Jordan - Second Cities and Villages Development Bank Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5623-JO STAFF APPRAISAL REPORT JORDAN SECOND CITIES AND VILLAGES DEVELOPMENT BANK PROJECT STAFF APPRAISAL REPORT July 19, 1985 Urban and Regional Development Projects Europe, Middle East, and North 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 = Jordan Dinar (JD) JD 0.40 = US$1.00 JD 1.00 = US$2.50 JD 1.00 = 1,000 fils MEASURES AND EQUIVALENTS Kilometer (km) = 0.62 mile Square Kilometer (kmz) = 0.386 mile Hectare (ha) = 2.47 acres Centimeter (cm) = 0.3937 inches Meter (m) = 39.37 inches = 3.28 feet (ft) Square Meter (mW) = 10.8 square feet (ft2) Cubic Meter (M3) = 264 US gallons Liter (1) = 0.264 US gallons Liter per capita per day (lpcd) = 0.264 US gallons per capita per day ABBREVIATIONS AND ACRONYMS ACC = Agricultural Credit Corporation CBJ = Central Bank of Jordan CVDB = Cities and Villages Development Bank EEC = European Economic Commission EIB = European Investment Bank HB = Housing Bank IDA = International Development Association IDB = Industrial Development Bank JCO = Jordan Cooperative Organization JaC = Jordan Housing Corporation JVA = Jordan Valley Authority MMRA = Ministry of Municipal and Rural Affairs MOF = Ministry of Finance MOP = Ministry of Planning MPW = Ministry o- Public Works MVLF = Municipal and Village Loan Fund SSC = Social Security Corporation SOE = Statement of Expenditure UNRWA = United Nations Relief aId Works Agency for Palestine Refugees in the Near East WAJ = Water Authority of Jordan FISCAL YEAR January 1 - December 31 This report reflects the findings of a mission to Jordan from January 19 to February 5, 1985, comprising Messrs. Annez (mission leader), Mera (senior regional development advisor), Landeau (financial analyst) and Kenneth Davey (municipal development consultant). FOR OFFICIAL USE ONLY JORDAN SECOND CITIES AND VILLAGES DEVELOPMENT BANK PROJECT STAFF APPRAISAL REPORT Table of Contents Page LOAN AND PROJECT SUMMARY ......................................... i I. INTRODUCTION ..................................................... 1 II. MUNICIPAL DEVELOPMENT ............................................ 2 Background ................................................. 2 Institutional Framework .................................... 2 Local and Municipal Government ............................. 3 Local and Municipal Finance ................................ 3 The Financial Sector in Jordan ............................. 4 Government Actions and Policies ............................ 5 Role of the Bank Group in the Urban Sector ................. 5 III. CVDB - THE INSTITUTION ........................................... 6 A. Objectives, Functions, Legal Framework and Ownership ....... 6 Legal Framework ............................................ 7 Ownership .................................................. 7 B. Organization, Management and Staffing ........................ 8 C. Policies and Procedures ...................................... 9 D. Operations and Finances .................................... 10 Long-term Loans .......................................... 10 Short-term Loans ......................................... 10 Arrears .................................................... 11 Loan Rescheduling .......................................... 11 Liabilities .............................................. 12 Share Capital Increase and Debt-Equity Ratio ............. 13 New Financial Covenants .................................. 13 CVDB's Margin Over Total Resources ......................... 13 Debt-Service Ratio ....................................... 13 Recent Financial Performance .............................. 14 Financial Projections and Resource Requirements .......... 14 &This dannent has a restriced distribution and may be used by recipients only in the performance of their official dutie& Its cotents may not otherwise be disclosed without World Bank authorization. Table of Contents (cont'd) Page IV. THE PROJECT ...................................................... 16 A. Objectives and Scope ....................................... 16 B. Project Description ........................................ 16 Main Project Components .................................. 16 Line of Credit ........................................... 16 Equipment ................................................ 18 Technical Assistance ..................................... 18 Training of Municipal and Village Council and CVDB Personnel ..................................... 18 C. Financial Arrangements ..................................... 19 D. CVDB Project Cycle ......................................... 19 Identification and Preparation ........................... 19 Appraisal ................................................ 19 Loan Committee and Board Approval ........................ 20 Supervision .............................................. 20 Follow-up ................................................ 20 Monitoring ............................................... 20 Procurement .............................................. 21 CVDB Disbursement ........................................ 21 E. IBRD Project Execution ..................................... 21 Bank Review of Subprojects ............................... 21 Disbursement ............................................. 21 Special Account .......................................... 22 Disbursement Period ...................................... 22 Audit .................................................... 22 Monitoring ............................................... 23 Bank Supervision ......................................... 23 V. BENEFITS AND RISKS ............................................. 23 VI. ASSURANCES AND RECOMMENDATION .................................. 25 Conditions for Loan Effectiveness .......................... 25 Recommendation ............................................. 26 ANNEXES 1. Financial Tables................................................ 27 2. CVDB Organization Chart.........................................36 3. General Policy Statement of CVDB................................37 4. Loan Eligibility Criteria.......................................58 6. Estimated Disbursement Schedule.................................76 7. Project Files Listing ........................................... 77 MAP IBRD 14569R - Jordan: Population Distribution and Administrative Divisions JORDAN SECOND CITIES AND VILLAGES DEVELOPMENT BANK PROJECT LOAN AND PROJECT SUMMARY Borrower: The Hashemite Kingdom of Jordan. Beneficiary: The Cities and Villages Development Bank (CVDB). Amount: US$15 million equivalent. Terms: 15 years, including 3 years of grace, at the standard variable interest rate. Onlending Terms: The proposed loan would be onlent to CVDB under the same terms as the Bank loan, but with the interest rate fixed at the rate in effect at the time of loan signing. The Government would bear the foreign exchange and the interest rate fluctuation risks. Project Description: The objectives of the project are: (i) to support the Government's efforts to improve living standards in Jordan's less developed outer regions; (ii) to continue to facilitate the execution of municipal and village development plans by funding well-appraised projects; (iii) to strengthen CVDB's institutional capacity; and (iv) to support CVDB's role in organizing financial training for local government personnel. The project components include a line of credit to CVDB, representing 75 percent of CVDB's foreign exchange needs from mid-1985 to end 1987; equipment and technical assistance for CVDB; and training for local government and CVDB personnel. Possible project risks include difficulties by CVDB in attracting and retaining qualified staff. However, the project includes features to minimize the risk. Individual Free Limits: US$60,000 and USt125,000, depending upon the type of subproject. - 11 - Estimate Project Costs: Foreign Local Total (US$ million)-- ---- Line of Credit 14.90 18.21 33.11 Equipment-' 0.10 0.03 0.13 Technical Assistance 0.40 0.15 0.55 Training 0.10 0.20 0.30 Total 3__M Financing Plan: Bank 15.00 0.00 15.00 Government 0.50 0.35 0.85 CVDB 0.00 18.24 18.24 Total _ _ _ Estimated Disbursements: Bank Fiscal Year ---- (US$ million)------- 1986 1987 1988 1989 1990 1991 Annual 1.5 3.0 5.5 3.6 1.0 0.4 Cummulative 1.5 4.5 10.0 13.6 14.6 15.0 Economic Rate of Return: N.A. 1/ Net of taxes and duties. JORDAN SECOND CITIES AND VILLAGES DEVELOPMENT BANK PROJECT STAFF APPRAISAL REPORT I. INTRODUCTION 1.01 This report appraises the Cities and Villages Development Bank (CVDB) for a proposed second loan of US$15.0 million. CVDB was created in 1980 to provide loans to Municipalities and Village Councils for such projects as water supply, school buildings, electricity distribution, health clinics and commercial buildings. With the help of the first World Bank Loan of US$10.0 million (Loan 1826-JO), CVDB has evolved into an independent financial institution which has gradually improved its management and capability to appraise projects. Since 1980, CVDB has helped satisfy the basic needs of less developed segments of the population and raise standards of living in rural areas. From 1980 to 1984, 49% in number and 27% in value terms of projects were located in villages (see also Table 1 in Annex 1). The regional distribution of CVDB's loan portfolio also proportionally favored the outlying Governorates. 1.02 The second project will continue to support a system of resource allocation to local communities that is considered exemplary. Whereas in most countries in the Region local infrastructure investments are decided and financed by Central Governments, in Jordan local governments have sufficient income, partly through a system of revenue sharing, to cover recurrent, debt service, and capital expenditures. In countries where they are financed from Central Government grants, investments are either seen as free goods for which there is an insatiable demand or as imposed interventions that do not meet local requirements. In Jordan, local authorities have become conscious of the scarcity of investment resources. This has led them to choose projects carefully and to collect revenues more diligently. 1.03 The system still needs improvement. Local government financial management is still weak, and investment projects are not always chosen or designed properly. While the first loan turned CVDB into a bank, the second loan is designed to strengthen its municipal and village development functions. Besides providing CVDB with a US$14.9 million credit line, the new project will include the reinforcement of CVDB's Technical Department with expert advice, training and equipment as well as the reinforcement of the Training Division in charge of financial training of local government and CVDB personnel of these other components; only the equipment (total cost net of taxes US3125,000) will be financed under the proposed loan. - 2 - II. MUNICIPAL DEVELOPMENT Background 2.01. Jordan is a highly urbanized country. Following three decades of rapid population growth and massive immigration, about 70% of its 2.6 million population lives in urban areas of 5,000 people or more. By the year 2000, Jordan's urban population is expected to increase by some 2 million. Unemployment is an increasing problem, since the labor force is rising at about 6% per annum while domestic and external demand for Jordanian labor is weakening. Given its scarcity of natural resources, limited arable land and water and small domestic market, Jordan's future economic growth and employment must depend upon export-based manufactures and services. In an era of expected slower economic growth, the development and management of efficient and cost-effective services and infrastructure for urban areas to support these activities, as well as to improve the welfare of a rapidly increasing urban population, are crucial challenges facing Jordan. 2.02 Jordan's population is highly concentrated. Most of its urban population lives within 30 kilometers of the capital, Amman, which itself accounts for over 750,000 people and produces most of the country's services and industrial output. While the Amman region is expected to accommodate most population growth for the remainder of this century and to continue its role as the main engine for Jordan's economic development, the Government is taking active measures to stimulate growth in other areas. The proposed Second Cities and Villages Development Bank (CVDB II) Project would assist the Government in achieving this goal by financial support and technical assistance for the financial institution best situated to promote the development of cities and villages outside Amman. Institutional Framework 2.03 The Ministry of Municipal and Rural Affairs (MMRA) is the major authority in charge of the delivery of services to municipalities and villages and is responsible for the preparation of municipal and village master plans, for project design and implementation, for budget review, and for channelling loan applications to CVDB. The Directorate of Works and Engineering Services in MMRA is responsible for buildings, roads, water, sanitary engineering, and rural development, and plays a major role in the preparation of projects for CVDB financing. Because this directorate is short of staff, especially of qualified engineers, MMRA or the concerned local government engages consultants as necessary. 2.04 Several government corporations or authorities provide services or coordinate local functions, including, most notably, CVDB, which lends to local governments (para. 3.02); the Jordan Housing Corporation (JHC), which develops housing for moderate income and public sector employees; the Housing Bank (HB), which finances housing, especially for low and moderate income groups; the Water Authority of Jordan (WAJ), which is responsible for water production and distribution and sewerage works; and the Jordan Electric Power Company, responsible for electricity distribution. Local governments have an essential role to play, especially in transport, streets and roads, solid - 3 - waste management, land use planning, health controls, provision of markets, a variety of licensing functions and investments in schools and health centers. (For a review of the Service Delivery System see Annex 7, Project File 1.) 2.05 Local government management, planning, and finance need to be further reinforced to enable local councils to prepare and implement investment programs to meet the needs of a rapidly growing urban population. Better planning and coordination of public investments in different sectors at the regional as well as city level will become increasingly important in avoiding waste and encouraging efficient patterns of urban development. The proposed project is designed to contribute to this goal. Local and Municipal Government 2.06 Administratively Jordan is divided into five governorates, which are further subdivided into districts and subdistricts. Each level is headed by a public official responsible through his superiors to the Minister of Interior. Governors are responsible for internal security, coordination of central government departments and supervision of the village councils and unincorporated villages and, under the aegis of MMRA, of municipal councils. During the last five years, the number of local government bodies has increased rapidly. There are three types of local government: municipal councils, village councils and common service councils. There are currently 136 municipalities embracing three quarters of the population, although three (Amman, Zarqa and Irbid) account for about 60 percent of the total. Municipal councils are presided over by mayors and comprise 7-12 councillors who, in general, are elected for four-year terms (some are still appointed by MMRA). There are about 300 village councils which are normally appointed by Governors, although informal nomination of members by tribal groups is customary. Executive responsibility is vested in village heads, but virtually all decisions are subject to approval by the Governor. Common service councils are mixtures of neighboring municipalities and village councils that have combined to share a particular service, such as slaughterhouses or waste disposal. Since their establishment in 1983, they have grown rapidly and now number 54. 