Jordan - Cities and Villages Development Bank Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 7225 PROJECT PERFORMANCE AUDIT REPORT JORDAN CITIES AND VILLAGES DEVELOPMENT BANK PROJECT (LOAN 1826-JO) April 27, 1988 Operations Evaluation Department This deoment ha a resricted distribulo and may be ued by reelplens anly In the perfomance of their oMdal dutie. It coimnts ay not otherwise be disclosed without World Dank authortion. ABBREVIATIONS CVDB Cities and Villages Development Bank EDI = Economic Development Institute GOJ Government of Jordan MMRA = Ministry of Municipal and Rural Affairs MVLF = Municipal and Village Loan Fund NPC = National Planning Council PCR = Project Completion Report SAR = Staff Appraisal Report COUNTRY EXCHANGE RATES Currency Jordanian Dinars (JD) Currency Exchange Rate: Appraisal Year Average (79) US$1 = 0.294 Intervening Years Average US$1 = 0.370 Completion Year Average (86) US$1 = 0.346 FOR OFTICIAL USE ONLY THE WORLD BANK Washington. D C. 20431 USA Owe at Ovmstese~a Operatm IVkatm April 27, 1988 MRORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Jordan Cities and Villages Development Bank Project (Loan 1826-JO) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Jordan Cities and Villages Development Bank Project (Loan 1826-JO)" prepared by the Operations Evaluation Department. Attachment This document has a restricted distribution and may be used by recipiats only in the peforaance of their olicial duties. Its contents may not otherwise be disclosed without World Bank authoriastion. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT JORDAN CITIES AND VILLAGES DEVELOPMENT BANK PROJECT (LOAN 1826-JO) TABLE OF CONTENTS Pae No. Preface .. .. .. .. . .. .. .. . ........... ... o......o...... Basic Data Sheet ...... ....................... 0.......... 1 Evaluation Summary ........ . ...... .............. . ........ v Proiect Performance Audit Memorandum I. PROJECT SUMMARY ......#............qo................ 1 Background ..*.**.......oo..................... 1 The Project and Its Objectives ...................... 2 Implementation ...................................... 3 Performance of Consultants and Contractors .......... 4 Institutional Development and Performance .......... 5 Financial Performance ........... .... ... ... ...... 6 Bank Performance .... ................ ... ..... ..... 8 Sustainability of Benefits .......................... 8 II. CONCLUSIONS AND LESSONS................................ 9 ATTACHMENTS A & B - Comments from the Government and the Executing Agency ....................... 11 Proiect Completion Report I. Introduction ............. *.................... 13 II. Project Identification, Preparation, and Appraisal ... 13 III. Project Implementation ............................... 18 IV. Institutional, Financial and Economic Performance .... 22 V. Conclusions ......................................... 27 ANNEXES I. Estimated and Actual Disbursement Profiles ............ 31 II. CVDB Organizational Chart .............. ............ 35 III. CVDB's Audited Income Statement and Balance Sheet (1981-1985) ......................................... 36 IV. CVDB Actual Performance Indicators (1982-1985) ........ 38 V. Distribution of Subloans by Type of Projects, Category of Borrowers and Governorates .............. 39 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. I PROJECT PEROMANC AUDIT RORT JOMAN CITIES AND VILLAGES DEVELOHERT BANK PROJECT LOAN 1826-JO UEACR This report represents the results of a Performance Audit of the first Cities and Villages Development Bank Project, for which Loan 1826- JO of US$10.0 million was approved in March 1980. Loan 1826-JO was the Bank Group*s first lending operation in the municipal development sector in Jordan. The loan was made to the Government of Jordan (GOJ) with onlending specified from GOJ to -he Cities and Villages Development Bank (CVDB). The Loan Agreement was signed in September 1980 and became effec- tive in March 1981. The Original Closing Date of December 1984 was exten- ded to June 1986. An unused balance of US$0.76 million was cancelled. The Project Performance Audit Report (PPAR) consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED), a project Completion Report (PCR) prepared by Bank staff of the Europe, Middle East and North Africa region. The Audit has reviewed the Appraisal Report, the Loan Documents, the PCR and documents available on Bank Group Files and discussed the project with knowledge- able Bank staff to the extent possible. Furthermore OED staff has visited Jordan and discussed the project with government, CVDB and muncipal officials. The Audit finds that the PCR, in general, accurately describes the project experience and the PPAN's findings 4nd conclusions supplements that description where necessary and provides independent comments on major aspects of the project. Copies of the draft PPAR were sent to the Government and the Executing agency for comments. Comments received from the Government and the Executing Agency have been reproduced as an Attachments A & B to this report. ii PROJECT PERFORMANCE AUDIT BASIC DATA SHEET JORDAN CITIES AND VILLAGES DEVELOPMENT BANK PROJECT (LOAN 1826-JO) KEY PROJECT DATA Appraisal Actual Item Expectation Current Estimate Total Project Cost (US$ million) n.a. n.a. Loan Amount (US$ million) 10 10 Disbursed 10 9.23 Cancelled 0 0.77 Date Physical Components Completed n.a. n.a. ]a Proportion Completion by above date (%) n.a. n.a. Proportion of Time Overrun n.a. nsa. Economic Rate of Return n.a. n.a. Financial Performance fair better Institutional Performance fair better CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS FY81 FY82 FY83 FY84 FY85 FY86 FY87 Appraisal Estimate 1.9 5.3 8.2 9.8 10.0 10.0 10.0 Actuals 0.2 0.9 3.6 6.3 8.7 9.2 Actual as Z if Appraisal 1 11 37 63 87 92 OTHER PROJECT DATA Original Actual Item Plan Revision Est. Actual First mention in Files - 04127/77 Government's Application - 04110/77 Negotiations - - 02125/80 Board Approval 12/79 - 03/27/80 Loan Agreement Date - - 09108/80 Effectiveness Date 12/09/80 03/31/81 03/31/81 Closing Date 12/31/84 06130/85 06/30/86 Borrower Kingdom of Jordan Executing Agency Cities- and Villages Development Bank Fiscal Year of Borrower Janaary 1 to December 31 Follow on Project Second Cities and Villages Development Bank Proj ect Loan Number 2614-JO Loan Amount (US$ m) 15.0 Loan Agreement September 19, 1985 /a No fixed completion date was established in view of "line of credit" nature of the program. III 1ISSION DATA Date No. of man- Date of Mission Month/Year Persons days Report Reconnaissance 7177 2 18 08116177 Reconnaissance 8177 1 n.. 09107177 Identification 9177 3 n.. 11/01/77 Operationsal 1 12/77 1 1 12/19/77 Reconnaissance 01/78 2 22 01/31/77 Operational 2 04/78 1 2 n.. Follow-up 04-05178 1 12 05/30178 Preparation 1 06/78 1 5 n.a. Tech. Assistance 06/78 5 n.. 07/10178 Follow-up 07/78 3 24 08121/78 Preparation 2 12!78 3 26 12/26/78 Preparation 3 04/79 2 9 05/21/79 Preparation 4 06/79 4 63 06/28/79 Appraisal Operational 3 09/79 1 n.e. 09/28179 Operational 4 12/79 1 n.a. 12/18179 Operational 5 02/80 1 n.e. n.e. Management 08/80 1 n.a. n.a. Supervision 1 09180 3 35 11104/80 Tech. Assistance 10/80 1 n.e. 12103/80 Operational 6 11/80 1 n.e. Tech. Assistance 01/81 5 n.e. 02/20/81 Supervision 2 03/81 2 9 03/16/81 Supervision 3 06/81 1 7 07/20/81 Supervision 4 10/81 5 59 01/05/82 Supervision 5 11/81 1 5 04/13/82 Supervision 6 07/82 2 8 09/13/82 Supervision 7 01/83 1 6 01/19/83 Supervision 8 08/83 1 5 09101/83 Supervision 9 02/84 1 5 03/26/84 Supervision 10 08/84 2 10 10/02/84 Completion 06/85 2 10 07130/86 iv STAFF INPUT (staff weeks) FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 Total Preappraisal 26.4 38.2 .1 64.7 Appraisal 19.9 45.4 65.3 Negotiations 12.1 12.1 Supervision 1.2 16.9 24.3 6.4 9.8 10.0 1.3 70.0 Other .1 .9 .1 1.1 Total 26.4 58.3 59.8 16.9 24.3 6.5 9.8 10.0 1.3 213.3 v PROJECT PERFORMANCE AUDIT REPORT JORDAN~ CITIES AND VILLAGES DEVELOPMENT BANK PROJECT LOAN 1826-JO EVALUATION SUMMARY Introduction 1. The Cities and Villages Development Bank Project, approved in March 1980, was the Bank Group's first assistance for municipal develop- ment in Jordan. The project was designed to convert an existing gover- nment financing arm, the Municipal and Village Loan Fund into a full- fledged development bank to provide comprehensive financial and develop- mental assistance to municipalities and villages in Jordan with parti- cular emphasis on remoter areas which were not yet brought fully into the country's development process (PPAM, paras. 1, 2, 4 and 5). The Proiect and its Objectives ii. The project was designed to help create and support through its initial phase a development institution to assist municipalities and villages in the construction of infrastructure and social projects, in raising the standard of living and in employment generation in urban and rural communities. It consisted of US$9.5 million equivalent loan to CVDB to finance about 50% of projected disbursements over a 25 month commit- ment period and US$0.5 million equivalent for studies and technical assistance. The project was appraised in June 1979 and was scheduled for completion in December 1984. Due to slow early commitments the project was only completed in June 1986 (PPAM, paras. 5, 6, 12, and 17). Implementation Experience iii. The emphasis during the project preparation period was on institutional and in particular financial management development issues. This continued into the early implementation period at the expense of developing CVDB' project appraisal and supervision capacity making general progress unbalanced and resulting in delays. In certain areas of subproject tppraisal the Bank's requirements were overly complex and inflexible Ltsulting in an extended period of disputes with the borrower (PPAM, paras. 14, 15 and 16). iv. The use of consulting services were minimal under the project but, in place, extensive direct Bank technical assistance was provided involving several sectors. Procurement processes for contracting services were satisfactory. Construction contractors performance steadily improved vi in line with the development of CVDB's and the mnicipalities' super- visory capacity. Current standards are satisfaitory (PPAN, para. 18). v. Institutional developments ultimately matched if not exceeded expectations. CVDB is a mature, well managed and well staffed entity with sound policies and an exceptionally effective training program. The Audit notes that Bank assistance was most effective in these areas (PPAM, paras. 19, 20, 21 and 34). vi. From inception CVDB's financial performance rapidly reached a satisfactory state. Prudent management, sound policies and adequate resources resulte4 in growth rates considerably in excess of expectations and these, in general continue to be maintained today. If particularly stringent scrutiny is to be applied some concern may be expressed over the recent growth of overdraft advances and loan consolidation to munici- palities without comparable increase in resources and over the limiting of borrowing to the Central Bank (PPAK, paras. 23 to 32). Sustainability vii. The Audit finds no reason for concern that the benefits of the project may not be sustained either within CVDB or in the progress of the municipal development projects financed from the proceeds of the Bank loan(s) (PPM, pares. 35 and 36). Conclusions viii. The Audit concludes that the project was generally successful in its objectives and that Bank assistance was effective and reasonably efficient. The only evident detraction found was the Bank's overopti- mistic planning and excessive rigidity in certain areas of project pre- paration (PPAM, paras. 39 and 41). ix. The project contains valuable lessons on issue% such as govern- ment commitment (para. 19), manpower and staffing (paras. 20 and 41); successful training programs (paras. 21 and 40) and a good but costly project preparation (paras. 9, 11, 33 and 39). 1 PROJECT PERFORMANCE AUDIT MENORANDUN JORDAN CITIES AND VILLAGES DEVELOMENT BANK PROJECT LOAN 1826-JO ,. PROJECT SOunART BackAgrond 1. The Cities and Villages Development Bank (CVDB) project was the Bank's first assistance for municipal development in Jordan (and in the EMENA region). The project was designed to support the newly created CVDB in assisting municipalities and villages in Jordan to identify, prepare, Implement and supervise economically and financially viable development projects. 2. The predecessor of CVDB, the Municipal and Village Loan Fund (MYLF) was established in 1966 as an arm of the Ministry of Municipal and Rural Affairs (HMRA) to provide loans for such projects as water supply, power distribution, schools, health clinics and commercial buildings. MVLF had no capacity to prepare/appraise projects and essentially acted as a cashier for the Ministry. 