Morocco - First Municipal Finance Project

Report No: 19938 Document of The World Bank FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT (Core ICR) ONA LOAN IN THE AMOUNT OF US$104 MILLION TO THE KINGDOM OF MOROCCO AND FONDS D'EQUIPMENT COMMUNAL (FEC) FORA FIRST MUNICIPAL FINANCE PROJECT PROJECT ID: P005517 L/C NUMBER: 36160; 36170 December 30, 1999 Inrastructure Development Group Middle East and North Africa Region This document has a restricted distribution and may be used by recipient only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Exchange Rate Effective ) Currency Unit = Moroccan Dirham (MD) At appraisal (January 1, 1993) lDH= US$ 0.12 US$ I = 8.50 DH At closing date ( June 30, 1999) 1DH =US$0.10 US$1=9.98 DH FISCAL YEAR January 1 to December 31 Note that the Government changed its FY dates three years ago to July 1 to June 30. ABBREVIATIONS AND ACRONYMS BM Banque Al-Maghrib (Central Bank) CDG Caisse de Dep6t et de Gestion (Administrator of Insurance and Pension Funds) CL Collectivites Locales (Local Authorities) FEC Fonds d'Equipment Communal (Communal Infrastructure Fund) TG Tresorerie Generale du Royaume (General Treasury of the Kingdom) ICB International Competitive Bidding LCB Local Competitive Bidding MOF Ministry of Finance MOI Ministry of Interior TDMI Training Directorate of the Ministry of Interior USAID United States Agency for International Development VAT Value Added Tax Vice President: Kemal Dervis Country Manager/Director: Christian Delvoie Sector Manager/Director: Jean-Claude Villiard Task Team Leader/Task Manager: Sonia Hammam Responsible Staff: Ekaterina Massey  FOR OFFICIAL USE ONLY FIRST MUNICIPAL FINANCE PROJECT CONTENTS Page No 1 . Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievement of Objective and Outputs 4 5. Major Factors Affecting Implementation and Outcome 9 6. Sustainability 10 7. Bank and Borrower Performance 13 8. Lessons Learned 15 9. Partner Comments 16 10. Additional Information 18 Annex 1. Key Performance Indicators/Log Frame Matrix 19 Annex 2. Project Costs and Financing 20 Annex 3. Economic Costs and Benefits 22 Annex 4. Bank Inputs 23 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 25 Annex 6. Ratings of Bank and Borrower Performance 26 Annex 7. List of Supporting Documents 27 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.   Project ID: P005517 Project Name: MUNICIPAL FINANCE I Team Leader: Sonia Hammam TL Unit: MNSID ICR Type: Core ICR Report Date: December 29, 1999 1. Project Data Name: MUNICIPAL FINANCE I LIC Number: 36160; 36170 Country/Department: MOROCCO Region: Middle East and North Africa Region Sector/subsector. UM - Urban Management KEY DATES Original Revised/Actual PCD: 04/19/88 Effective: 11/18/93 Appraisal: 05/21/93 MTR: Approval: 06/10/93 Closing: 06/30/99 06/30/99 Borrower/lImplementingAgency. GOV.OF MOROCCO/FEC/MIN. INTERIOR/FEC Other Partners: STAFF Current At Appraisal Vice President: Kemal Dervis Caio Koch-Weser Country Manager: Christian Delvoie Harinder Kohli Sector Manager: Jean-Claude Villiard Amir Al-Khafaji Team Leader at ICR: Sonia Hammam Julio Linares ICR Primary Author: Ekaterina Massey 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: L Institutional Development SU Impact: Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: As stated in SAR, the project objectives were to: (a) enhance the quality of communal infrastructure projects mainly by, first restructuring Fonds d'Equipment Communal (FEC), including the introduction of consistent economic, financial, and technical criteria for project selection, and, second upgrading the institutional capacity of local governments;  (b) improve the procedures and criteria for allocating the local share of the value-added tax (VAT) among local governments and lay the basis for further improving local intergovernmental finance; (c) expand and rehabilitate urban and rural communal infrastructure and related services throughout the country; (d) improve financial discipline of local governments so that in the long run they may be able to borrow from commercial banks; and (e) improve management systems in the local sector. The development objectives were realistic and well timed. The project addressed what was seen as the most critical concern in local finance, namely the inefficiency of local investment decisions. This inefficiency was encouraged by a combination of. (a) the distribution of half of the VAT proceeds on the basis of forecasted deficits that included debt repayment; and (b) the lack of incentives for FEC to concern itself with municipal capacity to repay debt out of their own funds, given that communes were guaranteed an operating subsidy out of VAT to cover debt service. Breaking this vicious cycle by putting in place a rational system of incentives for local communes to save and invest responsibly, was a clear prerequisite for any further reform in the municipal sector. Thus, the restructuring of FEC to improve its lending criteria and reforming of theVAT distribution system were essential conditions for enhancing the quality of infrastructure investment projects, encouraging greater financial discipline and reforming the local finance system. It was understood from the very beginning that this process of reform would be an ambitious undertaking, which would require sustained effort for many years. The political risks were high and sustained effort was made to minimize them. In order to consistently pursue the VAT reform agenda, the Government had to commit itself to striking a balance between using this valued resource for its macroeconomic policy objectives, and providing the local sector with reasonable means to finance investments in the wake of rapid urbanization and relatively low service coverage levels. Intensive dialogue on sector issues, initiated at the project preparation stage, was continued throughout project implementation and reinforced Government's resolve to carry through and maintain the reform of the distribution of the local share of the VAT, and reinforcement of FEC institutional capacity. 3.2 Revised Objective: NA 3.3 Original Components: To achieve the challenging development objectives stated above, the project originally included the following components: (1) Funding for local investments in roads, water and sewerage, solid waste, and productive and recreational facilities (US$176.5 million - 96.8 percent of total project cost). FEC was expected to make subloans to local governments for about 250 subprojects; (2) Technical assistance, training, and equipment to improve FEC's institutional capabilities, (US$0.8 million-0.4 percent of total project costs); (3) Training for local governments' staff, including the construction of a training center, training of -2 -  trainers, and related consultant services (US$2.3 million - 1.3 percent of total project costs); and (4) Technical assistance, training and equipment to improve intergovemmental finance, and the central government management systems related to the local sector (US$2.7 million- 1.5 percent of total project cost). At the time of appraisal, a pipeline of potentially eligible projects was identified. This mitigated the risk of slow project execution that could have been easily caused by the limited project preparation capacity of the local governments and lack of experience on the part of FEC in applying consistent borrower and project eligibility criteria. Training and technical assistance for FEC and local governments were expected to reduce this risk in the long run. While the assistance to FEC was well designed from the outset, and the vision of the new FEC was fully shared by the Bank and the Government, the training and technical assistance components for local governments and intergovernmental management were too broadly designed, causing delays in the agreement on specific measures and terms of reference for implementation, and eventually had to be cancelled (US$4 million). Although the Government has not used loan funds allocated to training and technical assistance, the Ministry of Interior has carried out a substantial training program of municipal staff (most notably in 1995), based on project preparation work, but using tax resources. During supervision, it was agreed that such a program, by and large, meets the requirements of the training component. There were also training programs and technical assistance carried out by other donors (KfW, USAID). 