2.07 Insufficient qualified staff in local government is of concern to the Government, although the situation is improving with the slackening of the labor market. MMRA runs an ad hoc program of short training courses for local government employees. Twenty courses were held at varied locations in 1984, attended by 500 mayors, councillors and employees. These courses included financial management, municipal engineering, surveying and planning control. The Ministry recognizes the need for a more systematic provision of training and has asked CVDB to take over the task of organizing the training effort (para. 4.10). Local and Municipal Finance 2.08 Municipal and village councils derive revenues from six sources: national revenue sharing; land and building taxes; taxes and charges directly collected by local authorities; profits, rents and interest; and loans, grants and donations. The national revenue sharing allotment (commonly referred to as the fuel tax allotment) accounts for 17-80% of the total revenue of individual municipalities. It provides local government with a share of customs duties, annual registration fees for drivers and vehicles, taxes on petroleum products and fines for traffic and public health offenses. The shares are distributed using a formula, based largely on population and administrative status, which favors smaller, less developed municipalities. Land and building taxes are imposed only in municipalities. They are assessed and collected by the Ministry of Finance and distributed to councils of origin. The basis of the tax is 10% of rental value. As a result of a revaluation of all properties currently in progress, significant increases in yields are expected in 1985 and 1986. Sources of taxes and dues collected directly by local authorities include registration license fees for commercial premises, garbage collection fees, building permit fees and charges for street and pavement construction. Loans, grants and donations are an ad hoc and infrequent source of revenue, which are made mostly to the Amman Municipality. 2.09 Municipal budgets are prepared by the mayors, with the approval of councils, and go to MMRA for final approval. Because municipal and village councils, while responsible for capital development, have limited responsibility for provision of services, most municipal budgets show a considerable margin for capital and non-recurrent expenditure after meeting general expenses and debt service. Inflation and rapid urban growth have underlined in recent years the need to maintain the buoyancy of t'.e tax base by frequently reviewing tariffs and assessments and improving ccllection efforts. However, the underlying framework of local finance is sound and should sustain a further period of capital development supported by the proposed loan. (For a review of Local Government Finance in Jordan, see Annex 7, Project File 2.) The Financial Sector in Jordan 2.10 The financial system of Jordan includes the Central Bank of Jordan, 16 commercial banks (eight of which are branches of foreign banks), a number of non-bank financial institutions, and six specialized credit institutions. Commercial banks, which constitute a pivotal part of the financial system, were very active in the 1979-81 period, with total assets and liabilities rising on average 28% per year; their activities have been slower since then, reflecting a slowdown in the overall level of economic activity. Non-bank financial institutions comprise the Pension Fund, the Social Security Corporation (SSC), and over 30 insurance companies. The Pension Fund, which covers all government employees, has expanded rapidly; in the 1979-82 period, its assets more than quadrupled. SSC began operations in 1980 to complement the operations of the Pension Fund; at the end of 1984, its assets amounted to about JD 106 million, compared with less than JD 5 million in 1980. 2.11 The specialized credit institutions were established to assist in the development of certain sectors, primarily through medium or long-term loans, usually at concessional interest rates. They include HB, JHC, the Agricultural Credit Corporation (ACC), the Industrial Development Bank (IDB), Jordan Cooperative Organization (JCO), and CVDB. These institutions are wholly Government-owned except for IDB, which is only one third Government owned, and FB, which is privately owned, except for a small minority ownership by several Arab governments. The loan resources of these institutions consist - 5 - primarily of their capital and reserves and Central Bank borrowing, although HB accepts demand, time and savings deposits. Net lending by specialized credit institutions rose by 15% in 1984 to JD 365 million, compared to 25% in 1983. HB accounted for the major part of credit extended by specialized institutions (for a review of the five most important specialized institutions in Jordan, see Annex 7, Project File 3.) Government Actions and Policies 2.12 The Government has long been concerned with significant disparities between regions in terms of economic activity, public services and other basic facilities, and especially with the concentration of population and economic activity in Amman. The current Five-Year Plan contains major electrification, water supply and health care programs that address regional disparities, and the Government provides resources from its tax revenues to local government using a highly progressive scheme (see also Annex 7, Project File 2). To identify development strategies and investment projects, MMRA has undertaken regional studies for Amman, Irbid, and Aqaba, and is in the process of preparing a study for Karak. In order to improve the coordination needed to implement investment projects resulting from such studies, the Ministry of Planning has recently established a regional planning section. It also is now undertaking, with assistance from United States Agency for International Development, a comprehensive survey of basic needs and profit-making projects in each locality as an input for the next Five-Year Plan (1986-90). As a consequence, the Plan is expected to have a much stronger regional development emphasis than in the past. 2.13 CVDB can play a significant role in achieving regional development objectives without overly burdening the Government finances by helping municipalities and village councils (i) select and design cost-effective projects that have a high investment priority, (ii) provide resources for priority projects, and (iii) strengthen financial management and technical capacity of local staff. Because funds for capital expenditures are lent through CVDB, rather than given as grants, local governments will continue to be prudent in their use. Role of the Bank Group in the Urban Sector 2.14 Bank Group assistance has been responsive to the problems created by rapid urbanization and to the Government's desire to promote growth in all parts of the country. Extensive economic and sector work has been carried out, as well as project financing related to urban development in Jordan. Recent studies include the Urban Sector Review, the Water Sector Report and a regional development study. The Bank also plans to carry out a study on municipal management, with special emphasis on resource mobilization and taxation at the local level. Based on discussions of these reports, the Bank's strategy in the sector includes assistance towards improving main urban service levels (water, sewerage, solid waste management, urban transportation); increasing the supply of serviced land in locations and at costs that reinforce sound spatial development patterns and are affordable to relevant commercial and household groups; and strengthening the capacity of local governments to plan, implement, and manage the functions for which they are responsible. - 6 - 2.15 In support of this strategy, Bank lending follows a "three track" approach, which focuses on the water supply and sewerage, shelLer, and municipal subsectors. Seven water and sewerage projects have been undertaken in urban areas; the most recent one, the Greater Amman Water Supply and Sewerage Project (Loan 2483-JO, $30 million) was signed January 31, 1985. The First Urban Development Project (Loan 1983-JO, $21 million), approved in September 1980, and the recently approved Second Urban Development Project (Loan 2587-JO $28.0 million), are addressing the need for cost-effective, low-cost housing in the Amman region and for appropriate educational, health, training and community facilities for people in the lowest 40th percentile of the Amman region income distribution. 2.16 Two loans have been made in the municipal development subsector. The ongoing Amman Transport and Municipal Development Project (Loan 2334-JO, $30 million), is assisting the Municipality of Amman to improve traffic conditions, to upgrade the ability of municipal departments to plan and execute works (including maintenance and operation functions), to upgrade solid waste management, and to initiate systematic investment programming. The project has experienced some initial delays, mostly caused by procurement problems; however, overall progress is now accelerating and is, on the whole, satisfactory. 2.17 The First CVDB Project (Loan 1826-JO, $10 million) was made in 1980 with the objective of improving and increasing the capacity of Local governments to provide urban services. Under this loan, CVDB evolved from an almost bankrupt disbursement fund, controlled by MMRA, to an independent bank that is growing in administrative and operational ability. The loan was fully committed in June 1984. Because of some initial delays caused by difficulties in recruiting suitable personnel and in establishing appraisal procedures acceptable to the Bank for street projects, and to allow sufficient time to complete construction of some subprojects, the closing date was extended to June 1986. However, project execution and disbursements are now proceeding satisfactorily. The proposed project will build upon CVDB I and is designed to strengthen CVDB's capability to help municipalities conceive and execute good projects, especially in the less developed areas of Jordan. III. CVDB - THE INSTITUTION A. Objectives, Functions, Legal Framework and Ownership 3.01 CVDB was established to assist municipalities and villages in the identification, preparation, implementation and operation of projects designed: (i) to meet the basic human needs of even the less developed segments of the population in the country; (ii) to raise the living standards of rural and urban groups by providing improved infrastructure services; (iii) to create local employment opportunities in all regions, except Amman Municipality, even in the least developed, through the financing of productive projects; and (iv) to improve income distribution by integrating the less developed areas in the national development process. Besides assisting in the preparation and financing of projects, CVDB, in the context of the proposed project, will also provide local authorities with technical assistance so that they can carry out their functions more efficiently and economically. - 7 - 3.02 To achieve these objectives, CVDB grants long-term loans to municipalities and villages, takes equity participations in their projects and guarantees loans and manages funds made available by other soarces to its borrowers. All of its activities are within the framework of approved regional and sectoral plans and priorities established by the Government. CVDB plays a promotional role in the field of productive, profit-making, employment-generating projects, as its borrowers (with the exception of the major municipalities) normally lack the expertise and entrepreneurial skills to identify and conceive such projects. For public utility and social infrastructure -ojects, municipalities and villages will continue to depend upon the work pre -ntly being undertaken by ministries and government agencies for project prepara-ion and implementation. The projects' technical proposals, arrangements for implementation and subsequent operation and maintenance, and the analyses of financial and economic viability will be prepared either by ministries and agencies, or by persons or firms hired by the local councils. CVDB will increasingly provide local councils with technical assistance for the identification and preparation of projects. CVDB will continue to perform the technical and financial appraisal of all projects and has started to analyze carefully the solvency of all local councils applying for loans (see para. 4.16). The quality of CVDB's appraisals is improving as its staff gains maturity through training and experience. 3.03 In February 1985, MIRA gave CVDB the responsibility of organizing financial management training for local council staff. In addition, CVDB has played an important role in the formulation of reforms for local government financial procedures and will, through its continued dialogue with local councils, help them improve financial management. Legal Framework 3.04 The CVDB Law of November 1979 established CVDB as a public institution enjoying semi-autonomous administrative and financial status. Eligible borrowers are municipalities, incorporated villages, and entities such as corporations, owned by them. Common Services Councils, which are neighboring municipalities and village councils that have combined to share a particular service, are also eligible to borrow. Funds collected on behalf of municipalities and villages by the Central Government such as national revenue sharing allotment and land and building taxes (para. 2.08) are transferred to CVDB on a monthly basis; a partion serves as collateral for the debt service on its loans and any excess can be withdrawn by the local authorities. The law also specifies the conditions under which local and foreign resources can be raised by CVDB. Ownership 3.05 The CVDB's authorized share capital of JD 12 million (US$30 million) is divided into two classes of shares: those held by the Government and Central Bank of Jordan (CBJ), which have voting powers but are not remunerated, and those held by CVDB's borrowers and earn dividends. At the formation of CVDB, paid-up share capital consisted only of Government-held shares totalling about JD 5.6 million and representing its previous holding in the Municipal and Village Loan Fund (MVLF). By 1984, the paid-up capital had doubled to JD 11.3 million (US$28.3 million) and the structure had changed. The Government owned 65%, CBJ 4%, and the local councils 31%. Further increases in share capital do not appear necessary during the commitment period of the proposed loan. B. Organization, Management and Staffing 3.06 CVDE is administered by a Board of nine Directors comprising the Minister of MMRA (Chairman), CVDB's General Manager (Vice-Chairman), and representatives from Ministry of Planning (MOP), MMRA, Ministry of Public Works (MPW), Ministry of Finance (MOF) and CBJ, and two representatives of CVDB's borrowers. The Board's main authorities and functions are: (i) to determine CVDB's overall policy; (ii) to prepare operational and staff regulations; (iii) to approve loans and other financial assistance; (iv) to appoint auditors; and (v) to recommend capital increases. In addition, the Board may set up ad hoc committees of directors and staff members to which it may delegate some of its powers. The Board meets once a week. 3.07 The CVDB's chief executive officer is the General Manager appointed by a decree of the Council of Ministers upon the recommendation of the Minister of NMRA. He is responsible for implementing CVDB's general policy and Board resolutions, and may exercise any prerogative authorized by the Board and/or delegated by the Chairman. 3.08 CVDB is organized along functional lines in five Departments, each headed by a Manager who reports to the General Manager. The Technical Department is responsible for project appraisal and supervision, for assessing local councils' solvency, for loan disbursements and repayment collections. The Financial Department prepares and implements annual borrowing programs, manages CVDB's short-term portfolio and local councils' deposits. The Internal Audit and Organization Department is mainly responsible for monitoring CVDB's progress in meeting its objectives and to ensure financial probity. The Administration Department provides administrative, logistic and personnel administration support. The Planring and Statistics Department is responsible for recording and analyzing past activities of the Bank and for forecasting. A complete organization chart of CVDB is found in Annex 2. 