3. Municipal development projects were initiated by local authori- ties but were planned and designed by the respective sector ministries or agencies. The projects were then funded by MVLF loans and/or sector agency funds. Communities generally gave priority to basic infrastructure needs followed by revenue generating and commiunity service projects. The SAR (pares. 2.12 to 2.23) contains a detailed review of the status of the urban service delivery system at the time of appraisal. Related data indicated that both the existing level of these services and the rate of delivery were inadequate. Furthermore, past and existing development programs concentrated on Amman and other more developed regions neglecting the remoter areas of the country. 4. In early 1977 the government of Jordan through its National Planning Council (NPC) approached the Bank for a comprehensive assis- tance and financing package to help convert the MVLF into a full-fledged development bank to serve the needs of municipalities and villages. The government's aim was to create an institution which would serve to integ- rate the poorer regions of the country into the development process and rationalize the investment expenditures in these regions. The government believed that such an institution would be a better mechanism for the provision of basic infrastructure in small communities than the speciali- zed agencies (Water Supply Corporation, Jordan Electricity Authority, 2 Ministry of Education etc.). The new bank would also supplement the services provided by the existing specialized credit institutions such as the Agricultural Credit Corporation, the Industrial Development Bank and the Jordan Cooperative Organization. 5. The specific role of CVDB, on its establishment in November 1979, was spelled out as follows: (i) help to meet the basic human needs of the less developed segments of the population; (ii) raise the living standard of rural and urban groups by providing improved infrastructure services; (iii) create, through the establishment of productive projects, local employment opportunities in rural areas; and (iv) improve income distribution by integrating the less developed areas in the nation's development process. In addition, CVDB was required to provide technical assistance and training to municipalities to improve their efficiency and act as trustee for the "Trust Fund", a central government resource alloc- ated to municipalities and villages. The Proiect and Its Obiectives 6. The project, as appraised, consisted of two components namely: (i) a line of credit to CVDB of US$9.5 million equivalent and, (ii) US$0.5 million for technical assistance. The former represented about 50% of CVDB's projected disbursements under sub loans eligible for Bank refi- nancing over a 25 month commitment period (November 1980-December 1982). The latter allocated US$200,000 to cover the foreign exchange cost of an expatriate advisor for two years, US$200,000 for the foreign exchange cost of training CVDB staff and US$100,000 for the foreign exchange cost of a study of ways and means for identifying and promoting productive, revenue earning projects. 7. Sub-projects eligible for Bank refinancing were defined as "... in any sector provided that, were it of an appropriate size, it would qualify for direct Bank group lending." Anticipated exceptions were playgrounds, parks and similar facilities. 8. The project was appraised in June 1979, negotiated in February, 1980, approved on March 27, 1980 and became effective on March 31, 1981. 9. Preparatory work for the project was particularly intensive and an exceptional amount of direct Bank technical assistance was provided which was considered justified given the "pilot" nature of the project. Although intra Bank leadership during preparation and appraisal rested with the Industrial Development Finance (IDF) division, in view of the anticipated variety of sub projects, significant input was provided by the Education, Agriculture, Transportation, Water Supply and Program divisions of the EMENA region to assist CVDB in developing identifica- tion, appraisal and supervision capability in the respective sectors and to help define the eligibility criteria for Bank financing. 10. Maximum emphasis was put on ensuring institutional and manage- rial competence within CVDB and the Bank took a commendably firm stand in 3 not proceeding with the loan until the government appointed a suitable manager and clearly defined the functions of the institution (PCR, para. 2.10). At the same time (and at the government's request) the Bank provided a major piece of technical essistance in preparing a "blueprint" for the new institution. This contained proposals for the functions of the bank, model provisions for legislation establishing and governing its activities and drafts of Policy Statement, Organization Plan and Operational and Financial Projections. In due course the government adopted the "blueprint" virtually without modification. 11. The cost, to the Bank, of this particular exercise is not elaborated by the PCR and while it may be regarded as a particularly good example of putting the Bank's collective experience at a borrower's disposal the Audit agrees with the PCR's reservations (para. 5.04 (C)) on the repeated application of such intensive assistance without appropriate compensation. 12. During the preparation stage, the project included proposals for a number of studies such as inventory of investment needs, municipal reform needs and socio-economic survey of disadvantaged population to be financed out of loan proceeds. As is often the case, the government declined to borrow Bank funds for the purpose claiming cheaper funds would be available. Predictably, most of the proposed studies either did not materialize or were only partially carried out. The PCR gives no indication whether this has hindered or reduced the project's effective- ness nor does it describe efforts, if any, to achieve the same objectives through different means. 13. In para. 2.14 of the SAR it is stated that the objective of the project is to assist CVDB achieving its objectives which are listed in paragraph 5. above. Implementation 14. During the preparation and loan processing period both the Bank and the Jordanian authorities were preoccupied with the creation/setting up of CVDB and the recruitment of appropriate staff, in particular, a suitable General Manager. After a series of compromises (such as starting the Bank appraisal process with only a Deputy General Manager in place) the loan became effective on March 31, 1981 some four month after the original date. 15. Regarding CVDB's operations, efforts were concentrated on improving the bank's financial management and appraisal capacity. While the former met with relatively good progress, the latter was not brought to an acceptable level until 1984 (PCR, para. 3.06). Although the PCR deals only briefly with the slow start and subsequent implementation problems the project files reveal considerable concern in the Bank as the project approazhed problem project status. Persistent staffing problems largely accounted for the shortcomings of CVDB's subproject appraisal process notwithstanding the appointment of an expatriate advisor in September 1981. 4 16. Although the PCR lightly refers to ..."certain disagreements among CVDB's top managers..." on the subproject appraisal process, the project files reveal strong initial resistance by the Minister of Munici- pal and Rural Affairs (chairman of the Board of CVDB) to the Bank's requirement that all subprojects be fully appraised before presentation to the Board of CVDB. This attitude was, no doubt, fuelled by a lengthy argument between the Bank and CVDB on what appears to have been overly stringent and sophisticated appraisal requirements for small town roads. The Bank insisted on full economic justification by demonstrated cost savings based on daily traffic counts by type of vehicles. This require- ment was eventually replaced by a "willingness to pay" commitment from the beneficiaries for 50Z of the cost of residential roads (PCR, para. 3.10). The Audit field visit verified that this change was indeed justi- fied as the vast majority of the recent and current road projects could not warrant elaborate economic analysis. Furthermore the cost recovery process is well accepted and functioning. 17. At the time of loan approval the final subproject submission date was specified as December 31, 1982 and loan closing date was set as December 31, 1984. While the pipeline of eligible subprojects to be committed was more than sufficient to meet the program (PCR, para. 3.11), CVDB's inability to meet the Bank's appraisal requirements in the early years slowed down commitments and, hence, disbursements. In the event, the loan was closed on June 30, 1986. It is worthwhile to note that after the slow start was overcome, the rate of disbursements closely corres- ponds to the appraisal estimates (but shifted by some two and a half years) indicating that subproject execution was reasonably efficient and in line with the Bank's projections (PCR, para. 3.15 and Annex I). Performance of Consultants and Contractors 18. The only consulting services utilized under the project were those of an expatriate advisor to CVDB financed by UNDP and recruited with Bank assistance. His performance over a two year period was satis- factory. The PCR states (para. 5.04(C)) that using the services of consultants to assist in institution building was considered less appro- priate than direct Bank assistance. The project files provide no informa- tion on consideration of this issue and the Audit has no basis on which to judge the validity or cost effectiveness of this approach. Contractors for subproject execution were selected under acceptable local procurement procedures. Their performAnce was varied, shortcomings being largely attributed by the PCR (para. 3.16) to inadequate supervision which was gradually improved with better staffing and training in CVDB. Currently CVDB has a well staffed and competent Supervision and Follow-up unit in its Technical Department which rigorously enforces the contractual stan- dards of the subprojects. The Audit field visit found uniformly high construction standards on ongoing and recently completed construction projects. 5 Institutional Development and Performance 19. In essence, the entire project consisted of an institution building exercise the objective being to convert a mediocre government fund disbursing agency into a full fledged development bank with a well defined clientele and a solid set of policies. The fact that this was ultimately achieved, in the Audit's opinion, was due mainly to the fact that the need for the institution was identified by the borrower who maintained consistent support for it throughout and following the project period. In other words, this is one of the infrequent cases where the problem (inadequate urban service delivery) and its solution did not have to be identified and sold by the Bank. The concept and ownership of the project firmly rested with the borrower and any disagreements with the Bank occurred on the ways and means of achieving the aims rather than on the aims themselves. 20. For CVDB to reach the status of a mature, well functioning development bank it has today took longer than expected at appraisal. The Bank was, once again, optimistic. Staffing, particularly at management level, was the most seriously underestimated problem. The Audit concludes that there should have been a better appreciation of this problem at the preparation stage since in a country of Jordan's stage of development and with the proximity of the lucrative oil exporting countries, it was unlikely that staff of the caliber required would be just awaiting em- ployment. In any case the complexity of the task of creating a new sophisticated institution, maintaining and increasing the lending opera- tions of MVLF and, at the same time, introducing an appraisal and super- vision process, recruit and train staff and train municipal staff would have been a daunting task in any environment. The project files clearly reveal the path of progress as well as the fact that the Bank's periodic impatience was fueled by its own optimistic target dates. 21. Today CVDB is organized into six functional departments (Technical, Financial, Internal Audit and Organization, Statistics and Planning, Administration and Loan Department) and a newly created Regional Development Fund Department which operates with special govern- ment funding. CVDB also established its first branch office outside Amman in Irbid and further branches are planned to facilitate more efficient operations in the more distant regions. It has about 120 staff under a competent General Manager and a recently established Training Division which provides training to both CVDB and municipal staff (PCR, paras. 