3.3 Revised Components: The first two components were retained. The training and technical assistance components for local and central governments were cancelled with the cancellation of the loan to the GOM. Rating Component Category Cost S MUNICIPAL SUB-PROJECT FUNDING Physical 176,500,000.00 S INSTITUTIONAL IMPROVEMENT OF FEC Institution-building 800,000.00 NR TRAINING FOR LOCAL GOVERNMENTS Institution-building 0.00 NR INSTITUTIONAL IMPROVEMENT OF CENTRAL Institution-building 0.00 GOVERNMENT UNITS 3.4 Quality at Entry: The Quality at Entry at the ICR stage is rated as satisfactory. The project design was consistent with the main CAS priorities, as discussed at the Board in February 1993, and aimed to: (1) enhance the efficiency of public sector management through the reform of FEC and VAT distribution; (2) consolidate and deepen macroeconomic adjustment through improved local sector performance; and (3) alleviate poverty and improve social indicators through improved coverage and quality of essential services. The project built on a large body of country and sector work and knowledge: a pilot project for FEC (Loan 2272-MOR) for US$16 million, completed in 1989, and a sector report on local finance, completed in 1990. The latter report (No. 8782-MOR) and follow-up reports during project preparation, established a clear framework for dialogue between the Bank and Government of Morocco, on local and - 3 -  intergovernmental finance issues in Morocco and reinforced the reform of the VAT distribution system. A Bank report "Issues and Prospects in the Public Sector" (No.10157-MOR), emphasized that public investment had been increasingly decentralized from the Central Government in the course of Morocco's stabilization after the balance of payrnents crisis in 1983. Public savings, however, had not risen commensurately outside of the Central Government. The report concluded that the existing VAT allocation system had been an important element in preventing better savings performance by the local governments. Therefore, the Bank strategy for Morocco placed high priority on upgrading the local sector as part of its overall macroeconomic policy dialogue. FEC's Policy Statement established in 1992, was consistent with Government policies, which had been agreed to under the Bank-assisted Financial Sector Development project. Until December 1991, FEC was a government agency responsible for appraising communal investment projects and channeling fiscal resources to them under the management of the Caisse de Dep6t et de Gestion (CDG), and the general supervision of Ministry of Interior (Mol) and Ministry of Finance (MoF). FEC was restructured in 1992, and operated with the autonomy of a publicly-owned specialized, financial institution. A large pipeline of potential projects complying with new eligibility criteria was quickly identified, and major Bank safeguard policies were applied: the eligible subprojects were to be environmentally sound and no sub-projects involving involuntary resettlement were to be eligible for Bank financing. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The main development objectives have been met satisfactorily. 1. A restructured FEC has improved the quality of local investments and increasedfinancial discipline at the local level The quality of local investment was expected to improve through, first, a restructuring of FEC and second, upgrading of institutional capacity of local governments. Despite the cancellation of the training and technical assistance component, aimed at directly upgrading local institutional capacity, the restructuring of FEC operational procedures and application of consistent eligibility criteria for both borrowers and projects, has impacted on the quality of projects. Bank reviews of project proposals, evaluation and completion reports during supervision missions, and on an ongoing basis, have found steady improvements in the quality of report analysis and project proposals which conform to FEC's sound lending criteria. Municipalities are now more careful in selecting projects to be financed by loans, since they are faced with the full cost of borrowing and have to demonstrate financial discipline to remain eligible for FEC financing of their investments. Current estimates indicate that, overall, there is improved debt-carrying capacity. Previously, municipalities often used debt to fnance marginal projects, and FEC was lax in approving such projects since it was guaranteed repayment. However, municipalities are now far more prudent in seeking credit because they are finally aware of the costs, recognize that projects must meet FEC's criteria, and face a hard budget constraint. The reforms have induced greater financial discipline and eliminated the "soft" credit culture that had pervaded municipal investment decisions. These improvements are being taken into consideration in the current efforts to reform the municipal charter, which will provide municipalities with the ability to seek financing from the banking sector. -4 -  A critical element in achieving this objective was the adoption and application of the FEC Policy Statement of 1992, which set out operational procedures and introduced objective economic, financial, and technical criteria for project selection, for the first time. These included: (a) eligibility criteria, among which the most important is a requirement for eligible municipalities to have debt service/ordinary resources ratio of no more than 0.40 (for regies a ratio of operating costs to operating revenues of 0.70); and a requirement that gradually increased municipal contribution to project costs out of own resources from 10 percent in 1996 to 15 percent in 1997 and to 20 percent by 1998 - thereby increasing municipal ownership and commitment to projects financed by FEC; (b) operational guidelines, requiring projects to meet technical and financial criteria and FEC to provide technical assistance and carry out site visits during appraisal, supervision and post-evaluation and to allocate its resources on a demand-driven basis; and (c) reinforcement of FEC 'sfinancial viability, through sound policies and protection of its equity. Overall, FEC has demonstrated a solid performance and has complied with its financial requirements. FEC has transformed itself from essentially a cash window with some technical expertise, as a department of CDG with no autonomy, accountability and institutional policy of its own, into a municipal bank with a constantly improving management and accounting system, qualified staff, operating within a stringent investment financing policy framework. FEC loans have been sustained at an average of 22 percent of annual local investments in infrastructure. However, the