3.09 In order to streamline and codify its operations, CVDB's Board of Dir--t=.s adopted on April 25, 1985 executive regulations specifying the responsibilities and tasks of each section, division and senior staff position. 3.10 Currently CVDB has about 90 staff members: 65 employees and 25 ancillary personnel. Forty-three perceit of the personnel has worked at CVDB longer than three years. One-third of the employees has at least a bachelors degree, another third has a post secondary degree. Most of the staff are young and approximately half is female. Salaries are set according to Jordanian civil service regulations and vary from JD 70 per month for a clerk to JD 220 for a civil engineer. 3.11 In the past, these salaries have made it difficult to attract and retain experienced technical staff. However. CVDB's General Manager has been able to increase pay levels by remunerating overtime work. Recently the sharp reduction of employment possibilities in Gulf countries, the mild downturn in the Jordanian economy and the rapid growth rate of the skilled labor force have made salaries relatively more attractive and reduced turnover. This is expected to continue for the next few years and should enable CVDB to build and consolidate its personnel strength. However, because the strength of the Technical Department is essential for the success of the proposed project, it was agreed during negotiations that CVDB prepare and review with the Bank an analysis of its staffing requirements not later than one month after the end of each of its fiscal years. 3.12 CVDB has made serious efforts in the past to provide training to its staff. Two Department heads have had extensive training in project appraisal abroad. Two-thirds of the technical staff have attended short courses in project appraisal, management or technical subjects at the Institute of Public Administration and at IDB's training institute. So far training has been managed in an ad hoc manner by the head of the Administration Department. Now that CVDB will be in charge of organizing training of local council personnel, it has set up a Training Division which will also be responsible for training CVDB personnel (para. 4.10). 3.13 The project appraisal expert and the senior civil engineer who are part of the technical assistance component of the proposed project will provide on the job training, mainly for Technical Department personnel (para 4.09). C. Policies and Procedures 3.14 A new Policy Statement, satisfactory to the Bank (Annex 3). was drafted in February 1985 and was adopted by CVDB's Board of Directors on May 9, 1985. The new Statement covers the general goals of CVDB, its management, and its loan, deposits, financial and outreach policies. 3.15 CVDB has also prepared new Project Eligibility Criteria (Annex 4), which are meant as general guidelines for the appraisal of projects. They define technical restrictions, standards, general and specific financial conditions, minimum size, and the documents to be provided with loan applications. The eligibility criteria will be distributed to local councils to serve as guidelines for project identification and preparation. The criteria were ratified by CVDB's Board on May 2, 1985. 3.16 CVDB brought to negotiations an English version of the new General Policy Statement, the Loan Eligibility Criteria and the Executive Regulations, ratified by CVDB's Board of Directors. (The first two documents are found in Annexes 3 and 4.) It was agreed during negotiations that CVDB will not alter the General Policy Statement and the Loan Eligibility Criteria without reaching agreement with the Bank. 3.17 The Policy Statement contains several covenants designed to ensure prudent financial management. To ensure a fair allocation of CVDB's resources among its large number of potential borrowers, and to avoid a disproportionate share of its portfolio being concentrated in a few, large projects located in the bigger and more developed municipalities, the Policy Statement limits CVDB's total exposure in a single project to 1% of its paid-up capital and general reserves (about US$400,000 equivalent at the beginning of 1985) and its total exposure in a single borrower to 10% of the same base (about US$4 million equivalent). - 10 - D. Operations and Finances Long-Term Loans 3.18 CVDB has grown much faster than expected when the First Bank Loan was appraised. Between 1981 and 1984, its long-term loan-' portfolio has increased at the rate of 41.2% per annum, more than three times faster than originally estimated. This performance was due to a higher than expected demand for loans, to the Central Government's ability to provide CVDB with sufficient financial resources, and to CVDB's ability to process loans swiftly. At the end of 1984, outstanding long-term loans to municipalities, villages and common service councils amounted to JD 35.9 million (US$89.8 million). 3.19 Long-term lending reached a peak in 1982 (JD 14.7 million) and has decreased since (to JD 7.7 million in L984). The slowdown is due to the gradual completion of the land acquisition program promoted under the current Five Year Plan, to the overall downturn in economic activities and to the fact that many local councils had reached the statutory limits on borrowing that CVDB used until April 1985 (para. 3.23). The projected level of approval of long-term loans is expected to decrease a little more in 1985 possibly to JD 7.3 million, because the Jordanian economy is still slowing down. In 1986, lending is expected to increase as local councils' incomes increase as a result of the increase of Building and Land taxes (para. 2.08) and their ability to borrow will be measured more accurately by the new solvency test (para. 4.16). Terms and conditions for its long-term loans are described in para. 4.04. Short-term Loans 3.20 CVDB extends two kinds of short-term facilities to assist municipalities in temporary financial difficulty: (a) short-term loans at 7.5% repaid in twelve monthly installments; twelve municipalities had borrowed JD 320,000 at the end of 1984; and (b) overdrafts also over one year but repaid whenever the borrowing municipality has cash inflows, and charged a penalty rate (i) of one point over the highest rate paid by CVDB for its resources, currently 8.75%, (ii) computed on the highest overdraft balance during a month, and (iii) compounded every six munths. This combination makes for an overall effective rate that can potentially be several times the nominal rate on actual balances. For example, during the first semester of 1984, Salt Municipality had to pay an effective annual rate of 12.6% on an average daily balance of JD 45,082, and Karak had to pay 15.25% on an average daily balance of JD 23,088. 1/ Maturities longer than one year. - 11 - 3.21 The revised General Policy Statement sets new limits to short-term facilities: (a) overdraft balances cannot exceed the difference between revenues estimated for the current year and debt service obligations to CVDB; (b) any excess overdraft will be consolidated into short-term loans, which cumulatively cannot exceed 50% of estimated national revenue sharing allotment; and (c) the interest rate relationship is reversed with short-term loans charged interest rates one percentage point higher than overdrafts. Arrears 3.22 De jure there are no arrears on loan repayments because they are automatically deducted from the deposits kept in escrow by CVDB. However, some arrears do occur: because local councils have so far not been allowed to accumulate reserves, random mismatches of revenues and debt-service payments occur at the end of the year, CVDB is forced to grant occasional overdrafts. Because revenues more than cover debt-service, most local councils are technically in arrears only for a short time. The mission's proposal to allow local councils to carry reserves now being discussed for implementation should eliminate most temporary arrears in the future. Two municipalities, Salt and Karak, have had more permanent arrears due to errors in financial planning. The Government has taken special measures to rescue the finances of the two cities and MMRA and CVDB will monitor their finances closely to avoid problems in the future. Loan Rescheduling 3.23 At the end of 1983, CVDB rescheduled loans of 30 municipalities worth JD 9.3 million and in 1984 Loans of 7 additional municipalities worth JD 1.3 million. The reascn for this large debt consolidation was not that these local councils were insolvent or unable to service their existing debt but that they had reached their statutory borrowing limits. The old limit stipulated that a local council was not allowed to borrow more from CVDB that it could repay from 80% of its estimated national revenue sharing allotment, (para. 2.08) regardless of the size of other revenues and of other expenditures. Only profit-making projects were exempted from this ceiling. While this rule was simple and easy to administer, it substantially underestimated the borrowing and repayment capacity of large municipalities for which the national revenue sharing allotment is only a small portion of total revenues. By rescheduling their debt, these municipalities were able to contract new loans with CVDB and use more of their actual borrowing capacity. 3.24 The rescheduling stretched CVDB's resource utilization and, if repeated, could expose CVDB to undesirable maturity mismatches. Because rescheduling was in the form of new ten-year loans, it had to be financed with equity, the only financial instrument with a long enough maturity available to CVDB. As a result of rescheduling, 69% of CVDB's net worth (paid up capital plus reserves) were immobilized for an average of five years. The overall portfolio structure was also changed since, in twelve months, 32% of the portfolio was rescheduled, adding in the process one year to the average portfolio maturity. With the gradual strengthening of local councils' financial management under the proposed project and the new solvency test (para. 4.16), it is unlikely that large-scale rescheduling will recur in the future. - 12 - Liabilities 3.25 Borrowed resources account for 61% of total liabilities and equity. At the end of the 1984, the major lenders were, by order of size: Table I: JORDAN: MAJOR LENDERS TO CVDB Maximum maturity JD million % (in years) Municipalities and Villages 9.09 37.1 1 CBJ 8.26 33.7 5 Time deposits 4.15 16.9 1 IBRD-CVDB I 2.07 8.4 12 la IDA /c 0.95 3.9 30 /a EIB/EEC /d 0.00 0.0 25 Total 24.52 100.0 2.5 (Average)/b /a Maturity left on loan. b Weighted average. /c Two water supply loans in 1961 and 1983 to the Agricultural Credit Corporation transferred to MVLF when it was created and subsequently to CVDB. /d The loans were contracted in 1984, but not yet disbursed (para. 3.28). 3.26 CVDB has borrowed mainly from local sources (88% of outstanding borrowings at the end of 1984). On average, funds from domestic sources are fairly short-term: 54% of total borrowings are short-term (less than one year) and 34% are medium-term (up to 5 years). Municipality and Village deposits can be considered either short-term because local councils can freely draw them down to the minimum needed to cover debt repayments, or long-term because part is de facto kept in escrow by CVDB to cover debt service. All CBJ loans were granted to CVDB for five years and 92Z of the debt outstanding at the end of 1984 requires balloon repayments concentrated between 1986 and 1988. 3.27 Time deposits by institutions such as insurance companies and the Municipality of Amman have grown rapidly since CVDB started collecting them at the beginning of 1984. Those deposits will only be rolled over at maturity if CVDB is willing to continue to offer competitive interest rates, currently 8.75%. 3.28 Foreign borrowings have not been an important or frequent source of funds for CVDB: from IBRD in 1980 and from European Economic Commission (EEC) and European Investment Bank (EIB) in 1984. Later loans carry very favorable conditions (an average interest rate of about 4% and average repayment period of twenty-five years), but they are too small (a total of JD 1,120,000 or US$2,800,000) to affect the debt structure significantly by the time they are fully disbursed. 3.29 The average maturity of borrowed resources, which at the end of 1984 financed 68% of outstanding loans, is one quarter of that of the loan portfolio. The difference in maturities is much less if net worth is taken into account. The proposed minimum debt-service ratio (para. 3.33) is designed to protect CVDB against maturity mismatch risks. - 13 - Share Capital Increase and Debt-Equity Ratio 3.30 Because CVDB has in the past been able to generate large cash flows (JD 1.1 million or 43% of total income in 1984), capital increases have not been necessary. However, as required under the first Bank loan, CVDB has increased its equity base to the point that it is now significantly under-leveraged. Between 1981 and 1984, the paid-up capital was increased by JD 3.5 million even though CVDB was committed to increase it only by JD 600,000 over five years under the first Bank loan; by comparison, the additional accumulated retained earnings amounted to JD 3.2 million. At the end of 1984, the debt-equity ratio was only 0.7:1, well below the statutory ceiling of 4.0:1 stipulated in the General Policy Statement. No further capital increase is necessary in the medium-term and it was agreed during negotiations that CVDB would maintain a maximum debt equity ratio of 4.0:1l'. New Financial Covenants 3.31 Under CVDB I the main financial covenant was the stipulation of a maximum debt-equity ratio. For the new loan two additional covenants have been included to protect CVDB's profitability (para. 3.32) and the risk of maturity mismatches (para. 3.33). CVDB's Margin Over Total Resources 3.32 The marginal cost of borrowing has increased considerably lately. It doubled from 4.7% in 1983 to 9.8% in 1984, well above the 6.8% marginal yield on the loan portfolio. This higher marginal cost of borrowing should remain for the foreseeable future, because CVDB will rely more on time deposits costing around 8.75% and will contract a new Bank loan at around 9%. It was agreed during negotiations that, if at any time CVDB*s margin over total resources would be projected to diminish below 2 points, for the current fiscal year and the following three, the Government would either allow CVDB to increase its lending rates or take other measures to ensure CVDB's profitability. Debt-Service Ratio 3.33 On the basis of its loans outstanding at the end of 1984, CVDB would not be able to meet its debt-service commitments in 1985 and 1986 because of large time deposits maturing in 1985 and of large balloon payments on CBJ loans due in 1986 (Annex 1, Table 7). However, it is likely that the time deposits will be renewed during 1985. It is also expected that CBJ would renew its loans as part of CVDB's financing plan for 1985-87. To protect CVDB against insolvency caused by a temporary mismatch of maturities, agreement was obtained during negotiations that CVDB will have a debt-service ratio in terms of principal!" at least equal to 1.15:1 at the end of each current fiscal year and projected for the three following years. 1/ Defined as: outstanding long-term borrowings over total net worth. 