4.02 to 4.04). The Audit field mission was particularly impressed with the effectiveness of the Training Division. Under dynamic leadership and with strong management support it has already achieved national promi- nence. It provides training for the highest level of municipal management as well as lower level of administrative staff and systematically covers all municipalities in the country. The program uses actual project case studies from CVDB's portfolio and also provides these case studies to the University of Jordan for training purposes. Training costs are systemati- cally monitored and cost effectiveness is constantly evaluated. The program and its management is an excellent and rare example and should be offered for study and replication in other developing countries. 6 22. Problems such as relatively low salaries and consequent high staff turnover are a thing of the past. Over the last three years there was virtually no turnover of staff, and recruitment is no longer a pro- blem. The follow up Bank project (Second CVDB-Loan 2614-JO) is aimed at consolidating and building upon the achievements of the first project and at further refining the organization and operational practices of CVDB. Financial Performance 23. During the early days of the project CVDB made much more rapid progress in the improvement of its financial management system than in other areas of its operations. This was partly due to the fact that it inherited staff from MVLF who generally had financial background and partly because the Bank has concentrated on financial issues in the early parts of project preparation. It was also obviously easier to hone exist- ing skills than to introduce new ones such as technical and economic appraisal. 24. Timeliness of financial reporting has been satisfactory and the quality and accuracy of financial reports has been steadily improving throughout the project period (PCR para. 3.12). The Audit has found that accurate and up to date financial data is readily available. 25. The PCR in paragraphs 4.05 through 4.18 reports in detail on CVDB's financial performance which presents an overall satisfactory picture. CVDB, between 1981 and 1985 has grown almost three times faster than projected at appraisal. The 32.7% annual growth in the long term loan portfolio was due to the high demand for loans, the availability of adequate financial resources and speedy loan processing. 26. The terms and conditions of CVDB's long term loans were agreed at appraisal and the details are given in para. 4.05 of the PCR. While these terms were a significant improvement over the terms of the earlier MVLF loans (5.T and 4.5Z respectively for municipalities and villages), the 8.5% maximum interest rate for profit making municipal projects was still about 1.5% negative in real terms in light of the projected in- flation rates for Jordan (Presidents Report para. 44). Nevertheless the Bank considered these terms acceptable in view of: (i) the infrastructure projects financed provided basic needs for the low income population; (ii) interest rates on profit-making projects were comparable to rates charged by other lending institutions such as the Industrial Development Bank and (iii) the government agreed to the periodic review of the interest rates to protect CVDB's profitability. This protection was formalized in an appropriate covenant under the CVDB II project specify- ing the minimum margin over total resources as the trigger mechanism for raising interest rates (PCR, paras 4.15 and 4.16). The Audit sees no reason to criticize these arrangements particularly in view of CVDB's satisfactory performance and the fact that it is a rare phenomenon to see municipal and especially village developments financed from local resources rather than by government grants. The Audit found that CVDB's 7 current financial position continues to be satisfactory although its growth has, understandably, slowed down to a steadier rate. 27. Loan repayments by the municipalities generally present no problems. Municipal revenues derived from country wide duties, taxes and fees which are collected by the central government and are shared out according to established formula are channelled through CVDB to the recipient local authorities. As CVDB is empowered to hold in escrow funds covering debt service requirements it is protected from the accumulation of arrears on its loan portfolio (PCR para.4.08). As a confirmation of CVDB's mature status as a development bank, "other income" has contri- buted steadily less to total income (down from 51% in 1981 to 16% in 1985) as interest income from the loan portfolio increased by 44% over the same period. 28. Borrowed resources accounted for about 61% of CVDB's liabili- ties and equity. At the end of 1985, 862 of the borrowings were from local sources (the principal sources being the municipalities and the Central Bank of Jordan with about equal share of just over 31%) on rela- tively short terms (1 to 5 years). This situation threatened to result in temporary insolvency when large balloon payments became due. To protect against this, under the CVDB II loan it was covenanted that CVDB will meet a debt-service ratio in terms of principal at least equal to 1.15:1 at the end of each fiscal year (PCR para.4.17). Foreign borrowings have been neither an important nor a frequent source of funds for CVDB. 29. Because of the large cash flows generated by CVDB, capital increases have not been necessary. Nevertheless CVDB has increased its equity base more significantly than projected to the extent that at the end of 1985 the debt-equity ratio was only 0.5:1, well below the statu- tory 4.0:1 stipulated in its own General Policy Statement and under the Bank loan, making CVDB somewhat underleveraged. 30. Another commendable aspect of CVDB's conservative financial management is that administrative expenses increased fairly slowly and the administrative cost ratio declined to 0.7% percent of average assets in 1985 which is fairly low for a develapment bank. 31. In the generally satisfactory financial performance and prudent management described above the Audit noted one item of concern namely the continued steep rise of overdraft advances to municipalities. Notwith- standing commitments made during the appraisal of CVDB II to hold such advances in 1986 to about JD 0.75 million, the actual figure is JD 2.4 million with similar additional amounts projected for 1987. Furthermore in March 1987 the government decreed that such overdrafts are to be converted to 10 year loans with 2 years grace which means that some JD 2.5-3 million are shifted from current to long term assets in 1987. Subsequent to the field mission, the Audit has learned that the govern- ment's decision further provides that interest payments on municipal loans will be born by the Ministry of Finance and that all municipal aid village loans be rescheduled for ten and fifteen years respectively, all with two years grace. To compensate CVDB for the resulting cash deficits 8 (which, in 1987, will reach the substantial amount of JD9.5 million) the Ministry of Finance and the Central Bank are to provide equivalent amount of funds. Such actions would be acceptable in principle as CVDB is, after all, the bank of the municipalities provided that CVDB's financial health is safeguarded. In other words, such "stroke of the pen increases" in the long term portfolio through the lengthening of its average duration, should be accompanied by the mobilization of equal amount of medium to long term resources. While it is clear that cash management measures have been taken at the Income Statement level, appropriate debt management measures are not yet in evidence. As no capital increase appears to be scheduled and foreign borrowings are disbursed only against creditworthy investments the Central Bank appears to remain the only current source of funds (with sub-average rates of 3.5%). There seem to be little effort made to mobilize resources through avenues like municipal bond issues which would be appropriate on the basis of CVDB's conservative financial policies. 32. CVDB's audited Income Statements and balance Sheets and Performance Indicators are attached to the PCR in Annexes III and IV. Bank Performance 33. The Audit considers the Bank's overall performance under the project good. The intensive preparatory work and the somewhat exceptional amount of resources devoted to the project have undoubtably brought good results but it is not possible to establish whether the totality of the Bank's efforts, or certain elements of it were justified as a "free good" to Jordan or some form of compensation should have been requested. The history of the project, as recorded in the project files, reveals ,at certain points, a degree of overcomplication of issues by Bank staff as well as a typically over optimistic planning of project implementation. There seems little doubt that switching responsibility from IDF to the Urban division introduced a greater degree of realism into the expecta- tions with regard to the performance and progress of CVDB and, in particular, the municipalities. 34. The borrower confirmed a consistently good relationship with the Bank and expressed strong satisfaction with the "technology transfer" under the project. The apparent early resistance to the subproject appra- isal process has given way to a firm appreciation of the need for rigorous analysis of loan applications with particular emphasis on the municipalities' solvency test, financial viability of the projects and adequate Implementation and superv!.sion capacity. CVDB emphasized to the Audit the desire for continued Bank involvement in order to have access to the state of the art thinking in the development process as well as to utilize the Bank as a monitoring tool. Continuity of Bank staff and frequency of missions were considered satisfactory. Sustainability of Benefits 35. The benefits of the project are tangible and visible. CVDB is a strong and competent organization which not only provides essential 9 financing facility for well conceived municipal development projects but, perhaps more Important, considerably enhanced the capacity of municipal- ities to plan and execute such projects. Furthermore, as indicated above, its well run training program appears to have created a keen desire for self improvement at all levels in both its own and in the municipal organizations. The Audit finds no reason to doubt that these benefits can be sustained subject to CVDB's current role in Jordans' development program is not interfered with or altered in an adverse manner. The Audit's discussions with high level government officials confirmed that no such fears need be entertained. 36. The social benefits of the municipal and village projects was also clearly evident to the Audit mission which visited several communi- ties. Projects such as construction of "technical centers", "vegetable and livestock markets" removed noisy and unsightly services from the center of towns to well chosen locations where traffic, waste disposal and provision of services are better managed thereby bringing overall environmental improvements. Road improvements reduced dust, improved drainage and reduced traffic congestions. II. Conclusions and Lessons 37. The Audit concludes that the project was successful in achiev- ing its objectives, it was, albeit with some delays implemented efficiently and that its benefits are likely to be sustained in the foreseeable future. 38. CVDB should be considered a good example of a sound development and financial institution dedicated to assisting municipalities and smaller communities not only as a steady source of funds but as an effec- tive training institute and monitoring agency of the municipalities. 39. Bank assistance was and continues to be effective but the Region should examine closely the methodologies employed and the cost effectiveness and replicability of the practices and the optimum utilisa- tion of its resources in project preparation and supervision. Regarding tho latter, the Audit also concludes that at different stages of the rroject0s progress the Region should also review the degree of emphasis placed on different aspects of the project. In the case of CVDB and in view of the currently emerging financial issus (para. 31 above) greater emphasis on expert financial supervision may well be justified. 40. The training program of CVDB is sufficiently exceptional to warrant its use as an example for other developing countries and, perhaps, as a case study for EDI. 41. The principal lesson for the Bank from this project is the need for an even better understanding of the country situation in the course of project preparation. Long association with the country and a large number of past projects scattered over several sectors does not automati- 10 cally provide the specific know-how and understanding for the project staff actually employed on the project to ensure realistic planning and programing. Each project requires its own specific analysis of the relevant factors which can affect its progress. In the caae of CIDB, a more careful review of the Jordan manpower situation in the late 70s, early 80s would certainly have resulted in more realistic programing of the project. 