difference is that this amount of borrowing, after the VAT reforms, reflects local capacity to assume debt out of own resources. Overall, FEC has clearly been able to lend throughout the country and to even serve the smaller rural municipalities, notwithstanding the small size of their projects and their limited debt service capacity. Projects financed by FEC are predominantly in rural (45.8 percent) and urban (42.6 percent) municipalities. However, the bulk of the resources flow to urban municipalities (including mid-size localities), reflecting their greater investment and debt service capacity. Overall, FEC commitments were anticipated to be about an average of US$115 million p.a., at appraisal. For the most part, it has been able to reach that target throughout the life of the project. At appraisal, it was also assumed that FEC loan targets would "grow approximately with GDP and inflation." However, FEC loans have grown in nominal, but not in real terms due to the slowdown in the economy, the time required for it to test its procedures and for local governments to adapt to assuming responsibility for managing their resources in the wake of the reform of the VAT transfers. FEC lending by type of borrower ( projects) 1992 1993 1994 1995 1996 1997 1998 Urban 29.6% 6.0% 44.2% 55.3% 48.2% 43.1% 42.6% Rural 56.8% 90.8% 53.3% 43.8% 43.4% 48.8% 45.8% Metropolitan Area 8.6% 2.1% 0.8% 1.0% 5.4% 5.0% 8.4% R(gies 4.9% 1.1% 1.7% 0.0% 1.2% 0.0% 1.9% Other 0.0% 0.0% 0.0% 0.0% 1.8% 3.1% 1.3% Total 100% 100% 100% 100% 100% 100% 100% - 5-  2. Distribution of the local share of the value-added tax (VAT) among local governments has been rationalized. The. procedures and criteria of allocating the local share of the VAT (30 percent of total VAT proceeds) among local governments have been radically improved as a result of the reform of 1996 (one year later than originally planned). Prior to the reforms, about half of the allocation of the VAT due to municipalities was to cover operational deficits and most of the share intended for investments was allocated for centrally determined investments. Currently, seventy percent of the local share of the VAT is being distributed in accordance with objective criteria in a single transfer, thus fulfilling the second main objective of the project and providing municipalities with a predictable resource to use for locally determined investments. VAT resources currently account for about 17 percent of the local investmnent budgets. The current system has replaced discretionary capital transfers and current transfers based on the estimated current budget deficits of each local government. Though it is still too early to draw conclusions about the impact of the reform, the following important effects can be identified at this stage: (1) Change of incentives. The new system has improvedfinancial discipline by removing the incentives to underestimate revenues and overestimate expenditures and to use debt for marginal projects. These practices were pervasive under the previous distribution system based on forecast municipal budget deficits that included debt service. Fiscal effort enters into the formula and encourages collection of taxes and, in principle, should increase reliance on own resources. (2) Increase in predictability and amount of resources. The reform has increased the predictability of local government revenues and eliminated the ex-post budgetary subsidy (subvention d'equilibre), thus finally making true capital budgeting and programming possible. According to data provided by the Ministry of Interior, 80 percent of municipalities now realize savings, while before the reform, only 20 percent did. If in the year of the reform 70 percent of the local governments saw their VAT resources double, in 1998/99 already, 90 percent of local governments experienced such an increase, while rural communities have benefited slightly more. 4.2 Outputs by components: Local Investments The project was supposed to finance around 250 local infrastructure projects with the total estimated cost of US$176.5 million. The total number of projects selected for Bank financing was 254 with the total FEC loans at appraisal of US$186 million (at 8.96DH/$). However, 16 of the projects were later disqualified due to inadequate local procurement arrangements. In the end, Bank financing was retained for 238 sub-projects, with the total appraised FEC loan amount of US$176.9 million. Total cost of the sub-projects at appraisal, as reported by FEC, amounted to US$212 million. Thus, FEC has financed 88 percent of the total project costs estimated at appraisal. The data for total actual cost of sub-projects has been reported, but it is incomplete and amounts to US$120.9 million, which is reflected in annex 2. In the preparation of this ICR, the mission attempted to obtain the final cost of the sub-projects from FEC, but was unable to do so. At the early stages of becoming a financial intermediary, this municipal bank has not had a monitoring system put in place that would track the actual developments on the ground on a consistent basis, after the last tranche of its credits have been disbursed. The problem has been identified by the Bank teams and is being addressed. FEC is aware of the need to know the actual costs of the projects, in order to better assess the realism of appraisal estimates and the impact of the projects on the financial health of the municipalities. The analysis below is based on loan amounts committed by FEC. - 6 -  Service Number of Projects % Bank Disbursements, DH % FEC loans, DH % SW 102 40.2% 155,941,732 17.4% 248,734,000 14.9% Commercial facilities 60 23.6% 176,223,757 19.7% 367,123,000 22.0% Roads 37 14.6% 326,705,837 36.5% 558,427,000 33.5% Public Facilities 25 9.8% 110,895,108 12.4% 262,910,000 15.8% Potable Water 12 4.7% 19,722,500 2.2% 39,735,000 2.4% Sewerage 10 3.9% 71,982,330 8.0% 133,630,000 8.0% Electrification 7 2.8% 29,234,100 3.3% 47,830,000 2.9% Buses 1 0.4% 5,320,000 0.6% 7,600,000 0.5% No Bank financing 16 6.3% 80,422,000.00 4.8% Total 254 100% 896,025,364 100% 1,665,989,000 100% Solid waste projects dominated, accounting for 40 percent of the operations, while representing only 15 percent of investments. Revenue-generating projects, like souks, wholesale markets, boutiques, and slaughterhouses represented 24 percent of projects and 22 percent of total financing. Roads, accounted for 15 percent of the operations and 34 percent of financing. Project mix reflects priority needs of local communities identified at the time of appraisal: rehabilitating and expanding urban and rural infrastructure to provide improved access and quality of life, income and employment-generation opportunities. Technical Assistance to FEC This component was implemented according to the action plan agreed at appraisal, and included: improvement in management and staffing; assistance to install an independent accounting system, based on a USAID study; and training for staff and study visits abroad, as well as ongoing improvements in the management system. 