353 GNIpercapita(Atlas method,US$) 3 0 745 580 Life expectancy T GNI(Atlasmethod, US$ billions) 6.1 552 1364 Average annual growth, 1999-05 Population(W 2.0 2.3 19 Laborforce (W 17 2.3 2.3 Gross priman M o s t recent estlmate (latest year available, 1999-05) capita enrollmenl Poverty(%ofpopulationbelownationalpovertyline) Urbanpopulation(%of totalpopulation) 38 37 31 Lifeexpectancyatbirth (years) 42 46 59 1. Infant mortality(per IOOOlivebirths) 0 4 DO 80 Childmalnutrition(%of childrenunder5) 24 29 39 Access to improvedwater source Access to an improvedwater source (%ofpopulation) 43 56 75 Literacy(%ofpopularionage E+) 62 Gross primaryenrollment (%of school-age population) 95 93 0 4 -Mozambique Male 04 99 nl Lowincomegroup Female 86 87 99 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1985 1995 2004 2005 Economic ratios' GDP (US$ billions) 4.5 2.2 5.9 6.6 Gross capitalformation/GDP 3.5 30.5 22.6 20.4 Exportsof goods andservices/GDP 2.9 15.8 30.9 32.6 Trade Gross domestic savlngs/GDP -5.1 5.0 14.3 0.7 Gross nationalsavings/GDP -5.0 4.8 8.5 4.4 T Current account balancelGDP -9.9 -30.1 -14.1 -15.9 Interestpayments/GDP 0.5 3.3 0.5 Capital Total debt/GDP 64.4 332.0 78.7 savings Total debt service/exports 34.5 34.8 4.4 Presentvalueof debt/GDP 8.8 1 Presentvalueof debt/exports 43.0 Indebtedness 1985-95 1995-05 2004 2005 2005.09 (averageannualgroMh) GDP 3.8 8.4 7.5 7.7 7.3 -Mozambique GDP percapita 19 6.1 5.4 5.7 5.8 Exportsofgoods andservices 9.0 8.0 8.9 Lowincomeurou~ 8.3 0.8 STRUCTURE of the ECONOMY II 1985 I995 2004 2005 (%of GDP) Growth of capltal and GDP (%) Agriculture 47.5 38.9 23.3 22.3 industry 0.2 8.4 T 29.2 29,8 loo Manufacturing 8.1 14.8 14.2 50 SeNlCeS 39.3 47.7 47.5 47.9 O Householdfinalconsumption expenditure 92.2 85.2 75.3 79.1 Generalgov't finalconsumptionexpenditure Q.9 9.8 0.4 0.3 -50 imports of goods andservices 115 410 39.2 42.3 1985-95 1995.05 2004 2005 (averageannualgrovdh) Growth of exports and imports (%) Agriculture 2.7 5.2 8.3 18 Industry T -12 8.7 5.1 9.9 75 Manufacturing .. 7.5 0.2 0.7 Services 4.4 8.9 8.9 0.0 Householdfinal consumption expenditure 17 4.4 0.9 0.8 Generalgov't finalconsumptionexpenditure 4.7 P.1 5.0 8.0 Gross capitalformation 8.7 0.8 -lH 0.7 Importsof goods andservices 2.5 9,8 4.1 7.3 Note:2005 data are preliminaryestimates. This tablewas producedfrom the Development Economics LDB database. 'The diamondsshowfourkeyindicators inthecountry(in bold) comparedwith its income-groupaverage.if dataare missing,thediamondwill 108  Mozambiaue ::p PRICESand GOVERNMENTFINANCE 1985 1995 2004 2005 Domesticprices inflation(%) (96 change) 20 7 Consumerpnces 54.4 12.7 ImplicitGDP deflator 33.1 50.3 9.0 6.4 5 Government finance (96 of GDP, includescumnt grants) O Currentrevenue 10.3 15.5 15.5 17.3 W O i 02 03 04 M Currentbudgetbalance -6.6 4.9 1.3 3.5 I I Overallsumlus/deficit -10.3 -9.5 -9.1 -5.6 -GDPdeflator -CPI TRADE I 1985 1995 2004 2005 (US$ millions) Exportand import levels(US$ mill.) Total exports(fob) 77 174 1,504 1,745 Cashew nuts,raw cashew and cashew oil 12 13 29 23 prawn 33 73 93 72 Manufactures 5 19 22 Total impolts (cif) 424 727 2,035 2.467 Food 44 164 162 Fuel and energy 66 290 341 Capitalgods 166 703 872 Exportpnce index (2000=100) 124 117 129 152 W W 0 1 0 2 W M Importpnce index (2000=100) 113 123 125 134 rn Exports rn imports Terms of trade (2000=100) 110 96 104 113 BALANCE of PAYMENTS 1985 1995 2004 2005 (US$ millions) Currentaccountbalanceto GDP (`h) I Exportsof goods and services 143 407 1,626 2,164 0 Importsof nods and services 461 699 2,320 2,805 Resourcebalance -339 492 -492 -642 -10 Net income -102 -185 -340 -417 Netcurrenttransfers 0 0 -20 Currentaccountbalance 440 -677 -832 -1,056 -30 Financingitems (net) 420 736 1,044 1,003 Changesin net reserves 21 -60 -212 55 40 Memo: Reservesincludinggold (US$ miilions) 46 195 1,159 1,103 Conversionrate (DEC, iccal/US$) 43.2 9203.4 22.561.3 23,061.0 EXTERNAL DEBT and RESOURCE FLOWS 1985 1995 2004 2005 (US$ millions) :ompositlonof 2004 debt (US$mlil.) Total debt outstandingand disbursed 2,671 7,456 4,651 IBRD 0 0 0 0 IDA 5 690 1,475 1,575 G 345 Total debt service 63 162 83 IBRD 0 0 1 1 IDA 0 6 15 27 Compositionof net resource flows Official grants 174 770 615 Officialcreditors 317 172 290 Pnvatecreditors 54 24 -23 Foreigndirect investment(net inflows) 0 45 245 Portfolioequity(net inflows) 0 0 0 World Bank program Commitments 46 99 105 E-Bilateral Disbursements 5 160 190 227 B IDA .-- IBRD D Other multilateral - F Private Pnncipalrepayments 0 0 4 14 IC-IMF G Short-tern -- Netflows 5 160 166 213 Interestpayments 0 6 12 14 Nettransfers 5 154 174 199 Note:This tablewas producedfrom the DevelopmentEconomicsLDB database. 6/13/06 109  Annex 15: Letter of Sector Policy (LSP) Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram Oflcio nO.3301MPD1OM/2006 Subject: Mozambique- ProMaputo the Maputo Municipal Development Program - Dear Mr. Michael, 1. I refer to the Maputo Municipal Development Program (ProMaputo or the Program). Iam writing, on behalf of the Republic of Mozambique to request from the International Development Association (IDA), a credit in a form of an Adaptable Program Loan (APL) of two phase. We hereby request 30 million equivalent for the first phase (2007-2009) and with the exact amount for second phase to be determined based on IDA envelop for the country. 