Madagascar - Urban Development Project

Dounient of The World Bank FOR OmCIAL USE ONLY Report No. 12932 PROJECT COMPLETION REPORT REPUBLIC OF MADAGASCAR URBAN DEVELOPMENT PROJECT (CREDIT 1497-MAG) APRIL 5, 1994 Infrastructure Operations Division South Central and Indian Ocean Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = FMg (Malegasy franc) US $1.00 = FMg 400 (June 1984) US $1.00 = FMg 1873 (May 1993) WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS BCT Traffic Management Bureau BFV Bank of Commerce of Madagascar BPU Project Management Unit BTM Rural Development Bank of Madagascar CCM National Tender Board CENAM National Artisan Center CIMATEC Wood Production Unit CTNDU Technical National Committee for Urban Development DAUH Directorate of Architecture, Urban Planning and Housing DCA Development Credit Agreement DCOU Directorate of Coordination of Urban Projects DCU Directorate of Construction and Urbanization FIHIU Infrastructure Fund for Urban Housing FMg Malagasy Franc HAIVY Metallic Tools Production Unit IDA International Development Agency JARY SEIMAD Consulting Firm JIRAMA National Water and Electricity Authority MA Municipality of Antananarivo MATRACEM Bricks and Tiles Production Unit MDUT Ministry of Urban Development and Tourism MT Municipality of Toamasina MTP Ministry of Public Works PCR Project Completion Report SAR Staff Appraisal Report SDR Special Drawing Rights SEIMAD Madagascar Housing Corporation UNCHS UN Center for Human Settlements UNDP United Nations Development Programme  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operationa Evaluation April 5, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Madagascar Urban Development Project (Credit 1497-MAG) Attached is the Project Completion Report on Madagascar - Urban Development Project (Credit 1497-MAG) prepared by the Infrastructure Operations Division, South-Central and Indian Ocean Department (Country Department 3) of the Africa Regional Office, with Part II contributed by the Borrower. Part II highlights the positive start of the institutional improvement process, and the importance of the technical assistance in this respect. This project was prepared on the basis of a UNDP assisted technical assistance and feasibility study which took several years to complete. At the end, the Bank provided PPF funding for detailed design of components and provision of necessary equipment. At appraisal in 1983, the project objectives were focused on two key areas: (i) improving the financial and management capacity of the two participating municipalities, Antananarivo and Toamasina, with an emphasis on maintenance of municipal services, and project development and implementation; and (ii) improving living conditions and employment opportunities of poor and middle income families. The Borrower favored direct impact construction, with the Bank putting more emphasis on capacity building. This situation caused complications during project implementation resulting in a delay of several years in project completion. The project achieved a substantial part of its physical goals thus improving living conditions of over 100,000 inhabitants in poor neighborhoods of the two cities. Permanent employment was provided as the project helped establish three private companies producing construction materials and tools. With regard to the institutional goals, the project increased the awareness of the municipalities towards the urban development process and achieved at least partial operational improvements, especially in Toamasina, including increased municipal revenues. The direct cost recovery mechanism envisaged in the project proved to be unrealistic. Overall, the project outcome is rated as satisfactory. Its institutional achievements are rated as modest, and the sustainability of the project benefits as uncertain. The PCR is of satisfactory quality, and it discusses the sensitive nature of the project and related implementation issues candidly and in detail. The project may be audited. Attachment 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.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT MADAGASCAR URBAN DEVELOPMENT PROJECT) (Credit 1497-MAG) TABLE OF CONTENTS Page No. PREFACE .................................................. EVALUATION SUMMARY .ii Project Identity .1 Background .1 Project Objectives and Description. 2 Project Design and Organization. 2 Project Implementation. 3 Project Results. 6 Project Sustainability. 9 Bank Performance. 9 Borrower Performance .10 Project Relationship .10 Consultant Services .10 Project Documentation and Data .10 PART TWO: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ... 11 Project Background and Objectives .11 Brief Project Description .12 Results upon Project Completion .13 Special Circumstances from mid-1991 onwards .23 PART THREE: STATISTICAL INFORMATION .26 Related IDA Credits .26 Project Timetable .26 Credit Disbursements .27 Project Implementation .29 Project Costs and Financing .31 Project Results .34 Status of Covenants .40 Staff Inputs .42 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.  p  - i - PROJECT COMPLETION REPORT MADAGASCAR URBAN DEVELOPMENT PROJECT (Credit 1497-MAG) PREFACE 1. This is the Project Completion Report (PCR) for the Urban Development Project, for which Credit 1497-MAG in the amount of SDR 12.1 million was approved on June 6, 1984. The Credit was closed on December 31, 1992, after a one year extension, except for Parts F(1), F(4) and H(5) of the Project for which the closing date was further extended to June 30, 1993. The last disbursement was on October 6, 1993, and the outstanding balance of SDR 1,864,508.04 was cancelled. 2. The PCR was jointly prepared by the Infrastructure Operations Division of the South-Central and Indian Ocean Department, Africa Regional Office (Preface, Evaluation Summary, Parts I and HI) and the Borrower (Part II). 3. Preparation of this PCR was started during a completion mission, carried out in June/July 1993 and the Bank's final supervision mission of the Project in July 1993. It is based, inter alia, on the Staff Appraisal Report; the Credit and Project Agreements; progress reports; supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.  *  - i - PROJECT COMPLETION REPORT MADAGASCAR URBAN DEVELOPMENT PROJECr (Credit 1497-MAG) EVALUATION SUMMARY Objecties 1. The project's major objectives were to: (i) improve the financial and management capacity of municipalities; (ii) strengthen the ability to maintain the most critical municipal services at least at current levels; (iii) expand the income-earning opportunities of poor and middle-income families; (iv) demonstrate neighborhoods upgrading as a technically effective means of improving living conditions while reducing the need for new housing investment; and (v) build up capacity to design and carry out similar projects on a sustained basis (para. 3.01). Implementation 2. The Project faced many difficulties during implementation because the Government and the Antananarivo Municipality (MA) never fully agreed with Project objectives and method of implementation. While for the Government the major objective was to improve the living conditions of the urban poor, for the Bank reforms in the structure of municipal revenues and services came to be the central focus (paras. 4.01 and 4.02). From this point of view, the Bank required that the scope of the works and provision of equipment be adjusted, at every stage of the Project, to the improvement of municipal revenues and cost recovery performance. This approach lead to years of delay, cost increases and to the deterioration of relationships between the Bank and MA (para. 5.02). 3. After having approved bidding documents, the Bank often refused to approve the award of the contract, requiring to review the scope of the works, in the light of the municipal revenue, or to cancel the bidding process. For the upgrading works in Antananarivo, the contract was awarded in February 1988, three years after Credit effectiveness, following three bidding processes, and the cost was twice as much as the first award proposal (para. 5.04). Another bidding process was cancelled because the Bank did not reply on time (without any reason) to the proposal of contract award (para 5.06). Results 4. The physical targets of the Project were substantially achieved. In Antananarivo, the old wards of Isotry and Anatihazo were rehabilitated, on a surface of 50 ha. Unfortunately, the sewerage system was not constructed, and this was a technical mistake, made by the Bank, due to the fact that  -...- no engineer was involved in the Project, on the Bank side, from 1977 to 1989 (para. 6.02). In Toamasina, four neighborhoods were upgraded, and the impact on the population was very positive (para. 6.04). Concerning the Employment and Income Generation component, the Proje ct helped establish three private companies producing wood works, metallic construction materials and bricks and tiles. These firms employ a total of 210 workers (para. 6.06). 5. On the institutional side, the main result of the Project was that the authorities have understood the importance of the urban sector in the development process. The Project Unit, BPU, created for coordination and management of the Project, was efficient, even though it had no influence on MA. In addition, the Infrastructure Fund for Urban Housing (FIHU) was created and the reimbursements of the subsidiary loans from the National Artisan Center (CENAM) and the Municipality of Toamasina (MI) have been deposited in this Fund. An indirect consequence of the Project was, in September 1991, the establishment of the Ministry of Urban Development and Tourism (para. 6.07). However, the project was unable to improve the municipal services of Antananarivo, the capital city and the central focus of the Project. 6. Financial results were mixed. The Project helped the Municipalities reassess the property tax base (in 1985 and 1990), and the property tax rate, in Antananarivo, was raised by 600% to 1900%, in nominal terms, or by 100% to 500% in real terms. It is clearly the main financial impact of the Project. Cost recovery never worked as proposed at Appraisal, because it was not realistic (para. 6.15). Sustainability 7. The project helped the Government establish the FIHU, which will work as a mechanism for replicating actions undertaken and recycling the funds recovered from the Project and other urban projects (para. 7.02). BPU has the capacity to replicate the project, and to manage efficiently other urban projects in the future (para. 7.03). The Project also had a positive impact on the financial situation of the Municipalities of Antananarivo and Toamasina, but the benefits resulting from the project are likely to be sustained only if very serious attention is provided to the municipal revenues and expenses (para. 7.01). Findings and Lessons Learned & Project preparation was very long, from 1977 to 1983, partly because the use of UNDP financing for the feasibility study led to long delays (para. 2.03). The financial arrangements were difficult to implement owing to the reluctance of the Municipalities to enforce the cost recovery measures and to reduce the personnel (para. 6.08). The Bank shared with MA the responsibility for most of the difficulties, because the Project was too sophisticated (para. 8.01), and the Bank objectives were not those of the Government (para. 4.02). In addition, the practice to adjust the scope of the works, in the course of the Project, to improve the municipal finances and cost recovery, even after approval of bidding documents, was not adequate, because this made the implementation chaotic. A mid-term review would have been more appropriate, because the physical, financial and institutional components would have been implemented in parallel, and the Mayor of Antananarivo would have probably been more flexible (para. 5.02).  - iv- Overall Project Assessment 9. The Project achieved its physical targets. From the financial point of view, it can be considered as a good start and new efforts should help consolidate the present project's achievements over the long term, in particular by ensuring better cost recovery. Institutional improvements were obtained in Toamasina, but not in Antananarivo, the main city of the project. Overall, because of the institutional failure in Antananarivo (inefficiency of the technical and financial departments) and of its inefficient implementation, the project can be considered only partially successful (para. 8.01).  I I  PROJECT COMPLEION REPORT MADAGASCAR URBAN DEVELOPMENT PROJECT (Credit 1497-MAG) PART ONE: PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Project Identity Name : Urban Development Project Credit Number : 1497-MAG RVP Unit : Africa Region Country : Madagascar Sector : Urban Development 2. Background 2.01 Urban Development was the responsibility of the Directorate of Architecture, Urban Planning and Housing (DAUH), within the Ministry of Public Works (MTP). DAUH mainly relied on the experience of the Madagascar Housing Corporation (Socidtd d'Equipement Immobilier de Madagascar, SEIMAD), a 80 percent Government owned company, to design, promote and manage housing programs. In 1974, an Urban Master Plan was prepared for Antananarivo, with Government financing, but the plan was never approved. 2.02 The Government initially approached the Bank for assistance in January 1977. The first Bank identification mission took place in September 1977, and a second identification mission in November 1978. The pre-appraisal mission took place in February 1982. The long time elapsed between identification and preappraisal may have been a sign of low Government commitment to this project. 2.03 A third mission, in April 1979, proposed that SEIMAD be given overall supervisory responsibility for the feasibility study. Since UNDP was discussing with the Government the financing of urban planning studies, one to update the 1974 Master Plan and the other to prepare planning guidelines and sectoral strategies for the Greater Antananarivo area, it was decided in September 1979 that the feasibility study would be financed by UNDP, together with the above studies. On the whole, the use of UNDP funds delayed the preparation by at least one additional year. 2.04 On November 19, 1979, UNDP granted the Government US$979,800, to finance a project called "Development of Urban Programmes", including: (i) study tours; (ii) technical assistance to DAUH; (iii) a pilot urban project; and (iv) the feasibility study. The Bank was executing agency and UNCHS associated executing agency for the three first items. Although the Bank was responsible for the recruitment of a consulting firm, this took more than one year. The firm was chosen in July 1980, negotiations took place in October 1980, and the contract was signed in December 1980.  2.05 On December 11, 1982, Government requested from IDA a project Preparation Facility (PPF), for detailed design and equipment. It was approved on January 20, 1983, for an amount of US$150,000. The Appraisal Mission took place in June 1983, with six staff and consultants, but without any engineer. On February 24, 1984, an additional PPF of US$91,000 was requested by the Government and approved on May 14, 1984. 2.06 Madagascar had experienced a long-term decline in per capita production and income, widespread deterioration of its physical and social infrastructure, and extreme scarcity of financial resources, compounded with a heavy debt burden. Since 1982, the Government embarked on stabilization and adjustment policies supported by four IDA adjustment operations. While significant progress was achieved in restoring macro-economic equilibrium, real GDP growth remained below population growth during the project life (1983-1993). There was an evident economic recovery from about mid-1988, but the political unrest, which began in May 1991, led to an important deterioration. As regards the Mayor of Antananarivo, his policy was based on his marxist gospel, which made him reluctant to implement necessary reforms. In addition, he did not want to increase the property tax rate before improving the living conditions of the population, which is politically understandable. 3. Project Objectives and Description 3.01 Project Objectives. The project's major objectives were to: (i) improve the financial and management capacity of municipalities; (ii) strengthen the ability to maintain the most critical municipal services at least at current levels; (iii) expand the income-earning opportunities of poor and middle-income families; (iv) demonstrate neighborhoods upgrading as a technically effective means of improving living conditions while reducing the need for new housing investment; and (v) build up capacity to design and carry out similar projects on a sustained basis. 3.02 Project Description. The project consisted of: (a) Strengthening of Municipal Revenue Generation and Financial Management in the Municipalities of Antananarivo and Toamasina; (b) Reinforcement of Municipal Technical Services in the same two municipalities, with provision of equipment and training; (c) Upgrading in the Isotry district of Antananarivo and in four neighborhoods of Toamasina, including improvements in basic infrastructure and community facilities; (d) Employment and Income Generation, including technical and financial assistance to artisans and small contractors; (e) Traffic Management, including improvements in traffic flows at the main junction of Isotry and five other intersections in Antananarivo, and creation of a Traffic Management Bureau (BCI); and (f) Project Management and Studies, including technical assistance and studies related to Land Legislation and means of improving the financial and managerial capability of SEIMAD. 4. Project Design and Organization 4.01 The project concept was developed, with inputs from Bank staff, over a five and a half- year period (09/77 to 06/83), by the participating institutions and ministries, mainly SEIMAD with the help of a consulting firm, which performed well. SEIMAD and the consulting firm had completed design and cost estimates for two new housing sites and four upgrading programs. The Appraisal Mission only retained two upgrading operations, and the reason is given by the SAR, para.2.04: "during preparation, the Government attached great importance to actions that would improve the living standards of the urban poor. Although the project as designed will indeed better the living conditions of lower-income families, this was not seen as reason enough for Bank support. Reforms in the structure of municipal revenues and services came to be considered the central focus...".  - 3 - 4.02 It is clear that the major objective for the Government was to improve the living conditions of the urban poor, while financial and managerial improvements of the municipalities were only a means to reach this major objective. On the other side, for the Bank, municipal finance and institution building were the main objective. This difference of concept was the cause of many difficulties during project implementation, because MA never fully agreed with project objectives and methods of implementation. 4.03 The Municipalities of Antananarivo and Toamasina were responsible for carrying out measures to strengthen their financial management and technical services. On March 13, 1992, the municipalities were replaced by "Delegations Sp6ciales", nominated by the Government. For both upgrading operations, SEIMAD was responsible for implementation, as well as for housing loans. Traffic management was the responsibility of the Traffic Management Bureau (BCT). Management of the whole project and coordination was the responsibility of the Project Unit (BPU), assisted by a technical assistance team. BPU was established by decree No.84.071 of February 15, 1984, and reported to the Public Works Minister. 4.04 In 1988, a National Technical Committee for Urban Development (CTNDU) was established, under the auspices of the Prime Minister. In September 1991, a new Ministry of Urban Development and Tourism (MDUT) was established, comprising DAUH and BPU. By decree No.92.046, dated January 15, 1992, DAUH became Directorate of Construction and Urbanization (DCU), and BPU became Directorate of Coordination of Urban Operations (DCOU). However, these institutions, MDUT and DCOU, disappeared in July 1993, in a Government's reorganization. 5. Project Implementation 5.01 Credit Effectiveness and Project Start-up. The Credit was negotiated in April 1984, approved on June 12, 1984 and signed on July 3, 1984. The conditions of effectiveness included, in addition to the usual conditions, the establishment by Antananarivo and Toamasina of surcharges to recover a portion of upgrading costs from the beneficiaries. The Credit was declared effective on February 22, 1985. 5.02. Implementation Schedule. Table 4.A, Part HI, gives the actual implementation schedule, compared with that estimated at appraisal. Project implementation was originally scheduled to be completed by June 30, 1990. Although the Credit was effective as forecast at appraisal, most of the works were long delayed. In addition to the lack of commitment of MA to reform, this is due to the Bank's position, clearly stated in paras. 6.09 and 6.11 of SAR, that the scope of the works and provision of equipment would be adjusted, at every stage of the project, to the improvement of municipal revenues and cost recovery performance. This approach led to years of delay and cost increases, without taking account of the deterioration of relationships between the Bank and MA. The use of a Mid-term review would have been more appropriate. 