4.3 Net Present Value/Economic rate of return: According to FEC's eligibility criteria, all sub-projects approved had to show a minimum ERR of 10 percent and those of revenue-earning enterprises, a financial rate of return at least two percentage points above FEC's lending rate. In the course of the project, the economic analysis of the project was strengthened, a new directive was passed in 1997, and now selection of the least-cost solution is required to satisfy FEC's eligibility criteria. FEC also insists on cost-recovery and accounting for operation and maintenance expenditures as a minimum. The ERR for a sample of sub-projects is not recalculated at the ICR stage primarily because the data to do this is not available. Another reason is ethodological: 40 percent of operations are in solid waste removal, and have benefits that are hard to quantify, especially if such a task is expected to be performed by the municipal staff. The applicability and reliability of ERR calculations have been discussed with the borrower and with the task managers of similar projects in the Bank and it is believed that monitoring the loan repayment ability of municipalities gives a more meaningful indicator of the cost efficiency of investments. In the case of FEC, loan repayment records indicate very insignificant levels of arrears. 4.4 Financial rate of return: NA. 4.5 Institutional development impact: The institutional development impact is substantial. In fact, the project's strongest contribution is implementation of the institutional dimension of its components. - 7 -  As mentioned previously, FEC has been turned into a full-fledged bank, and the GOM agreed that it be transformed into a joint stock company. FEC has undergone major organizational changes since the start of the project. The first step was the promulgation of FEC's new organic law and the passage of the decree implementing the law in 1992. Under the new law, FEC was both a Public Establishment, subject to the control of MOF, and an entity with the status of a financial institution, subject to the supervision of the Central Bank (Banque AI-Magrib). A Board of 18 members, reporting to MOI and MOF, was created to govern FEC, and a credit committee was set up and consisted of the government officials; the Director General was appointed by the King. The annual lending program was also subject to MOI and MOF approval. Staffing of FEC was reinforced, it grew from 44 (32 professionals) at the time of appraisal to almost 90 people. At appraisal, the staff was qualified but insufficient to appraise and supervise projects adequately. A number of middle managers and professionals (engineers, financial analysts, environmental specialists), were hired. A consultant provided training of FEC staff on appraisal and supervision of sub-projects. Conventions were signed with the Ministry of Public Works for sub-contracting a part of the supervision workload. This practice was later discontinued due to reticence at the interministerial level. With the assistance of USAID funds, an independent accounting system was put in place. It permitted the staff to share data expeditiously. Currently, this MIS system is being further upgraded with the help of KfW funds, in order to be fully integrated with the operational activities. Staff went on study tours to Credit Local de France, and similar institutions in Spain and Belgium . Major changes took place in FEC's operational and credit practices. Although an adequate methodology for project evaluation was introduced by the Bank-assisted Pilot Project, staff failed to visit the borrower and the project site in the beginning. Site visits and technical assistance in appraisal of projects has become routine, and new improved guidelines on economic analysis of the projects were adopted in 1997 and contributed significantly to project quality. Credit practices, which had been lax prior to the project, have also improved dramatically: borrower eligibility criteria require increasing cofinancing of the project costs by the borrower (20 percent by 1998), and rely on evaluation of borrower capacity to incur debt. At appraisal, FEC's financial performance was very weak. It had a financial margin of 0.0-0.5 percent, problems of compromised short-term liquidity, insufficient equity, and consequently, unsustainable debt-to-equity ratios. Overall, during the course of the project, FEC has demonstrated a solid performance and has complied with its financial requirements (except profitability and debt-to-equity ratio until 1996, but after a capital increase of DH 120 million in 1997, it has maintained a capital adequacy ratio above the minimum of 8 percent). FEC has also been trying to reduce its cost of funds, and consequently, its lending rates which have traditionally been 1 to 2 percentage points higher than market rates. At project's end, it has managed to reduce its rates to be on par with commercial banks lending at similar maturities. In mid-1996, FEC became a full-fledged bank, following approval of its statutory change by the Parliament and is now subject to Central Bank regulations. It operates without government guarantee of its bonds. While training of local governments was not carried out as planned, there has been, as previously noted, a marked improvement in the quality of local investment projects and decisions, due to the eligibility procedures of FEC and the incentives introduced through the reform of the VAT transfers. - 8 -  5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: During the project implementation period, the Moroccan economy experienced a nearly zero real GDP per capita growth, with a 10 percent negative growth in 1995. That explains, in part, the sluggishness in national and local investment demand. Since 1992, local investment has remained at the same level of US$500 million p.a. Given the fact that the project was designed to improve subnational financing and investment, such an unfavorable macroeconomic situation became a factor outside the scope of the Borrower control. While this did not affect FEC's capacity to absorb Bank project resources and maintain an annual volume of about DH I billion, it did have an impact on overall projected lending by FEC, which had been projected to increase in tandem with inflation and GDP growth, as well as real growth in local resources, both from local taxes and VAT transfers. 5.2 Factors generally subject to government control: Overall, there was a high level of Government commitment to the reforms planned within the scope of the project. Such commitment brought about its successful completion, while concurrently launching a Second Municipal Finance Project. The scope and speed of project implementation were affected by the pace of the decentralization reform process. It takes time for the municipal sector to adapt to new policies and new responsibilities. The restructuring of FEC and the VAT reform have been a major breakthrough both on the supply and the demand side of local investment. Although the Government has trained of local staff, improved local capacity could have advanced more if the training component had, indeed, been implemented as planned. This may have also encouraged Government to relax some of the inherent constraints imposed by Central Government management of treasury functions in the interest of overall public expenditure management, and extensive a priori approval which slow down municipal investments. 5.3 Factors generally subject to implementing agency control: FEC has performed well, and has increased its management effectiveness, improved its finances, rationalized its operations and staffing, performed training, and increased the quality of its portfolio. However, more attention should have been paid to monitoring and evaluating project implementation. 