Jordan - National Urban Development Project

Document of The World Bank FOR OFFICIAL USE ONLY iD/ 2t'/- 4O Report No. P-4521-JO MEMORADUM AND RECOMMIENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT tO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENIT TO US$26.4 MILLION TO THE HASHEMITE KINGDOM OF JORDAN FOR A NATIONAL URBAN DEVELOPMENT PROJECT May 18, 1987 This dcumet has a restricted distibution and may be used by recipients only in the performance of their official dutes. Its contents may not otherwise be disclosed without World Bank authorization.  HASHEMITE KINGDOM OF JORDAN NATIONAL URBAN DEVELOPMENT PROJECT CURRENCY EQUIVALENTS Currency Unit = Jordan Dinar (JD) JD 0.33 = US$1.00 JD 1.00 = US$3.03 JD 1.00 = 1,000 fils FISCAL YEAR January 1 - December 31 MEASURES AND EQUIVALENTS Kilometer (km) - 0.62 mile Square kilometer (km2) = 0.386 square mile Hectare (ha) = 2.47 acres Centimeter (cm) 0.3937 inches Meter (m) - 39.37 inches = 3.28 feet (ft) Square meter (i2) * 10.8 square feet (ft2) Cubic meter (M3) = 264 US gallons Liter (1) = 0.264 US gallons Liter per capita per day (lpcd) = 0.264 US gallons per capita per day ABBREVIATIONS AND ACRONYMS ARA - Aqaba Region Authority CVDB - Cities and Villages Development Bank HB - Housing Bank of Jordan HC - Housing Corporation of Jordan MMRAE - Ministry of Municipal and Rural Affairs and Environment UDD - Urban Development Department UDP - Urban Development Project  FOR OFFICIL USE ONLY HASHEMITE KINGDOM OF JORDAN NATIONAL URBAN DEVELOPMENT PROJECT LOAN AND PROJECT SUMMARY Borrower: Hashemite Kingdom of Jordan Beneficiaries: Urban Development Department (UDD) of the Ministry of Municipal and Rural Affairs and the Environment (MMRAE), and Housing Bank of Jordan (HB) Amount: US$26.4 Million equivalent Terms: 17 years, including 4 yea-s of grace, at the standard variable interest rate Onlendint Terms: The Borrower would onlend US$4.2 million to HB for loans to project beneficiaries for house construction and improvement. The maturity and grace period for the onlent funds would be the same as under the Bank loan with the interest rate fixed at 7.92 percent. About US$10.1 million would be passed by the Borrower to UDD to finance construction of infrastructure facilities and core houses. This amount and interest charges (calculated at 1.92 percent) would be recovered through the sale of plots. The remaining US$12.1 million would be passed to UDD for construction of social facilities and off-site infrastructure works; these costs are not recoverable from project beneficiaries. The Borrower would bear the foreign exchange and interest rate risks. Financing Plan Government $20.3 million Housing Bank $29.3 million Households $17.3 million IBRD $26.4 million Total $93.3 million Economic Rate of Return: 161 Staff Appraisal Report: Report No. 6739-JO This document has a resticted distibution and may be ud by nxipient. only in the perfonnance of thei official duties. its contents may not othwien be disclosed without Wofld Bank authoation.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE IERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMNT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE HASHE3JE KINGDOM OF JORDAN FOR A NATIONAL URBAN DEVELOPMT PROJECT 1. The following report on a proposed loan to the Hashemite Kingdom of Jordan of US $26.4 million equivalent is submitted for approval. The proposed loan would carry a standard variable interest rate with a maturity of 17 years including 4 years of grace and would help finance an urban development project. 2. Background. Jordan is a highly urbanized country. Following three decades of high population growth and massive immigration, about 70 percent of its 2.8 million inhabitants live in cities and towns. The urban population is growing at an annual rate of about 5 percent. Fueled by remittances, housing investments since 1975 have averaged 25 percent of gross capital formation and 9 percent of GDP-an exceptionally high figure for a country at Jordan's income level (US$1,560 per capita GNP in 1985). Much of the urban housing, however, has taken the form of sprawling, scattered developments on large plots, which has brought with it excessive infrastructure costs and a shortage of housing affordable to low-income groups. The poor have had little choice but to live in overcrowded conditions in rental apartments or in informal housing areas with few service amenities; they incur increased health risks because of the overcrowding, lack of appropriate health care, and inadequate sanitation. The first Bank-financed Urban Development Project (UDPl, Loan No. 1893-JO, US$21 million, 1980) signaled a significant departure from past policy; it developed 2,800 small residential plots and upgraded four slum areas accommodating about 1,400 families. The success of this project in addressing the housing needs of the poor in a cost-effective manner without Government subsidies led to a second project (UDP2) in the Amman area (Loan No.2587-JO, US$28 million, 1985). Reflecting its aim to achieve more balanced regional development and responding to the shelter needs of the poor outside the capital area, the Government gave the Urban Development Department (UDD)--which had been responsible for implementing the first two projects-a nationwide mandate in 1986. 