11 ATTACHMENT A COMMENTS FROM THE GOVERNMENT UORLDBANK HSS ZCZC OERPOO39 1U0894 OEDD2 REF : TCP FCA * *** **** * * OEDD2 * ** ****** * IMB894 ON INSUBK .FTCCHAC 24-00336.01 TO: MR. ALEXANDER NOVICKI CHIEF POLICY-BASED LENDING, INDUSTRY, PUBLIC UTILITIES AND URBAN SECTORS OPERATIONS EVALUATION DEPARTMENT VORLD BANK U.S.A. RE: PROJECT PERFORMANCE AUDIT REPORT ON JORDAN - FIRST CITIES AND VILLAGES DEVELOPMENT BANK PROJECT (LOAN 1826-JO) THANK YOU FOR YOUR LETTER DATED FEBRUARY 18,1988 AND ITS ENCLOSURE CVD8 PROJECT PERFORMANCE AUDIT REPORT. KINDLY BE INFORMED THAT THE MINISTRY OF PLANNING HAS NO COMMENTS CONCERNING THE MENTIONED REPORT. BEST REGARDS DR. TANER H. KANAAN 21319 NPC JO =03241018 NNNN 12 ATTACIENT B ZCZC OERPOO24 RCA0464 CO!2E1TS FROM THE EXECUTING AGENCY 0EDD2 REF : TCP HC * OEDD2* RCA0464 dB248423 VORLDBANK 22476 CUD JO 248423 MORLDBANK ATT. MR. ALEXANDER NOVICKI CHIEF POLICY- BASED LENDNDINS , INDUSTRY. PUBLIC UTILITIES AND URBAN SECTORS OPERATIONS EVALUATION DEPARTMENT RE: PROJECT PERFORMANCE AUDIT REPORT ON JORDAN- FIRST CITIES AND VILLAGES DEVELOPMENT BANK PROJECT(LOAN 1826-JO) THANK YOU FOR YOUR LETTER DATED FEBRUARY 18.19988 . AFTER REVISING THE ABOVE NENTIONED REPORTS (PPAR ) VITH ITS ENCLOSUERS (PCR) RELATED TO THE FIRST CITIES AND VILLAGES DEVELOPMENT BANK PROJECT (LOAN 1826-JO) ME VOULD LIKE TO INFORM YOU THAT VE HAVE NO COMMENTS TO MAKE ON THE MENTIONED REPORT. BEST REGARDS H.S. HOURANI G.M. CVDB- AMMAN-JORDAN 22476 CVDB JO 248423 VORLDIANK NMm =03151728 w03151238 HNNN 13 JORDAN CITIES AND VILLAGES DEVELOPMENT BANK PROJECT (LOAN 1826-JO) PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 Jordan is a highly urbanized country. Following three decades of rapid population growth and massive migration, about 70 percent of its 2.6 million population iww live in urban areas of 5,000 people or more. Most of Jordan's urban populat.Zon has settled within 30 kilometers of the capital, Amman. The city accounts for over 750,000 people and produces most of the country's services and industrial output. Already in 1977, when the project was initiated, the Government had realized that while the Amman region would continue its role as the main engine for Jordan's economic development, active measures needed to be taken to stimulate growth in other areas. The Government requested the Bank's assistance to restructure and upgrade an existing municipal fund into a financial institution which would promote development in areas outside Amman by improving and increasing the capacity of local governments to provide urban services. 1.02 In support of the Government's need to accommodate rapid urbanization and its desire to promote growth in all parts of the country, the Bank Group has carried.out extensive economic and sector work as well as project financing related to urban development. Recent sector studies include the Urban Sector Review, the Water Sector Report, and a Regional Development Study. Discussions of these reports with the Government have resulted in the formulation of a strategy which offers assistance in improving the main urban service levels (water, sewerage, solid waste management, urban transportation), increasing the supply of serviced land in locations and at costs that reinforce sound spatial development patterns and are affordable to relevant commercial and household groups, and strengthening the capacity of local governments to plan, implement, and manage the functions for which they are responsible. 1.03 In accordance with this strategy, Bank leading has followed a "three-track" approach focusing on the water supply and sewerage, shelter, and municipal subsectors. Since the Bank first started lending to Jordan in 1961, seven water and sewerage projects have been undertaken in urban areas. The most recent, the Water Supply and Sewerage Project, was approved in FY86. The First (FY81), Second (FY86), and proposed Third Urban Development Projects are addressing the need for cost-effective, low-income housing in the Amman region. In addition to the first loan to CVDB (FY 81), two other loans have been made in support of municipal development: the Amman Transport and Municipal Development Project (FY84) and a second loan to CVDB (FY86). 14 1.04 CVDB, established in 1966 as the Municipal and Village Loan Fund (MVLF), was created as an arm of the Ministry of Municipal and Rural Affairs (MMRA) to provide loans to municipalities and village councils for such projects as water supply, electricity distribution, health clinics, schools, and commercial buildings. But because it had not built up its own appraisal capacity, MVLF never became an effective development institution and played instead the role of a cashier. The First Cities and Villages Development Bank Project (Loan 1826-JO), signed on September 8, 1980, helped CVDB evolve into an independent financial institution with improved financial and administrative management as well as the capability to appraise projects and assist local governments. B. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL A. Identification and Preparation 2.01 Assistance to the "Municipal and Village Loan Fund" (MULF), as it was then called, was first requested in April 1977 by the President of the National Planning Council (NPC). He asked the Bank to help the Government put together a complete package (including eventual Bank Group financial assistance) for the restructuring and upgrading of the MVLF into a full-fledged development bank for the municipalities and villages. This bank would become the key institution on which the Government would rely to integrate the poorest regions outside of Amman in the development process. To introduce rationality in investment expenditures for infrastructure and social services in those regions, NPC President stressed the usefulness of a reorganized MVLF. MVLF would be a better mechanism than possible special programs implemented separately by the various sectoral agencies (e.g., the Water Supply Corporation for water supply projects, the Jordan Electricity Authority for rural electrification, the Ministry of Education for rural schools, etc.). 2.02 A first Bank reconnaissance mission visited Amman in July/August 1977 and made a preliminary review of the MVLF's organization, its policies, and financial situation. It confirmed that a complete reorganization of the institution would be required if it were to become an effective development institution and a suitable borrower for Bank Group lending. Three main shortcomings of MVLF were identified: (M) conservative and unsophisticated financial management; (ii) weak administrative management and staffing; and (iii) insufficient project appraisal, in particulir absence of economic evaluation of projects, perfunctory financial analysis of borrowers and projects, and inadequate technical reviews. 2.03 In December 1977, following another reconnaissance mission, the Bank recommended the establishment by the Government of Jordan of: (a) a Steering Committee composed of high-level officials which would establish broad policy orientations for the reorganization of the MVLF; and 15 (b) a Task Force which, with the possible help of consultants, would work on a thorough redefinition of the MVLF policy, a basic restructuring of the MVLF organization, the preparation of an interim lending program, and the drafting of a new law. 2.04 Although the Bank's recommendations were fully endorsed by NPC and passed on to MMRA and MVLF, it became apparent during a January 1978 reconnaissance mission that not only the Steering Committee and Task Force appointed by the Government were weak :and uncommitted but also that their work was proceeding at a much slower pace than expected. 2.05 On February 22, 1078 a first Project Brief was issued. It listed the following projecc objectives: (a) To finance through MVLF municipal and village investments for infrastructure and basic social services to alleviate poverty in the rural and urban areas and to reduce rural-urban migrations; (b) Tc provide Institution building assistance to the MVLF and to make it a- effective development finance company, able to decide autonomously whether or not to finance projects based on their individual technical, economic, financial, and social merits; (c) To provide through MVLF institution building assistance to the municipalities and villages to make them financially responsible for their own development; (d) To encourage investment in productive activities (particularly of a manufacturing nature), and to generate employment and income outside of the Amman area; this would be the particular objective of the proposed Small-Scale Industry and Handicraft Component which was at that time included in the project; and (e) To play a catalytic role to mobilize other sources of external assistance, in particular concessionary loans or grants from USAID and the EEC. 2.06 The project brief listed three components: (a) A line of credit to MVLF (US$9 to 10 million) for both directly productive and infrastructure projects; (b) A line of creiit to the Industrial Development Bank (IDB) (up to US$500,000) to continue and expand its Small-Scale Irdustry and Handicraft Program, particularly outside of the Amman area where such development would have a complementary effect on the operation of the MVLF; and (c) Technical Assistance to the MVLF and a number of possible studies (up to US$200,000), the latter included a review of municipal and village investments needs for the 1981-85 Five-Year Plan, a socio-economic survey of the most disadvantaged groups in Jordan (Badia and Petra Bedouins and groups living near Ma'an and Ghor Es Safi), a study of the reorganization of MVLF, and a study of political reforms of municipalities and villages needed to make them into responsible economic agents. 16 2.07 The line of credit to IDB was dropped before appraisal because cheaper funds were offeiad by the European Investment Bank (EIB). All the studies were also dropped because NPC argued it could find bilateral or domestic funds to complete them. Eventually, the inventory of investment needs was carried out with the help of CARE International, the socio-economic survey of disadvantaged population was partly taken over by the Queen Alia Foundation, and the study of potential reforms was later undertaken in an ad hoc manner by MMRA and MVLF. 2.08 The major project issues identified at the time were: (a) the quality of the management and staff of MVLF; (b) the division of responsibility in the project cycle among MVLF and sectoral agencies; (c) the spatial delineation, for example, whether to exclude financing investments in the occupied West Bank, and whether to exclude financing development in the Greater Amman area, in the Jordan Valley Authority (JVA) area, and to villages without councils; (d) the interest levels; (e) whether the project would be funded by IDA or IBRD. At this time the inter-nal issue of responsibility for the project was also posed: should the :ndustrial Development Finance (IDF) Division or the Urban Projects Department be responsible? 2.09 A decision meeting was held February 24, 1978, which formulated the following recommendations: (a) The Bank would not consider lending to MVLF unless a competent manager was appointed to head MVLF and the Task Force in charge of reforms. (b) The project should exclude the West Bank, Amman, and the area covered by JVA, but should try to reach villages without village councils. (c) Only IBRD funds would be available for the project. (d) Concessionary interest rates would only be justified for projects with a strong social element, such as schools, but not for revenue earning projects. (e) The IDF Division would take the lead in processing the project. It was also decided that a concerted effort would be made to use Projects Divisions staff in Jordan on other missions to help the MVLF Task Force and a small technical assistance mission would be sent as well. 2..% Between the issuance of the project brief in February 1978 and December 1978, six Bank missions were either sent to Jordan to assist MVLF or were asked to assist MVLF while in Jordan on other business. The Programs, 17 IDF, Education and Manpower, Water and Sewerage, and Agriculture Divisions were all involved in helping MVLF draw up a reform program. In September 1978, during the Annual Meetings, the Bank insisted with NPC that no commitment to lend could be made and that further Bark technical assistance could achieve little until the Government had selected a manager for the reorganized MVLF and had clearly defined the functions of the new institution. 2.11 At the request of NPC, a draft "blueprint" for MVLF was produced by the IDF Division in November 1978. It contained proposals for the functions of the Municipal and Rural Development Bank (MRDB), model provisions for legislation establishing and governing the activities of the MRDB, a draft Policy Statement, a draft Organization Plan, and draft Operational and Financial Projections. 