5.4 Costs andfinancing: Loan 36160-MOR was fully disbursed on time; disbursements proceeded well and on schedule. Loan 36170-MOR, in the amount of US$4million, was fully cancelled on May 15, 1996, when it became clear that the Government was not going to implement the training component. -9-  Loan Disbursements: Cumulative Estimated and Actual (US$ million equivalent) FY94 FY95 FY96 FY97 FY98 FY99 Appraisal estimate 8 39 72 95 103 104 Estimate after cancellation 68 91 99 100 Actual 11.5 36.9 67.6 85.6 98.7 100 Actual as % of Estimate 144% 95% 99.4% 94.1% 99.7% 100.0% Date of final disbursement 7/13/99 6. Sustainability 6.1 Rationale for sustainability rating: Sustainability of the project is rated as likely. At project completion, it is clear that there are strong prospects that the achievements of development objectives, (described in Section 4), will be maintained. The project has been a part of an ongoing dialogue between the Bank and the Government on developing a long term strategy for improving financing and investment in the municipal sector. In February 1998, a Second Municipal Finance Project in the amount of US$70 million, became effective. The achievements of the project are not only likely to be sustained, but have been essential building blocks in the GOM strategy for strengthening the municipal sector. Further reforms are now being sought to increase local autonomy, corporatize FEC, and develop a more competitive municipal credit market serving local investment needs. I.Sustainabilty of FEC: As a result of the project, the efficiency of FEC has dramatically increased. FEC now operates as a municipal bank without government guarantee on its bond issues, with a proper and constantly improving management and accounting system and well-trained staff, operating within a stringent investment financing policy framework. The results of the Strategy Study, commissioned by FEC, have been incorporated into the new institutional structure designed to strengthen FEC's ability to better manage its project portfolio and develop a closer relationship with its municipal clients. At the start of the project, FEC's finances were fragile. Because of a slim financial margin of 0.0-0.5 percent, FEC had virtually no profits and was gradually eroding its modest equity in real terms. In 1998, FEC achieved a net intemediation margin of 2.29 percent and thus, significantly increased its return on assets and supported the real value of its equity. Although profitability has been historically low throughout the project, FEC has been persistent in attempting to lower its cost of borrowed funds in order to remain a competitive provider of long-term finance. By project's end, it is in a position to offer loans at fixed interest rates of 11.25 percent and variable rates of 9.75 percent that are fully competitive with the rates charged by other banks on loans with similar maturity (10-15 years). Administrative expenses were carefully controlled, and capital to risk-weigted assets ratio has been much higher than internationally accepted minimum of 8 percent. - 10 -  FEC Financial Ratios Ratio* 1993 1994 1995 1996 1997 1998 Annual Return (percent) (annual return as percent of the average current net value of total assets) goal 0.5 0.8 1.0 1.2 1.2 actual 0.07 0.06 0.12 0.16 1.02 1.2 Administrative Expenses (percent) (total administrative expenses to average net value of total assets) ceiling 0.75 0.75 0.75 0.9 0.9 actual 0.24 0.54 0.51 0.52 0.56 0.63 Debt to Equity goal 15 15 15 15 12 12 actual 15.8 16.4 17.97 14.8 9.88 8.26 Financial Indicators of the Second Minicipal Finance Project apply for 1997 and 1998 1997 1998 Net Intermediation Margin (percentage points) (instead of annual return) goal 1.9 1.9 actual 1.53 2.29 Capital to risk-weighted assets (percent) (instead of debt to equity ratio) minimum 8 8 actual . 24.08 34.88 The basic rationale for changing two covenanted financial indicators in 1997, was: (a) the change of FEC's status to a regulated financial institution in 1996; and (b) the project objective of strengthening FEC as a commercially viable financial institution. As a result, using internationally recognized financial ratios (that are used by the Central Bank) to monitor FEC's financial viability, was considered more appropriate than the ratios used originally. Capital to risks-weighted assets and net intermediation margin were chosen to monitor capital adequacy and income generation capacity, two critical indicators for a financial institution. As outlined in the table below, FEC has also succeeded in increasing the speed of disbursements on its loans. (billion DH) 1992 1993 1994 1995 1996 1997 1998 FEC's Annual Loans 0.538 1.0671 1.008 0.98 1.18 1.04 0.95 Annual Disbursements 0.079 0.446 0.349 0.75 0.93 0.94 0.79 Disbursements/Loan amounts 15% 42% 35% 77%l 79% 90% 83% -11-  Inevitably, FEC is facing constraints in its growth and a new generation of challenges which are being addressed in the Second Municipal Finance Loan. It seeks to find a niche in the municipal credit market that has opened up to commercial banks, and to diversify its lending portfolio to include the private sector which is increasingly being engaged in the delivery of municipal services. FEC's annual volume of lending has remained relatively constant. This reflects the stagnation in the level of funds devoted to investments as local governments adjust to managing their resources without benefit of subsidies. However, the numbers should be interpreted with caution, since the data series are quite short, and there is a clear influence of the election cycle on the decrease of investment activity in 1996. Share of FEC in the Resources of Local Governments 1993 1994 1995 1996/97 1997/98 FEC loans/total budget 10.8 10.83 8.39 6.68 7.8 FEC loans/investment budget 23.27 24.41 21.77 20.7 24.11 Investment Budget/Total Budget 0.46 D 0.44 0.39 0.32 0.32 2. VAT and the local resource base: The reform of VAT distribution among local governments may undergo further refinement, but the overall framework in which this was introduced - to strengthen local finances and decentralization efforts - is being pursued. The old deficit financing system and highly centralized use of VAT investment resources, which were the cause of considerable inefficiency, have been eliminated. This reform has been a cornerstone of decentralization efforts which are being reinforced further through an ongoing process of reform of the 1976 Municipal Charter. The reform of VAT distribution among local governments has had a major effect on the predictability of local resources by replacing the deficit subsidy by a systematic allocation of most of the local share of VAT to the budgets of local governments. Transparency of local resources has been strengthened and accountability has increased. The process has been somewhat slowed down by insufficient technical assistance and inadequate local staff mix in the sphere of financial planning, and lack of continuity in local decision-making due to the current electoral system. Even though it is too early to draw major quantitative conclusions about the effect of the reform, the figures, in the table below, point to the fact that local governments seem to borrow less, knowing the limits of their repayment capacity, and that they have started to improve their own resource base. Revenues of Local Governements (DH billion) 1988 % 1998 % VAT Transfers 2.8 0.56 6.3 0.45 Borrowing 0.5 0.10 0.95 0.07 Local Taxes and Other 1.7 0.34 6.75 0.48 Total Revenue 5 14 6.2 Transition arrangement to regular operations: NA. - 12 -  7. Bank and Borrower Performance Bank 7. 