5.03 The most significant illustration of the inefficiency associated with this approach is related to the rehabilitation works in Isotry, to be realized from 1985 through 1988. Invitation for bids was advertized on December 7, 1985, and submission of bids took place on February 6, 1986. On March 23, 1986, BPU proposed to award the contract to Colas, for FMg 985 million. In May 1986, a supervision report states that 'the Mayors of Antananarivo and Toamasina will decide which physical actions should move ahead on the basis of realistic projections of municipal revenues and prospects for cost recovery". After an exchange of many telexes, the Bank proposed, on September 10, 1986,  - 4 - to cancel the bidding process and to phase out the works, because municipal finances had not improved as forecast at appraisal. By telex of October 31, 1986, the Bank declared that the Colas contract could not be financed under the Project. The Mayor of Antananarivo, by letter of December 6, 1986, stated that the November 1986 supervision mission had verbally agreed to start the works and questioned the good faith of the Bank staff. 5.04 On February 12, 1987, the Bank insisted on the necessity to phase out the works, because of the deterioration of the municipal financial situation. A new bidding process was launched in May 1987 and another contractor was retained for an amount of FMg 884.5 million, for a first phase representing about 50 percent of the works initially planned. This bidding process was also canceled in September, but by the Central Tender Board (CCM). A third bidding process was immediately launched, on September 22, 1987, and concluded by a non-objection telex on February 2, 1988, for FMg 1,700.3 million, or about twice as much, in nominal terms, as the first award proposal of March 1986, two years earlier ! 5.05 The second phase of the works was also delayed,because the Bank, by letter dated March 11, 1987, required that the loss of the Municipality be reduced to FMg 200 million by June 30, 1988, before launching the second phase. This objective was met, but the aide-memoire of the September 1988 supervision mission required that five new other conditions be met before the second phase of the works be undertaken. The Bank authorization was only given by telex of March 17, 1989, following another supervision mission, and the appointment of a new task manager. 5.06 A second example of unjustified delays is related to the improvement of five street intersections in Antananarivo. The bidding process was advertized on May 31, 1986, and bids submitted on July 16, 1986. On September 23, 1986, BPU proposed to award the contract for FMg 89.1 million, and specified that the limit of bid validity was October 16, 1986. The Bank replied on February 19, 1987, by a non-objection telex, but it was too late: not one contractor accepted to maintain its bid. Finally, after a new consultation, the contract was signed in April 1987 with the same contractor for FMg 114.1 million. 5.07 This method of adjusting the construction works to the financial capacity of the municipalities lead the Bank to request at every supervision mission the review of their financial situation. The consequence was that the financial technical assistance, planned to stop in June 1988, was extended through the end of the project, in December 1992. When the Loan Committee package was cleared by the Senior Vice President Operations, on February 27, 1984, one of his comments was that the total of technical assistance and studies represented 19 percent of the base cost, and he requested this percentage be lowered. At the end of the project the actual percentage had reached 42 percent. 5.08 The Development Credit Agreement included, as Part E of the Project, a housing loans component for a total of SDR 470,000. This component was a failure, since only 15 loans, for a total of FMg 15,535,672 (about US$10,000) were granted. This component was canceled in 1992. The reason is that SAR proposed SEIMAD as executing agency for the loans, although SEIMAD was not a mortgage bank, nor simply a bank. It was a developer, without any experience in housing loan management. The loans should have been granted through a financial institution. Under the Cyclone Project, appraised six months later, housing credits for a total of two million US dollars were easily granted through two local banks, BFV and BTM.  - 5 - 5.09 Procurement. The procurement process was hampered and delayed because the scope of the works were reduced and tenders were canceled after the approval of the bidding documents, for reasons not related to this bidding process (paras. 5.02 to 5.06). In addition, Bank guidelines were not always followed: (a) Schedule 3 of the Development Credit Agreement, section D.1, specifies that only contracts estimated to cost more than US$100,000 for civil works and US$50,000 for goods would require a prior review by the Bank. However, BPU requested Bank approval for many small contracts, and the Bank did not remind the BPU that it was not required. An example is a telex, dated November 5, 1986, requesting authorization for the purchase of printer cartridges and printing paper, to cost about US$1,200 and 900, respectively. The Bank replied by a non objection telex; (b) SAR states, para. 4.12, that prequalification of contractors would not be required, because the works are not excessively complex. This could be questioned, particularly for drainage works and the pumping station to be built 8 meters below ground in a flooded area. Nevertheless, short lists for civil works or purchase of goods were requested: (bl) for a civil works contract, the Bank requested by telex dated April 16, 1986 and, by telex dated April 23, 1986, confirmed its request to receive the "short list" of contractors; (b2) for a goods contract, the Bank had no objection to a "short list" proposed by BPU (telex of August 2, 1988); and (b3) in the same telex, for a civil works contract, the Bank approved a "short list" of six local firms. 5.10 Project Costs. A comparison between the appraisal estimates and the actual costs of the project is given in Part III, section 5 A. The appraisal cost estimate was US$18.0 million (about SDR 17.0 million), and the final cost was US$16.7 million, i.e. a cost underrun of 7.2 percent. The Govemment's contribution, estimated at appraisal at FMg 2.08 billion, jumped to FMg 5.2 billion but, expressed in USS was reduced from US$5.2 million to US$3.7 million. During project implementation, the US dollar/SDR exchange rate went from US$1.06 to US$1.40 to SDR 1, increasing the US dollar value of the Credit from US$12.8 million to US$15.8 million. 5.11 Disbursements. In Part mI, Table 3, actual quarterly disbursements of the Credit are compared with the appraisal estimates and the profile of urban project disbursements in Africa. Disbursements were spread over nine years, which compares with a seven-and-a-half-year disbursement period for the appraisal estimate, as well as for the profile of urban projects in Africa. The original closing date of December 31, 1991 was extended to December 31, 1992, then to June 30, 1993, but only for the tiles plant (Part F1), assistance to small contractors (Part F4) and audit reports (Part H5). Disbursements on commitments took place through October 6, 1993, and the outstanding balance of SDR 1,864,508.04 was canceled. 5.12 Credit Allocation. The original and revised allocations by category and the actual disbursements under Credit 1497-MAG are shown in table 5.D, Part m. It is worth noting that there were twenty six disbursement categories in Schedule 1 of the Development Credit Agreement. Although category 4, consultants' services and training, was overdrawn by SDR 1.67 million, no formal reallocation of funds was made, and this amount was drawn from category 9, unallocated. On the other hand, categories 1 and 2 were only used at 82 percent and 79 percent, because the works were reduced. For category 6, housing loans, 12 percent were disbursed, out of a total of SDR 470,000 (para. 5.08).  -6- 6. Project Results 6.01 Project Objectives. Overall, the project was not successful in meeting its key objective of improving the financial and management capacity of the municipalities. Nevertheless, it helped the municipalities reevaluate the property tax basis, and significant improvements have been obtained and can further be expected for the next years. It also improved the living conditions in low income areas of the cities of Antananarivo and Toamasina. The project also assisted in strengthening the management and organization of the executing agencies involved in the urban sector, the BPU and SEIMAD, and their capacity to implement subsequent projects. In addition, the employment and income generation component, after a slow and difficult start, lead to the creation of three private companies for wood, steel and tiles. 6.02 Physical Results. The physical targets of the project were substantially achieved. In Antananarivo, the districts of Isotry and Anatihazo were rehabilitated, but not as planned. The feasibility study had proposed separate drainage and sewerage systems. In order to reduce the cost, the Bank requested the consulting firm to design a combined system. The consultant refused, saying that the system would be over-flooded during the rainy season, and that the sewage could not be evacuated during the dry season. Instead of using the experience of other Bank staff, knowledgeable of country conditions and responsible for other projects under implementation, a consultant was recruited to give an advise without any mission to Madagascar. On December 15, 1982, the consultant concluded that "the solution which appeared feasible is to design and construct an effective storm water drainage system. The thought was that by eliminating the regular storm water flooding, then the existing pit latrine type sanitation could function effectively". Probably, the consultant did not know that the plain has a surface of 50 km2, and an effective storm water system on 0.5 km2 cannot lower the entire water table. When the works were completed, in 1989, the residents connected their waste water systems to the drainage system which, therefore, does not function correctly. To give an explanation to this mistake, it is worth noting that, from 1977 to 1989, not one engineer was member of a Bank mission (see Part III, Table 8.B). 6.03 Due to the delay, and to the decision to adjust the scope of the works to the financial capability of the municipality, all the works planned were not realized. Nonetheless, the living conditions of 80,000 inhabitants have been dramatically improved. A surface of 50 ha has been rehabilitated, including improvement of existing streets and construction of access roads, pedestrian streets, lined channels and box culverts, standpipes, street lighting, containers for solid waste and upgrading of the Isotry market. These works have been supplemented by the improvement of five street intersections in Antananarivo and the resurfacing of 9 km of paved roads. This latter component, which had not been planned at appraisal, was realized in 1992 . 