2. Background 2.1, With the approval of the Law 2/97 the Government of Mozambique (the Government) created the legal framework for the establishment of autonomous local governments. This law allowed the creation of 33 Municipalities with a degree of administrative and financial autonomy. The Government also gave to Maputo municipality through Law 8/97 a special organizational and functional structure, and defined the statutes for the elected mayors and members of the municipal assemblies in the Law 9/97. 2.2, After two municipal elections and eight years of experience, the Government continues committed to the strengthening of local governments through the development of capacity building programs, institutional development actions and intergovernmental relations, and investments in the local infra- structure. 2.3. Mozambique, like most African countries, is undergoing rapid urbanization. The urban population represents about 30% of the national total and is growing at about 5% per year. By 2020 more than half of Mozambicans will live inurban areas. By 2010, the urban population of the City of Maputo (the City or Maputo) is expected to increase from 1.3 million to 2.4 million, three times the size of the second largest city Beira. Recent studies show that over half the urbanpopulation can be considered poor using consumption-based indicators. While urban poverty is slightly less (51.5%) than in rural areas (55.3%) the difference is startlingly small and poverty has also notably fallen more rapidly in rural than urban areas. In Maputo, the single largest population center, there has been no decrease in poverty since 1997 despite overall economic growth. 110  2.4. The City must urgently establish a sound organizational and financial base in order to reverse the decline in service provision and infrastructure, otherwise crime and the cost of living and doing business in Maputo will worsen. This will not only increase poverty and marginalization but further inhibit the growth of smaller and medium sized businesses in particular, that are critical to income generation and poverty reduction in the country as a whole. 2.5. Mozambique's Poverty Reduction Program (PARPA 11) is an important instrument for the strengthening of local governments, in particular municipalities and it commits the Government to implement the following actions: a) to approve and implement a Strategy for decentralization; b) to strengthen the financial management systems at local level; c) to finish the municipalities and to create new ones; 4. to approve and implement the diagnosis study on new municipalities; d) to strengthen existing Policy and strategy for Municipal and Urban Development. 2.6. Furthermore, PARPA I1i s looking to implement the anti-corruption law, to strengthen municipal assemblies, and to strengthen internal control systems. 2.7. The previous Program for Municipal Development (PDM) supported eight municipalities and allowed Maputo Municipality to further develop the vision and the long-term development program for Maputo. The Government is committed to support Maputo Municipal Council to implement the necessary reforms at the institutional and financial level and to steadily improve the provision of municipal services. 2.8. As part of this commitment, the Government is revising the laws 2/97, 8/97, 9/97 and 11/97 and the 'Cbdigo Tributdrio Autarquico", in order to ensure and to increase fiscal autonomy, capacity to collect municipal revenues and to strengthen municipal governance. 2.9. As part of the revision of the local government package, the Government is also reviewing the specificities of municipalities in respect to human resources management with the view to increase capacity to attract and retain qualified staff. 2.10. The Government i s aware that decentralization will be a gradual process but it will ensure support to municipalities, such as Maputo, that are moving at a faster rate than others. 2.11. Maputo Municipal Council is aware of its role as an example and will share its experience with others. 2.12. The Government is also committed to guarantee that decentralization is based in efficiency, capacity, participation, transparency and accountability and it will support the efforts of Maputo Municipal Council in developing the capacities to better manage municipal resources and to develop a participatory governance framework. 