1 Lending: Bank performance at identification, preparation and appraisal of the project was satisfactory. Prior to this project, the Bank carried out a pilot project for FEC (Loan 2272-MOR), completed in 1989, and a sector report on local finance, completed in 1990. The recommendations of the pilot project that FEC monitors the execution of its projects more closely and be managed as an autonomous financial agent was incorporated in the present project design. The Bank Sector Report (No. 8782-MOR), helped shape views on the distribution of the local share of the VAT and other local government finance issues raised in the government's development strategy. The restructuring of FEC and the VAT distribution reform were designed to enhance the financial discipline of local governments and consequently, increase their savings. Increased local savings were expected to bring a major contribution to enhancing the efficiency of public sector management and deepen macroeconomic adjustment, one of the main pillars of the Bank Country Assistance Strategy. The staff mix and continuity at preparation and appraisal were adequate. Financial analysts and municipal engineers provided the core expertise, peer reviewers and other Bank staff provided valuable inputs. The financial arrangements were appropriate at the time the loan was signed: the Kingdom of Morocco borrowed US$4.0 million for training and assistance to improve local sector management systems. FEC directly borrowed US$100.0 million for financing its own institutional improvement and on-lending for local investments at variable and fixed rates for a maximum term of up to 15 years. The GOM guaranteed the foreign exchange risk on FEC's loan. Project conditionalities have, therefore, been designed to enable FEC to fulfill this role by improving its sector financial policies and performance. The loan amount and project execution period (one year less than the standard profile for municipal finance projects), was well estimated given the pipeline of FEC projects, and the absorption capacity from municipalities and regies at the time. 7.2 Supervision. Overall supervision was satisfactory. There were lapses in regular supervisions in FY97 and FY99 with changes in teams. The quality of the documentation in project file has also suffered towards the end of the project. There was no Mid Term Review, but some thorough reviews were performed by the team during the regular supervision mission in March 1999 and an early assessment was undertaken during preparation of the Second Municipal Project in FY97. Non-compliance with FEC's financial covenants and delays with VAT reform introduction caused the Bank to downgrade the Implementation Progress Rating to Unsatisfactory in 1995. VAT reform slippage from scheduled 1995 to 1996, caused a temporary freeze on new sub-projects approval. These were resumed after a few months when Government commitment was obtained to introduce the reform as soon as feasible. A break in supervision team continuity in 1996 had an impact on maintaining a dialogue on municipal sector issues with the Ministry of Interior. Despite the importance of sectoral reforms for ensuring the success of the project, there was very little dialogue between the Bank and the Ministry on these issues, including progress on the PHRD-funded studies on local finance as of FY97. Attempts to revive this dialogue were undertaken in FY99 and additional sector work is now ongoing. - 13 -  7.3 Overall Bank performance: Overall Bank performance was satisfactory, with Bank staff cooperating closely with the Government and the implementing agency in advancing the agenda of the project and developing a longer-term sector vision. The Second Municipal Project, now under implementation is building on the work done by the first project. With the reform of VAT and FEC restructuring completed, the strategy is to transform FEC into a joint stock company, authorized to lend to privately-sponsored municipal projects, following stringent, prudential, regulatory and financial measures to manage municipal credit risk. The strategy has been pursued consistently and much has been accomplished, despite a break in team continuity, that caused some problems in the quality of project supervision and institutional memory both for the Bank and the Borrower, as noted above. Borrower 7.4 Preparation: At the preparation stage, the Borrower's main contributions, among others, were: (1) measures taken to reinforce FEC; and (2) commitment to a successful launching of the VAT redistribution reform. To ensure successful implementation of the project and to provide FEC with an adequate capital base, the Government made local governments assume the rigies debts, and promised to make an equity contribution of DH 70 million. Thus, an important step was taken to launch FEC as a viable financial institution. As a result of these measures, its debt-to-equity ratio dropped from 50 to around 16 in 1993. A Decree was passed implementing FEC's organic law and establishing FEC's Board, management and credit committees. A dynamic Director General was appointed by FEC's Board. The Government also insisted that the VAT distribution reform introduced in 1994, as proposed by the Bank, seemed premature, given the 1992 change in the administrative structure that almost doubled the number of municipalities. In the course of the project, the reform slipped from 1995 to 1996 due to logistical problems, therefore, the timing concerns were warranted. 7.5 Government implementation performance: The implementation of VAT reform, despite slippage, was successfully carried out. The Government undertook a dissemination program to inform the local governments about the new distribution formula. The delay in the introduction of the reform did not cause any serious problems in project implementation or achievement of development goals, but has had some effect on FEC disbursements, since its evaluation criteria in terms of municipal debt could not be enforced until the VAT system was put in place. Generally, slow approval procedures by the Ministry of Interior caused FEC disbursements to lag behind commitments and imposed additional costs on the municipalities as a result of delays in approval of projects. The training component had to be cancelled due to lack of commitment by the Government to use loan funds for this purpose. Studies that were foreseen to further develop the local finance system were eventually funded by a PHRD grant, but were completed only at the end of 1998--three years after they were due--as a result of delays in MOI approval of the studies, and feedback on the reports. Monitoring reports of local finance were not produced on a regular basis as originally planned. 7.6 Implementing Agency: FEC generally complied with all major covenants and provided audits and other reports on time. There was a period of non-compliance with the debt-to-equity ratio (in 1993-95), when the government did - 14 -  not provide the agreed (non-covenanted) equity contribution. Financial performance indicators of the Second Municipal Finance Project were applied to FEC in 1997, and it achieved full compliance in 1998. The Borrower has sought to lower its cost of resources and succeeded in reducing its interest rates to levels that are competitive with rates on loans of similar maturities by project's end. Overall, FEC has displayed commitment to improving its structure and procedures. Monitoring and post-evaluation of projects, and environmental assessments have improved over the course of the project, but still remain weak. 7.7 Overall Borrowerperformance: Overall performance and participation of the Borrower were satisfactory, during both preparation and implementation. 