3. Project Objectives. The proposed National Urban Development Project would support the Government's recent urban development policy initiatives by building upon and extending to all of Jordan the successful experience gained under the two previous World Bank-funded urban projects in Amman. Its objectives are to improve living conditions in the largest remaining squatter and slum areas in the country, manage urban growth through rapid and cost-effective development of infrastructure and social facilities, and recover the full cost of infrastructure through lana sales and tariffs. The  -2- project would encourage the private sector to make a greater contribution to the construction of housing for low-income groups by making serviced and appropriatelv subdivided land and financing available to individuals and developers. The project also aims to strengthen the UDD and the two main financial ;nstitutions in the urban sector--the Housing Bank (HB) and the Cities and Villages Development Bank (CVDB)-to enable them to deal more effectively with low-income shelter development throughout Jordan. 4. Project Description. The proposed project would finance: (a) upgrading of low-income squatter and slum areas with a total population of about 40,000 through regularization of land tenure and provision of water and sewerage, paved streets and footpaths, and improved drainage; (b) land development through provision of on-site and, when required, off-site infrastructure for about 14,000 people (of whom about three quarters would have incomes below the 40th percentile) and for small workshops and trade establishments; (c) construction of core houses on up to 40 percent of new plots to help stimulate rapid development of the sites and allow for immediate occupancy; (d) provision of housing and construction loans to the beneficiaries on both the sites to be developed and upgraded; (e) establishment of social facilities, namely schools, clinics* emergency centers (including fire fighting vehicles and ambulances), community buildings, and women's training centers in upgrading and land development areas; and (f) institutional development by furnishing advisory services, logistical support, and training for UDD and HB. 5. The project sites would be spread throughout Jordan. Because of the large number of subprojects and the growing capability of the implementing agencies, a line-of-credit approach would be adopted for the proposed project. The UDD would plan, design and implement the land development and upgrading schemes in cooperation with local authorities; the HB would appraise the subprojects, provide construction finance to UDD and mortgage and construction loans to individual households; and the CVDB would appraise and channel the Government funds for the required social facilities and when necessary provide construction finance. The total cost of the project is estimated at US$93.3 million equivalent, with a foreign exchange component of US$26.4 million (28 percent). A breakdown of the costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursements, as well as the Disbursement Schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Jordan are given in Schedules C and D, respectively. A map is also attached. The Staff Appraisal Report (Number 6739-JO) dated May 15, 1987 is being distributed separately. 6. Rationale for Bank Involvement. Since the late 1970s, the World Bank--through lending, sector work, and support for studies carried out by the Government and its consultants-has been closely associated with important urban policy initiatives in Jordan and has helped establish two key organizations in the sector (UDD and CVDB). The proposed project would continue and deepen the World Bank's support for institution building and urban policy reform. It would extend the use of improved planning and design standards--previously introduced and proven successful in the Greater Amman area under the first two Bank-financed urban development projects-to smaller towns and cities throughout the country. In parallel, the project would further strengthen the main agencies--UDD, HB, and CVDB-and establish close working relationships among them and with the municipalities. The project would also help structure the financial flows for land development (commercial  -3- construction finance) and house construction (individual mortgage loans) in such a way as to increase the access of low-income families to decent housing and set the stage for a greater involvement by privete real estate developers in low-cost shelter construction. 7. Agreed Actions. Agreement was secured at negotiations that: (a) UDD, HB, and CVDB would apply agreed criteria, standards, and procedures for preparing, appraising, and implementing subprojects; and (b) UDD and HB would be properly staffed and employ consultants with qualifications, experience, and terms of reference satisfactory to the Bank. Conditions of effectiveness would be that: (i) a full-time appraisal advisor for HB and key staff in HB au.d UDD have been appointed; (ii) a management and credit agreement between the Government and CVDB has been executed; and (iii) a subsidiary financing agreement between the Government and HEB has been executed. 