2.12 After unexpected delays, i. Javiry 1979 the Steering Committee endorsed almost without modification, the locuments prepared by the Bank. The Bank, however, was only notified of this j;ndorsement in early March 1979. The documents were further discussed during L, preparation mission in April 1979. B. Appralsal and Negotations 2.13 In mid-May 1979, after difficulties in finding a qualified General Manager of MVLF, a deputy general manager of MVLF was appointed. With this position filled, the Bank sent out an appraisal mission in June 1979. But the mission was unable to complete its work because the audit of MVLF accounts had not been finalized, the draft law was still being revised, and the executive regulations governing staff salaries had not yet been drafted. Only in August 1979 did MVLF send the Bank a copy of the proposed law creating the Cities and Villages Development Bank and the auditors' report. 2.14 At appraisal, the project objective was to help CVDB assist villages and municipalities in the identification, preparation, implementation, and operation of projects designed to (i) meet the basic needs of the economically less developed segments of the population in the country; (ii) raise the living standards of rural and urban groups by providing improved infrastructure services; (iii) create local employment opportunities in rural areas through the establishment of productive projects; and (iv) improve income distribution by Integrating the less developed areas in the nation's development process. The project objective led CVDB to provide local authorities with technical assistance and training so that they would carry out their functions more efficiently and economically. At appraisal, the project includes two major components: (i) a line of credit of US$9.5 million to cover 50 percent of CVDB's subloans to eligible subprojects; (ii) US$0.5 million for technical assistance of which US$200,000 was to cover the foreign exchange cost of an expatriate advisor for a two-year period and for short-term consultants to assist with the preparation and appraisal of specific, unusual subprojects, and other special studies as might be needed; US$200,000 to cover the foreign exchange cost of training CVDB staff, and the balance, US$100,000 to cover foreign exchange cost of a study on ways and means to identify and promote productive revenue-earning projects. 18 2.15 The completion of the Loan Committee package was delayed until February 1980 due to lags in enacting the proposed reforms and required regulatory measures. After negotiations (February 25 to 29, 1980), the loan was approved by the Bank's Executive Directors on March 27, 1980, was signed on September 8, 1980, and became effective on March 1981. Thus roughly four years had elapsed from the first request for Bank assistance until the creation of CVDB. 2.16 Few changes were made in the project content during negotiations. The only important modification was to drop the study of underpriviledged groups (para. 2.07). It was also agreed that any portion of the US$0.5 million technical assistance package for which the Government could find other external resources would be reallocated to subproject lending. In the end, all but US$16,500 was reallocated in this manner. 111. PROJECT IMPLEMENTATION A. Effectiveness 3.01 The conditions of effectiveness were as follows: (a) The Subsidiary Loan Agreement shall have been entered into between CVDB and the Government of Jordan and such agreement should have been duly ratified or authorized; (b) CVDB shall have issued its Executive Regulations and such Regulations have come into full force and effect; (c) The Project Agreement shall have been duly authorized or ratified. 3.02 The effectiveness date originally set for December 9, 1980, was extended to March 30, 19P1, because of unexpected circumstances. The Subsidiary Loan Agreemen, approved by the Bank early in November 1980, together with the Project Agreement, were to be sent to CVDB's Board of Directors for formal ratification by the end of December 1980. However, the first General Manager left CVDB in July 1980 and the Acting General Manager resigned in mid-November 1980. When the first effectiveness deadline arrived, the date on which the General Manager designate would take up his duties had not yet been determined. Meanwhile, the approval of the Executive Regulation by CVDB's board and by the Council of Ministers had been delayed by the turnover in CVDB's management. 3.03 After Government's delay in ratifying the Loan Agreement, on March 18, 1981, NPC sent the Bank proof of compliance with all effectiveness conditions and the loan became effective on March 31, 1981. B. Complianee with Covenants 3.04 The covenants which CVDB was to comply with at start-up were as follows: 19 (a) to engage one project economist, two financial analysts, two engineers, and three accountants by September 30, 1980; (b) to engage an expatriate advisor and secure financing for the employment of such advisor by October 31, 1980; (c) to establish a training program by November 30, 1980. In addition, the Bank had requested that the Government of Jordan repay all CVDB loans outstanding to West Bank local governments. This last condition (not included in the Loan Agreement) was satisfied in August 1980. By March 1981, eight professionals had been employed by CVDB, and an agreement had been obtained from UNDP to fund an advisor, recruited and administered by the Bank. The advisor, who took up his duties only in late September 1981, remained with CVDB until end-December 1982. The last two months of his employment were financed not from UNDP funds but from the technical assistance portion of the Bank loan (para. 2.14). The trAining program of CVDB staff was never formally submitted to the Bank but CVDB made serious efforts to train its personnel in Jordanian institutions and abroad. C. Amendments, Cancellations and Revisions 3.05 There were no important revisions and amendments in the scope and design of the project. About US$0.77 million has been cancelled from the loan because of delays in implementing some sub-projects (para. 3.14). D. Overall Implementation 3.06 The project had a slow start. Although both NPC and the Bank had urged CVDB to change itself from a simple municipal disbursement fund into a real municipal development bank before project appraisal, much additional assistance and efforts were still required during the first two years of project implementation. While CVDB evolved fastest on the financial management and accounting side, its capability to deliver well-appraised projects to CVDB's Board of Directors was slowest to develop. 3.07 Early on in the project, loans were approved by the Board either without appraisal or before the Technical Department had performed what it considered as an unnecessary appraisal. High turnover and certain disagreements among CVDB's top managers were impediments to the development of a staff capable of appraising projects. The economic boom in Saudi Arabia, the Gulf area, and even in Jordan made it difficult to recruit competent engineers, economists, and financial analysts, and it was nearly impossible to retain them once they had gained some experience and benefitted from on-the-job and formal training. 3.08 Recruitment and retention of qualified staff as well as the assistance and training provided by an expatriate technical advisor to CVDB (para. 3.04), led to a gradual improvement in the quality of subproject appraisal. By the end of 1984, CVDB had become a more desirable place to work, while employment opportunities in the Gulf area and in Jordan had become scarcer due to economic recession caused by falling oil revenues. The appointment of a very capable manager with considerable banking experience in 20 December 1984 and a subsequent move from a fairly exiguous abode to a brand new, highly visible building also contributed to improving CVDB's staff image and morale. 3.09 Technical assistance connected with subsequent loans to CVDB also helped to further strengthen the Technical Department's appraisal capabilities both for project design and financial solvency. As part of a European Investment Bank (EIB) loan, a German project appraisal specialist was financed for two years by the European Economic Commission (EEC). Most of this expert's time has been spent on on-the-job training of CVDB personnel. The presence of an appraisal specialist is one of the Covenants of the Bank's second loan (2614-JO) to CVDB. This loan also specified that CVDB should employ a senior civil engineer, preferably a Jordanian, to help advise local governments on building design and to train CVDB,engineers on the job to supervise project implementation. An engineer was appointed in May 1986 and he has started to help CVDB supervise ongoing subprojects. 3.10 Only in the case of road projects was there a long debate between CVDB and the Bank. After the participation of the Transport Division in a supervision mission in December 1981, the Bank requested that the evaluation of streets and road projects include cost savings calculations based on average daily traffic count by type of vehicle (the traffic counts were to be done for at least one week using an automatic counting device, and a visual count for a maximum of one 12-hour daylight period). The methodology required by the Bank also demanded estimates of diverted traffic flows. Many letters and telexes were exchanged between the Bank and CVDB on the subject. The Bank held firm on the need for accurate calculations on road user savings even though in nearly all cases projects included residential streets, footpaths, and sidewalks as well as small segments of relatively small roads. At the end of 1982, the Bank accepted the "willingness to pay" of beneficiaries as a satisfactory eligibility criterion for residential streets. The resolution of this lengthy debate improved relations between CVDB and the Bank. 3.11 Although the project pipeline to be committed and disbursed from the loan proceeds was more than sufficient in the number of projects and costs, CVDB's ability to appraise projects according to standards acceptable to the Bank took much more time than expected. The original implementation schedule was overly optimistic and did not take into account the time necessary for CVDB to evolve as a development bank. In the end, however, this additional time allowed the project to achieve a greater impact on Jordan's local governments. E. Report 3.12 The Borrower was made aware of the Bank's reporting requirements and on the whole complied in a timely manner. The auditors appointed by CVDB with Bank's approval submitted their reports on schedule and had a very beneficial influence on the quality and accuracy of financial reports. 21 F. Procurement 3.13 The Borrower followed procurement guidelines acceptable to the Bank. Since all projects included the construction of relatively small buildings and civil works, only local competitive bidding was used by CVDB. G. Costs 3.14 The cost of many projects financed by CVDB turned out to be slightly less upon completion than was estimated at the time of appraisal. This saving was caused by a reduction of unit prices as a consequence of the continued slowdown of building activities in Jordan and neighboring countries. As a result, many subprojects required disbursements which are smaller than committed funds. Consequently, the loan has been underdisbursed by about 8 percent. Some reassignments of commitments were done to shift undisbursable funds to other subprojects. However, because the extent of underdisbursement was not predicted by the commitment deadline, not enough eligible reserve subprojects could be submitted by CVDB to permit full disbursement. 3.15 Annex I shows clearly how the actual disbursement profile differ from appraisal estimates. While the disbursements follow the same S-curve as predicted at appraisal, they were delayed by an average of about two and one-half years. The total level of disbursement at completion reaches about 92 percent of the total loan. H. Performance of Contraetors, Suppliers. and Borrower 3.16 The only consultant hired for this project was an expatriate advisor recruited from PICIC in Pakistan (para. 3.04). Both the Bank and CVDB were satisfied with his performance and tried to renew his contract. Unfortunately, the management of PICIC refused to extend the advisor's leave without pay, claiming that he was needed. All the construction of subproject buildings ana civil works was done by Jordanian contractors. However, some of their work was not cempletely satisfactory because of poor execution and inadequate work supervision. Bank supervision missions helped the CVDB engineers identify construction deficiencies and recommended corrective measures. L Role of the Bank 3.17 With extensive technical assistance from its own staff, the Bank was instrumental in helping to transform the CVDB into a viable municipal development bank and was able, through continuous dialogue with the Government, to help it become an effective instrument for financing local government projects in Jordan. In particular, the Bank played a key role in convincing CVDB to gradually improve its capacity to appraise projects according to sound economic, financial, and technical criteria. 