2/ Defined as: loan repayments (principal only) over borrowing repayments (principal only). -14 - Recent Financial Performance 3.34 CVDB's audited income statements and balance sheets for the years 1981 to 1983 and preliminary figures for 1984 are shown in Annex 1, Tables 2 and 3, and the relevant performance indicators are presented in Annex 1, Table 8. Interest income received from the loan portfolio increased by 54% p.a. from 1981 to 1984. As a confirmation of CVDB's maturity as a development bank, other income (mainly interest on time deposits in banks) has contributed steadily less to total income, down from 51% in 1981 to 14% in 1984. Total income increased from JD 1.3 million in 1981 to JD 2.7 million (preliminary figures) for 1984. Over the same period, expenses increased faster than total income (by 35% p.a. versus 28%), mainly because interest paid on term borrowings increased by 55% p.a. Administrative expenses (including depreciation) barely increased (8.2% p.a.). This caused the administrative costs ratio to de,.:line from 1.0% of average assets in 1982 to 0.7% in 1984. The administrative expense ratio may, however, increase in the medium-term as measures are taken to increase staff and as CVDB moves to larger, better equipped offices. 3.35 Preliminary results for 1984 confirm recent trends, i.e. higher cost of borrowing compensated by lower administrative costs. In 1984, CVDB's cash position increased to 9.2% of total assets because the large time deposits collected that year (JD 4.1 million) could not be invested due to the slowdown in disbursements. Nevertheless, CVDB has had a tendency to be over-invested in cash and deposits in recent years, mainly because the average yield on deposits is higher than that on loans, respectively 8.5% and 6.8% in 1984. Financial Projections and Resource Requirements 3.36 CVDB's projected lending on a commitment basis would amount to JD 33.1 million (US$82.8 million) for the period 1985-1988. Because of the normal lags between them, disbursements would be about 12% below commitments. Over the period 1985-1988, CVDB's loan portfolio is expected to increase from JD 36.7 million to JD 45.1 million. It is estimated that, over the period from mid-1985 to end-1987 of the proposed Bank loan, about US$33.1 million worth of commitments would be eligible for Bank financing. At the beginning of 1985, there were JD 3.7 million of available resources, thus leaving JD 29.4 million in resource requirements. While resource requirements are lower on a disbursement basis (3D 25.6 million), funding should be secured on a commitment basis to avoid uncovered lending. Identified resources would cover these requirements (see Table II below). The main sources would be: the collection on loans net of debt-service (44%), the proposed Bank Loan (20%), the increase in short-term liabilities (mainly time deposits which are to be rolled over at maturity: 16%) and the cash-flow generation (7%); the balance would be shared between the first Bank loan, the recent EIB/EEC loans and CBJ (assuming consolidation of previous loans). It was agreed during negotiations that CVDB will prepare and discuss with the Bank not later than one month 1/ CVDB's projected income statements, balance sheets, and fund flows are shown in Tables 5, 6, and 7 of Annex 1; the main assumptions underlying these projections are summarized at the end of Annex 1. - 15 - after the end of each of its fiscal years a financing plan, which would enable CVDB to continue its operation and to achieve the financial objectives referred to in paras. 3.30, 3.32 and 3.33. 3.37 Projected performance indicators are shown in Annex 1, Table 8. CVDB's profits are expected to be halved from the early 1980's level, but will still be satisfactory at above 2% of average assets. The downward pressure on margins would result from a combination of the leveling-off of yields on the loan portfolio and the sharply increasing cost of borrowed funds. Although the spread !'on long-term debt would fall to one point from 2.6 points in 1984, CVDB would still be able to function satisfactorily because its margin on all resources A'would stay above two points. However, if CBJ were not to renew all of the JD 8.5 million that will mature before 1988, or if it were to increase its interest rate above the current 3.5%, CVDB's operating margin would fall under the minimum two-points stipulated in its Statement of General Policy. The projected debt-equity ratio would still be below 1:1 by 1988, and the debt-service coverage ratio would be above the agreed minimum (1.15:1) except in 1986 due to a non-recurring JD4.4 million balloon repayment to CBJ. Table II: JORDAN CVDB FINANCING PLAN 1985 1988 (in JO *000) On a Comnuitment On a Disbursement Basis Basis Projecteo Lending 33,106.8 29.303.7 Contracted or Identified Resources: Resources available at end of 1984 - 3.725.0 3.725.0 Cash flow generation 2.256.2 2,256.2 Loan Collection less Debt Service 13.367.5 13.367.5 Long-term borrowings: IBRD I 1.398.7 1.398.7 IBRO II 6,120.0 5.237.1 EIB/EEC 1.126.1 1,126.1 Short-term liabilities (excluding time deposits) 2,121.1 2,12.1 Total 30.114.6 29,231.7 Resource Gap (-) or Surplus () 992.2 72.0 Resources to be mobilized: (tentative list of sources) Capital increase 730.0 0.0 CBJ 742.0 7.804.4 Time Deposits 7.000.0 7.000.0 Total 8-472.0 14.804.4 l/ Defined as (1) loan income over average loan portfolio less (ii) cost of long-term debt over average long-term debt. 2/ Defined as (i) gross income over average assets less (ii) financial expenses over average borrowings and equity. - 16 - IV. THE PROJECT A. Objectives and Scope 4.01 The objectives of the Second Cities and Villages Development Project (CVDB II) are: (i) to support an institution that can improve the living standards of populations in the outer, less developed regions without significantly burdening the Central Government; (ii) to facilitate the execution of municipal and village development plans by funding well-appraised infrastructure and revenue- earning projects; (iii) to strengthen CVDB's institutional capability and improve further its policies and procedures, especially those relating to project appraisal; and (iv) to support CVDB's role in organizing financial training for local government personnel and CVDB staff. B. Project Description Main Project Components 4.02 The proposed project has five components, of which only the first two would require financing under the proposed Loan. The components are: (i) a US$14.9 million credit line to CVDB; (ii) the purchase of cars and microcomputers for CVDB (US$0.1 million); (iii) technical assistance consisting of two staff years of a Project Appraisal Specialist and three staff years of a Senior Civil Engineer (US$0.5 million); and (iv) training for local councils and CVDB personnel to be organized by CVDB (US$0.3 million). Line of Credit 4.03 The Bank will finance subprojects identified and prepared by local councils (para. 4.14) and appraised and supervised by CVDB (paras. 4.15 and 4.18). The study of local council infrastructure and basic needs currently underway (para. 2.12) is helping local councils identify a pipeline of priority projects. The Bank will finance any of the subproject categories mentioned in CVDB's Policy Statement as long as they are technically, economically, financially and socially justified. Eligible social infrastructure subprojects are: streets and road segments, footpaths, sidewalks and stairs, school buildings, local council buildings and public libraries, cemeteries, health centers, civil works and solid waste collection equipment, local electricity distribution networks and street lighting and other public facilities. The eligible profit-making projects are vegetable and other municipal markets, cold stores, commercial centers and stores, offices, trade centers and workshops, slaughterhouses, and parking garages. - 17 - 4.04 Subloans by CVDB would carry the following annual interest rates: Municipalities Villiges Loans For: Interest Maturity Interest Maturity Infrastructure subprojects 7.5% 11Y/a 6% 16Y /a Profit-making subprojects 8.5% 12Y/b 8.5% 14Y /b /a includes 1 year grace period. /b includes 2 years grace period. Subloan interest rates, maturities and grace periods were agreed during negotiations. The portion of CVDB's subloans to be financed from the proposed Bank loan, based on the estimated weighted average direct and indirect foreign exchange component of all CVDB's subloans, is estimated at about 53%. As with the CVDB I Loan, the second loan would, for simplicity, finance 50% of CVDB's total disbursements (land excluded) for acceptable subprojects. This amount is equivalent to 45% of total subproject costs as 10% would be financed by the borrowing local authority and the remaining 45% by CVDB from other sources. 4.05 With domestic inflation currently at 5% and expected to climb to 6% in 1986 and to 7% thereafter, CVDB's interest rate structure compares favorably with those charged by other institutions. Commercial banks, which have JD 1.1 billion outstanding loans and advances, charge about 10.25% (8.75% rate plus 1.5% for fees and charges). The specialized institutions which have JD 0.4 billion in outstanding loans, charge rates which are approximately the same or slightly lower than CVDB: 5% for JEC, 7% for ACC or similar projects, IDB charges 6.75% for small-scale projects and 7 to 8.25% for larger projects, JCO 6.5 to 8%, and HB 4.5 to 13% (average around 8.5%). 4.06 The present interest rate structure for CVDB loans is justified by (i) the fact that many loans are given for the fulfillment of basic needs which in many countries are financed by grants from the Central Government, (ii) the statutory limitations the Central Government imposes on Local Government's taxation ability, (iii) the low income level of the ultimate beneficiaries and (iv) the fact that loans to local communities are virtually risk free and that the interest rate is net of a risk premium normally included in commercial rates. 4.07 The free limit for subproject submissions is US$125,000 for all subprojects with the exception of public parks, sport facilities, recreation areas, and civil works and solid waste equipment for which it will be US$60,000. For subloans above the free limit, CVDB will submit a completed appraisal report (para. 4.15) to the Bank and for those below the free limit, a simple request supported by a completed Subproject Data Short Form. CVDB, will keep a copy of all appraisals for Bank financed projects. These points were agreed upon during negotiations. Since no aggregate free limit is proposed it was agreed during negotiations that CVDB will submit to the Bank at least the first appraisal report for each subproject category for which it will seek Bank financing. - 18 - Equipment 4.08 The proposed loan will finance the foreign exchange cost (US$100,000) of the purchase of 3 cars and 5 microcomputer work stations (total cost US$125,000). The cars are needed to enable CVDB's Technical Department staff to do more field visits and site supervision. The microcomputers will be used to rationalize data compilation in the Technical and Financial Departments. Technical Assistance 4.09 The purpose of this component is to reinforce the ability of CVDB's Technical Department to appraise and supervise projects. It consists of: two staff-years of a Project Appraisal Specialist and three staff-years of a Senior Civil Engineer. At the request of the Jordanian Government, this project component, which is estimated to cost approximately US$550,000, would be financed not from the proposed loan but either from their own resources or from external grants. Agreement has been reached with the European Economic Commission (EEC) to finance the Project Appraisal Specialist for one year (renewable up to three). A Project Appraisal Specialist joined CVDB in April 1985. In addition, UNDP has indicated that it may be interested in financing, possibly together with the Arab Gulf Fund, a Jordanian Senior Civil Engineer for CVDB. It was agreed during negotiations that CVDB will arrange to recruit and retain a suitable Project Appraisal Specialist for two years and a Senior Civil Engineer for three years by December 31, 1985, that the Government intends to seek foreign technical assistance for these experts, and that in the event this is not forthcoming, the Government would provide such funding from its own resources. 4.10 Training of Municipal and Village Council and CVDB Personnel. CVDB has been formally charged with organizing much needed training in project preparation, follow-up and financial management for local council officials, the total cost of which is approximately US$100,000. CVDB will also continue to train its own personnel in project appraisal, accounting, auditing and municipal finance at a cost of about US$200,000. CVDB has established a division to organize training and would continue to rely on existing Jordanian institutions such as Jordan and Yarmouk Universities, the training institute of the IDB and the Institute for Public Administration. MMRA would transfer to CVDB the funds that it would have spent had it continued to organize the training of local officials. It was agreed during negotiations that the appointment of a qualified training specialist to head the Training Division would be a condition of loan effectiveness. It was agreed during negotiations that: (i) CVDB will prepare detailed training programs for local council and for its own personnel, acceptable to the Bank, not later than December 31, 1985; (ii) CVDB will submit to the Bank, not later than one month after the end of each fiscal year, a report on its training activities; and (iii) the Government will finance the cost of both training programs in case other sources of funds are not available. -19- C. Financial Arrangements 4.11 The proposed Bank loan will be made to the Government of Jordan and onlent to CVDB. It was agreed during negotiations that the signature of a subsidiary loan agreement between the Government and CVDB, satisfactory to the Bank, is a condition of the effectiveness of the Bank loan . Terms and conditions will be those standard for Jordag: 15 years, including three years of grace, with fixed amortization schedule of the principal. The interest rate will be variable for the Government, but it will be fixed for CVDB (see para. 4.13). The portion of the proposed loan earmarked for onlending to CVDB's subprojects (US$14.9 million) will be used to cover 50% of CVDB's subloans (see para. 4.03). 4.12 Since CVDB cannot manage the uncertainty of parity fluctuations, it does not bear the exchange risk on its current foreign loans. The same arrangement would apply under the proposed loan. Similarly, CVDB's borrowers cannot manage the foreign exchange risk. To pass on-a portion of the risk through a flat premium was rejected by the authorities, since it would amount to increasing interest rates which they currently deem adequate. 4.13 CVDB would have similar difficulty in passing on the interest rate fluctuation risk of the Bank loan because the Government will not now allow it to change its lending interest rates. In the short run, CVDB could absorb the interest fluctuation risk since its margin on total resources!, is still large (3.2 points in 1984). But it is steadily declining and projections put it at 2.2 points in 1988 when 82% of the proposed loan would have been disbursed. Hence, CVDB's ability to bear such risk would diminish as the higher cost of marginal resources brings the margin down to the proposed statutory two points minimum (para. 3.32). The willingness of the Government to bear the foreign exchange and interest fluctuation risk was confirmed during negotiations. D. CVDB Project Cycle Identification and Preparation 4.14 Identification of subprojects is the responsibility of local councils and under the project they will be required to prepare feasibility studies or surveys for all subprojects except land acquisition and streets. MMRA's Directorate of Works and Engineering Services will be able to help with the design of smaller projects (para. 2.03), as will CVDB's Technical Department as it gradually improves under the project. Consultants will be retained for the more complicated feasibility studies and surveys and for the design of the larger projects. Appraisal 4.15 CVDB appraises the technical, economic, financial and social justification of all subprojects: financial profitability will be the main criterion for profit-making projects; appropriate cost recovery for street and roads, footpaths and sidewalk projects; and cost effectiveness for school and land acquisition projects. A new appraisal format (see Annex 7, Project 1/ Defined as: (a) gross income/average assets minus (b) financial expenses/ average borrowings and equity (see Annex 1, Table 8). - 20 - File 4, "CVDB Appraisal Form") , to be utilized by CVDB and all its foreign lenders, includes a review of the finances of the local council, a detailed project description, information about project implementation and an economic and financial justification. It contains estimated income and projected cash flow, statements and projected balance sheets and a calculation of the internal financial rate of return. It was agreed during negotiations that CVDB would use the Appraisal Report format (Annex 7, Project File 4) and the Loan Eligibility Criteria found in Annex 4 for each Bark-financed subproject. 