8. Justification. The project is designed to address the urgent need in Jordan for shelter and related infrastructure as well as a full range of social services at prices affordable to low-income families, while employing appropriate cost recovery provisions. Such an approach is essential in a period of increasing budgetary constraints in Jordan. Overall about 60,000 individuals, half of whom have incomes below the Bank-defined urban proverty threshold, would benefit from the project. In particular, by providing paved roads, community areas, adequate drainage, piped water and sewerage systems and allowing access for solid waste collection, the project would dramatically improve the physical environment and quality of life for some 8,000 families living in squatter and slum areas throughout the country. The project would also encourage private savings and help channel them into house construction and improvements for low-income families. 9. For most of the potential sites and services and upgrading areas, final site selection has not been made and hence, costs and benefits cannot yet be estimated. However, among the criteria for determining the eligibility of subprojects for financing under the line of credit would be an acceptable economic rate of return, i.e., a return of at least 9 percent, equal to the opportunity cost of capital. Based on detailed estimates carried out for UDP1 and UDP2, it can be expected that the rates of return would range between 15 and 30 percent for upgraded areas and 12 to 20 percent for new sites. Sufficient data are available for the Aqaba subprojects to calculate an economic rate of return which is estimated to be about 15 percent if the costs of community facilities--for which benefits can not be quantified-are excluded. If these facilities are included on the cost side, the rate of return falls to about 13 percent. The expected average for all subprojects is 16 percent. 10. Risks. The three key agencies responsible for project implementation have proven track records. The demand for small plots developed and sold under UDP1 was high, and community support for previous upgrading work has been strong. Nonetheless, the expansion of UDD's upgrading and land development activities to smaller towns and cities introduces some uncertainty about market demand and community acceptance. The UDD is countering these risks through phasing of construction and adopting flexible designs for the new sites which will help it to adjust to changing market conditions. It is also putting increased emphasis on early involvement by its community development staff in explaining the upgrading program and modifying plans and designs in response to local needs and aspirations. The UDD would also require that, before work starts on an upgrading scheme, a majority of the  -4- households should have demonstrated their commitment to the scheme by having made cash deposits to UDD, opened savings accounts with HB, consented in writing or indicated their intention to pay for the works through some other comperable action. The potential problems associated with the expanded operations of the concerned organizations and the complex interactions between them have been minimized through training in managerial as well as technical skills and appropriate coordination mechanisms. Given the successful track records of the three principal institutions involved in the project, the overall risk is small. 11. Recormendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber B. Conable President Attachments Washington, D.C. May 18, .987  -5- HASMEMITE KINGDOM OF JORDAN NATIONAL URBAN DEVELOPMENT PROJECT SCHEDULE A Proiect Cost Summary Local Foreig Total - - USS million -- A. Site development Land 32.67 0 32.67 Infrastructure 9.69 9.16 18.85 On-plot development 4.13 2.75 6.88 Building & material loans 5.72 2.95 8.67 Comunity buildings, furniture & equipment 7.25 8.61 15.86 Subtotal 59i. 467z B. Design and supervision 1.06 0.46 1.52 C. Project management 2.43 0.27 2.70 D. Advisory services, training & equipment 0.58 1.13 1.71 Total base line cost iLJ8 E. Price contingencies 3.38 1.09 4.47 TOTAL PROJECT COST DA" a/ of which taxes are TUS$0.8 million Financing Plan Local Foreign Total -- -US$ million - Households 17.3 - 17.3 Housing Bank 29.3 - 29.3 Government 20.3 - 20.3 World Bank - 26.4 26.4 Total 66.9 233  -6- HASEMITE KINGDOM OF JORDAN NATIONAL URBAN DEVELOPMENT PROJECT SCHEDULE B -Procurement Method.--- Total ICB LCB Other Cost Project Element -- ----US$ million- Land 33.3 33.3 (-) (--) (-) () Civil works 28.2 12.2 -- 40.4 (12.7) (5.5) (-) (18.2) Furniture and equipment 3.3 0.5 0.3 4.1 (2.9) (0.4) (0.2) (3.5) Building and material loans 9.4 9.4 (-) (-) (4.2) (4.2) Professional services 6.1 6.1 (-) (-) (0.5) (0.5) Total 31.5 12.7 49.1 93.3 (15.6) (5.9) (4.9) (26.4) Figures in parenthesis are the expected disbursements by the Bank. Disbursements Category Amount (M) (US$ m) Civil works 17.3 45 (of expenditures) Building and materials loans 3.9 45 (of RB disbursements) Furniture and equipment 3.5 100 (foreign) 100 (ex-factory local) 70 (other local) Engineering design and supervision 0.5 100 (of UDD expenditures) Unallocated 1.2 A special account in an amount of US$3.0 million would be established to expedite project execution. Disbursements would be against Statements of Expenditures for eligible expenditures under contracts valued at US$150,000 or less and HB's disbursements for building and materials loans. Retroactive financing of up to US$500,000 is being provided for payments made after January 31, 1987 in order to allow for urgent work for upgrading in Aqaba. Estimated Schedule of DisbursementE Bank FY: 1988 1989 1990 1991 1992 1993 1994 - --------