6.04 In Toamasina, four neighborhoods were rehabilitated, for a surface of 154 ha: Ambalakisoa, Ankirihiry, Mangarivotra and Morarano. The program included paving and resurfacing of 3 km roads, construction of drainage canals, installation of 37 standpipes and 7 fire hydrants, construction of 112 washing points and extension of the street lighting network. The scope of the works was also reduced: 14 standpipes were installed instead of 37, no fire hydrant and no washing point. Nevertheless, the living conditions of a population of 30,000 inhabitants were substantially improved. The Project also financed a dispensary to provide first aid to the poorest population of Toamasina. In addition, the Emergency Cyclone Project (Credit 1526-MAG) financed in 1988 the rehabilitation of about 10 km of paved roads, which had a great impact on the whole city.  -7- 6.05 In November 1986, when JIRAMA was requested to install the 37 standpipes, it replied that this was impossible, because the production capacity was only 12,000 m'/day, for a water demand of about 20,000 m3/day. The Bank accepted to finance from the Credit a feasibility study for the reinforcement of the production facilities. The study was completed at the end of 1988. The cost estimate was about US$5.0 million, of which 3 million for the treatment plant and the pumping station, and 2 million for the reinforcement of the distribution network. The Bank decided that there were not enough remaining funds in the Credit to finance this component, not forecast at appraisal. A good opportunity to improve the living conditions in Toamasina was lost. 6.06 The employment and income generation component, after a slow and difficult start, was a success. Originally, the Project was to help create three cooperatives to make building materials and tools. Three private companies were established: (i) a wood-working unit to produce doors, windows and furniture, MATRACEM; (ii) a production unit of tools and metallic construction materials, HAIVY; and (iii) a facility to produce bricks and tiles, CIMATEC. The first two are in operation since 1990, and the third one is still awaiting some equipment, which should be delivered by the end of 1993. These firms employ about 210 workers on a permanent basis. 6.07 Institutional Performance. On the institutional side, the main result of the project was that the Government, the ministries concerned, the municipalities as well as the urban agencies realized the importance of the urban sector in the development process, and the necessity to assure good municipal management and finances. An indirect consequence was the establishment of a Ministry of Urban Development and Tourism, and the creation of a permanent institution for the coordination of urban projects (DCOU). However, these institutions disappeared in July 1993 in a Government's reorganization. SEIMAD was reorganized under the project and its study department became a separate consulting firm (JARY). In addition, the FIHU was created by decree No.87-287 of August 4, 1987 (instead of December 31, 1985, as required by section 3.06 of DCA). All reimbursements of subsidiary loans were to be deposited in this Fund. This has already been done by MT and CENAM. 6.08 The Project made a major impact on the strengthening of the institutions involved, except MA, which, up to 1989, for political reasons, made no effort to meet the conditions of the Credit Agreement. In particular, the Mayor never agreed to stop the recruitment, in order to reduce the staff which was redundant. He always was reluctant to implement the training program which, in fact, was too large (786 man/months). On the other hand, the project helped MT improve its organization and management. The staff has been reduced by extinction from 1000 to 357. The financial department is working very well, and so was the technical department (until the departure of the technical director). The project helped MT build a dispensary to provide first aid to one of the poorest neighborhoods of Toamasina. The dispensary now has two physicians and a team of nurses. 6.09 The Project also had a great impact on SEIMAD strengthening, which is now better organized to carry out its functions, because the project financed a reorganization study and has been successful in training its staff. Concerning BPU, it performed well its functions of coordination, with the same director from 1985 to 1991, but it was inefficient with MA. It would have the capacity to manage new urban projects, with only minor external technical assistance. 6.10 The project included the creation of a Traffic Management Bureau (BCT) to coordinate all the traffic and transportation actions. It was established temporarily within BPU, and  carried out traffic studies. Studies were carried out to decide on the future of BCT, and it was proposed to transfer BCr to the Ministry of Transport. Unfortunately, no agreement was reached with this ministry, and BCT disappeared at the end of 1989. 6.11 Financial Performance. The project accounts of MT, BPU, SEIMAD and CENAM were regularly audited by an external auditor, and the reports were received (with some delays) by the Bank. For MA there were some problems until 1989 (see para.9.02) 6.12 The financial results of Antananarivo Municipality are shown in Part III, table 6.B. The global revenue was below appraisal estimate from 1984 to 1990. For 1991 and 1992, we do not know yet the final collection rate of property taxes. It is assumed on the table to be 100 percent, which is not realistic. In the past, the collection rate was about 50 percent after one year and 80 percent after two years. The property tax return is generally issued very late, and this has a negative impact on the municipal revenue. Nevertheless, the 1990 property census multiplied the property values by seven to twenty. It is clearly the main financial impact of the Project. In 1992, the Municipality repaid FMg 500 million of its debt. 6.13 Concerning the municipal expenses, the Project helped resolve a long dispute over the payment of water and electricity bills to JIRAMA. The Municipality had paid no bills for years, because of a controversy over assets owned by the Municipality. This lead to a non-compliance with section 3.04 of the Project Agreement, which required that municipal arrears be reduced to three months of billing. On January 20, 1989, the two institutions signed an agreement and the Government decided to grant an indemnity of FMg 10 billion to settle the dispute. A first payment of FMg 3.2 billion was directly made to JIRAMA, but the rest was not paid to the Municipality. Since that date, JIRAMA bills have been regularly paid, which is a significant result. In June 1993, the Government Council decided to pay the arrears of all the municipalities to JIRAMA. 6.14 The Project helped the Municipality of Toamasina improve its financial situation, with better results than in Antananarivo. The Mayor was more responsive and the staff more competent. Since 1988, the municipal revenue was superior to that forecast at appraisal (Table 6.B, Part III), with a positive average balance of about FMg 450 million. The Municipality has already reimbursed FMg 900 million of its subsidiary loan. 6.15 Cost Recovery. It was expected at appraisal that on-site infrastructure costs in areas to be upgraded (22 percent of the Project costs) would be recovered directly through a surcharge to be levied on residents. Establishment by the municipalities concerned of surcharges, based on property rental values and linked to the specific upgrading investments, were a condition of effectiveness of the Credit. Nonetheless, this was never done because it was totally unrealistic: in Isotry, the tax product from households was about FMg 12.7 million, which compared with the surcharge of FMg 44.94 million. The tax collection rate was already very low, and obviously the population of this ward, chosen for its poverty, was unable to afford such a big tax increase. MA resolved the problem by establishing, in 1990, a surcharge to the property tax, but for the whole city. In Toamasina, the Municipality charged a land rent to the residents of the rehabilitated neighborhoods, instead of a surcharge. This rent product was only FMg 2.6 million in 1990, 1.9 million in 1991 and 640,000 in 1992. This decline is due to the fact that tax collection is not yet completed.  6.16 Other Project costs, relating to the strengthening of revenues and financial management, improvement of technical services, off-site upgrading works and traffic management will be recovered indirectly through the property taxes payable by the population of each city. The rest of the costs, concerning community facilities, assistance to CENAM and BCT, project management, studies and technical assistance will be absorbed by the Government. 7. Project Sustainability 7.01 The project has had a significant positive impact in that it has caused new institutional and financial arrangements to be put in place in the urban sector, assuring a better management of the sector and improving the municipal finances of MA and MT. However, the Government and the municipalities need to continue their efforts in the areas of tax property return and collection. The benefits resulting from the project are likely to be sustained only if very serious attention is provided to the municipal revenues and expenses. 7.02 The FIHU, established under the project, can help the Government finance rehabilitation of infrastructure, as a permanent source of lending to local governments for maintenance or extension of drainage, sanitation and other urban infrastructure. It will work as a mechanism for replicating actions undertaken and recycling the funds recovered directly from the Project and other urban projects. 7.03 The BPU, established at the start of the Project for its management and coordination, has the capacity to replicate the project and to manage efficiently urban projects in the future. 8. Bank Performance 8.01 The Bank shared with the Mayor of Antananarivo the responsibility for most of the difficulties faced by the Project: delays, reduction in the scope of the works, procurement problems and failure of the housing loan component. This was mainly due to the Bank's position, clearly stated in para. 6.09 of SAR, that the scope of the works and provision of equipment would be adjusted, at every stage of the project, to the improvement of municipal revenues and cost recovery performance. A project cannot be timely implemented with these constraints. Moreover, the project appraisal had several shortcomings: (i) the choice of SEIMAD for managing the housing loans was a mistake; (ii) the decision to move out the sewerage system in Isotry was a big technical mistake (due to the fact that no Bank engineer was involved in the Project); (iii) the financial analysis was not realistic; and (iv) the appraisal mission did not correctly assess the extent of the urban poverty in Madagascar in 1983. Therefore, the direct cost recovery mechanism, from the beneficiaries, was inapplicable. In addition, during implementation, the Bank wasted a lot of time to manage directly the Project through a lot of interventions on minor problems which should have been resolved by the BPU. 8.02 Supervision by IDA was relatively continuous, with only two task managers: a total of 16 supervision missions visited Madagascar, at the rate of two a year, representing a total of 695 staff/days in the field. Some 315.1 staff-weeks were spent on this project over the entire project cycle, which is very high. The details of staff input and missions are given in Part III, section 8, tables A and B.  - 10 - 9. Borrower Performance 9.01 On the technical side, thanks to its competent staff, helped by a technical assistance team, the BPU turned in a good performance: the bidding documents were prepared on schedule, with the bid evaluation reports prepared on time and the contracts well supervised. On the other hand, the Mayor of Antananarivo was reluctant to follow Bank recommendations, and his performance was very poor. A new Municipal Board was installed at the end of 1989, but they had not enough time to improve the situation before the political unrest of 1991 and 1992. The performance of MT was much better. SEIMAD and CENAM met their obligations under the Project, and their contribution was positive. 9.02 Quarterly reports were submitted by BPU to IDA in a timely manner up to March 31, 1992. BPU retained independent auditors to prepare its own, and SEIMAD, CENAM and MT accounts. The Mayor of Antananarivo refused to have the municipal project accounts audited by a private firm. It had been agreed at negotiations that the municipal accounts would be audited by the Directorate of Financial Control, within the Ministry of Finance. Since this directorate was too busy to carry out this audit, nothing was done until 1989. The other accounts were regularly and satisfactorily audited up to 1992. There were some delays at the beginning, but generally the audit reports were received within one year after the end of the fiscal year concerned, instead of the eight months stipulated in the DCA (Section 4.01.c.i.a). 10. Project Relationship 10.01 The relationship between the different parties involved in the project implementation was not very good. IDA's relationship with BPU on the project has been relatively good, as well as with SEIMAD, CENAM and MT. Relations with MA were rather strained in 1986/89, as a result of problems connected with delays in the start of upgrading works. Borrower-contractors relationships were not good, because of the delays in awarding the contracts. Relationships with consultants were good. 11. Consultant Services 11.01 The feasibility study was a very good job, as well as the final design. During implementation, the technical assistance provided by the consulting firm was in general competent and efficient. Nevertheless, the results of the technical assistance to MA are questionable, even if the main responsibility rests with the Municipality. 12. Project Documentation and Data 12.01 The original documentation for the project was adequate and appropriate. The appraisal report provided a useful framework for both IDA and BPU in their review of project implementation.  - 11 - PART TWO: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE (This is an English Translation of the document originally written in French) INTRODUCTION In accordance with the new guidelines adopted by the World Bank, this document constitutes the Project Completion Report (PCR) prepared by the Direction de la Coordination des Operations Urbaines (DCOU - Directorate for the Coordination of Urban Operations) of the Ministry for Urban Development and Tourism. It summarizes the main activities carried out under IDA Credit 1497-MAG, following its closing on December 31, 1992 (with the exception of one component relating to the completion of the Third Employment Unit (the brick and tile production unit in Ilafy, with CENAM as executing agency), for which an extension until June 30, 1993 was granted by the Donor. Finally, the purpose of the PCR is also to convey the views of the Borrower, i.e. the Republic of Madagascar, on the impact of the project and on project performance in general. We would just remind the reader that the Donor prepares a separate document, which forms Part II [sic] of the PCR. 1. PROJECT BACKGROUND AND OBJECTIVES The Madagascar Urban Development Project was identified in 1978, appraised in July 1983, negotiated in February 1984 and became effective in February 1985. The project was originally scheduled for completion in December 31, 1991 but was extended to December 31, 1992, with the exception of the Third Employment Unit, i.e. the brick and tile production unit, for which the closing date was set at June 30, 1993. The project's major objectives were to: - improve the financial and management capacity of the municipalities of Antananarivo, the capital city (with a population of approximately 1 million), and Toamasina, the country's most important maritime port (with a population of 150,000); - strengthen the operating capability of the municipal technical services of these two cities; - create employment opportunities for poor and middle-income urban residents; - improve the living conditions of residents of the poorest neighborhoods by upgrading existing-or building new-basic infrastructure and community facilities;  - 12 - establish permanent capacity (in institutional and financial terms) to plan and implement similar projects; improve, in general, the living and operating conditions of these two municipalities. 2. BRIEF PROJECT DESCRIPTION The main components of the Project are: a) Municipal revenue and the financial management of the Municipalities of Antananarivo and Toamasina: Improving management of property taxes and other municipal revenues Reorganizing financial services Normalizing budgetary "liabilities" Technical assistance b) Municipal technical services Reorganizing and equipping the services Providing basic and refresher training for personnel Technical assistance c) Rehabilitation of poor neighborhoods - JUpgrading of basic infrastructure and community facilities in Isotry (Antananarivo) and in four neighborhoods of Toamasina - Technical assistance to SEIMAD (Madagascar Housing Corporation), the designated contracting authority for the works d) Technical and financial assistance to generate employment In the construction materials and building tools sector e) TraMc management in Antananarivo - Improving automobile traffic and pedestrian flows in Isotry and at five other 'black spots' in the city - Setting up a Bureau de Circulation et de Transport - BCT (Traffic Management Bureau - TMB) f) Project management and studies Technical, institutional and financial management of the project Studies of various kinds: land ownership legislation, future status of the Project Management Unit (PMU), reorganization of SEIMAD, Fonds de l'Infrastructure pour l'Habitat Urbain (FIHU).  - 13 - 3. RESULTS UPON PROJECT COMPLETION The results achieved, as compared to the project objectives and to the stipulations contained in the Credit Agreement, are as follows: a) Municipality of Antananarivo a.1 Financial management and efforts to rehabilitate the municipal institution i - Establishment of a financial rehabilitation contrat-plan between the Central Administration and the Municipality: Signature in 1988 and beginning of implementation in 1991 of debt rescheduling agreements between the Treasury Department (Subsidiary Loans of the PDA Project) and the Directorate of Taxes (taxes generated by the urban project and the PDA Project). Signature in 1989 of a protocol of agreement concerning the settlement of JIRAMA's invoices between the latter and the Municipality: settlement by the Government of all arrears dated prior to December 31, 1987, settlement of 1990 invoices by the Municipality, with a delay equivalent to three months of invoicing, resolution under preparation for the settlement of 1989 invoices by offsetting the respective debts of the Government and the Municipality, in accordance with the findings of an ad hoc commission (Ministry of Finance, Industry and Public Works) responsible for studying the legal dispute concerning the compensation of the Municipality of Antananarivo, following the nationalization of this company in 1979. ii - Updating in 1990 of taxes on market places in addition to the provisions contained in the Credit Agreement (+ 140 percent), coupled with the reorganization of collection methods and the redistribution of retail spaces (eviction of illicit street vendors). iii - Updating in 1990 of municipal sector revenues (in accordance with project recommendations), particularly, the increase in the monthly rent payable on sales booths at the Analakely market from FMg 7,500 to FMg 30,000. iv - Updating of tax bases on land and constructed property (property census in 1987 and 1990) and the tax rates. Provision of data processing equipment to the Directorate of Taxes in order to speed up assessments. v - Establishment of a Financial Directorate at the Municipality level and then a reorganization of this office and its management methods by introducing an internal audit system. vi - Freeze on the staff recruitment to replace members of staff who retire. Nevertheless, this measure does not concern senior management staff.  - 14 - vii - Establishment of a unit attached to the Maine to provide support to the services, study development prospects and provide programming and monitoring services (CARPS) and thereby implement project recommendations concerning the need to form a commission to program and monitor municipal activities. The overall result (particularly since 1990) is that the new municipal team has been able to program, into the 1991 budget, compliance with various financial agreements among the Mairie's priorities (particularly payment of installments due under the 'urban project" subsidiary loan). a.2 Rehabilitation of municipal technical services i - Reorganization of Direction de Developpement Urbain (DDUE - Directorate of Urban Development) within the Mairie The following activities were achieved under the project: the provision of permanent technical assistance by the project (two years, starting in 1986), training courses abroad for municipal engineers at Mainies in France (total immersion method), the production of a reorganization program for the Directorate that could be implemented immediately. Some roadblocks (blocages) were encountered in the ranks, however, during the implementation of this component. A certain number of the reorganization measures recommended were, in fact, not put into effect. ii - Reorganization of the "equipment maintenance" service and provision of equipment: Problems relating to the physical distribution of the workshops and the supply system still remain. The equipment management methods recommended by the permanent technical assistance (two years, starting in 1987) were not assimilated. The lower-echelon staff (laborers, mechanics and other supervisory staff) were, on the other hand, very receptive to the training they received either on the job or at specialized local agencies. Similarly, the equipment renewaVupgrading program was carried out relatively smoothly. a.3 Rehabilitation of the Isotry Anatihazo neighborhood. The rehabilitation works were carried out in step with the progress made in the area of municipal finances. It had, in fact, seemed a good time to encourage the Municipality to go ahead with implementing the financial rehabilitation measures in order to provide the means for project cost recovery. This step resulted in a reduction in the amount of works to be carried out, with the elimination of the sewerage system component. The various delays in the start-up date of the works (tied to the actual progress made in implementing the financial rehabilitation measures and further delayed by the cancellation of the invitations to tender, followed by their reissue, based on revised  - 15 - technical specifications) resulted in the total costs being caught up by the effects of inflation, which thus canceled out the savings aimed for in the reduction of the initial works program. In technical terms, the operational objectives were achieved: the storm water drainage system (open channels, buried gutters, pumping basin, pumping station) and the tertiary road system (whether suitable for vehicular traffic or not) were completed. Failure to build a main sewer has left behind the problem of sewage disposal and misunderstanding on the part of the residents. The latter use the "storm water" channels (illegal connections), already causing obstructions in the system, which was not built for this type of use and puts an excessive strain on the water in the pumping basin. There is therefore a constant risk that the pumping station will suffer deterioration unless the Municipality commits to a continuous maintenance and cleaning program of the gutters and the basin. a.4 Improvement of urban traffic and mass transit Five intersections were rehabilitated (road resurfacing) and three of these equipped with traffic lights. In addition, in the center of Isotry two bus shelters were built and the "storm water" gutters were cleaned and rehabilitated. A second tranche of similar works are currently in progress in the same area and will be completed by early 1991. The Traffic Management Bureau (a specialized unit within the Project Management Unit) was commissioned by the Mauie to prepare a bus terminal reorganization plan. Implementation of this plan began in 1990 (terminal departments at the entrances to the central zones of the city, thus relieving traffic congestion along the main artery of the Avenue de l'Inddpendence, one of the of main generators of traffic). a.5 Rehabilitation of the Isotry Market In accordance with the program planned, the work carried out focused on the booths used by butchers and other traders, the platforms, food stands and part of the grain warehouse. Here, too, regular maintenance of the premises will only be effective provided that the users ensure the appropriate maintenance of the equipment. a.6 Rehabilitation of certain streets in Antananarivo (1992) During the second half of 1992 it was possible to rehabilitate almost 7 km of roads in the city of Antananarivo, using the remainder of the Credit. The stretches of road selected were in various neighborhoods where the deterioration was advanced  - 16 - and where the traffic is always as heavy as everywhere else: Lac de Behoririka, descent to the Route des Hydrocarbures (Hydrocarbon Road), a portion of the Circular Road, South exit from the city toward the Route Digue (Embankment Road). b. Municipality of Toamasina b.1 Financial rehabilitation of municipal management i- Implementation of a contrat-plan for financial rehabilitation between the Mairie of Toamasina and the Central Government. Launched in 1988, this plan produced very encouraging results once the terms of the agreement were accepted by the local authorities. The first signs of recovery were seen in the 1988 administrative accounts, which showed a budgetary surplus in the order of FMg 400 million on an original budget in the order of FMg 600 million. This trend was maintained and led to a threefold increase in the original budget by the end of three years of using the rehabilitation measures. The first consequences were seen in the investment budget, which enabled the Municipality to rehabilitate the main roads of the city. The excessive payroll of the local government was cut from 400 to 180 people, thanks to a plan not to renew short-term contracts and because of the retirement of some staff (result: drop in salary costs). Relationship with JIRAMA have more or less normalized, based on a contract for the settlement of arrears (appropriately executed). There is no longer any delay in the payment of current invoices thanks to a method of establishing invoices calculated in consultation with the two parties and the installation of standpipe meters (managed by the grassroots communities themselves). The Mairie of Toamasina makes regular payments on the due dates pertaining to the various finance agreements entered into with the Treasury Department (subsidiary loan agreement under the urban project): Agreement for the consolidation of arrears on social security contributions; Agreement for the staggered payment of the taxe unique des transactions (TUT - standard transaction tax) incurred by the urban project. Similarly, any invoices not paid to private suppliers have now been paid in full.  - 17 - ii - Improvement in municipal revenues Two property tax censuses were carried out (1987 and 1990). Efforts are currently focusing on recovery performance, which leaves room for improvement in the poorest neighborhoods. The new taxes on contracts and the tax on water have been in force since 1989. The negotiations entered into by the Ministry of Finance have, to some extent, improved the regularity of transfers (refunds). iii - The financial service The improvement of working methods, the recruitment of new professional staff, the conduct of an organizational audit of the service were all useful achievements, but proved insufficient. The management structure remains rather fragile because of the shortage of professional staff capable of doing anything more than simple accounting. Efficient utilization of municipal resources requires, in the short-term, the establishment of a programming and monitoring service. iv - Reorganization and equipping of technical municipal services The project has enabled the city to appropriately equip itself with household trash collection equipment, equipment for emptying septic tanks, equipment for quick repair of roads and gutters, and also to install maintenance equipment in the renovated municipal repair shops. The technical service obtained, on a short-lived basis, the services of a civil engineer. The unsuccessful conclusion of procedures for the permanent hiring of this valuable professional raises, in light of his departure, the question of how this situation can be corrected. The main procedure will require the authorities responsible to agree to a restructuring of the organization chart of the Maire and to the institution of salaries that are more attractive to candidates of this level. v - Rehabilitation of neighborhoods Despite the fears triggered by the fact that this was a pilot civil engineering project and by the weakness of the "installation," the project operations went smoothly and were completed on time. The "pedagogic' approach adopted in Antananarivo received no negative reactions from the local authorities of Toamasina. The implementation of the contrat- plan without any major problem facilitated the execution of the physical operations of the project.  - 18 - Here, too, the risk of the lack of maintenance of the new infrastructure is a real one. The solution to this problem lies in the capability of the technical staff (nonexistent as of today) to schedule the maintenance work, issue bidding invitations for it in accordance with appropriate procedures and to monitor it, in the capacity of contracting authority. This is a responsibility that no technician currently employed by the Mairie is able to assume. vi - Establishment of a health center (or urban community clinic) The building of this center provided an opportunity to test the "small contractor assistance" component of the project. The results observed at the start of the works revealed the very poor technical standard and site management skills of these subcontractors. Similar, in legal terms, to a small enterprise, the subcontractor used for the construction of the center had to relinquish its contract because of its totally inadequate performance. A new invitation to bid was issued in order to hire a competent and reputable contractor. The conversion of the existing building then went smoothly and was completed in a highly satisfactory manner. The Center has been in operation (with adequate staff and budget) since 1990. C. CENAM (Centre National de I'Artisanat Malgache) The employment generation program for poor and middle-income residents is currently 70 percent completed. This program initially aimed to promote artisans in the construction materials and tools sector (metal-working, wood-working and earthenware production). The technical, financial and economic studies did not guarantee the maintenance of the "artisan" level of such enterprises. Similarly, the political-economic circumstances of the country favour more the promotion of small and medium- scale industry. It was thus decided to maintain and execute three wood-working, metal working/tool-making and brick- and tile-making SMI units. The first two units (wood and metal) are now in operation and the results for the start-up year (1990) look promising. The third unit (brick- and tile-making) is not yet in operation because it was not possible to complete the furnace in time. CENAM's experience with this type of activity is undocumented. The establishment of a special division within this agency marks the beginning of some direction of these activities within the SMI promotion sector. Real-life experience with this project, however, demonstrates the need to upgrade the skill level in this Center, since its current staff are still unable to properly handle the administrative,  - 19 - technical and financial management of this type of project. The low salary level also precludes the hiring of high-caliber staff. d. Soci6t6 d'Equipement Immobilier de Madagascar (SEIMAD) was involved in the project in several capacities: organizational audit of its services (see section on the PMU), contracting authority in charge of the rehabilitation of the neighborhoods, executing agency of the "housing loans" and "small contractor assistance' components of the project. The activities of the small contractor assistance component involved the various civil construction works. The forms for inviting small contractors to bid were various in nature: direct invitations to bid (Health Center), subcontracting through more experienced enterprises (road maintenance and drainage in Isotry Anatihazo and Isotry Center). The appropriations made to this component were therefore used, in practice, depending on the individual case, to pay for trainer fees (SEIMAD in Toamasina) or to honor the discounts of enterprises that held contracts and that subcontracted some of the works (Isotry). In accounting terms, however, only those items directly related to the works under consideration were mobilized. The "housing loan" component had poor success among the residents, despite a publicity campaign and awareness-raising meetings conducted in the neighborhoods (Isotry) and the commitment of the Municipality to guarantee the loans (Toamasina). Some 15 small loans were issued. The main problem in Isotry seems to concern property ownership (joint ownership in most cases, and residents being reluctant to take formal steps to change the joint ownership status into sole ownership). In Toamasina, borrowing is frowned upon by the population despite very favorable lending terms. e. Project management and various studies (PMU and TMB) e.1 The institutional building component of the project Thanks to the total commitment of the executing agencies to the project implementation system, it was possible to test whether or not they were capable of fully performing their role as contracting authority for the components that involved them. The traditional administrative structure of the executing agencies has not always lent itself to the specific working methods entailed in project implementation. The creation of special units within the agencies was intended to overcome this type of problem (the "employment" unit, in the case of CENAM, the "urbanization" unit, in the case of SEIMAD). In the case of the Municipalities, it was decided, in light of the organizational progress expected, to use the existing services. However, the customary working methods were not compatible with the performance expected, (rate of disbursement, role of contracting authority in general).  - 20 - The Project Management Unit primarily served as promoter and technical, administrative and financial coordinator. This was Madagascar's first experience of coordinating a project in the urban sector, in which responsibility for subprogram implementation was entrusted to decentralized local authorities that were experiencing difficulties of several types (financial, equipment, human resources, organization of services, socio-political circumstances of the cities). In summary, the PMU focused its efforts on the following aspects: i - The coherent management of the components entrusted to different contracting authorities (Municipalities, SEIMAD, CENAM, Ministry) and ensuring that the implementation of all the components was consistent with the original objectives of the project. This coordination function was performed primarily by distributing information among the partners, issuing opinions (whenever necessary) on the technical files prepared by the contracting authorities, and by the operation of technical controls through the permanent technical assistance provided by PMU. i - The operation of accounting and financial management grouped by the different components in the form of consolidated balance sheets on the operations in relation to the estimates of the Credit Agreement. ini - The monitoring of the setting in place of credits through "certifications" drawn up for all disbursement requests made by the contracting authorities. iv - Ensuring the replicability of the project by submitting new programs and presenting a sustainable system of rolling over funds recovered from operations carried out. The coordination function is thus rather broad in scope and is performed horizontally, in the case of all spatially distributed components, and vertically, from the study phase through to the implementation of the system for recovering the funds invested and including project execution along the way. At the start-up of the project, the ambiguity caused by the extremely unclear by-laws of the PMU, which was "set up within the Ministry of Public Works" but was missing from this Ministry's organization chart, meant that its activities did not conform to usual practices. As a matter of fact, the Director of the PMU is, in actual fact, neither the head of a service nor of a directorate in the administrative sense of the term. The PMU is not an administrative unit but a "complex operation" similar to a "Mission." Its interministerial role makes it crucial that its responsibilities be more clearly defined. During project implementation, its main concern was to "protect" the project by ensuring that it proceeded normally. As works on the project advanced, ideas  - 21 - matured and a clearer understanding developed in the individual government agencies as to the scope of the actions involved in such a complex project, and as to the coordination required in relation to the PMU, which paved the way for a renewal of institutional dialogue. A Comite National Technique du DAveloppement Urbain (CTNDU) was thus established in 1987 under the chairmanship of the Prime Minister and with representatives from the government agencies involved in the Urban Project, in particular, and in the urban sector, in general (Ministries of Public Works, Finance, the Plan, Internal Affairs, Industry and Transport and the Ministry responsible for land ownership). This body was put to work in examining the most complex project documents, which called for extensive consultation: - Law case between JIRAMA and Municipality of Antananarivo - Proposed final by-laws of the PMU - Fonds d'Infrastructure pour Habitat Urban (FIHU - Urban Housing Infrastructure Fund) - Proposed revision of land ownership legislation in urban areas. f. Technical Assistance to executing agencies and to the project in general This activity, which was carried out by the PMU, was, for several reasons, one of the mainstays of project implementation. First, because many exploratory studies, construction plans, institution reorganization plans and proposals concerning institutions were carried out within the framework of Technical Assistance. Then, because the introduction of institution rehabilitation measures and measures for the close monitoring of the project's progress called for a permanent presence within the executing agencies, which was not always immediately accepted (Fivondronana Antananarivo), or because it was important not to attempt to take the place of existing services. This technical assistance was launched in 1985 and is scheduled to come to an end in 1991, i.e. the original date for project completion. Specialists in several areas were mobilized: Administrator, Civil Engineer, Municipal Engineers, Financiers (public finance), Architects, Urban Planners, Economists, Expert Mechanics, Tax Specialist, Industrial Engineers, experts specializing in the production of wooden, metal and earthenware products. g. Financial management and gublic contracts and disbursement mechanisms i - The PMU gained valuable experience from the management and mobilization of the IDA credit, and from working with local counterpart staff from different backgrounds (Treasury Department and Ministry of Public Works).  - 22 - A special effort was made to speed up the mobilization of funds, their deposit in special accounts, cash flow management, and the monitoring of payments in the currencies requested by the payees. It will be noted that the matter conceming the payment of taxes by the people of Fivondronana was settled by the signing of an agreement to deferred payment between the Treasury Department and the Municipalities. In the practical case of disbursement procedures, the work was made somewhat harder, however, by the need to have the payees systematically produce an "attestation de destination" (certificate of purpose) to prove that the undertaken activities undertaken were part of the project. The most significant difficulties encountered concerned the management of the special foreign currency account, due to the weak information system on the real time monitoring of this account. A special account called a "first generation" account, opened at the Banque Central Malgache (BCRM) was used at the start of the project for some of the financing of certain project operations. This special account was subsequently converted into a "second generation" account at a primary bank in Paris. The PMU had some difficulties in monitoring the movement of this account (delay in the transmission of account statements, which systematically affected the speed of disbursements and the replenishment of the special account). In addition, the administrative channels typical of this type of multisectoral project, using several executing agencies, are particularly complex but essential nonetheless. For example, an invoice (bill) is first checked by the appointed works supervisor, then passed on to the contracting authority for preparation of the disbursement file and recording in the accounting documents of the executing agency. It is then submitted to the PMU to be certified and entered into the accounts and then sent to the Treasury Department for forwarding, together with a payment order, to BCRM. At this point in the routing, BCRM contacts the primary bank of the interested party to arrange for the latter's account to be credited (Government counterpart payment) or notifies the foreign bank to cover the expenditure in foreign exchange from the special account. In the case of payments by direct drawdown, the Treasury Department directly forwards a request for payment to the World Bank. ii - The management of contracts for supplies and services has always required a special procedure. The requirement to strictly respect the hierarchical structure of the supervisory Ministry (despite the absence of the PMU in the organization chart of the Ministry of Public Works), the multiplicity of supervisory and consultative services and authorities, decision- making authorities at both the national level and the individual donor level (a priori financial supervision, Commission Centrale des March&s, IDA Departments, the Treasury Department, the External Finance Service, the contracting authorities, etc.) is indicative of the obligations involved and also the unwieldiness and complexity of procedures.  - 23 - The problems usually encountered have made it particularly difficult to obtain a consensus of opinion among the various agencies and services referred to above. The consequences always impact on the time it takes to start up the subprogram under consideration and on the overall period of execution. Sometimes it takes so long that price revisions are needed, which inevitably have a detrimental effect on appropriations earmarked, particularly where local counterpart funds are concerned. 