4.16 Appraisal of local councils' finances is based on a solvency test which starts by ensuring that the local authority's accounts balance. Projections of revenues available for non-recurrent expenditures are then calculated and compared to the sum of the debt burden on outstanding loans plus planned capital expenditures from their own (non-loan) resources. The result is an estimate of the local authority's capacity to secure new debt. Only 75% of uncommitted, non-recurrent expenditures will be earmarked for down payments and debt service of new loans. This test will help ensure that local authorities could not incur debt incompatible with their resources, and will be an occasion for CVDB to advise them on improvements in their financial management. Loan Committee and Board_Approyal 4.17 Before projects are submitted to CVDB's Board of Directors they are reviewed by the Loan Committee which consists of the General Manager and the Heads of all Departments (see para. 3.08). Frequently loans are sent back to the staff for further analysis or refused at this stage. Once cleared by the Loan Committee, loans are presented for approval to the Board of Directors. Supe rvis ion 4.18 Construction supervision of all projects will continue to be mainly entrusted to the appropriate technical agencies and ministries. However, because in the past, supervision has been lax in a number of cases, CVDB will require that local councils make special arrangements to ensure proper supervision. The Policy Statement stipulates that CVDB will provide a minimum of control, comprising review of final designs before tender, presence at bid opening, inspection of the excavation and foundations, of the basic concrete structures, and of the quality of finishing. CVDB itself will make spot checks and one of its engineers will also be present at the final acceptance inspection. CVDB's borrowers are requirea to submit regular reports on their projects' status. Follow-up 4.19 CVDB has started to send its financial analysts out to local councils to help them with the management of their profit-making projects after completion. The main purpose is to ensure that project outputs are priced so as to generate adequate returns. Monitoring 4.20 In order to help his staff learn from past experience, CVDB's General Manager has decided that subproject completion reports (SPCR) will be prepared for all profit-making projects, not earlier than two years after final - 21 - acceptance of civil works and not later than two and a half years after that date. The reports are submitted to CVDB's Board and to the concerned local councils. 4.21 In order to enhance internal monitoring, CVDB's General Manager intends to reorganize and strengthen the newly created Planning and Statistics Department by reinforcing its staff and equipping it with a microcomputer. It was agreed during negotiations that CVDB would strengthen this division and appoint two statisticians to it by December 31, 1985. Procurement 4.22 Under Government regulations, all tenders for projects undertaken by municipalities or villages must be advertised at least three times in two local newspapers. Under its loan agreements with borrowers. CVDB's prior approval of the terms and conditions of tenders is required. A committee at the municipality or village level reviews the bids that are received and forwards its recommendations for approval to the MMRA if the contract exceeds JD 5,000 (US$12,500 equivalent) or to the district governor if it is smaller. Recommendations sent to the MMRA are reviewed by the Directorate of Works and Engineering Services before being forwarded to the Minister for approval. These procedures are satisfactory, especially in view of the typically small size of projects which are not likely to interest foreign contractors. The average cost of projects financed under CVDB 1 was around US$250,000, only 12 projects out of a total of 85 cost more than US$500,000 iand the largest was estimated at US$1,100,000. The size distribution of projects is likely to be similar under the proposed loan. Local competitive bidding procedures are generally consistent with the need for economy and efficiency in the execution of the project. CVDB Disbursement 4.23 DisDursements are made on the basis of satisfactory evidence of actual expenditures or, for civil works, on the basis of certificates indicating progress made following a site visit. These procedures are satisfactory. Disbursement under the proposed loan is discussed in p. ra. 4.25. E. IBRD Project Execution Bank Review of Subprojects 4.24 Based on the experience under the first loan and the tentative subproject pipeline, it is anticipated that over the next several years CVDB will process about 230 subprojects annually with an average subloan amount of US$70,000. Under CVDB I the average the Bank financed subloan was around US$250,000 and is likely to be about the same under CVDB II. About 120 subloans are expected to be financed by the Bank of which about 50 subloans are expected to be above the free limit (para. 4.07) with appraisals reviewed by the Bank. Disbursement 4.25 Disbursements for subprojects will be made periodically on a reimbursement basis, covering a flat 50% of CVDB's total disbursements for - 22 - eligible projects (para. 4.03), against statements of expenditure (SOE) for an aggregate value of not less than US$100,000 (with the exception of the last one) submitted by CVDB. While the supporting documents will not be submitted to the Bank, they will be retained by CVDB and be available for inspection by the Bank. CVDB's disbursement officers are qualified and the disbursement system has been functioning adequately under the first loan. CVDB has agreed to make satisfactory arrangements with its auditors for the audit of expenditures in line with Bank's requirements (para. 4.28). The Bank's standard disbursement procedures will be usee for the equipment component. Disbursement against expenses for equipment, all of which will be procured by obtaining quotations from at least 3 suppliers, would amount to US$100,000 or 80% of cost net of import taxes (US$125,000), and would be made against SOE of US$10,000 or less. Contracts of more than $10,000 would require standard documentation. 4.26 Special Account. To avoid delays due to lengthy procedures for moving project funds to CVDB and to municipalities and villages, a revolving fund of US$750,000 will be established at CVDB. This amount corresponds to about three months of average projected Bank refinancing. The fund will be replenished against SOE (para. 4.25). The detailed arrangements were discussed and agreed during negotiations. 4.27 Disbursement Period. The proposed Bank loan will be committed over a period of three years. The final date for submitting subprojects to the Bank will be June 30, 1988. The estimated disbursement schedule (Annex 6) assumes full disbursement by December 31, 1990. The closing date will be June 30, 1991. While this period is six months shorter than the DFC disbursement profile for the EMENA region, a shorter period is warranted by Jordan's generally good project execution performance and by the use of a revolving fund. It should also be noted that under the CVDB I project disbursements will take five and one half years, including the initial delay of more than one year caused by difficulties in recruiting suitable personnel and in establishing appraisal procedures acceptable to the Bank. Audit 4.28 The annual audit is performed by a local firm, SABA and Co., which is associated with Touche Ross International. In the past, their audit of CVDB accounts has been of good quality and has been delivered on time, 6 months after the end of the fiscal year. The 1983 audit gave an unqualified opinion of CVDB*s accounts. The appraisal mission discussed with SABA and Co. the introduction of changes concerning the listing of rescheduled loans and of short-term loans or overdrafts, the treatment of frozen assets in the West Bank, and the elimination of the "contra accounts" that list off-balance sheet commitments. It was also agreed that the 1984 audit will review a sample of the JD 1.3 million disbursements made under the first loan through the SOE procedure. Because CVDB saw an advantage in getting their audit report earlier, the new General Policy Statement stipulates that the report should be prepared and circulated to the major lenders within four months of the end of the fiscal year. The auditors will be able to comply with this accelerated schedule. It was agreed during negotiations that CVDB will retain external auditors acceptable to the Bank and that their yearly report will be submitted to the Bank not later than five months after the end of the same fiscal year. - 23 - Monitoring 4.29 The Bank will monitor the progress of the proposed project with the help of a series of documents produced by CVDB and by supervision missions (para. 4.31). CVDB will produce semi-annual progress reports and financial accounts in a format acceptable to the Bank. It was agreed during negotiations that CVDB will send those reports to the Bank not later than one month after the end of its fiscal semester. 4.30 CVDB has been asked to start preparing a draft project completion report for the first Bank loan as required by covenant 2.09(b) of the Project Agreement for CVDB I. It was agreed during negotiations that CVDB will produce a draft PCR for the second project within six months of the closing date of the loan. Bank Supervision 4.31 Bank supervision of the project will require up to 70 man-weeks over the five year period of implementation. Supervision efforts by Bank staff and consultants will be concentrated in the first two years to facilitate a good start and timely execution. Supervision teams will variously include an engineer or architect/planner, a financial analyst and/or a municipal finance specialist. V. BENEFITS AND RISKS 5.01 The major project benefit is the strengthening of CVDB to play a more effective role in municipal and village development. In the short run, CVDB will be strengthened internally to enable it to identify, prepare and appraise local council subprojects better, both in terms of human resources and rationalization of internal practices and procedures. This will be accomplished through staff training and implementation of the new policy statement, executive regulations and appraisal and follow-up techniques. With these institutional improvements in place, CVDB will play a greater role in resource mobilization for local councils and be an effective national organization capable of reaching even the smallest communities throughout Jordan. 5.02 In the longer run, the project is expected to contribute to strengthening management at the local government level. By emphasizing selection of subprojects by local councils, the project places responsibility for investment planning and implementation at the local level, where it belongs. The technical assistance program under the loan is designed to reinforce this emphasis. The appraisal of local councils through the application of more rigorous financial analysis (para. 4.16) will also contribute to more realistic investment planning and will encourage strengthening of communities' capacity to manage resources better by helping them to generate increased revenue and invest it more efficiently. This will be a gradual process but will contribute considerably to the improvement of local finances and the strengthening of institution building in local government. - 24 - 5.03 CVDB's outreach covers the whole country, and it therefore has the possibility of financing projects in all regions of Jordan, outside Amman. Although it lends to municipalities and villages, the ultimate beneficiaries are the residents of those communities whose projects are financed by CVDB. Inasmuch as projects cover a large number of subsectors, they may be expected to touch on the lives of residents in many ways. It is clear that a major benefit of the project lies in the improvement in the population's standard of living through better facilities and infrastructure, which should in turn lead to greater productivity. The project will thus contribute to improving inter-regional income distribution by creating new income and employment in the less developed areas of Jordan and help integrate remote areas with the national development process. 5.04 Almost half of subloans under CVDB I were made to villages (population 2,500 or less) throughout Jordan, and a similar distribution may be reasonably hypothesized under the proposed loan. The project will thus reach some of the more neglected regions, and will impact not only on the communities themselves but also the surrounding rural areas. No attempt has been made to quantify the poverty impact in the absence of reliable regional income distribution data, but the project will undoubtedly benefit some of the poorest segments of the Jordanian population. 5.05 Because timing of subprojects in the pipeline is unknown and many subprojects are as yet not identified, it is impossible to calculate the economic rate of return on subprojects or on the project as a whole. However, it has been possible to estimate the economic rate of return for the 20 profit-making projects financed under CVDB I, which are similar to those that would be financed under the proposed loan. They vary between 10.0% and 31.7% and average 15.0%. The sample was large and representative enough to safely assume that similar subprojects in future years would yield comparable returns, well above the opportunity cost of capital (10%). Financial rates of return will be calculated for all profit-making projects. CVDB's eligibility criteria require that the rate be at least 12%. For other subprojects. such as streets, schools, etc., benefits cannot be easily quantified and the economic rate of return cannot be properly calculated. Instead, insistence by CVDB on least cost solutions and maximum cost recovery from immediate beneficiaries would ensure that subprojects would be justified. 5.06 CVDB performed satisfactorily under the first project and there are no major risks associated with the proposed project as it builds upon experience gained with the first. Nonetheless, if salaries, which are similar to that of the Jordanian civil service, would not increase sufficiently in the future and would become uncompetitive, CVDB would not be able to attract and retain qualified staff to meet the challenges implicit in its ambitious program. This may lead to delays in improving standards in preparation, appraisal and follow-up of projects. This risk is minimized, however, in that there are strong technical assistance and training programs and the General Manager is making every effort to increase staff compensation when it is warranted. - 25 - VI. ASSURANCES AND RECOMMENDATION 6.01 Conditions for loan effectiveness are: (i) that CVDB appoint a qualified training specialist to head its newly created Training Division (para. 4.10); and (ii) the signature of a subsidiary loan agreement between the Government and CVDB, satisfactory to the Bank (para 4.11). 