2.13. The Government, under the Policy/Strategy for Decentralization, i s committed to review the specificities of municipalities in relation to services, firnrtinno a n d rCcniirrPo 111  3. Related policies and regulation8 3.1, Inaddition to the decentrazation policy outlined above, the Government will, inthe near future, start anumber of initiatives to improve the capacity and autonomy of municipalities. Below are listed some of those initiatives: (a)Revisionof the policy on licensing of economic activities at municipal evel, and leaving the responsibility to the municipalities of licensing and controlling its implementation; (b)Revision of policies in commercial trading to promote the role of municipalities in ensuring the creation of formal channels and reduction of informal trading with positive equity effects; (c) Revision of policy and regulatory framework that will give autonomy to municipalities to promote markets and fairs at municipal level, giving adequate coverage to the needs of the citizens; (d) Support municipalities to develop policies addressing issues related to maintenance and construction of municipal infra-structure in particular for Maputo; and (e) Development of regulation on land use planning by the Council of Ministers passing the "Lei de Ordenamento do Tenitbrio" (the Land Use Planning Law) related to management of urban land in order to improve landmanagement by municipalities. 4.The Maputo Municipal Development Program (ProMaputo or the Program) 4.1 The Maputo City Council has recognized the crisis facing Maputo and has conducted a series of workshops and consultations with various stakeholders to develop the vision, mission and development program for the City. These included the private sector, civil society, national government and members of the Municipal Assembly (legislature) and City Council (Executive). Findings from the Municipal Citizen's Report Card and various studies on the state of the city were the inputs to these forums. 4.2 As a result of these inputs, the City has developed and widely disseminated its vision for Maputo as well as the Maputo City Council mission statement. The vision for Maputo is a "prosperous, attractive, clean, secure and united city." 4.3 The mission statement of the Council is T o lead the process of raising the quality of life of municipal citizens; creating an environment conducive for investment and job creation through improved delivery of services; and mobilization of citizens and coordinated action between diverse actors." 4.4 In order to achieve its mission and to fulfill the vision of Maputo, the Program is structured inthree components: a) Component A: Institutional and Organizational Development aims at: rationalizing the municipality's internal processes for service delivery; improving the performance of the municipality's 112  functional units; and improving governance, by institutional restructuring, decentralization and humanresources management;. b) Component B: Municipal Finance will deal with both revenue and expenditure reforms. The area of revenues consists of a number of activities to improve local revenue generation, such as: improvements in the collection of local taxes and fees, and strengthening the municipal capacity to attract community contributions, grants, credits and other external revenues. The area of expenditure focuses on improving the planning, execution, and accountability of municipal resources. c) Component C: Senice Delivery Improvements will support urban planningand target investments to improve and rehabilitate critical urban services. It will do so in two main ways: by improving the planning and management of urban space and by strengthening service delivery in priority sectors. 4. The first phase of the Program will focus in strengthening the institutional and financial capacity of CMM, with some investment in quick-win actions at the service level and covering priority services to guarantee positive impact on the lives of its citizens. 4.6 The interventions will be done in a balanced way that will guarantee better tax- based revenues and the fulfillment of the needs of the poorest inthe city. 4.7 The Government supports the Program and is aware that for its successful implementation changes will have to occur inrelation to: a. improvement of coordination between City Council and deconcentrated state governance bodies that operate in the City; b. strengthening City Council role in defining and monitoring public service policies and management within the City boundaries (transport, water supply, drainage, roads and electricity); c. strengthening the formula for transfers to municipalities in line with good practice internationally, based on predictability and timeliness of transfers; d. improvement of financial autonomy and revision of the Lei de Financas Autarquicas (Lei 11/97) and C6digo TributArio Autarquico in order to increase revenue autonomy; e. support the City Council in its efforts to mobilize financial resources for larger investments in the City; f. adaptation and introduction of e-SISTAFE in Maputo City Council to improve financial management and accountability, while recognizing that municipalities as autonomous bodies will need substantially different functionalities; and g. development of a Municipal policy and overarching legal framework that enables public-private partnerships, 113  5. Concludingremarks: 5.1 The Government is committed to continue to support the strengthening of municipal governance, in particular that of Maputo, as it is a good basis for further development of existing municipalities and others to be created. 