8. Lessons Learned 8.1. The experience of the project has underscored the importance of establishing a sound intergovernmental finance system with appropriate incentives in the process of decentralization. This has been critical for both local governments and municipal finance institutions to perform their roles efficiently and cooperate in the mutual learning process of sustainable municipal investment. A lot remains be done to rationalize the allocation of powers and responsibilities between the Central Government (MOF and MOI), local governments (including between communes and communautes), other agencies (like regies and public developers), and the private sector, in order to improve the incentives and capacity of local governments to manage their scarce resources. Efficient management of local resources and expenditures is critical for building creditworthiness of local communities and sustainability of their investment programs, and is being further addressed in the Second Municipal Finance Project. 8.2. FEC's restructuring has created a solid financial institution, that is conscious of the best use and protection of its own funds and the funds of its clients, urban and rural municipalities. The eligibility criteria for projects and municipalities are being systematically applied at the selection stage, but equal attention needs to be paid to stringent monitoring of implementation and post-evaluation so that the projects do not put at risk future operations of the FEC. The first project has also made it clear that environmental concerns were not fully integrated into the evaluation process. Environmental impact assessments are being introduced in the routine operations in the framework of the second project. 8.3 The project focused on strengthening the local governments' ability to improve the selection of development priorities, better manage local resource mobilization, and effectively deliver local services. The SAR included extensive TORs for training of central staff, dealing with the local issues, and local staff, that has almost doubled to 127, 000 with the increase in the number of urban and rural communes in 1992 (from 900 to 1,550). The component was dropped from the project after it became clear that the Government was not willing to pursue the program as planned. The scope of the training was clearly overestimated, as well as the readiness of the Government to finance training out of loan proceeds, when some external grant financing could be mobilized. The project also made it clear that more precise arrangements for training components have to be made from the very outset to avoid delays, and to ensure better coordination with other development donors (KfW, USAID, etc.), who envision similar training components. 8.4. The importance of a focused strategy aimed at achievable objectives, and drawing on extensive sector work has been reinforced by the experience of the project. Proactive supervision and agreement on the priority development goals for the municipal financial institution and the policy ingredients are crucial for advancing the agenda with the staff of FEC and at the Government level. - 15 -  9. Partner Comments (a) Borrower/implementing agency: Madame Sonia HAMMAM Chef du Secteur Urbain Groupe de Developpement de l'Infrastructure Bureau Regional Moyen Orient et Afrique du Nord Banque Mondiale Objet: Rapport d'achevement du Premier Projet de Financement Municipal (pret 3617 MOR). Madame, Faisant suite a votre fax du 16 decembre 1999, nous avons l'honneur de vous faire part des remarques de forme ci-apres: Concernant le chapitre 4 relatif a la realisation des objectifs et resultats, nous vous suggerons de proceder a la modification suivante: "Alors que pr6cedemment les municipalites n'utilisaient pas la dette d'une maniere satisfaisante dans le choix de leurs investissements et que le FEC approuvait ces projets sans appreciation du risque du fait..." (le reste sans changement). Il s'agit de l'avant derniere phrase de la page 5. Par ailleurs, la chapitre 4. (p 8) souligne qu'il n'a pas e possible d'obtenir du FEC le cofit final des sous-projets. II y a lieu de preciser que cela est dfi au fait que tous les decomptes definitifs ne sont pas encore disponibles. Enfin, il y a lieu d'apporter les deux corrections suivantes: le programme annuel des prets est assujetti a l'approbation du Conseil d'Administration et non a celle des ministeres des Finances et de l'Interieur. a3 la convention avec le ministere des Travaux Publics a e interrompue pour des raisons pratiques. Veuillez agreer Madame, l'expression de ma consideration distinguee. Mohamed OUDOR Directeur des Engagements - 16 -  1/ Conception et obiectif du proiet: Le ler projet municipal aura fait assurement un choix judicieux des voies d'amelioration de l'acces des collectivites locales au credit: A savoir la restructuration du FEC et la rationalisation des finances locales. Les objectifs fixes au projet 6taient, par ailleurs, de nature A repondre aux attentes dudit projet. II convient de souligner cependant que l'objectif consistant A etendre et A renover l'infrastructure communale, a et contrarie par les mesures prises dans le cadre de l'objectif (a) relatif A l'acces des collectivites locales au credit FEC. L'entree en vigueur du projet a marqu6 une rupture avec la periode d'avant 1993 oil les communes beneficiaient de taux dtint6r6t plus bas et qui etaient assortis d'une ristourne d'interet. Les normes introduites, dans le cadre de ce projet, concernant aussi bien les modalites d'intervention que le fonctionnement du FEC, n'ont pas manque d'exclure et de diff6rer certains investissements quand bien meme ils etaient prioritaires. Pendant l'execution du projet, le FEC a et6 persu pendant longtemps comme une institution inaccessible et trop chere pour une partie des collectivites locales. Aussi, conviendrait-il de s'interroger si des mesures d'accompagnement n'auraient pas dui etre prevues pour une phase transitoire. La conception initiale du projet aurait egalement gagne a integrer et anticiper la transformation du FEC en Banque, facteur qui aura ete determinant dans l'alignement du FEC sur les conditions du marche. 20/ Facteurs principaux affectant l'ex6cution et les resultats: Au titre de ces facteurs, le Gouvernement a effectivement contribue pleinement A la mise en place des reformes prevues. La contribution de l'Etat a porte egalement sur d'autres elements non pr6vus dans le projet. II s'agit notamment de: - soutien exceptionnel dont le FEC a continue a beneficier de la part de l'Etat en matiere de mobilisation d ressources exterieures et de renforcement des fonds propres. - la transformation du FEC en banque. Aussi bien pour l'execution du projet que pour la viabilite du FEC, il s'agit d'un element qui aura ete determinant. 30/ Enseignements tires: Concernant les lecons tirees, le 1 er projet de financement municipal a consacre et confirme le choix judicieux du modele retenu pour le financement du secteur communal. Ce choix, consistant A opter pour un intermrdiaire financier emergeant sur le budget de l'Etat, s'est revele judicieux et realiste: - Cette option a permis en effet de faire joindre l'effet de levier et de v6hiculer un volume important de ressources prelevees sur l'epargne existante vers le secteur communal; -. A l'bgard de l'objectif de preparer les collectivites locales A utiliser, d'une maniere rationnelle, la dette comme instrument de financement de leurs equipements, I'option d'un interm ediaire financier specialise aura e plus appropriee que celle d'une ouverture rapide du secteur aux banques commerciales. Consideration distingu6e Mohamed Oudor Directeur des Engagements - 17 -  (b) Cofinanciers: NA. (c) Other partners (NGOs/private sector): NA. 10. Additional Information NA. - 18 -  Annex 1. Key Performance Indicators/Log Frame Matrix Outcome I Impact Indicators: 1. The quality of local investment improved The quality of the sub-project portfolio The application of consistent eligibility criteria implementation have been reviewed and and technichal assistance by FEC to both found satisfactory. borrowers and projects had an impact on the quality of projects that were submitted for financing by local goveMments. The VAT reform has made local govenments more careful in setting investment priorities and estimating what they can afford. 