6.02 Assurances were obtained at negotiations that: (i) CVDB prepare and discuss with the Bank an analysis of the staff requirements of its Technical Department not later than one month after the end of each of its fiscal years (para. 3.11). (ii) CVDB will not alter the General Policy Statement and the Loan Eligibility Criteria after negotiations without reaching agreement with the Bank (para. 3.16); (iii) CVDB will maintain a maximum debt-equity ratio of 4.0:1 (para. 3.30); (iv) if at any time CVDB's margin over total resources would be projected to diminish below 2 points, for the current fiscal year and the following three, the Government will either allow CVDB to increase its lending rates or take other measures to ensure CVDB's profitability (para. 3.32); (v) CVDB will have a debt-service ratio in terms of principal at least equal to 1.15:1 at the end of the current fiscal year and projected over the three following years (para. 3.33); (vi) CVDB will prepare and discuss with the Bank not later than one month after the end of each of its fiscal years, a financing plan which will enable CVDB to continue its operations and to achieve the financial objectives referred to in para. 6.03 (iii), (iv) and (v). (vii) CVDB use subloan interest rates, maturities and grace periods mentioned in para. 4.04; (viii) CVDB will use a free limit for subproject submissions of US$125,000 for all subprojects with the exception of public parks, sport facilities, recreation areas and civil works and solid waste equipment for which it will be US$60,000. For subloans above the free limit, CVDB will submit a completed appraisal report (Annex 7, Project File 4) to the Bank and for those below the free limit, a simple request supported by a completed Subproject Data Short Form to be agreed upon at negotiations (para. 4.07); - 26 - (ix) CVDB will submit to the Bank at least the first appraisal report for each subproject category for which it will seek Bank financing (para. 4.07); (x) (a) CVDB will arrange to recruit and retain a suitable Project Appraisal Specialist for two years and a Senior Civil Engineer for three years by December 31, 1985, (b) that the Government intends to seek foreign technical assistance for these experts, and (c) that in the event this is not forthcoming, the Government would provide such funding from its own resources (para. 4.09); (xi) (a) CVDB will prepare detailed training programs for local council and for its own personnel, acceptable to the Bank, not later than December 31, 1985, (b) that CVDB will submit to the Bank, not later than one month after the end of each fiscal year, a report on its training activities, and (c) that the Government will finance the cost of both training programs in case other sources of funds are not available (para. 4.10); (xii) the Government will bear both the foreign exchange and the interest fluctuation risk of the loan (para. 4.13); (xiii) that CVDB will use the Appraisal Report format (Annex 7, Project File 4) and the Loan Eligibility Criteria found in Annex 4 for each Bank financed subproject (para. 4.15); (xiv) CVDB will strengthen its Planning and Statistics Department and appoint two statisticians to it by December 31, 1985 (para. 4.21); (xv) the arrangements for the use of the special revolving fund account are acceptable to the Bank (para. 4.26); (xvi) CVDB will retain auditors acceptable to the Bank and that their yearly report be submitted to the Bank not later than five months after the end of the same fiscal year (para. 4.28); (xvii) CVDB will submit to the Bank semi-annual progress reports and financial accounts, in a format acceptable to the Bank, not later than one month after the end of its fiscal semester (para. 4.29); and (xviii) CVDB will produce a draft PCR for the proposed project within six months of the closing date of the loan (para. 4.30). 6.04 Recommendation. Subject to reaching agreement on the above points, the project is suitable for a US$15.0 million Bank loan on standard terms (15 years with 3 years of grace). 二盡肄二 惡尋棗黑 驀‘藝廈 !&！藝喜！i華‘！藝賽！鳥‘藝藝籮！韋！i!I!i韋l！韋‘！藝賽！韋11!!11 11 FH魚匕臼鳥黑齋露寫寫畫寫；響丰 一賽―&‘姿，荔局―汗”&，右”賽―籌海’&&&&&,&’·“&&&&‘戶森膳 “么“以騙近―仕沫法h仕．劉，,&&‘劉“,&,,”劉”‘謹―渥總藝藝遞偎，濺。三濯候雙發，基罟居＿―目 盪劉，&&&“引‘,&&&”馴”劉·“發“’劊‘三三·“·劊’}p鞏卜層｝ .-．一：二蕾l-―州―r尸妒州―r妒．.r州―計9呂―但屆 &“詠“}&“絨賽‘“衛“&,&”奮藝〕邑”罷‘〕’器繃’〕’&!.!11: }h”而―“論編―&&&!!&&&!!&“·“!!‘〕飛卜磨； .―必讓二。h 11―戶l計妒乏戶―計黔芝＿計戶―計計日I卜r ‘·‘澆＊轎圳”吵；&!&&&:&&&&:&“織‘:&:：朧 &I&,,，賽l&&&&”賽I&,!!&&,!!&&‘。‘:!!&‘戶零卜“ 州颼，。，.1 11尸1.－妒計尸l州→才r―州州任l 劉比h柚司必。h露勵弱h,；引罷劇馴“甚劇”“浙劇“層l :-___:-__._:―二：-_.:_.:―二：_.:l;：龍―,. 馴婦h湯引弱弱森，，露引飾劉談狀：劉“&“劉“日二仕劊盒 于―柚響胎h浴言！-．一邑廈…名電。。dl公呂綵很名認I名認寫屆認認I認忿肥，0‘一 乎，”磚‘”一寫―買調馮斗馮鴉―綺買開為開認實l買幼．,”••綢。．,－一。”&.&&，禺l昤 梅，,,,―。。湔，。―,:,-:,:,：劊：撇：劊：,!!} 二1.___＿…續―．。絀．膩瞬―他拱鐺，，續―寫透日戶 鸚―也震：么仕11&l二I江江C訌斗二―訕乞言他徑．么―二么瞬― 馴誣二二二蘊獸＿二」二。一劊認勰馴號娥論易丰引邑聳暴濛奮薦引變邑禺， 引召齋。二‘引，；盡．鍵劃鍵認：．森，馴買鴆“&&‘•“,&’州•’•．&&“鬥 &&,－一寫―買寫馮狗寫馮―賽買買肩論斗”,”討 -28 ANNME 1 Page 2 of 9 JORDAN - CITIES AND VILIAGES DEVELOMENT BANK Table 2: AUDITED INCOME STATEMENTS (JD'OOO) INCOME 1981 1982 1983 1984 (preliminary) Interest from loan 630.6 1,340.1 1,780.5 2,301.3 Interest from deposits 593.3 608.8 394.4 355.0 Other income 51.5 61.0 101.3 22.0 Total Income 1,275.4 2,009.9 2,276.2 2,678.3 EXPENSES Interest paid 208.3 366.3 590.0 769.0 Salaries 128.4 153.7 165.9 163.0 Admiuistrative expenses /a 90.3 111.4 128.3 114.0 Total Expenses 426.0 631.4 884.2 1,046.0 Net Income 849.4 1,378.5 1,392.0 1,632.3 Dividends to Municipalities 54.6 337.5 387.7 500.0 A Retained Earnings 793.9 1,041.0 1,004.3 1,132.3 /a Including depreciation on fixed assets. Unofficial indication communicated to the mission. %2 ANNEX 1 Page 3 of 9 JORDAN - CITIES AND VILLAGES DEVELOPHENT BANK Table 3: AUDITD BALANCE SEETS. (JD'OCO)* 1981 1982 1983 1984 (preliminary) ASSETS Current Assets Cash 8,449.3 4,542.7 3,102.4 3,725.0 Short-term Loans and Overdrafts 51.2 268.7 540.6 320.0 Current Maturities of Loans 3,855.2 5,589.5 5,593.1 4,148.8 Accrued Interest 365.8 800.8 1,059.6 860.3 Other Current Assets 9.4 136.8 184.5 254.0 Total Current Assets 12,730.9 11,338.5 10,480.2 9,308.1 Lons-term Loans 12,745.1 23,071.4 31,415.1 35,895.0 Less Loans Maturing within One Year 3,855.2 5,589.5 5,593.1 4,148.8 Total Loan Portfolio 8,889.9 17,481.9 25,822.0 31,746.2 Fixed Assets (net) 170.3 172.2 169.0 197.0 TOTAL ASSETS ZL2" 29,992-6 3,7.2 41,.3 LIABILITIES Current Liabilities Short-term Borrowings 0.0 0.0 439.4 0.0 Time Deposits 0.0 0.0 0.0 4,146.0 Municipalities' Deposits 10,206.8 9,377.2 11,001.5 9,088.0 Current Maturities of Borrowings 1,075.3 1,202.8 989.6 943.7 Other Current Liabilities 172.3 525.7 621.9 751.5 Total Current Liabilities 11,454.4 11,105.7 13,052.4 14,929.2 Long-Term Borrowings Central Bank of Jordan 1,277.1 5,364.0 8,436.0 8,258.0 World Bank I 0.0 62.0 733.5 2,,.70.0 IDA 880.0 927.8 938.9 953.0 Less Borrowings Maturing within One year 1,075.3 1,202.8 989.6 943.7 Total Long-term Debt 1,081.8 5,151.0 9,118.8 10,337.3 Equity Paid-up Capital 7,770.4 10,210.4 10,770.4 11,270.0 General Reserves 1,484.5 2,525.5 3,529.6 4,714.8 Total Net Worth 9,254.9 12,735.9 14,300.0 15,984.8 TOTAL LIABILITIES AND EQUIT UA22&~1 2 LJUL.6 1~ LZ .3 -30 - ANNEX 1 Page 4 of 9 JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK Table 4: PROJECTED LENDING ACTIVITY 1985-1988 (JD'OO0) 1984 1985 1986 1987 1988 (Actual) APPROVALS Land Acquisition 1324.2 1000.0 1000.0 1000.0 1000.0 Profit-generating 796.0 800.0 880.0 968.0 1064.8 Roads 4048.1 3000.0 3300.0 3630.0 3993.0 Schools 192.2 1000.0 1100.0 1210.0 1331.0 Electricity 236.5 250.0 250.0 250.0 250.0 Others 1142.0 1256.2 1381.8 1520.0 1672.0 Total Approvals 7739.0 7306.2 7911.8 8578.0 9310.8 COMMITMENTS Municipalities Land Acquisition 996.5 571.1 598.0 619.0 648.5 Profit-generating 675.5 449.1 524.0 596.6 687.5 Others 2262.8 3095.1 3592.3 4074.2 4679.3 Total Municipalities 3934.8 4115.3 4714.3 5289.8 6015.3 Village Councils Land Acquisition 406.1 428.9 402.0 381.0 351.5 Profit-generating 10.0 350.9 356.0 371.& 377.3 Others 2833.1 2411.1 2439.5 2535.8 2566.7 Total Village Councils 3239.1 3191.9 3197.5 3288.2 3295.5 Total Commitments 7173.9 7306.2 7911.8 8578.0 9310.8 DISBURSEMENTS Municipalities Profit-generating 1496.9 400.0 554.6 508.5 585.7 Land Acquisition 1230.5 571.1 598.0 619.0 648.5 Roads 2775.7 1230.8 1890.1 2155.4 2475.9 Schools 736.7 204.3 441.6 647.0 752.5 Electricity 78.4 128.0 146.6 153.2 159.9 Others 951.7 340.8 750.3 868.4 993.9 Total Municipalities 7269.9 2875.0 4381.2 4951.5 5616.5 Village Councils Profit-generating 0.0 114.2 215.6 357.1 366.4 Land Acquisition 441.5 428.9 402.0 381.0 351.5 Roads 1668.7 965.9 1325.1 1359.5 1390.6 Schools 249.9 169.6 330.8 440.2 455.2 Electricity 284.9 164.3 103.2 96.8 90.1 Others n.0 279.4 550.2 562.2 579.7 Total Village Councils 2645.0 2122.3 2926.9 3196.8 3233.5 Total Disbursements 9914.9 4997.2 7308.1 8148.3 8850.0 -31 - ANNEX 1 Page 5 of 9 JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK Table 5: PROJECTED INCOME STATEMENTS (in JD'O0O) 1984 1985 1986 1987 1988 (Preliminary) INCOME Interest on Loans 2301.3 2343.1 2607.4 2937.0 3270.3 Interest from Deposits 355.0 320.4 464.3 348.1 406.7 Other Income 22.0 26.4 31.7 38.0 45.6 Total Income 2678.3 2689.9 3103.3 3323.1 3722.6 EXPENSES Interest on Borrowings 384.0 685.4 800.1 882.3 1030.7 Interest on Deposits 385.0 741.8 797.3 882.0 989.6 Salaries 163.0 187.5 215.6 247.9 285.1 Administrative Expenses /a 114.0 162.5 226.8 298.0 377.1 Total Expenses 1046.0 1777.2 2039.8 2310.2 2682.5 Net Income 1632.3 912.7 1063.5 1012.9 1040.1 Dividends to Municipalities 500.0 500.0 500.0 500.0 500.0 Retained Earnings 1132.3 412.7 563.5 512.9 540.1 la Including depreciation on fixed assets. -32. - ANNER I Page 6 of 9 JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK Table 6: PROJECTED BALANCE SHEETS 1985-1988 (in JD'000) 1984 1985 1986 1987 1988 (preliminary) ASSETS Current Assets Cash and Time Deposits 3,725.0 5,398.3 4,048.2 4,728.9 5,323.2 Overdraft & Short-term Loans 320.0 500.0 750.0 1,000.0 1,250.0 Accrued Interest 860.3 1,249.3 1,338.7 1,436.1 1,533.8 Loans Maturing within one year 4,148.8 4,678.9 5,282.7 5,975.1 6,726.6 Other Current Assets 254.0 279.4 307.3 338.1 371.9 Total Current Assets 9,308.1 12,105.9 11,726.9 13,478.2 15,205.5 Outstanding Loans 35,895.0 36,743.4 39,372.7 42,238.3 45,113.2 Less Current Maturities 4,148.8 4,678.9 5,282.7 5,975.1 6,726.6 Net Loan Portfolio 31,746.2 32,064.5 34,090.0 36,263.2 38,386.6 Fixed Assets 233.0 1,107.5 1,169.5 1,179.5 1,184.5 Less Accumulated Depreciation 36.0 84.1 143.2 202.7 263.0 Net Fixed Assets 197.0 1,023.4 1,026.3 976.8 921.5 LIABILITIES Current Liabilities Short-term Borrowings 0.0 0.0 0.0 0.0 0.0 Municipalities' Deposits 9,088.0 9,542.4 10,019.5 10,520.5 11,046.5 Time Deposits 4,146.0 4,500.0 5,000.0 6,000.0 7,000.0 Dividend Due to Municipalities 500.0 500.0 500.0 500.0 500.0 Other Current Liabilities 251.5 337.6 340.9 378.7 414.2 Current Maturities of Borrowings 943.7 4,665.7 1,482.8 2,538.9 608.4 Total Current Liabilities 14,929.2 19,545.7 17,343.2 19,938.1 19,569.1 Long-term Borrowings CBJ 8,258.0 8,102.8 7,715.6 8,028.4 7,804.4 IDA 953.0 912.7 872.4 832.1 791.8 IBRD I 2,070.0 3,468.7 3,190.2 2,911.7 2,633.2 IBRD II 0.0 306.0 1,117.5 2,964.0 5,237.1 EIB 0.0 703.8 703.8 686.6 650.1 EEC 0.0 422.3 422.3 422.3 422.3 Total 11,281.0 13,916.3 14,021.8 15,845.1 17,538.9 Less Current Maturities 943.7 4,665.7 1,482.8 2,538.9 - 608.4 Total Long-term Liabilities 10,337.3 9,250.6 12,539.0 13,306.2 16,930.5 Paid-up Capital 11,270.0 11,270.0 11,270.0 11,270.0 11,270.0 General Reserves 4,714.8 5,127.5 5,691.0 6,203.9 6,744.0 Total Net Worth 15,984.8 16,397.5 16,961.0 17,473.9 18,014.0 TD5AL LIABILITIES & ED4ITY 50g71. 5,513: - 6 - 33- ANNEX 1 Page 7 of 9 JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK Table 7: PROJECTED SOURCES AND APPLICATIONS OF FUNDS 1985-1988 (in JD'OOO) 1984 1985 1986 1987 1988 (preliminary) SOURCES Retained Earnings 1,132.3 412.7 563.5 512.9 540.1 Depreciation of Fixed Assets 9.9 48.1 59.0 59.5 60.3 Long-term Borrowings CBJ -178.0 -155.2 -387.2 312.8 -224.0 IBRD I/IDA 2,289.5 1,358.4 -318.8 -318.8 -318.8 IBRD II 0.0 306.0 811.5 1,846.5 2,273.1 EIB/EEC 0.0 1,126.1 0.0 -17.2 -36.5 Capital Increase 499.6 0.0 0.0 0.0 0.0 Short-term Sources Municipalities' Deposits -1,913.5 454.4 477.1 501.0 526.0 Time Deposits 4,146.0 354.0 500.0 1,000.0 1,000.0 Other Short-term Liabilities 129.6 86.1 3.3 37.8 35.4 Short-term Borrowings -439.4 0.0 0.0 0.0 0.0 TOTL RESUCS .I2D .2L IJA USES Loans 4,479.9 848.4 2,629.3 2,865.6 2,874.9 Fixed Assets (gross) 37.9 874.5 62.0 10.0 5.0 Short-term Loans -220.6 180.0 250.0 250.0 2.0.0 Other Current Assets -383.9 389.0 89.4 97.4 .47.8 Cash 622.6 1,673.3 -1,350.1 680.7 594.3 TOTALU I9 ._ Resource Needs 0.0 0.0 0.0 0.0 0.0 Resource Surplus 1,140.1 24.4 27.9 30.7 33.6 - 34 - ANNEX 1 Page 8 of 9 JORDAN - CITIES AND VILLAGES DEVELOPMENT BANK Table 8: ACTUAL AND PROJECTED PERFORMANCE INDICATORS (1982-1988) 1982 1983 1984 1985 1986 1987 1988 (-----Actual--) (--- Projected---) Operational Indicators Gross Income/Average Total Assets /a (1) 7.9 7.0 6.9 6.2 6.7 6.8 7.1 Administrative Costs/Average Assets 1.0 0.9 0.7 0.7 0.8 1.0 1.1 Financial expenses4/Average Borrowings and Equity (2) 3.1 3.1 3.7 4.5 4.6 4.7 4.9 Loan Income/Average Loan Portfolio (3) 7.5 6.5 6.8 6.4 6.7 7.1 7.3 Cost of LT Debt/Average LT Debt (4) 3.9 3.9 4.2 5.4 5.7 5.9 6.2 Spread on LT Debt (3)-(4) 3.6 2.6 2.6 1.0 1.0 1.1 1.1 Margin on all Resources (1)-(2) 4.8 3.9 3.2 1.7 2.1 2.1 2.2 Profitablity Indicators Net Income/Average Assets 5.4 4.3 4.2 2.1 2.3 2.1 2.0 Net Income/Average Equity 12.5 10.3 10.9 5.6 6.4 5.9 5.9 Financial Structure Indicators Debt/Equity Ratio 0.5 0.7 0.7 0.6 0.7 0.8 0.9 Debt Service Coverage Ratio (principal only) 3.6 4.7 5.7 4.4/c 1.0 3.6 2.4 /a The ratios are expressed in percentage, except for the debt-equity and debt-service coverage ratios that are compared to 1. /b Including dividends. /c 0.8 if time deposits mobilized in 1984 are included. - 33 - ANNEX 1 Page 9 of 9 Major Assumptions used for the Financial Projections 1. Approvals are assumed to decline by 6% in 1985 (because of the use of the old statutory borrowing limits through April 1985) and are assumed to increase at a moderate rate (about 8 p.a.) thereafter (because of the increase in borrowing capacity caused by increased revenues and the use of a more realistic solvency test). 2. Loans' approvals are as discussed with CVDB staff. Ninety-five percent of approvals are committed in the first year, 5% the following year. Disbursement profiles are as follows: Type of Project Year 1 Year 2 Year 3 Profit-making 20 40 40 Road 70 30 School 30 40 30 Electricity 70 30 Other 40 60 3. Interest on lo.an: 6.8? on average 1984 portfolio; as per revised Statement of General Policy for new loans. Interest from deposits: 8.6% on beginning of the year balance. Other income to grow at 20% from 1984 level. 4. Interest on borrowings: CBJ 3.5%; IDA 0.75%; IBRD I 8.5%; IBRD II 9.29? or 0.75? commitment fee; EIB 8.7? or 1% commitment fee; EEC 1Z. Interest on deposits by municipalities: 4% on beginning of the year balance. Salaries to grow at 15% p.a. (hiring and cost of livirg combined). Administrative expenses to grow at 10% p.a., except for depreciation on fixed assets. Dividends to municipalities set at 35% of net income or JD 0.5 million minimum. 5. Overdraft and short-term loans projected at JD 0.5 million in 1985, growing by JD 0.25 million annually thereafter. Accrued interest equal to 3.4% of outstanding loan portfolio. Other current assets to grow at 10% p.a. over 1984 level. Additions to fixed assets include: headquarters (JD 0.8 million) and cars (JD 15,000) in 1985; and micro-computers (JD 52,500) in 1986. 6. Municipalities' deposits to grow by 5% p.a. over the 1984 level. Time deposits collected by CVDB to increase by JD 0.5 million from 1986 on. Other current liabilities include accrued interest (2% of outstanding long-term debts), accrued salaries (two weeks of payroll) and a small Government grant for building schools. The balance of IBRD I, EIB and EEC loans to be disbursed in 1985; the proposed Second Bank Loan to CVDB according to estimated disbursement schedule (Annex 8). CBJ to consolidate old balloon loans at maturity: JL 0.5 million in 1985, JD 4 million in 1986; JD 1.5 million in 1987, and JD 2 million in 1988. _！斗！ 一號一 37 - ArRM 3 Page I of 21 CITIES AND VILIAGES DEVELOPMENT BANK GENERAL POLICY STATEMENT -38 - ANNE 3 Page 2 of 21 GENERAL POLICY OF CITIES AND VILLAGES DEVELOPMENT BANK INTRODUCTION General 1. The Cities and Villages Development Bank (CVDB) was established in 1979 according to Temporary Law No. 38 as an official public institution, financially and administratively independent. Headquarters are to be located in Amman but CVDB has the right to open branches and to appoint agents anywhere in the Hashemite Kingdom of Jordan. 