5.2 On behalf of the Government of the Republic of Mozambique, Iwish to thank IDA and the [co-financing] donors for the assistance rendered in the preparation of the Program. I trust that this request for assistance will receive your favorable support. Maputo, 24 November, 2006 I To: Mr. Michael Baxter Contry Director for Angola, Malawi, Mozambique, Zambia and Zimbabwe Maputo AV. Ahmad sehu mud no.a1 4*.Andar 4.Pomtd4087, Tal.: 11492268Fa~.:21496463 - -Maputo 114  Annex 16: Anti-corruptionStrategy Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram 1, Maputo City Council (CMM) i s currently reorganizing and developing its institutions with a view to transforming the municipal administration to be able to improve service delivery andimprove living conditions inMaputo. ProMaputo has been designed to this effect. A part o f these efforts is to tackle corruption and the Council has prepared and presented its first Anti- corruption Strategy, which has been approved by the Council. This strategy is therefore seen as an essential instrument o f ProMaputo to increase the transparency and effectiveness o f the C M M and it should be seen as part o f the national effort to improve public administration in Mozambique. 2. The strategy has been developed with participation from within the CMM. It also draws on the National Anti-Corruption Survey for external perception, as corruption in Maputo City was directly surveyed. The strategy contains a frank analysis o f the causes o f corrupt practices andmakes recommendations to prevent, detect andpunish corruption. 3. The corrupt practices identified cover both small and large scale corruption and involve both lower levels o f civil servants as well as higher level officials. The range o f corrupt practices includes bribes, blackmail, nepotism, falsification o f documents and abuse o f power and position. Corrupt practices cited in the strategy include fees (market and service delivery fees) not reaching the municipal treasury, nepotism in land titling, clandestine or illegal works involving civil servants, payments o f bribes by citizens for services by civil servants, and major corruption schemes planned and executed. Most o f the corrupt practices detected take place withinthe department o furbanconstruction (DCU). 4. The analysis o f corruption includes a list o f causes o f corruption, which can be grouped under the following areas: e Lack o f information, transparency and communication e External political and economic pressure e Low levels o f leadership andmanagerial capacities e Low institutional and organizational capacity o f CMM, including ill-defined procedures andweak internalcontrols e Low level o f staff motivation (low salaries, lack o f promotion and professional perspectives) 5. The diagnosis leads to 26 concrete recommendations linked to both internal and external processes for CMM. These can be grouped into six broad themes: 1. Management capacity and leadership. 2. Systems and mechanisms to be put in place including mechanisms for detection o f corruption; systems for control and inspection; management mechanisms; responsibility and accountability mechanisms; integrated financial management systems and instruments for monitoring and evaluation systems. 115  3. Organizational and institutional development o f C M M including simplification o f work processes; implementation o f information systems; establishment o f sectoral action plans; simplification o f paper trails; definition o f roles and responsibilities o f staff at all levels; andimproving work methodologies to increase motivation. 4. Improvements in human resource management including capacity building and training; systems for human resource management; culture change programs; improved system o f evaluation o f staff and promotion and professional development and improved renumeration. 5. Punishment o f all acts of corruption. 6. Systems o f external information and communication to build accountability towards the public, educate the citizens o f their rights and responsibilities, and publishing o f messages o f anti-corruption in places (markets, secretariats) where extortion takes place. 6. The strategy builds on the mission, vision and values o f C M M as well as the general objectives o f ProMaputo. Many o f the recommendations are already included as activities in ProMaputo with associated key performance indicators. These include: annual citizen report cards conducted and disseminated; publication o f the budget and municipal audits; reduction in the time taken to process certain municipal services to citizens (e.g. construction licenses); holding open presidency (public report back) meetings; decentralization o f certain basic functions to urbandistricts; a communications and awareness program for citizens on municipal service standards; establishment and regular meetings o f mayor's consultative council o f stakeholders from private sector, national government and civil society, among others. 7. In conjunction with the strategy an operational strategy for C M M as a whole and an action plan for fighting corruption in the D C Uhave been elaborated to facilitate implementation o f the anti-corruption strategy. 