4. SPECIAL CIRCUMSTANCES FROM MID-1991 ONWARDS Everyone is aware of what took place in Madagascar, starting in mid-1991, when the so-called transitional regime came into being, which then gave way, in October 1991, to the regime which was to last until August 1993, following various elections, and which led to the establishment of the new institutions of the Third Republic: new constitution, election of the President of the Republic, the election of Deputies, elections for Prime Minister and the birth of the first Government of the Third Republic. During the transitional regime the First Urban Development project of Madagascar was placed under the authority of a Consultant appointed to the Directorate of Coordination of Urban Operations (replacing the Bureau des Projets Urbains [sic] - BPU), itself a part of the new Ministry of Urban Development and Tourism. This Ministry has authority over the former DAUH (Directorate of Architecture, Urban Planning and Housing) of the Ministry of Public Works, the Antananarivo Plain Development Project, the Directorate of Tourism and hence the former PMU (BPU). All this occurred following a redeployment in 1991 of the balance remaining from Credit 1497-MAG, which included both: - the continuation of the activities of the First Urban Development Project of Madagascar, and - the preparation of the Second Urban Development of Madagascar. The 1993 budget, prepared by the Borrower in 1992, included provisions for the continuation of these two types of activities. So it was that, following the agreement of Specialist Missions, the portion available for reallocation to the repair of certain roads in Tananarive was well and truly earmarked for this purpose. In view of the favorable outcome of the bidding invitation, it would then have been possible to use some of this earmarked amount to extend the repairs to other roads, but this did not receive the Donor's approval. It was during the same year also, i.e. 1992, that the Second Urban Development Project was prepared, i.e. the preparation and issuing of the bidding invitation, the short-listing of bidders, the award of the contract, in an effort to ensure that the feasibility studies could be finalized as much as possible before the end of 1993, while it known all the time that these studies were going to take 12 months (two 6-month phases).  - 24 - And all this despite the general circumstances prevailing in the country, which could hardly be described as conducive to the smooth progress of any project. But the World Bank's decision to close Credit 1497-MAG on December 31, 1993, with the exception of certain components linked to the completion of Employment Unit No. 3, has now completely placed under a cloud of uncertainty the prospects eyed in 1992 of using the balance remaining from the Credit. With respect to the preparation of the Second Urban Development Project, the actions taken in 1992 were jeopardized by the impossibility of mobilizing the balance remaining from Credit 1497-MAG, following its closure at the end of 1992. This has resulted in the revision of the Terms of Reference, even though, after a joint supervision mission in January 1993 by the World Bank and the Caisse Frangaise de Ddveloppement (CFD), it proved possible to establish a contract agreement in February 1993 as part of a US$750,000 PPF prefinancing arrangement. This was subsequently reduced to US$300,000, which led to a second revision of the Terms of Reference. While it is true that these two Urban Development Projects are quite distinct, we would simply point out that it took two years (from June 1991 to June 1993) to identify the Second Urban Development Project, invite bids and select the consulting firm before the feasibility studies could even be really started. T'he Borrower hopes that the Second Urban Development Project will not suffer from the same extremely long preparation delays as the first one. With respect to the implementation of the first project, however, the period running from mid-1991 until the closing of the Credit at the end of 1992 should be regarded as quite separate from the preceding period from the start of the project. As mentioned earlier, given the fact that the country's circumstances are in a state of flux, it has not even been possible to maintain the gains made earlier, such as the progress achieved by the Fivondronana of Toamasina in terms of the rehabilitation of local finances and recognized by previous supervision missions. The project did prove, however, that such progress and rehabilitation were feasible, thanks to the determined efforts displayed by the authorities of the city of Toamasina before the end of 1991. With reference to the period prior to mid 1991, the first point to mention is, as always, the inadequate disbursements, which resulted in there being an unused balance, which had to be redeployed in 1991. During this period, the World Bank's decisions on the undertaking of physical rehabilitation activities were always subject to proof that improvements had been made in the area of local finances and particularly in the city of Antananarivo. This translated into delays in bidding procedures and the downsizing of the technical work (elimination of the sewerage system in Anatihazo-Isotry). At the purely technical level this actually resulted in the communities being prompted to use the only storm water drainage system built for the disposal of household waste water and sewage, which was contrary to what had been planned in the feasibility study and hardly acceptable in technical terms.  - 25 - In financial terms, the delays in the bidding procedures canceled out any savings that might have been expected from the downsizing of the technical work because of increased costs. It would have been preferable to have first carried out all the technical work, which would have brought about improvements in: the service and size of the systems accessible to the people; the cost of the works. This would have had a much greater impact on the health status of the rehabilitated neighborhoods and their residents, which is, after all, the main objective of a project of this type. The savings in time thus achieved would also have provided more opportunity to give the people a greater understanding of the cost recovery measures adopted. It might have also significantly reduced the unused balance as at the closing date of the project. On the other hand, another point to be made is the fact that the final cost of the Technical Assistance component proved much higher than originally estimated. The thing is that the World Bank has always shown great latitude where this component is concerned, unlike its approach to the rehabilitation works component. The Borrower would have preferred the contrary to have been the case, since the portion of the credit used would have thus amounted to a greater achievement in concrete, perceptible terms, and would have consequently been better accepted by the people.  - 26 - PART THREE: STATISTICAL INFORMATION 1. Related IDA credits Credit Purpose Approval Status Credit 1002-MAG: To improve water and 04/01/80 Closed on Antananarivo Water sanitation in 06/30/86 and Sanitation Antananarivo Project Credit 2117-MAG To protect suburbs of 03/29/90 On-going Antananarivo Plain Antananarivo against Development Project flooding and rehabilitate drainage and sewerage systems _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __--- - - Credit 1526-1-MAG To rehabilitate and 08/05/86 Closed on Cyclone Project II repair infrastructure 06/30/89 damaged by Cyclone Honorinina in Toamasina ----------------------------------------------------------------__-----------_ 2. ProJect timetable Planned date Revised date Actual date Identification 09/77-11/78 Preparation 04/79-02/82 Pre-appraisal 02/82-12/82 Appraisal 06/83 06/83 Negotiations 01/09/84 04/16/84 Board approval 03/13/84 06/12/84 Credit signature 07/03/84 Credit effectiveness 10/03/84 02/22/85 Credit closing 12/31/91 06/30/93 Project completion 06/30/90 06/30/93  - 27 - 3. Credit Disbursements Cumulative Estimated and Actual Disbursements (in millions of dollars) WB Fiscal Year SAR Estimates Actual % Disbursed Africa and Quarter Profile 1985 Sept. 30, 1984 Dec. 31, 1984 0.70 March 31, 1985 0.95 0.62 4.80 June 30, 1985 1.20 0.70 5.40 0.77 1986 Sept. 30, 1985 1.54 0.70 5.40 1.03 Dec. 31, 1985 1.89 0.74 5.78 1.28 March 31, 1986 2.24 1.31 10.23 1.53 June 30, 1986 2.59 1.52 11.87 1.79 1987 Sept. 30, 1986 3.17 1.62 12.65 2.04 Dec. 31, 1986 3.76 1.68 13.12 2.30 March 31, 1987 4.40 1.94 15.15 2.81 June 30, 1987 5.04 2.57 20.07 3.32 1988 Sept. 30, 1987 5.70 2.82 22.03 3.83 Dec. 31, 1987 6.36 3.14 24.53 4.35 March 31, 1988 6.99 3.89 30.39 5.11 June 30, 1988 7.62 4.68 36.56 5.88 1989 Sept. 30, 1988 8.20 5.36 41.87 6.39 Dec. 31, 1988 8.79 5.93 46.32 6.91 March 31, 1989 9.31 6.76 52.81 7.67 June 30, 1989 9.84 8.31 64.92 8.44 1990 Sept. 30, 1989 10.28 8.43 65.80 8.95 Dec. 31, 1989 10.73 9.40 73.43 9.47 March 31, 1990 11.09 9.46 73.90 9.98 June 30, 1990 11.45 9.66 75.46 10.49 1991 Sept. 30, 1990 11.73 9.88 77.18 11.00 Dec. 31, 1990 12.02 9.90 77.34 11.52 March 31, 1991 12.22 10.65 83.20 12.03 June 30, 1991 12.43 11.23 87.73 12.54  - 28 - 1992 Sept. 30, 1991 12.61 11.23 87.73 12.67 Dec. 31, 1991 12.80 11.47 89.60 12.80 March 31, 1992 11.47 89.60 June 30, 1992 11.51 89.92 1993 Sept. 30, 1992 11.92 93.12 Dec. 31, 1992 12.68 99.06 March 31, 1993 12.97 101.30 June 30, 1993 12.98 101.40 1994 Sept. 30, 1993 us s Minin Apprisa Actual Africa Profile 14 -- - -- 12 - 10 . ....... 8 2 1 5 9 1 3 17 21 25 29 33 Quarten 1985 1986 1987 1988 1989 1990 1991 1992 1993  - 29 - 4. Project Implementation ---------------------- A: IMPLEMENTATION SCHEDULE YEARS 1984! 1985 1986! 1987 1988 1989 1990! 1991 ! 1992 !1993 !LEGEND: A.ANTANKNARIVO ! ! ! ! ! lAppraisal --------------1. ISOTRY ! ! ! ! ! ! ! !Estimate Market -- ...... - Preparation ! ! , ,,, I,,,,tttt ! !*. ! ! ! ! Roads, Drainage !.. . - - -......... ! ! ! 1 Construction Water Supply ... --- ..... ! - !.. ! ! ! ! !,,,,,,!tttttt! ! ! Actual Public Lighting ... --! --- .... ! ! ! ! Preparation ! ! ! *,,,,,!,,,,,!tttt,t ! ! ! Housing Loans ! ! ! ---- --------! !Construction 2. TRAFFIC ! ! Isotry Center ! ! .----! ! ! ! ! ! ! ! ! !,,,,,,*,,,,,,r*,t*it ! !,,,t!tt ! ! Five Intersections! ! .----!--- B. TOAlASINA ! ! ! ! ! ! ! ! ! ! ------------ Roads and Drainage! . . . ------------ ! ,,,,,,I, *u**!**..*.I*...*.I ! ! ! ! Water Supply !............ - ! ! Public Lighting .------ .......... ! ,,,,,,I,,,,,,I,,,,,ttItttttt!t ! ! ! !1 Ankirihiry Health ...... --- ! ! ! Center ! I,,,,,,I,,,,,,I,,,,,,l,,,.I* I ! ! ! C. EMPLOYMENT PRODUCTION UNITS ! ! ! ! ! ! ! ! ! ! ------------------------------! ! ! ! ! ! ! ! ! ! ! Civil Works !.-!--- ! ! ! ! ! ! Equipsent ! ! ---!---------