2. General Goals of the Bank: (a) to finance social infrastructure and profit-making projects of Municipal and Village Councils (Local Councils) and to supervise and follow-up the implementation of these projects; (b) to receive and manage the deposits of Local Councils, of the public institutions, and of other parties upon approval of the Central Bank of Jordan; (c) to provide Local Councils with technical assistance to identify well conceived priority projects, and to evaluate their technical, economic and financial feasibility; (d) to provide Local Councils with guarantees needed to obtain non-CVDB loans and to manage these loans; (e) to participate with equity in profit-making projects of Local Councils. Management 3. CVDB is managed by a Board of nine Directors chaired by His Excellency The Minister of Municipal, Rural and Environmental Affairs (MMRA). The Deputy Chairman of the Board is the CVDB's General Manager and the Board members represent the Ministries of Finance, Planning, Public Works, and of Municipal, Rural and Environmental Affairs and the Central Bank of Jordan. Two additional members represent Local Councils. Meetings of the Board are considered to have a quorum when a minimum of six -embers are present, and when either the Chairman or the Deputy Chairman are present. The General Manager manages CVDB according to CVDB's law and according to regulation approved by the Board of Directors. - 39 - ANNEX 3 Page 3 of 21 The Board of Directors may delegate some of its functions to ad hoc committees comprised of members of the Board and, if necessary, CVDB staff. LOAN POLICY Loan Operation Procedures 4. The following steps must be completed: (a) The Mayor or the Head of the Village Council must, according to the Municipalities Law of 1955, first submit requests for CVDB loans to MMRA for approval. After approval MMRA sends the requests on to CVDB. The requests must contain, besides the minutes of the Local Council's decision on the request, all documents such as plans, feasibility studies, market surveys, etc. needed to justify the investment project for which the loan is sought. (b) Loan requests are carefully appraised by CVDB staff. The loans appraisal are reviewed by CVDB's Loan Committee which consists of the General Manager and all Heads of Departments. Once loans are cleared by the Loan Committee they are presented for approval to the Board of Directors. Loans below JD 15,000 can be approved by an ad hoc committee of the Board of Directors consisting of the Chairman and the Deputy Chairman of the Board of Directors. 5. Loan Agreement (a) After the approval of the Board of Directors an Agreement is signed between CVDB and the Local Council. A copy of such Agreement is attached in Annex A. The Agreement stipulates the conditions of execution of the project for which the loan has been granted, the conditions of the loan such as maturity, interest rate, grace period, etc., the Project Description and supporting documents. (b) The Loan Agreement is signed for the borrower by the Mayor of a Municipality or by his representative, or by the Head of a Village Council or his representative. For Village Councils the person signing the Agreement must submit to CVDB the minutes of the decision of the Local Council empowering him or her to represent it. (c) The Loan Agreement is signed for CVDB by the General Manager. -40- AMNE 3 Page 4 of 21 6. Projects Elizible for CVDB Loans (a) Social Sector Projects - Streets and road segments - Footpaths and sidewalks - School buildings - Public parks, sport facilities and recreation areas - Electricity projects - Civil works equipment - Solid waste collection equipment - Local Council buildings and public libraries - cemeteries - street lighting - Health centers - Other social infrastructure projects - Land acquisition for above mentioned projects (b) Profit-Making Projects - Vegetable and other Municipal Markets (retail and wholesale) - Cold stores - Commercial centers and stores - Offices - Trade centers and workshops - Slaughter houses - Parking garages - Recreation areas (profit-making) - Other profit-making projects - Land acquisition for above mentioned projects. 7. Loan Eligibility Criteria Each proposed loan will be checked against the appropriate eligibility criteria. Such criteria, approved by the Board of Directors, are issued to Local Councils upon request. -41 - AMUE 3 Page 5 of 21 8. Loan Conditions: Rates of Interest and Loan Maturity and Grace Period Municipalities Maturity including Interest Grace Grace Rate Period Period Social projects except sidewalks, footpaths and stairs 7.5% 11 1 Sidewalks, footpaths and stairs 7.5% 6 1 Profit-making projects 8.5% 12 2 Village Councils Maturity including Interest Grace Grace Rate Period Period Social projects except sidewalks, footpaths and stairs 6% 16 1 Sidewalks, footpaths and stairs 7.5% 6 1 Profit-making projects 8.5% 14 2 * Loan conditions are subject to yearly review by the Board of Directors. - 42 - ANNEX 3 Page 6 of 21 9. Grace Period This period is defined as the period during which the borrower may delay repayment of loan principal. The grace period applicable to various types of loans are shown in para. 8 of the document. The grace period is counted from the date of signature of the Loan Agreement. During the grace period the Local Council shall pay interest, computed daily on the outstanding loan balance. Payments of principal are dut on the anniversary of the beginning of the grace period. At the option of the Local Council payments of principal may start in the third or fourth quarter of the calendar year provided it falls within six months of the anniversary of the beginning of the grace period. 10. Project Descriptions Loan application should include all plans, written description, item lists and cost estimates necessary to unequivocally define the proposed project. The documents describing the project will become part of the Loan Agreement. CVDB will only disburse loan proceeds for items included in the project description. 11. Limits on Loan Amounts (a) Loans minima are JD 5,000 for Municipalities and JD 3,000 for Village Councils or the limits mentioned in the appropriate "Loan Eligibility Criteria" whichever is lowest. (b) The maximum loan amount for any single project will not exceed 3% of CVDB's net worth (paid-up capital and reserves). (c) The total amount of CVDB loans outstanding to any Local Council shall not exceed 10% of CVDB's net worth (paid-up capital and reserves). 12. Local Authorities Contribution to CVDB Financed Projects Local Councils will be requested to bear, from their own resources, at least 10% of the cost of profit-making projects financed by CVDB. 13. Use of Loan Proceeds Local Council will be allowed to use loan proceeds only for the items included in the Project Description included in the Loan Agreement. Requests for disbursements for items not included in the Project - 43 - ANNEX 3 Page 7 of 21 Description or items in excess of the number mentioned in the Project Description will be refused. If the local authority was notified by CVDB in writing to respect the agreed project description, and if the local authority insists on modifying or increasing the project substantially without CVDB's agreement, further disbursements will be halted and all previous disbursements will become immediately due and payable to CVDB by the Local Council. 14. Loan Increases Loan increases of up to 25% of original loan amount used to be granted in the past to nearly all local authorities which requested them. This policy has now been discontinued. As of now any loan requested by a Local Council to complete a project for which funds were borrowed from CVDB or from other sources will be evaluated on its own merits. Cost increases caused by modifications of the project not sanctioned by CVDB or other lenders will not be financed by CVDB. Only cost increases caused by unanticipated increases in building quantities (such as those caused by unavoidable modifications of foundation designs) or by unanticipated unit cost increases will be considered by CVDB. 15. Loan Residuals After the project is completed and all disbursements have been made residual loan amounts will be cancelled. Residual amounts cannot be used by local authorities for items not mentioned in the Project Description included in the Loan Agreement, and CVDB will not disburse against expenses for extra-project items. Residual loan amounts will be cancelled by a decision of the General Manager if either of the following two conditions are satisfied: (a) a letter is received from the Local Council requesting the cancellation of the loan residual; (b) the Technical Department advises the General Manager that project disbursements have been completed and that a loan residual remains. If the amount to be cancelled is 10% or more than the amount mentioned in the Loan Agreement, then the said amount, as well as the scheduled principal repayments, will be adjusted. Local Councils will be notified in writing of the adjustment. If the amount to be cancelled is less than 10% of the amount mentioned in the Loan Agreement, then the said amount will not be changed. The last payment(s) mentioned in the schedule of payments will be adjusted to reflect the loan amount cancelled. - 44 - ANNEX 3 Page 8 of 21 16. Local Council Financial Solvency Test For each new loan, CVDB will analyze the applying Local Council's finances to ensure that the Council will be able to repay the new debt incurred. In order to do this, CVDB will make a conservative estimate of resources available to service debt in the future. Projections of future net revenues will be based on the latest actual figures and calculated as: TOTAL REVENUE Minus Opening Balance minus Loan Revenue minus Guarantee Deposits (Amanat) to be passed on by the Council to other institutions. Equals: NET REVENUE Estimates of future net revenue will be calculated using conservative growth rates. Resources available to service new debt will be calculated as: NET REVENUE minus Recurrent Expenses minus Debt service payments (Principal and Interest) minus Capital Investment from own iesources Equals: Resources available to service new debt. Future recurrent expenses should be calculated using realistic estimates of growth rates. Future debt service payments should be calculated using actual repayment schedules of all outstanding loans. Future capital investment from own resources should be provided by the applying Local Council. CVDB will not grant more new loans to any Local Council than can be repaid in any year from 75% of "Resources available to service new debt" (calculated as shown above). 17. Cancellation of Loan Approvals Loans approved by the Board of Directors may be cancelled by the General Manager if the borrower fails to sign a Loan Agreement within three months -of the date of notification of the loan approval. The borrower shall be invited twice in writing, one and two months after Approval Date, to sign an Agreement and shall be notified in writing of the Approval Cancellation. - 45 - ANNEX 3 Page 9 of 21 18. Cancellation of Loan Agreements Loans for which an Agreement was signed may be cancelled by the General Manager if the borrower fails to make any disbursement within one year of the date of Agreement signature. The borrower shall be invited twice in writing to speed up project implementation, approximately six and nine months after Agreement signature and shall be notified in writing of the Agreement Cancellation. 19. Loan Rescheduling Rescheduling of Local Council debt will only be permitted by the Board of Directors upon recommendation by the General Manager. In his report to the Board, the General Manager will explain the special circumstances requiring the rescheduling. This report should include realistic forecasts of Local Council's finances. Rescheduling will be considered upon written request from a Mayor or Head of Local Council accompanied with the minutes of the Local Council's decision supporting the request. The maximum amount of rescheduled loans is equal to the sum of outstanding balances for eligible loans. Principal and interest payments due at the end of the financial year during which the rescheduling is performed cannot be reschedu! -d. Loans for schools and those refinanced by outside lenders, loans for profit-making projects, short term loans and overdrafts, cannot be rescheduled. The interest rate on rescheduled loans is 1% above the current interest rate on loans for infrastructure projects. Rescheduling loan maturities will be decided by the Board of Directors upon recommendations of the General Manager but will not exceed 10 years. The Terms and Conditions of the rescheduling will be confined in an Agreement approved by the Board of Directors and signed for the borrower by the Mayor or Head of Village Council, or their representative, empowered by the Local Council and for CVDB by the General Manager. 20. Short Term Loans Local Councils can be granted Short Term Loans for a period of not more than one year. Such loans are requested in writing by the Mayor or the Head of Village Council together with minutes of the Local Council's decision authorizing the request. - 46 - ANNEX 3 Page 10 of 21 The maximum amount of Short Term Loans outstanding will be proposed to the Board of Directors by the General Manager and will be based on a careful evaluation of the financial situation of the requesting Council. The sum of all outstanding Short Term Loans and overdrafts should not exceed 50% of the sum of current year estimates of the following revenues: fuel taxes 1', building and land taxes, profit and interest paid by CVDB and debt service contribution by the Ministry of Education for school loans. Short Term Loans should consolidate all balances of overdrafts outstanding to the Local Council. The Short Term Loan Agreement, of which standard form is attached in Annex B, will contain covenants which oblige the Local Council to improve its financial situation. Short Term Loans carry an interest rate of one percentage point above the rate of interest on overdrafts. Interest and principal will be repaid in twelve equal installments starting at the end of the sionth following that of the first withdrawal. 21. Guarantees for Local Councils (a) No local authority, except for the Municipality of Amman may procure any loan from whatever source except after securing the Board's approval. (b) The mayor or the head of the village council must submit requests for non-CVDB loans to MMRA for approval. After approval MMRA sends the requests on to CVDB. The requests must contain, besides the minutes of local council's decision on the requests, all documents needed to justify the investment project for which the loan is sought. (c) Loan requests are carefully appraised by CVDB staff. The loan appraisals are reviewed by CVDB's loan committee. Once loans are cleared they are presented for approval to the Board of Directors. (d) Proceeds of loans must be deposited with CVDB to be used only for the items included in the project description. DEPOSIT POLICY 22. Current Accounts Fuel tax, building and land tax, profits and interests paid out by CVDB are deposited in the current accounts of Local Councils. Councils may 1/ "Fuel taxes" consists of a 2% tax on imported goods, licence fees on transport vehicles, traffic fines and fuel taxes. -47 - ANNEX 3 Page 11 of 21 also deposit monies from other sources in their current account. CVDB pays simple interest on current accounts every six months, computed monthly on the lowest balance at the rate of interest of 4%. CVDB withdraws automatically on due date all payments of principal and interest due on loans granted by CVDB and on those guaranteed by CVDB. CVDB will also withdraw any Local Council's contribution to CVDB's share capital subscription on due date. If the current account balance is insufficient to make above mentioned payments CVDB will automatically overdraw the current account. Local Councils may apply in writing to CVDB to withdraw cash from their current account. Such cash withdrawals will be approved as a matter of course by CVDB if the cumulative balance of cash withdrawals does not exceed the difference between estimated sum of fuel tax, building, land tax and interest and profit (paid by CVDB) and debt service contribution by the Ministry of Education for school loans, and the estimated total debt service for the current year. Any cash withdrawal request that would bring the cumulative balance of such withdrawals above the mentioned difference between estimated revenues and debt service obligation will be dealt with under the provisions for Short Term Loans. CVDB charges the current accounts simple interest on overdrafts every six months, computed monthly on the highest balance at a rate one percentage point above the highest rate CVDB pays on its borrowings. 