8. The operational plan o f the strategy contains a detailed activity plan, a matrix o f responsibilities for overseeing implementation and a provisional budget. Its implementation is based on four pillars o f intervention - Organization, Leadership, Institutional Development and Communication & Education. It highlights important aspects related to formalization o f procedures; differentiation between functions o f management, finance and execution; rigor and discipline relating to norms and punishment, competencies o f staff and education of the rights o f the citizens. 9. The action planfor D C U is a critical step towards reducing corruption, as the D C U is the department with a high level o f corruption as identified by citizens and C M M staff alike. This action plan is primarily focused on the organization o f the D C U as it i s expected that this will have the most impact in terms o f prevention and control. Activities include optimization o f processes and procedures to minimize the potential for corruption, publication o f procedures and rules and internal audits. A reduction inthe time to issue licenses is also a KPI for the program as a whole. 116  Annex 17: HIV/AIDS Work Plan Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram 1. The Maputo City Council (CMM), like most government institutions in Mozambique, faces many challenges inthe fight against the HIV/AIDS pandemic whose consequences have an impact on the ability o f C M M to deliver adequate services to its residents. H N / A I D S prevalence in Mozambique i s estimated at 16.2 percent (2004) with a varied territorial distribution. Inthe North (Niassa, Nampula and Cab0 Delgado) prevalence i s 9.3 percent, while in the Center (Sofala, Manica, Tete and Zambezia) it is estimated at 20.4 percent. As for the South (Maputo City, Maputo Province, Gaza and Inhambane) prevalence is 18.1 percent. Maputo City has a prevalence o f 20.7 percent. Propagation o fthe pandemic i s increasingwith its negative effects at the social and economic levels directly affecting the City's limited human resources. This rapid increase inprevalence i s also challenging the current infrastructure which i s unable to cope with the effects o f the pandemic, namely with limited capacity to ensure adequate burial arrangements. 2. Maputo City Council is currently reorganizing and developing its institutions with a view to transforming the municipal administration to be able to improve service delivery and improve living conditions inMaputo. As a measure to mitigate the risks from the City's limited human resources and the increased burden o f the pandemic, C M M has developed a HIV/AIDS strategy that includes a three year implementationplanto be finded by the National AIDS Council. The strategy was initiated through a consultative process that involved all departments o f CMM, and builds upon the National HIV/AIDS policy o f the Government o f Mozambique. Throughout program preparation and pre-appraisal, World Bank HIV/AIDS specialist and consultants were able to discuss and comments on the strategy. This strategy i s therefore seen as an essential instrument o f ProMaputo. 3. The strategy highlights three major areas o f intervention, namely prevention, mitigation and information gathering, and targets staff o f the C M M and their families. It includes a three- year work plan and a budget with priority activities to be implemented in year one o f the program during which time C M M will design and implement its own internal C M M policy for HIV/AIDS in the workplace. The workplace policy will indicate how, and to what extent, the municipality will implement the national policy under their specific conditions. The work plan also provides key results indicators for each activity. 4. To support C M M in the implementation o f this strategy and in line with the institutional restructuring, C M M will appoint a full time HIV/AIDS Coordinator whose major role is to strengthen CMM's HumanResources department inmainstreaming HIV/AIDS at the workplace. The strategy also highlights a strengthened role o f the HIV/AIDS Focal Points at CMM. Likewise, C M M negotiated with CNCS for finding to recruit a HIV/AIDS specialist in the department o fHumanResources to support the C M M HIVIAIDS team for the first two years. 5. The CNCS was provided with a copy o f the revised three year work plan and budget for firther review and will provide additional comments to C M M inorder to ensure a smooth and rapid processing o f the application from CMM. The CNCS has agreed to work closely with the C M M to finalize and approve the request. It was agreed that C M M will prepare a procurement planfor the HIV/AIDS component after appraisal. 117  6. The Operations Manual for ProMaputo will be reviewed to ensure that the institutional responsibilities o f the various staff within the two departments that are in charge o f the HIV/AIDS activities, namely the DirecqZo Municipal de Recursos Humanos (HumanResources) andthe DirecqZo Municipal de Sazide eSalubridade (Health and Sanitation), are harmonized and their roles clearly defined to ensure a smooth start-up and implementation o fthe program. 