3.18 Bank supervision was relatively continuous since few changes in project officers occurred during project implementation. The shift in responsibility for supervision from the IDF to the Urban Division, which took place in 1984 after CVDB had established a satisfactory financial record, also proved to be beneficial and allowed strengthening of CVDB's technical capabilities in dealing with infrastructure projects. 22 IV. INSTITUTIONAL, FINANCIAL AND ECONOMIC PERFORMANCE A. Institution-Building Aspects 4.01 The evolving nature of CVDB's organization, management, and staffing during project implementation reflects the maturity that CVDB has now reached as an effective municipal development bank. In many respects, CVDB's performance has been better than expected at appraisal. 4.02 After beginning as a simple disbursement fund, CVDB was subsequently organized along functional lines into five departments, each headed by a Manager who reports to the General Manager, CVDB's chief executive officer. In its present form, the Technical Department is responsible for project appraisal and supervision, for assessing local councils' solvency, for loan disbursements, and repayment collections. The Financial Department prepares and implements annual borrowing programs, and manages CVDB's short-term portfolio and local councils' deposits. The Internal Audit and Organization Department is primarily responsible for monituring CVDB's progress in meeting its objectives and for ensuring financial probity. The Administration Department provides training, administrative, logistic, and personnel management support. The Planning and Statistics Department is responsible for recording and analyzing past activities of the Bank and for carrying out forecasts. A detailed organizational chart of CVDB is given in Annex II. 4.03 At the time of appraisal, CVDB had a staff of about 40 people, mostly professionals (20) with accounting backgrounds. In addition to the staff recruited at project start-up in 1982 (para. 3.06), CVDB has been able to hire qualified staff to fill out the remaining positions (para. 3.08). Currently, CVDB has about 100 staff members, of whom 70 are employees and 30 ancillary personnel. Forty percent of the personnel has worked at CVDB more than three years. One third of the employees have at least a Bachelors degree and another third have a post-secondary degree. The majority of the staff is young (under 40 years of age) and approximately half are female. Particularly impressive has been the growth of the Technical Department staff in both quality and quantity, from a few technicians at the time of appraisal to ten engineers, five financial analysts, and three economists at present. In 1986, the Technical Department also opened a permanent branch in Irbid to follow up on all operations located in the Irbid governorate. 4.04 In addition to its efforts to recruit qualified staff, CVDB also made serious efforts, albeit in an ad hoc manner, to provide training for its staff. Two department heads have had extensive training in project appraisal abroad. Two-thirds of the technical staff have attended short courses in project appraisal, management or technical subjects at the Institute of Public Administration and at IDB's training institute. CVDB has now made progress in handling training in a more systematic manner than in its early stages. Under the second CVDB project, CVDB will be in charge of organizing training of local council personnel. For this purpose, it has already recruited a qualified Jordanian training expert who is heading a newly established Training Division which will also be responsible for training CVDB personnel. The recently recruited project appraisal expert and the senior civil engineer (para. 3.09) will also provide on-the-job training, mainly for the Technical Department personnel. Finally, in July 1986, CVDB recruited a computer specialist to help computerize some of its activities and to train CVDB staff in computer techniques. 23 B. Finaneial Performance 4.05 Long-term Loans. CVDB has grown much faster than was expected at the time the project was appraised. Between 1981 and 1985, its long-term loan-' portfolio increased at the rate of 32.7 per annum, about three times faster than originally estimated. This performance was the result of a higher than expected demand for loans, to the Central Government's ability to provide CVDB with sufficient financial resources, and to CVDB's practice of processing loans swiftly. At the end of 1985, outstanding long-term loans to municipalities, villages and common service councils, amounted to JD 39.5 million (US$107.2 million).J' 4fter reaching a peak in 1982 (JD 14.7 million of approvals), long-term lending decreased until 1984 (to JD 7.7 million). The slowdown is due to the gradual completion of the land acquisition program promoted under the current Five-Year Plan, to the overall downturn in economic activities, and to the fact that many local councils had reached the statutory limits on borrowing that CVDB used until April 1985. The level of approval of long-term loans picked up a little in 1985 (JD 8.3 million or +6.6 percent), in a deliberate effort to compensate for the slowdown of the Jordanian economy. Terms and conditions for CVDB's long-term loans are described as follows: Municipalities Villages Loans For: Interest Maturity Interest Maturity Infrastructure subprojects 7.5% 11 years /a 6% 16 years /a Profit-making subprojects 8.5% 12 years /b 8.5% 14 years /b /a includes 1 year grace period. /b includes 2 years grace period. 4.06 Short-term Loans. CVDB extends two kinds of one-year facilities to assist municipalities in temporary financial difficulty: (a) short-term loans at 7.5 percent repaid in twelve monthly installments; twelve municipalities had borrowed JD 320,000 at the end of 1984; (b) overdrafts also over one year but repaid whenever the borrowing municipality has cash inflows and charged a penalty rate (i) of one point over the highest rate paid by CVDB for its resources, currently 8.75 percent, (ii) computed on the highest overdr-ft balance during a month, and (iii) compounded every six months. This combination makes for an overall effective rate that can be potentially several times the nominal rate on actual balances. For example, during the first semester of 1984, Salt municipality had to pay an effective annual rate of 12.6 percent on an average daily balance of JD 45,082, and Karak had to pay 15.25 percent on an average daily balance of JD 23,088. 1/ Maturities longer than one year. 2/ At end of 1985 exchange rate of .368 JD for US$1.0. 24 4.07 The General Policy Statement was revised in 1985. It sets new limits to short-term facilities: (a) overdraft balances cannot exceed the difference between revenues estimated for the current year and debt service obligations to CVDB; (b) any excess overdraft will be consolidated into short-term loans, which cumulatively cannot exceed 50 percent of the estimated national revenue sharing allotment; (c) the interest rate relationship is reversed with 8.5 percent charged on overdrafts and 9.5 percent on short-term loans. 4.08 Arrears. De Jure there are no arrears on loan repayments because they are automatically deducted from the deposits kept in escrow by CVDB. However, some arrears do occur: because local councils have so far not been allowed to accumulate reserves, random mismatches of revenues, and debt-service payments at the end of the year, CVDB is forced to grant occasional overdrafts. Since revenues more than cover debt-service, most local councils are technically in arrears only for a short time. A proposal by a recent Bank mission to allow local councils to carry reserves, which is now under discussion, should eliminate most temporary arrears in the future. Two municipalities, Salt and Karak, have accrued greater permanent arrears due to errors in financial planning. The government has taken special measures to rescue the finances of the two cities, and MNRA and CVDB will monitor their finances closely to avoid problems in the future. 4.09 Loan rescheduling. At the end of 1983, CVDB rescheduled loans of 30 municipalities worth JD 9.3 million, in 1984 loans of 7 additional municipalities worth JD 1.3 million, and in 1985 loans of 2 municipalities for JD 235,400. The reason for this large debt consolidation was not that these local councils were insolvent or unable to service their existing debt but that they had reached their statutory borrowing limits. The old limit stipulated that a local council was not allowed to borrow more from CVDB than it could repay from 80 percent of its estimated national revenue sharing allotment, regardless of the size of other revenues and of other expenditures. Only profit-making projects were exempted from this ceiling. While this rule was simple and easy to admir.ister, it substantially underestimated the borrowing and repayment capacity of large municipalities for which the national revenue sharing allotment is only a small portion of total revenues. This rule was amended to include other revenues. 3y rescheduling their debt, these municipalities were able to contract new loans with CVDB and use more of their actual borrowing capacity. The rescheduling stretched CVDB's resource utilization and, if repeated, could expose CVDB to undesirable maturity mismatches. 4.10 Liabilities. Borrowed resources account for 61 percent of total liabilities and equity. At the end of 1985, the major lenders were, by order of size: 25 Table 1: JORDAN: MAJOR LENDERS TO CVDB AS OF END OF 1985 Maxmim maturity JD million % (in years Municipalities and Villages 9.82 34.6 1 The Central Bank of Jordan (CBJ) 9.00 31.7 5 Time deposits 5.68 20.0 1 World Bank I 2.71 9.6 12 a/ IDA c/ 1.16 4.1 30 a/ Total 28.37 100.0 4.5 (Average) b/ a/ Maturity left on loan. 6/ Weighted average. c/ Two water supply loans in 1961 and 1983 to Agricultural Credit Corporation (ACC) transferred to MVLF when it was created and subsequently to CVDB. 4.11 CVDB has borrowed mainly from local sources (86 percent of outstanding borrowings at the end of 1985). On average, funds from domestic sources are fairly short-term; 54 percent of total barrowings are short-term (less than one year) and 34 percent are medium-term (up to 5 years). Municipality and village deposits can be considered either short-term because local councils can freely draw down the minimum needed to cover debt repayments, or long-term because part is de facto kept in escrow by CVDB to cover debt service. All CBJ leans were granted to CVDB for five years and 83 percent of the debt outstanding at the end of 1985 requires balloon repayments concentrated between 1986 and 1988. 4.12 Time deposits by institutions such as the Social Security Fund and the Municipality of Amman have grown rapidly since CVDB started collecting them at the beginning of 1984. However, the fact that the Municipality of Amman withdrew JD 2 million in 1986 highlights the unstable nature of this resource. 4.13 Foreign borrowings have been neither an important nor a frequent source of funds for CVDB: small amounts were lent by IBRD in 1980 and the European Economic Commission (EEC) and European Investment Bank (EIB) in 1984. The latter carry very favorable conditions (an average interest rate of about 4 percent and average repayment period of 25 years), but they are too small (a total of JD 1,120,000 or US$2,800,000) to affect significantly the debt structure. 4.14 Share Capital Increase and Debt Equity Ratio. Because CVDB has in the past been able to generate large cash flows (JD 1.1 million or 43 percent of total income in 1984), capital increases have not been necessary. However, as required under the First Bank Loan, CVDB has increased its equity base to the point that it is now significantly underleveraged. Between 1981 and 1985, the paid-up capital was increased by JD 3.7 million although CVDB was committed to increase it only by JD 600,000 over five years under the First 26 Bank Loan; by comparison, the additional accumulated retained earnings amounted to JD 4.3 million. At the end of 1985, the debt-equity ratio was only 0.5:1, well below the statutory ceiling of 4.0:1 stipulated in the General Policy Statement and under CVDB I. No further capital increase is necessary in the medium-term provided that CVDB maintains a maximum debt equity rato of 4.0:1.1' New Financial Covenants 4.15 Under CVDB II, two covenants were added to protect CVDB's profitability and to avoid the risk of maturity mismatches. 