2. FEC becomes a viable financial The financial situation of FEC is satisfactory. Since 1996 FEC is a full-fledged bank institution, lending to municipal It is in full compliance with the financial complying with Central Bank regulations. It borrowers and applies its lending criteria performance indicators. Its commitments and has shown increasingly good financial regardless of source of financing. disbursements are proceeding well. performance and by the end of the project complied with all financial performance indicators. It has also improved its rates of disbursements, reduced its cost of funds and is currently competitive with other lending institutions of long-term finance. It has maintained a diversified portfolio of local investment projects whose quality has significantly improved in compliance with its lending criteria. 3. Distribution of local share of the Reform introduced in 1996. The formula is Reform of VAT distribution has had a value-added tax (VAT) is rationalized and in application since then and both rural and positive effect on local resource management made transparent. urban communes are getting their respective and budgeting practices. share. Achievement of FEC loan Targets of about $ FEC loans have doubled in 1993 and since 115 million a year, expected to grow with then averaged about $ 113 per year in GDP and inflation nominal terms. Output Indicators: 1. Local Investment: about 250 municipal Loan fully committed. Disbursements were at Loan fully disbursed and financed 235 investment projects, financing roads, water 98.6%. projects, of which 40% in Solid Waste, 24 % and sewarage, solid waste, productive and of commercial facilities, 18.5 % in roads and reacreational facilities. sewerage. 2.Technical assistance to FEC to improve FEC has transformed itself into a well Technical assistance fully implemented FEC's institutional capabilities, training and staffed, efficient, independent institution. according to the action plan agreed at equipment to FEC. Policies and procedures of the Policy appraisal. Further institutional strengthening Statement of 1992 are consistently applied. based on the identified new needs continues However, weaknesses are identified in in the framework of the Second 1) the quality of Environmental Impact Project: 1) a fully integrated MIS system is Assessemtents of projects; 2) monitoring being put in place; 2) a new organigramme and post-evaluation of projects. being implemented, in particular, to reinforce monitoring and post-evaluation and client relations; 3) obligatory ElAs are being implemented across the board. End of project - 19 -  Annex 2. Project Costs and Financing Proiect Cost by Component (in US$ million equivalent) I.Local Projects Infrastructure 173.00 118.44 68.44 Studies and Designs 2.50 2.50 100 Institutional Development 1.00 0.00 0 2. Institutional Improvement of FEC 0.80 0.01 1.25 4. Institutional Improvement of Central Govemment Units 2.70 0.00 0 Total Baseline Cost 182.30 120.95 Total Project Costs 182.30 120.95 Total Financing Required 182.30 120.95 The actual cost is understated because it is based on the information that was available at the time ICR preparation, which was incomplete. In Component I [Local Projects], US$1 million was reallocated from Institutional Development to Infrastructure; Component 4 was cancelled. Project Costs by Procurement Arrangements Apraisal Estimate) US$ million equivalent) 1. Works 4.60 143.40 ._ 00 0.00 148.00 (2.80) (79.40) (0.00) (0.00) (82.20) 2. Goods 2.40 3.00 22.40 0.00 27.80 (1.50) (1.70) (13.70) (0.00) (16.90) 3. Services 0.00 0.00 0.00 6.50 6.50 (0.00) (0.00) (0.00) (4.90) (4.90) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 7.00 146.40 22.40 6.50 182.30 (4.30) (81.10) (13.70) (4.90) (104.00) - 20 -  Project Costs by Procurement Arrangements (ActuallLatest Estimate) (US$ million equivalent) Procturement Method -Exmpen5ture CategoNry. - iCB N.8,.F. Total Cost .GB .R . .. . . . Other 1. Works 0.00 109.05 0.00 0.00 109.05 (0.00) (91.66) (0.00) (0.00) (91.66) 2. Goods 11.86 0.00 0.00 0.00 11.86 (8.30) (0.00) (0.00) (0.00) (8.30) 3. Services 0.00 0.00 0.04 0.00 0.04 (0.00) (0.00) (0.04) (0.00) (0.04) 4. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 5. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) 6. Miscellaneous 0.00 0.00 0.00 0.00 0.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 11.86 109.05 0.04 0.00 120.95 (8.30) (91.66) (0.04) (0.00) (100.00) The actual cost is understated because it is based on the information that is available at the time of the preparation of the ICR that is incomplete. Only ICB data could be retrieved from the Bank procurement reporting system. NCB is known to be the rest and was obtained by subtracting ICB from the total cost reported. "Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies 2'Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project fumds to local government units. Project Financing by C mponent (in US$ million equiv alent) Percentage of Appraisal Component Appraisal Estimate Actual/Latest Estimate Pcaop i Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF. NOTE: Cof. Stands for 0.0 0.0 0.0 FEC and Sub-borrowers resources 1.Local Projects 99.20 0.00 77.30 99.99 0.00 20.92 100.8 0.0 27.1 2. Institutional 0.80 0.00 0.00 0.01 0.00 0.00 1.3 0.0 0.0 Improvement of FEC 3. Training for Local 4.00 1.00 0.00 0.00 0.00 0.00 0.0 0.0 0.0 Governements, Institutional Improvement of Central Government Units 0.0 0.0 0.0 The actual cost is understated because it is based on the information that is available at the time of the preparation of the ICR and that is incomplete. - 21 -  Annex 3: Economic Costs and Benefits NA -22 -  Annex 4. Bank Inputs (a) Missions: . _ Stage of Project Cycle No. of Persons and Specialty Performance Rating (e.g 2 Economists, I FMS, etc.) Implemertation Development Month/Year Count Specialty Progress Objective Identification/Preparation 04/88 03/92 3 Country Officer, Consultant, Senior Financial Analyst 05/92 2 Senior Financial Analyst, Consultant Appraisal/Negotiation Appraisal 10/92 5 Senior Financial Analyst, Municipal Engineer, Environmental Specialist, Consultants Pre-negotiation I Senior Financial Analyst 02/93 Supervision 10/93 2 Municipal Engineer, Senior HS HS Financial Analyst 02/94 1 Senior Financial Analyst HS HS 07/94 3 Municipal Engineer, Senior S HS Financial Analyst, Consultant 11/94 3 Municipal Engineer, Senior U S Financial Analyst, Consultant 04/95 2 Municipal Engineer, Senior U S Financial Analyst 11/95 2 Municipal Engineer, Senior S S Financial Analyst 01/96 1 Senior Financial Analyst S HS 06/97 2 Private Sector Specialist, Urban S S Specialist 03/98 2 Urban Specialist, Senior S S Financial Specialist 05/99 3 Team Leader, Economist, S S Municipal Engineer ICR 10/99 1 Urban Specialist - 23 -  (b) Staff: Stage of Project CycleActual/Ltest Estimate ' t0 00 0)f ;8ft:E6y6:;1