7. The budget summaryof the three year work plan, o f a total o f US$360,000, including Technical Assistance, i s attached. 118  MaputoMunicipalCouncil Summary of ThreeYear HIV/AIDSWorkplan - Main Objective Areas of Estimated Cost US$ Intervention Specific Objectives 2009 Increasethe level of awareness of 15,000 TSlHlVlAlDSand the existing leaislatian .- -.-_... . - Increasethe adherence to GATV 5,660 and of voluntarytesting Prevention Increasetax on distributionof 5,500 preservatives Increasethe % of the population 5,500 with treatment of ITS Reduce the Nr. of Reducethe infectionvulnerability 6,000 8,500 6,000 new infections 7r" rate of women becauseof their and improve the socio-culturaland economic quality of life of condition -I-- PVHS Create a programfor nutritional 14,540 31,480 12,040 and social support for workers, their spouses and childrenwho are infected or undertreatment Mitigation Increasethe number of patients 4,500 beingtreatedwith anti-retroviral Reduceworkers' 5,000 discriminationlstigmaand their families Research I3.1 Obtain information relevantto the 36,300 Program 119  Annex 18: PovertyAssessment and ReportCard Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram 1. The rapid growth o f Maputo's population over the past three decades has brought about some enormous challenges for the city administration. Most notably, there has been a very rapid increase in the demand for basic services and a severe overloading o f the existing public infrastructure. The difficulties o f ensuring adequate provision o f basic services have been exacerbated by the fact that the population growth has come about mainly via the in-migration o f rural poor, meaning that the wealth base for raising city revenues is very limited. Informal settlements, slums and precarious settlements comprise a significant proportion o f the metropolitan area. 2. It is evident that city residents at large suffer severe deficiencies in service provision, including exceptionally deteriorated roads andwalkways; inadequate and intermittent supplies o f potable water; poor drainage; severely inadequate domestic sanitation and waste disposal; poor personal security; and widespread erosion o f the natural habitat. While the city administration actively wants to redress these service deficiencies, it has lacked the basic data and information about service coverage and quality necessary to inform planning. It has also lacked information on the relative provision and quality o f services across the seven municipal districts whose residents clearly fall into different income and poverty brackets. 3. To improve the information base for municipal planning two data and information gathering activities have recently been supported. One i s a Consultative Citizens' Report Card Survey which provides statistically representative information on service coverage by municipal district. It also provides information on residents' perceptions o f service quality and prioritization o f services by municipal district, and on residents' perceptions o f the city administration's performance. The second is a preliminary Poverty Mapping exercise which uses multiple data sources to builda picture o f relative poverty and inequality inservice delivery across the municipal districts. Together, these two information sources provide useful data to inform city planningprocesses. A more indepth and statistically robust poverty analysis will be done later inthe program, once the census data for 2007 become available. 3. The Consultative Citizens' Report Card Survey (CCRC) gathered new data from a statistically representative sample o f residents in seven municipal districts (the island o f Inhaca which is the responsibility o f the city administration and Catembe were included) on a broader range o f services, many o f which are the responsibility o f the city administration, but some o f which are the joint responsibility o f the city and other public institutions (such as education, health, water and public lighting). The findings from the CCRC's quantitative survey were complemented by qualitative information gathered from multiple focus groups held in each municipal district. The findings o f the CCRC and the Poverty Mapping exercise are very consistent. 4. The CCRC provides a revealing, and detailed, picture o f conditions and public services in Maputo: it has a young population (some 31 percent of residents are aged 26-35 years) which averages around 9 years o f education and which is largely (48 percent) unemployed or engaged in small-scale self-employment. Over 30 percent o f Maputo's population has a monthly householdincome o f US$20-60. 120  5. The CCRC concurs with the general findings o f the Poverty Mapping exercise regarding service coverage (which i s found to be generally low), but provides more detailed data on the extent of coverage and a starker picture o f relative inequalities. The overall picture o f conditions in Maputo i s not a positive one. Some 62 percent o f residents live in temporaryhnstable housing; some 58 percent o f residents are without access to a sanitary wastewater system, 42 percent o f residents lack access to piped potable water inside or outside their dwellings; 85 percent o fresidents live inareas where there i s no rainwater drainage system; and74 percent o fresidents do notbenefit from regularwaste collection services. 