4.16 CVDB's Margin Over Total Resources. Recently, the marginal cost of borrowing has increased considerably. It doubled from 4.7 percent in 1983 to 9.8 percent in 1984, well above the 6.8 percent marginal yield on the loan portfolio. This situation was projected to last for the foreseeable future. It was agreed that, if at any time CVDB's margin over total resources would be projected to diminish below two points, for the current fiscal year and the following three years, the Government would either allow CVDB to increase its lending rates or take other measures to ensure CVDB's profitability. 4.17 Debt-Service Ratio. It was projected that, on the basis of its loans outstanding at the end of 1985, CVDB would not be able to meet its debt-service commitments in 1986 because of large balloon payments on CBJ loans due in 1986. To protect CVDB against insolvency caused by a temporary mismatch of maturities, CVDB will meet a debt-service ratio in terms of principal-' at least equal to 1.15:1 at the end of each current fiscal year and projected for the three following years. Recent Financial Performance 4.18 CVDB's audited income statement and balance sheets for the years 1981 to 1985 are shown in Annex III, and the actual performance indicators are presented in Annex IV. Interest income received from the loan portfolio increased by 44 percent per year from 1981 to 1985. As a confirmation of CVDB's mature status as a development bank, other income (mainly interest on time deposits in banks) has contributed steadily less to total income, down from 51 percent in 1981 to 16 percent in 1985. Total income increased from JD 1.3 million in 1981 to JD 3.3 million for 1985. However, over the same period, expenses increased faster than total income (by 41 percent per year versus 26 percent), mainly because interest paid on term increased by 59 percent per year. Administrative expenses (including depreciation) and salaries barely increased (13 percent per year). This caused the administrative costs ratio to decline from 1.0 percent of average assets in 1982 to 0.7 percent in 1985. The administrative expense ratio may, however, increase in the medium term as measures are taken to increase staff and now that CVDB has moved to larger, better equipped offices. 1/ Defined as: outstanding long-term borrowings over total net worth. 2/ Defined as: loan repayments (principal only) over borrowing repayments (principal only). 27 C. Subprolect Floaneing 4.19 Under the project, CVDB has financed 89 subprects. T distribution of subloans by type of projects, category of bo:tr... z governorate is shown in Annex V. 4.20 As part of its supervision and follow-up activities, fbe reevtua;es its projects upon their completion. The reevaluation of a stAple of 13 subprojects, representing one third of the total loan, is gi%en bolow. tabl 2: REEVALUATED IRR OF SUBPROJECTS FINANCED UNDER THE LOAN Loan Amount IRR (%) at Reevalueted Brromr TYpe of Protect JO2 Anaraisal IRR(%) SAIrks wadi Seir Municipality Connercial Center 58.000 17.7 19.3 Irbid Municipality Truck Stop 300.000 15.2 5.0 Salt Municipality Comnercial Center 250.000 13.0 14.0 Sweilleh Municipality Garages and Market 300,000 10.0 2.0 The project has suffered frnm poor design. ana considerable delays in construction. Ramths Municipality Technical Center 120.000 14.8 4.0 Rents set too low. Zarqa 16nicipality Trade Center 360.000 11.13 10.0 Ajloon Municipality Trade Center 165.000 14.9 6.0 Rents set too low. Sahab Municipality Vegetable Market 60.000 18.1 18.1 Madaba Municipality Technical Center 360.000 11.4 9.0 Madaba Municipality Connercial Center 200.000 11.28 11.0 Madaba Municipality Vegetable Market 30.000 30.0 19.0 Moeta Municipality Trade Center 20.000 18.6 14.0 Al Gaser Municipality Offices 30,000 15.2 13.5 80a": Weighted IRR z 8.7 percent V. CONCLUSIONS A. Achievements 5.01 The project has achieved its objectives and has been instrumental in bringing about major policy and institutional changes in the municipal development sector in Jordan. Because of the project, CVDB evolved from a simple disbursement fund into an effective municipal development bank able to achieve a satisfactory financial performance and to deliver well appraised projects. It has now established a strong track record as the main intermediary channelling financial and technical assistance to local governments in Jordan. In recognition of its importance and its solid performance, CVDB will play an increasingly important role on the urban scene in Jordan. It will be responsible (i) for financing public components of the third urban development project currently being negotiated and (ii) for administering a recently created Regional Development Fund. 5.02 As a result of CVDB's strengthening, local governments have gradually improved the identification, preparation, appraisal, and supervision of their development projects. Careful selection and design of projects, as well as 28 better financial discipline on the part of local governments, will be further encouraged as CVDB institutes a financial solvency test introduced under the second project to CVDB. 5.03 Under the first project, infrastructure levels have been improved in some 78 villages and municipalities. Such improvements will have a beneficial effect on the population of the communities concerned. Other indirect benefits include the stimulation of private investments in small-scale and comme-cial activities because of public investments made under the project for technical centers and other revenue-generating projects. B. Lessons Learned 5.04 The lessons learned from the implementation of the project have already had a substantial impact on the design of the second project to CVDB. They include: (a) Appraisal and Supervision of Subproiects At the beginning of the project, emphasis was placed on financial aspects cf institution building. While this course of action was justified to put CVDB on a sound financial footing from the start, in retrospect, the result was that CVDB did not pay sufficient attention to building up an adequate appraisal and supervision capacity. Substantial efforts were made during project implementation to upgrade CVDB's ability to appraise and supervise subprojects; these efforts were further consolidated under the second project. During appraisal of the second project, eligibility criteria were reviewed and, a new financial solvency test was introduced to better assess the creditworthiness of CVDB's borrowers. A technical adviser was recruited before loan effectiveness, and the contract of a technical expert funded the EIB loan to CVDB was extended by an additional year. Finaliy, in March 1986, the Technical Department was reorganized into two divisions: one responsible for appraisal and one for supervision and follow-up. (b) Training Although the technical assistant expert provided under the project helped train CVDB technical staff, training of CVDB's staff was basically carried out on an ad hoc basis. The need to identify training needs and to implement a comprehensive training program in a more systematic manner was fully recognized by CVDB's management as part of its institution building effort. The appointment of a training specialist, a condition of loan effectiveness for the second project to CVDB provided the necessary impetus for the organization and implementation of a coherent training program for both CVDB staff and for local municipal/village officials. An important element of CVDB's success to date is the appointment of a well-qualified training specialist as head of the newly created Training Division. Training requirements have been assessed, courses designed, and implanentation is proceeding in a timely fashion. 29 (c) Replicability Two main factors should be borne in mind in assessing whethir a similar operation could be replicated successfully elsewhere. First, the idea of transforming CVDB into a full-fledged municipal bank was initiated by the Government and at all stages of the project, the Government demonstrated its strong support and commitment to achieve the project's objectives. Second, the results obtained under the project were achieved with substantial Bank technical assistance as reflected by the number of missions before appraisal (12) and during project implementation (17). Large Bank staff inputs were required initially as it was judged improbable that consultants could effectively carry out the institution building work over a period of several years. Therefore, for future operations of a similar type we should properly budget for adequate staffing at project inception, knowing that economies of scale will occur during follow-up operations. CVDB is now at the stage where it is becoming a mature, sustainable financial institution. It has now evolved into a well managed and autonomous financial institution able to sustain its operations and to provide technical assistance to local governments in Jordan with only limited external assistance. One should stress that it may be difficult to replicate and sustain a similar operation elsewhere in view of the stricter budget constraints that the Bank is likely to face in tl- future. However, it should be noted that because of the excellent re. .Its achieved under the first project, it was possible to prepare and appraise CVDB II with far less staff resources than for other urban projects. C. Recommendations 5.05 Under the first project, CVDB has demonstrated its ability to perform as a sound and viable municipal development bank. To consolidate its achievements and success, CVDB will have to continue to apply strictly its eligibility criteria for subproject financing and pay increasing attention to the financial capacity of its borrowers to service the debt. As the financial situation of some local governments has begun to deteriorate recently, CVDB will need to enforce rigorously the financial solvency test for local governments. At the same time, measures should be devised to increase loc;Ll government revenues. In March 1987, the Cabinet took key decisions to alleviate the financial burden of local councils while emphasizing the need to improve the mobilization of resources at the local level. In particular, the Cabinet decided that the allocation of Central Government revenues (fuel taxes) to local councils will be made in direct relation to the councils' ability to collect their own taxes and fees. CVDB is also preparing a revised three-year investment plan for each local council. These plans would be established in the framework of the National Five-Year Plan and would better reflect investment priorities togethier with financial resources available at the local level. The above issues will be further analyzed as part of a municipal finance and management study, scheduled for FY88. The study will focus on ways and means to improve the mobilization of domestic resources at the local level and to upgrade the capacity of local councils to operate and maintain municipal services. 30 5.06 Consolidation efforts will also be needed from an organizational and financial point of view as CVDB is about to embark on a new set of activities. The integration of these new responsibilities into CVDB's structure and operations and its timing will require the same careful plarning and monitoring efforts CVDB has demonstrated in the past. Jordiniem Divers CIM~IUVE I>TEREMEN N y . rd da N 14 0 rit~ ta db 0 ( -c1 NE H 0 cn CII j-a - - - - - -- - -- - - -b - 32 - ANNEX I Page 2 of 4 JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK (Loan 1826-JO) DETAILED DISBURSEMENTS htheriestle 0ettl sueri CaeWttta mra Location Investment Activity Number Date Amount Amount Ciaulative Cualative Ruseif a Department Complex A-1 02-Apr-82 $434,800 $397,633.79 $434,900 $397,633.79 Nadi Seir Coamercial Center A-2 02-Apr-82 $130,400 $91,343.11 $565,200 $488,976.90 Irbid Truck Stop A-3 02-Apr-82 $434,000 $405,012.71 $1,000,000 $93,989.61 Enbeh Schools A-4 10-Iay-82 $101,500 $83,013.55 $1,101,500 $977,003.16 Salt Commercial Center A-5 29-Apr-82 $362,500 $334,094.23 $1,464,000 $1,311,097.39 Najil Girls School A-6 16-Aug-92 $113,000 $77,603.06 $1,577,000 $1,38,700.45 Es Sarib Boys & Girls School A-7 02-Sep-82 $177,500 $131,946.77 $1,754,500 $1,520,647.22 Aiy Boys & Girls School A-B 02-Sep-82 $287,500 $115,555.40 $2,042,000 $1,636,202.62 Sueileh Commercial Center A-9 20-Oct-82 $415,000 $393,173.57 $2,457,000 $2,029,376.19 Rasth& Commercial Center A-10 29-Oct-82 $166,300 $154,959.75 $2,623,300 $2,194,335.94 Faquaoh Schools A-11 13-Dec-92 $103,000 $100,921.76 $2,726,300 $2,26,257.70 larqa Commercial Center A-12 21-Iar-83 $507,600 $492,073.82 $3,233,900 $2,777,331.52 Iashemia Ichools A-13 21-tar-83 $112,800 $104,630.25 $3,346,700 $2,881,961.77 Taybeh Schools A-14 21-la-83 $91,650 $93,612.73 $3,433,350 $2,965,574.50 Aqaba Commercial Center A-15 06-Apr-83 $424,500 $385,822.57 $3,062,850 $3,351,397.07 Ailoon Commercial Center A-16 06-Apr-03 $254,700 $216,656.29 $4,117,550 $3,569,053.36 Sahab Vegetable Narket A-17 17-Nay-93 $95,200 $78,541.95 $4,202,750 $3,646,595.21 Gatrana Cosercial Center A-18 22-Dec-93 $135,100 $125,352.54 $4,337,750 $3,771,947.75 Salt Taxi & Bus Station A-19 29-Dec-83 $135,000 $135,909.96 $4,472,750 $3,907,957.71 Ila,an Commercial Center A-20 18-Jan-94 $202,000 $196,038.34 $4,674,750 $4,103,896.05 Hadaba Techoical Center A-21 18-Jan-94 $4W,000 $456,913.95 $5,159,750 $4,560,809.90 Hadaba Cosercial Center A-22 18-Jan-84 $27f,000 $221,067.96 $5,429,750 $4,781,977.76 Karak Technical Center A-23 04-Apr-84 $473,000 $295,520.57 $5,902,750 $5,077,398.33 Sahab Roads A-24 18-Apr-84 $67,500 $63,401.07 $5,970,250 $5,140,799.40 ail Girls School A-6 18-Apr-84 ($28,000) $0.00 $5,942,250 $5,140,799.40 Kufrangeh Roads A-25 10-Hay-94 $108,000 $104,256.06 $6,050,250 $5,245,055.46 Arian Roads A-26 23-lay-04 $108,000 $87,939.22 $6,158,250 $5,332,994.68 Kofur Yuba Roads A-27 23-May-94 $135,000 $130,320.07 $6,293,250 $5,463,314.75 Quasseh & Juideh Roads A-28 29-Ray-84 $101,250 $96,939.90 $6,394,500 $5,560,254.55 El-Farhan Quf ur Roads A-29 s $0.00 $6,394,500 $5,560,254.55 Ghour Al Saf i Roads A-30 21-Jun-84 $202,500 $198,695.62 $6,597,000 $3,758,940.17 Idoun Roads A-31 21-Jun-94* $135,000 $121,130.27 $6,732,000 $5,980,070.44 Us Guseir I Hugab Roads A-32 21-Jun-84 $135,000 $129,685.40 $6,967,000 $6,009,755.84 Sakeb Roads A-33 26-Jun-84 $94,500 $78,741.39 $6,961,500 $6,088,497.23 Khureibat Es-Suq Roads A-34 12-Jul-84 $109,000 $103.,5.07 $7,069,500 $6,191,952.30 ait Ras, First Roads A-35 12-Jul-84 $91,000 $.,772.20 $7,150,500 $6,266,724.59 Abu Alanda Roads A-36 12-Jul-84 $101,250 $93,465.34 $7,251,750 $6,360,189.92 Har Al Hamm Roads A-37 17-Jul-84 $270,000 $193,959.60 $7,521,750 $6,554,148.52 Al Hussun Roads A-38 17-Jul-84 $108,000 $99,602.07 $7,629,750 $6,653,750.59 Bursa Roads A-39 17-Jul-94 $121,500 $112,159.42 $7,751,250 $6,765,909.01 North Shuneh, First Roads A-40 17-Jul-94 $135,000 $123,353.73 $7,86,250 $6,889,262.74 Tareq Roads A-41 24-Jul-94 $9,100 $161,042.93 $7,995,350 $7,050,305.57 Bashir Chaudry Advisor na na $79,000 $1A,552.28 $7,974,350 $7,066,957.95 Ajilon Commercial Center A-16 25-Oct-84 ($38,500) $0.00 $7,935,850 $7,066,957.95 -33 - ANNEX I Page 3 of 4 Tareq Roads A-41 25-Oct44 $38,500 80.00 $7,974,350 $7,066,057.85 Aioon Cossercial Center A-16 08-Nay-6S (835,600) 80.00 87,939,750 87,566,957.05 Bashir Chaudry Advisor na 08-Nay-85 ($62,448) 80.00 S7,876,302 $7,066,957.95 Arjan Roads A-26 08-Nay-65 ($109,000) 80.00 $7,768,302 $7,066,857.85 Susa Roads A-42 08-Nay-95 $125,000 *102,227.99 87,693,302 $7,169,095.84 Judeita Roads A-43 08-Nay-U5 $125,000 $84,662.49 $8,019,302 $7,253,741.33 Tareq Roads A-41 21-Hay-85 $29,640 80.00 $9,047,942 $7,253,748.33 Judeita Roads A-43 21-Nay-85 (818,750) $0.00 18,029,192 $7,253,740.33 Ailoon Commercial Center A-16 30-Nay-85 826,359 $0.00 S8,055,550 $7,253,748.33 Madi Seir Commercial Center A-2 03-Feb-86 ($39,057) 80.00 $8,016,493 $7,253,748.33 Najil Sirls School A-6 03-Feb-86 (8440) 80.00 $8,016,053 $7,253,748.33 Hashesia Schools A-13 03-Feb-86 ($1,7301 80.00 $8,014,323 $7,253,748.33 Ajloon Commercial Center A-16 03-Feb-86 89,691 80.00 $8,024,021 $7,253,748.33 Tareq Roads A-41 03-Feb-86 $84,760 $0.00 8,109,781 $7,253,748.33 Kaffer Elsa Girls I Boys School 8-1 11-Feb-92 $66,900 $62,979.32 $66,900 $62,979.32 Naquaira Boys School 8-2 11-Feb-12 $66,000 882,306.59 S132,900 $145,295.91 Jedeta Girls & Boys School 8-3 02-Apr-92 $72,500 $69,532.52 $205,400 $213,868.43 Kharabi Al Soq Schools 8-4 16-Aug-82 $71,000 $66,169.88 $276,400 8280,039.31 Al Haera Schools 8-5 16-Aug-82 $57,000 $55,410.27 $333,400 $335,448.58 Tabarbour Schools 8-6 02-Sep-82 $42,600 $32,503.41 $376,000 $367,951.99 Nalka Boys School B-7 14-Oct-82 $34,900 $34,503.61 $410,900 S402,455.60 Haka Girls School 8-0 14-Oct-82 $27,900 $27,779.15 $438,700 $430,234.75 Rakeen Schools 3-9 14-Ott-92 $69,600 $59,600.37 $508,300 $489,935.12 Dayr Al Leyyat Schools B-10 29-Oct-82 $36,000 $26,321.33 $544,300 $516,156.45 Samra Schools 3-11 29-Oct-92 838,900 $36,025.93 $583,200 $552,192.31 Kufursue Schools B-12 13-Dec-82 $55,000 $54,493.19 $639,200 $606,675.57 Al Ransoura Schools 3-13 13-Dec-92 $35,700 835,822.99 $673,900 S642,498.46 Ebder Schools 3-14 13-Dec-82 $27,500 $27,016.54 $701,400 $669,515.00 Arhaba Schools 8-15 17-Dec-82 $43,600 $32,339.38 $745,000 $701,853.38 Hofa Al Masatheayah Schools 8-16 17-Dec-82 $39,200 $37,928.77 8784,200 $739,782.15 Al Auser Schools 3-17 21-ar-83 $38,100 837,110.30 $822,300 $776,892.45 Reinon Schools 8-18 21-Nar-83 $42,400 $33,204.47 $864,700 $810,096.92 Nghayyer Nuhanna Girls School 8-19 21-Nar-83 $28,200 $27,075.60 $892,900 837,172.52 Hashemia Al Janubeia Schools 8-20 21-Nar-83 $28,200 $22,713.06 S921,100 859,985.58 Sarfa Schools 3-21 21-Nar-93 $21,200 819,89.23 949,300 $879,773.81 Sama Al Rusan Schools 0-22 21-iar-83 $42,300 $40,503.62 8991,600 8920,277.43 Nehna Schools 3-23 04-Apr-83, $56,600 $46,354.49 81,048,200 966,631.92 Zatras Boys & Girls Schools 8-24 04-Apr-83 $42,500 841,027.50 $1,090,700 $1,007,659.42 Baityafa Girls School 3-25 04-Apr-93 $42,500 $37,360.76 $1,133,200 $1,045,020.18 Hadaba Central Vegetable Na 3-26 17-Hay-83 $42,600 $36,263.64 $1,175,800 $1,081,283.82 Rajes Al Shasi BDys & Girls School 1-27 17-May-83 $63,900 $44,293.28 $1,239,700 $1,125,577.10 Al Iraq Schools 0-28 17-May-83 $34,100 829,572.93 $1,273,800 $1,155,150.03 Saal Boys School 8-29 15-Jun-83 $40,500 $37,691.80 $1,314,300 $1,192,941.93 Kites Schools 3-30 15-Jun-83 $56,900 $50,516.91 $1,371,100 $1,243,358.74 Naquaira Boys School 8-2 15-Jun-83 $35,500 $0.00 $1,406,600 $1,243,358.74 Al Rauda Schools 3-31 03-Oct-93 $47,600 $51,454.85 $1,454,200 $1,294,813.59 Quasmeh & Judeh Schools 6-32 03-Oct-83 $67,900 $61,792.04 $1,522,100 $1,356,605.63 Noeta Commercial Center B-33 01-Dec-93 $27,000 824,990.04 $1,549,100 11,381,595.67 Al Daser Offices 8-34 01-Dec-83 $47,250 $38,456.49 $1,596,350 $1,420,052.16 Narj Al Hamsas Compaction Truck 8-35 22-Dec-93 $27,000 $26,064.01 $1,623,350 $1,446,116.17 *34 -ANNEX I Page 4 of 4 Sahab Loader B-36 29-Dec-83 S24,300 $21,570.61 $1,647,650 $1,467,686.78 Zeal Boys School B-37 04-Apr-94 $54,000 $43,434.2Z $1,701,650 f1,511,121.01 Wadi Al Dlail irls School 8-38 C4-Ar-94 $40,5D0 138.375.24 $1,742,150 $1,549,496.25 Ailoon Taxi ! Bus Station 8-39 27-Apr-84 $40,500 $28.506.56 $1,782,650 $1,579,002.81 Tareq Compiction Truck P-40 03-May-84 $40,500 $26,616.86 $1,82!,150 $1,604,619.67 Manshait Al Mazar Girls School 8-41 18-Mav-84 $13.500 110.539.94 $1,836.650 $1,615,159.61 Kufur hal Roads 8-42 0-Jul-94 $67.500 $62,284.46 $1,904,150 $1,677,444.07 Kufur Awan Roads 9-4 10-Jl-84 $81,000 $77,934.26 $1,985,150 $1,755,378.33 Bait Ras. Second Roads 8-44 12-Jul-94 $40.500 $44.104.16 $2,025,650 $1,799,482.49 Tabarbour Schools 8-6 08-May-85 ($1,500) $0.00 $2,024,150 $1,799,482.49 Al Rauda Schools 8-31 08-May-95 $47.600) tO.00 $1,976,550 $1,799,482.49 Tareq ComFaction Truct 8-40 08-May-85 140,500) $0.00 $1,936,050 $1.799,482.49 Kufur Awan Roads P-4! uB-Pa-95 1$81,000) t0.00 $155,050 $1,799,482.49 Bait Ras, Se:ond Roads 8-44 08-Mav-85 ($40,500) $0.00 $1,814,550 $11799,482.49 Na'or Boys School 8-45 08-May-85 152,500 $30.055.87 $1,877,050 $1,829,538.36 North Shuash Roads 8-46 08-May-85 $75,000 $22,74.62 $1,952,050 $1,852,212.98 Dayr Al Leyyat Schools 8-10 30-Mai-95 (7.600) $0.00 $1,944,450 $1.852,212.?B Reimon Schools 8-18 03-Feb-86 (M6.276) $0.00 $1,938,174 $1,852,212.98 Mughayyer huhanna Girls School 8-19 03-Feb-96 ($436) $0.00 $1,937,738 $1,852,212.98 Sarfa Schools 8-21 03-Feb-86 ($6,570) $0.00 $1,931,208 $1,852,212.98 Mehna Schools 8-23 03-Feb-86 !$7.444) $0.00 $1,923,764 $1,852,212.98 Al Qaser Offices B-34 03-Feb-86 (f5,670) $0.00 $1,918,094 $1,852,212.98 Na'or Boys School 8-45 03-Feb-86 ($32.050) $0.00 $1,886,044 $1,852,212.98 Dare Joassef Rpads P-47 03-Feb-86 $5,175 $5,179.05 $1,891,219 $1,857,392.03 $10,000,000.00 $9,111,140.36 ..‘뱁1..&’·― 36 ANNE)( I I I Page 1 of 2 JORDAN - CMES AND VELLAGES DEVELOPMENT BANK (Loan 182640) Table 1: AUDITED INCOME STATEMENTS 1981-1985 (JD'00O) INCOME 1981 1982 1983 1984 1985 Interest from loans 630.6 1,340.1 1,780.5 2,417.7 2,735.5 Interest from deposits 593.3 608.8 394.4 358.6 366.9 Other income 51.5 61.0 101.3 48.7 156.0 Total Income 1,275.4 2,009.9 2,276.2 2,825.0 3,258.4 EXPENSES Interest paid 208.3 366.3 590.0 1,017.3 1,317.9 Salaries 128.4 153.7 165.9 164.2 187.4 Administrative expenses /a 90.3 111.4 128.3 123.4 167.4 Total Expenses 426.0 631.4 884.2 1,304.9 1,672.7 Net Income 849.4 1,378.5 1,392.0 1,520.1 1,585.8 Dividends to Municipalities 54.6 337.5 387.7 472.7 490.3 Retainiud Earnings 793.9 1.041.0 1,004.3 1,047.4 1.095.5 /a Including depreciation on fixed assets. 37 ANNEX III Page 2 of 2 JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK (Loan 1826-JO) Table 2: AUDITED BALANCE SHEETS 1981 - 1985 (JD'000) 1981 1982 1983 1984 1985 ASSETS Current Assets Cash & Time Deposits in Banks 8,449.3 4,542.7 3,102.4 3,637.6 2,775.9 Short-term Loans and Overdrafts 51.2 268.7 540.6 857.5 1,302.6 Current Maturities of Loans 3,855.2 5,589.5 5,593.1 5,215.9 6,178.5 Accrued Interest 365.8 800.8 1,059.6 1,101.4 1,358.0 Other Current Assets 9.4 136.8 184.5 234.7 500.4 Total Current Assets 12,730.9 11,338.5 10,480.2 11,087.1 12,115.5 Long-term Loans 12,745.1 23,071.4 31,415.1 35,855.3 39,481.7 Less Loans Maturing Within One Year 3,855.2 5,589.5 5,593.1 5,215.9 6,178.5 Total Loan Portfolio 8,889.9 17,481.9 25,822.0 30,639.4 33,303.3 Fixed Assets (net) 170.3 172.2 169.0 160.7 1,041.1 TOTAL ASSETS 4t. LIABILITIES Current Liabilities Short-term Borrowings 0.0 0.0 439.4 0.0 0.0 Time Deposits 0.0 0.0 0.0 4,165.5 5,676.7 Municipalities' Deposits 10,206.8 9,377.2 11,001.5 10,154.7 10,308.4 Current Maturities of Borrowings 1,075.3 1,202.8 989.6 1,097.2 5,067.3 Other Current Liabilities 172.3 525.7 621.9 385.5 443.1 Total Current Liabilities 11,454.4 11,105.7 13,052.4 15,802.9 21,495.5 Long-Term Borrowings Central Bank of Jordan 1,277.1 5,364.0 8,436.0 8,280.2 9,018.5 World Bank I 0.0 62.0 733.5 2,072.2 2,707.0 IDA '880.0 927.8 938.9 981.8 1,163.3 Less Borrowings Maturing Within One Year 1,075.3 1,202.8 989.6 1,097.2 5,067.3 Total Long-term Debt 1,081.8 5,151.0 9,118.8 10,237.0 7,821.5 Equity Paid-up Capital 7,770.4 10,210.4 10,770.4 11,270.4 11,470.4 General Reserves 1,484.5 2,525.5 3,529.6 4,577.0 5,672.5 Total Net Worth 9,254.9 12,735.9 14,300.0 15,847.4 17,142.9 TOTAL LIABILITIES AND EQUITY 211.i. A822 64 38 ANNEX IV JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK (Loan 1826-JO) ACTUAL PERFORMANCE INDICATORS (1982-1985) 1982 1983 1984 1985 Operational Indicators Gross Income/Average Tjtal Assets /a (1) 7.9 7.0 7.2 7.4 Administrative Costs/Average Assets 1.0 0.9 0.7 0.7 Financial expenses-/Average Borrowings and Equity (2) 3.1 3.1 3.9 4.5 Loan Income/Average Loan Portfolio (3) 7.5 6.5 7.2 7.1 Cost of LT Debt/Average LT Debt (4) 3.9 3.9 5.6. 5.3 Spread on LT Debt (3)-(4) 3.6 2.6 1.6 1.8 Margin on a-1 Resources (1)-(2) 4.8 3.9 3.3 2.9 Profitablity Indicators Net Income/Average Assets 5.4 4.3 3.9 3.3 Net Income/Average Equity 12.5 10.3 10.1 8.8 Financial Structure Indicators Debt/Equity Ratio 0.5 0.7 0.7 0.5 Debt Service Coverage Ratio (principal only) 4.7 5.7 4.8 4.8 /a The ratios are expressed in percentage, except for the debt-equity and debt-service coverage ratios that are compared to 1. /b Including dividends. 39 ANNEX V Page 1 of 5 JORDAN - CITES AND VILLAGES DEVELOPMENT BANK (LOAN 1826-JO) DISTRIBUTION OF SUBLOANS APPROVED (in US$ million) IBRD Subloan Disbursed Amount Percent Amount Percent By Governorate Amman 3,548,557 35.66 3,273,211 35.99 Balqa 469,590 4.72 470,004 5.17 Irbid 3,563,171 35.81 3,378,577 37.15 Karak 1,495,950 15.03 1,115,848 12.27 Ma'an 286,560 2.88 273,641 3.00 Mafraq 93,577 0.94 91,233 1.00 Zarqa 492,600 4.95 492,074 5.41 By Type of Borrowers Municipalities 9,348,808 93.96 8,552,977 94.04 Village Councils 601,197 6.04 541,611 5.95 By Type of Proiects Commercial Centers 2,965,399 29.81 2,878,247 31.65 Technical Centers 1,085,300 10.91 907,394 9.98 Taxi & Bus Stations 175,590 1.76 164,417 1.81 Markets 127,800 1.28 114,805 1.26 Offices 41,580 0.42 38,456 0.42 Total Revenue-Earning Projects 4,395,669 44.18 4,103,319 45.12 Roads 2,598,914 26.12 2,371,973 26.08 Schools 2,457,821 24.70 2,140,031 23.53 Truck Stops 405,800 4.08 405,013 4.45 Compactaion Trucks & Loaders 91,800 0.92 74,252 0.82 Total Social Sector Projects 5,554,335 55,82 4,991,269 54.88 Total 950gg 0 8 12gEgg - 40 - ANNEX V Page 2 of 5 JORDAN CITIES AND VILLAGES DEVELOPMENT BANK (Loan 1826-JO) (in Us$ million) 5554335 4395669 - 4 0 I C-Iii - -4103319 91,2 9 Revenue-Earning Projeets Social Sector Projects L.E9rg of Projects Djisbur-"e men.t 8 a 1- ANNEX= - Page 3 of 5 JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK (Loan 1826-JO) Distribution of Loans by Tgre of Pro ects (in US 'ollars) 1750000 29965 399 3000000 2 5986914 2,4572821 220000 1500000 175*590 605 8001 7;0000 175,590 45175590 1780 91 800 Commercial Markets Roads Schools Taxi & Waste Truci Stops Centers Offices Bus Stat. Collection Technical Eq. Centers Type of Projects Loan Amoant - 42 - ANEX v Page 4 of 5 JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK (Loan 1826-JO) 7 1 U1 L -t LLV L.t i:tL'5 L0+ tutkk t Y (in US$ million) 9348808 - 4-- 8552,977 601197 541,611 Hunicipalities Village Councils 1i1pe ~ hun~ente,21 -&.,[．·．,