6. A major challenge for the city administration is clearly the expanded coverage o freliable basic services. This challenge, however, i s complicated by an even more immediate need, which i s to reduce the very significant inequities existing in service provision. Access to potable water illustrates the degree o f this challenge: while some 58 percent o f residents in Maputo at large have access to water (inside/outside their homes), indistricts 2 and 3 around halfhave access to pipedwater compared with less than 5 percent o f residents indistrict 7. 7. The Poverty Mapping exercise confirms the picture derived from the CCRC: service provision is generally low, and there are very sizeable inequalities between the municipal districts, both in terms o f poverty incidence and service coverage. While the incidence o f poverty inMaputo i s generally high- more than half o f its residents live below the poverty line o f US$l.50 per day - poverty levels range from a low o f 23 percent in one DM to a high o f 79 percent in another. Substantial inequalities also exist in consumption distribution within all districts, but particularly in district 1, with both the poverty gap measure and the severity index very high. The more rural districts o f Catembe and Inhaca are outliers with very elevated levels o f poverty. The incidence o f unemployment closely mirrors differences in poverty by district. Coverage o f basic health and education services also mirror poverty differences across municipal districts. 8. The CCRC also provides information on the relative priority residents in the different municipal districts place on the different public services (see graphic below). Residents at large place a high priority on services which will improve personal security, including policing, improvements in roads and sidewalks and public lighting. However, residents in the poorest districts give higher priority to access to potable water and roads relative to the other districts which give higherpriority to public cleanliness and solid waste collection. 9. The challenges facing the city administration are clearly enormous, with basic service coverage being low and inequities in coverage very large. However, the CCRC reveals that residents' perceptions o f city administration reflect an upward trend in service provision and quality. Maintaining this positive perception and strengthening effective communication channels with citizens will be important to the city administration as it works to expand service coverage. 121  + --a I 122  Annex 19: CapacityBuildingStrategy Mozambique ProMaputo:The MaputoMunicipalDevelopmentProgram 1. ProMaputo explicitly recognizes that the C M M i s not presently capable o f meeting its legislated responsibilities for governance and service delivery to the people and businesses o f Maputo City. These same capacity constraints limit the ability o f the CMM's own personnel to implement ProMaputo duringthe three years o f Phase I. 2. Inresponseto these limitations, the first phase ofthe APLis largely dedicated to capacity development through inter-related processes o f restructuring, reform, systems development, and training. Restructuring entails a comprehensive overhaul o f the CMM's organization design including the revision o f departmental responsibilities, workflows, staffing tables, and individual job descriptions. Restructuring also entails workforce strengthening and redeployment to better match individual skills with the demands o f redefined functional roles, where necessary including workforce rationalization and staff recruitment. Reform and systems development entail the redefinition o f procedures and workflows, often based on increased use o f information technology, first for internal administrative processes and subsequently for external processes which provide services to municipal citizens and firms. Training involves the increase o f individual staff knowledge and skills to better match workplace demands; both through on-the- job learning from externally contracted technical assistance personnel and through short-courses and vocational courses. 3. Because the processes o f restructuring, reform and systems development will demand both technical and managerial capacities well beyond those currently available withinthe CMM, a significant amount o f externally contracted technical assistance will be required during the three years o f ProMaputo's first phase. Duringthe formulation process, needs assessments have been conducted for each o f the priority functional areas inwhich the program will intervene and requirements for technical assistance identified. 4. To guide and manage technical assistance and capacity development processes, the CMM's Office o f Strategic and Institutional Development (GDEI) will oversee program implementation with a focus on ensuring the sustainability o f Program-supported systems and methods. An internal Strategic Coordination Team comprised of Councilors and senior municipal staff will oversee this process, supported by long-term advisors for strategic development, change management and capacity building. The GDEIwill also monitor long-term consultancies and technical advisors working in specific directorates in order to ensure that capacity-building is an integral part o f their work and that adequate attention and resources are dedicated to ensuring sustainability after consultants withdraw. 5. Required technical assistance i s o f several types. Lump-sumconsultancies will "contract- in" specialized technical services and deliver analytical products such as a plan or procedural manual. Systems acquisition consultancies in areas such as financial management, personnel administration and municipal geographic information will provide a package o f technical services including technology, start-up operational support, and staff training for system operation and maintenance. Process consultancies will work with C M M personnel for finite periods inorder to assist inthe planningand implementation o f organizational change processes. 123  6. Inaddition, because ofthe limitednumber and capacity of the CMM's existing qualified management and senior technical staff, several long-term technical advisors will be required during the Program's first phase. In some cases, local advisors will be contracted to assist the Council in supervising and gaining maximum benefit from technical services consultancies, for example in the development o f several sector master plans. Inothers, the complex demands o f multi-year systems development and change processes insuch crucial areas as strategic planning, organizational restructuring, municipal finance (both revenue enhancement and expenditure management) and procurement will require senior technical advisors for periods longer than one year. Ingeneral, these advisors are expected to be phased out during year three o f the first phase. 7. In order to avoid trapping the C M M in permanent dependence on external technical assistance, the development o f a sustainability strategy has been an integral part o f the response to the Council's short term technical assistance needs duringPhase Iimplementation. Inthe first instance, qualified personnel will be recruited and improvement o f the CMM's remuneration system will allow the payment o f reasonably competitive salaries for qualified technical personnel, based on local market standards, i s the foundation for developing sustainable internal capacities. Unless the municipality can attract and retain qualified Mozambicans it will not be able to escape the present capacity trap: thus the link between revenue enhancement and improved staff incentives, increasingly including a performance-based component, i s indispensable to sustainable improvements to organizational effectiveness. Furthermore, the Phase Itechnical assistance plan involves twinning locally recruited technical specialists, permanent staff whenever possible and local consultants as a second-best option, with each long- term technical advisor inorder to reduce the need for internationally recruited long-term advisors as quickly as possible. Increasingly over the three years, the focus o f technical assistance will shift toward locally contracted specialists and the occasional purchase o f short-term, product- based consultancies for specific technical inputs to planningand service delivery processes. 8. Finally, staff training is a critical element o f the C M M capacity development strategy. During formulation, a Municipal Training Policy has been drafted which outlines the CMM's approach to staff development. Based on this Policy, a Training Strategy has been developed through an assessment o f training needs, a prioritization o f specific finctions and associated skills required to meet ProMaputo's Phase Iobjectives, and an analysis o f options for improving staff capacities to meet these needs. Because ProMaputo will finance a number o f long-term advisors incritical areas, the TORSfor these advisors have been designed to include skill transfer to municipal staff as a key output, both through on the job training and through occasional specialized andjob-relevant short courses ledby these advisors. 9. Inaddition, the formulation andimplementationofannual training plans will be financed byProMaputo. The municipality will rely as much as possible on the existing training capacity which exists within Maputo, both through the variety o f specialized public sector training institutes and centers associated with central ministries and through the several universities and technical-vocational institutes which operate in or near the city. Humanresources development will increasinglybe institutionalized as apermanent feature o f municipal operations, so that staff skillimprovement is considered not merely a feature o f externally financedprojects butrather an integral part o fthe CMM's annual plans andbudgets. 124  IBRD 33451R1 30