23. Time Deposits Local Councils, other public institutions and other parties, with the agreement of the Central Bank of Jordan, apply to CVDB to open a Time Deposit account. The Board of Directors approves in each case the conditions of Time Deposits. 24. Borrowing Policy CVDB may borrow on the domestic financial market and abroad upon approval of its Board of Directors, and the Cabinet of Ministers. CVDB may issue bonds on the local financial market with the approval of the Central Bank. However, CVDB shall not borrow fron local and foreign sources more than four times its paid-up capital and retained earnings. FINANCIAL POLICY General 25. CVDB will aim at earning a stable positive spread between the return on its average outstanding loan portfolio and the cost of its average borrowed resources and net worth. If the spread were to fall below two percentage points, CVDB would either increase its lending interest rates - 48 - ANNEX 3 Page 12 of 21 or would request a contribution from the Government to compensate for the revenue short-fall until its lending rates would be increased. Any change in CVDB's lending interest rates should be reflected in an amendment to this Policy Statement. Prudent financial management will dictate that the ratio of principal repayment by borrowers and principal due to lenders (principal debt-service ratio) should exceed 1.15:1 over the next three projection years. A drop below this level for more than one year would call for corrective measures, such as rescheduling of debts and/or rediscounting of a portion of the loan portfolio. 26. Financial Projections The Board of Directors will review and approve the Business Plan to be presented by the General Manager during the fourth quarter of each fiscal year. The Business Plan will incorporate projected levels of activity, revenues and expenses. To allow the Board of Directors to decide on the most realistic alternative the plan will include alternative activity projections for the planning period (at least two years), and an analysis of alternative scenarios' impact on CVDB's balance sheets and income statement. 27. Reporting Requirements The General Manager will provide the Board of Directors and, at their request, the major lenders quarterly operating reports. These reports will include the appropriate narrative, statistical information and financial statements describing the activities of the bank. They will also explain deviations from the current Business Plan. 28. Audit CVDB will provide its major lenders independently audited annual financial statements within four months of the end of the fiscal year. The auditors will also provide a detailed management letter covering accounting systems, compliances with internal policies and external regulations and any relevant matters that will deem materially affecting the welfare of CVDB. 29. Outreach Policy To promote the development of Municipalities and Village Councils in Jordan CVDB will: (a) help Municipalities and Village Councils identify worthwhile projects; (b) help Municipalities and Village Councils in the preparation of projects. In this CVDB will advise local authorities on how to conduct market surveys and estimation of needs or how to commission feasibility studies. CVDB will also review with them preliminary designs and financial plans of projects. -49 - ANEK 3 Page 13 of 21 (c) help Municipalities and Village Councils controlling the quality and thoroughness of technical site supervision. For this purpose CVDB will send its engineprs to control at least: - final designs - bid opening procedures - the quality of excavations and foundations of project buildings - the quality of the basic concrete structure of project buildings - the quality of LI.tish of project baildings - the final acceptance procedure (d) help Municipalities and Village Counrils with the follow-up of the project after final completion. CVDB will help them price project outputs so that they cover capital and recurrent costs; (e) review togethkr with the local authorities the performance of profit-making projects after two years of operation and present a report on findings to CVDB's Board and to the local authorities. OTHER 30. Internal Organization CVDB will aim at developing an effective and balanced internal organization conducive to the attainment of its objectives. The General Manager will ensure that the activities of CVDB are carried out in a responsible and professional manner. To that effect, CVDB will recruit and develop a qualified staff. They will be given appropriate compensation, benefits and training. 31. Revision of Policy Statement Any r-dification to this statement should be reviewed and approved by the Board of Directors upon the recommendation of the General Manager. As may be required by specific loan agreements, each lender will be given an adequate opportunity to study and comment on the proposal. 32. Training CVDL is responsible for organizing general training of its own personnel and training in the field of municipal finance and project management for Mayors, Heads of Village Councils, Local Council members anG Local Council staff. -50 - ANNEX 3 Page 14 of 21 CVDB GENERAL POLICY STATEMENT APPENDIX A LOAN AGREEMENT -51 - ANNEX 3 Page 15 of 21 TRANSLATION CITIES AND VILLAGES DEVELOPMENT BANK AGREEMENT BETWEEN: 1ST PARTY: CITIES AND VILLAGES DEVELOPMENT BANK. 2ND PARTY: KUNICIPALITY/VILLAGE/COUNCIL OF// WHEREAS the second party has requested the first party to grant him a loan to be utilized for the following objectives (referred to hereinafter as the project) and undertakes to implement the project in accordance with the drawings, specifications, conditions and terms attached to this agreement which is considered part and parcel thereof, and whereas the first party has agreed to grant the second party a loan amounting to JD to be expended on the aforesaid objectives, therefore and in consideration of the first party accepting to grant the said loan, the second party agrees to comply with the following conditions and be bound therewith. 1. The second party shall undertake not to borrow from any local or foreign source except with the prior written approval of the first party who may not agree to such borrowing if he considers the financial situation of the second party does not enable him to carry new financial obligations. 2. The second party shall undertake before contracting with any engineering firm or consultant engineers for the preparation of the studies and designs and the supervision of the execution of the project to obtain the prior written approval of the first party concerning the other contracting party and the agreement to be concluded therewith. 3. The second party shall not place andy tender financed by the aforesaid loan before obtaining the written approval of the first party on the terms of the tender and the first party may delegate a representative to take part in the committee concerned with opening or scrutinizing the offers but with no right to vote. 4. (a) The sum of the loan may not exceed JD to be paid in installments and on dates deemed appropriate by the first party in the light of the progress of the work and its requirements. (b) In cases where it appears that the amounts will not be sufficient for the completion of the project fo which the loan has been granted, the second party undertakes to bear all additional expenses necessary for the completion of the project. - 52 - ANNEX 3 Page 16 of 21 5. The receipt signed by the second party or the voucher in accordance with which the sum of the loan or any pat thereof was paid, or the cheque issued by the first party and drawn on any of the local banks and paid to the second party or the bank - note for the said sum or any part thereof shall be conclusive evidence for the receipt thereof. 6. The first party shall charge on the loan paid to the second party interest at the rate of _ per annum calculated from date of payment until the date of settlement. 7. (a) The second party urdertakes to repay the loan and the interest in equal installments as follows: 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 12th 13th 14th 15th (b) The date of maturity of the first installment and the interest shall be fixed from the end of after the conclusion of this agreement for projects that do not require imports from outside jordan and for projects that require such imports. 8. The second party may pay any installment or installments or interest before the date of maturity. 9. The second party shall provide the first party, on his request any information relating to: (a) What has been spent on account of the loan during a month; (b) general expenses until the end of the month; (c) progress of the work and the phases it reached and what is expected to be performed during the following month. 10. The first party may audit the account of the loan granted to the second party at any time deemed suitable and the second party shall permit the - 53 - ANNEX 3 Page 17 of 21 representative of the first party to have access to the books, registers and documents belonging to the second party in whatsoever is connected with the loan and the project. 11. The first party or his representative shall have the right to check on the project at any time and shall be afforded all necessary facilities. 12. The second party shall ensure in favor of the first party and until full settlement of the loan an annual insurance policy for the constructions and equipment related to the project for which the loan was granted or any party thereof as required by the first party with an insurance company approved by the first party. The amount of the insurance shall be equal to the amount of the loan or the balance still due. 13. The second party may not sell or passing to others the project for which the loan was granted or any party thereof without the prior written approval of the first party. -54 - ANNEX 3 Page 18 of 21 CVDB GENERAL POLICY STATEMENT APPENDIX B SHORT TERM LOAN AGREEMENT 55 ANNEX 3 Page 19 of 21 TRANSLATION CITIES AND VILLAGES DEVELOPMENT BANK NAME OF DEBTOR: ADDRESS: UNDERTAKING A CURRENT DEBTORS ACCOUNT TO: CITIES AND VILLAGES DEVELOPMENT BANK - AMMAN In consideration of granting us financial credit in the form of current account or other Bank facilities up to the amount of JD for a renewable period of one year payable on demand, we undertake and agree to the following terms:- 1. For the purposes of this undertaking, the word "Bank" shall be construed to include the Cities and Villages Development Bank. 2. We shall have the right to draw from this credit within specific arrangements to be ratified by the Bank in Amman. 3. The interest on the drawn amounts in accordance with this credit becomes due from us from time to time as per the account books of the bank and shall be charged at the rate of % per annum and to be debited to our account monthly (or on dates allowable by the laws of the Country) with a compound interest to be added to the amount drawn in accordance with this credit and shall be considered as part of the drawn amount together with all commissions and other Bank expenses customary in Bank transactions. The Bank may raise the rate of the yearly interest on the amounts becoming due per their account books if they notify us of same in accordance with a letter provided the interest so raised shall be effective from the date of mailing the said letter to us. 4. We undertake to pay to the Bank all monies due from us together with the interest, expenses and commissions in accordance with the Bank books and registerq at any time you may request. 5. The Bank shall enter the amounts so paid on account of this credit on the day following the day of payment and if the following said day is a holiday, the payment shall be entered on the day that follows the holiday. 6. The Bank shall have the right to appropriate any amount, papers or documents that are subject to endorsement or any bond belonging to us that reach the Bank or becomes under its disposal and shall enter same as amounts paid by us in the settlement of the account due from us or that becomes due from time to time in accordance with the Bank books. -56 - ANNEX 3 Page 20 of 21 7. We hereby agree that if you do not receive our approval of the statement of account sent to us once a month at our address registered in your books, within fifteen days from date of mailing it to us, the said account shall be considered as finally approved and we will have no right to object to it as our failure to answer shall be construed as an admission of the correctness of the account, provided that it shall be out duty, if the statement of account is not received by us within fifteen days from the set date for its mailing, to request that it be sent to us during another week, and failing to do so, we will forfeit the right to complain for not receiving the said statement of account. 8. We admit and agree that the Bank books and accounts constitute conclusive evidence of the amounts due or shall become due on this credit and declare that the accounts of the Bank are considered final and correct in relation to us, and that we shall not have the right to object to it and we forgo in advance any legal right that may permit us to ask for checking the Bank accounts by the court or to ask for the production of its accounts and books to the court. 9. We also admit and agree that any period of grace of prolongation of the period of credit or payment thereof that may be granted to us by the Bank will have no bearing on the obligations placed on us by virtue of this credit, nor will it mean any relinquishment in any way. 10. The Bank may at any time cancel or revoke this credit absolute discretion and will without any prior notice to us and without having to show cause necessitating such an action and that it may ask for the settlement of all monies due with interest, expenses and commissions imposed thereon by virtue of clause four above. 11. If and when this credit becomes due in accordance with clauses 4 and 10 above and if we fail to settle all monies due with interest, commissions and expenses accruing on this credit as shown in the Bank books we undertake to pay legal interest at the rate of % (or at the rate allowable by the laws of the country) on all amounts due from us starting from date it becomes due until full settlement waving the right for notice or protest. 12. Any claim or notice to be addressed to us by the Bank in connection with any matter concerning this credit shall be considered as duly served on us if it is sent to us by registered mail on the last address known to you. 13. The debtor authorizes the Bank to credit himself with amounts due to it out of the securities deposited in the Bank each month after withholding securities requested to meet the various obligations. 14. In case of having recourse to courts in connection with this credit or for any dispute or claim arising out of it, we do consent that the court of Amman or any other court to be designated by the Bank shall be the - 57 - ANNEX 3 Page 21 of 21 competent court to adjudicate upon any dispute or claim arising out of this undertaking and we forgo in advance our right to object to the jurisdiction and competence of the court we have agreed upon in advance or the court to be designated by the Bank. 15. If recourse to the courts does not take place as stated in Clause 14 above, we undertake to pay to the Bank all fees and expenses incurred by the Bank in addition to lawyer fees to be assessed as agreed in advance at the rate of 10% of the amount claimed. This day Month Year 2nd Party 1st Party -58 -ANE4 Page 1 of 18 CITIES AND VILLAGES DEVELOPMENT BANK LOAN ELIGIBILITY CRITERIA Draft January 30, 1985 -59 - ANNEX 4 Page 2 of 18 LAND ACQUISITION Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application or a group of such municipalities and/or village councils. 2. Type of Projects: Acquisition of land. 3. Technical Restrictions: CVDB will finance the acquisition of land if the applying local government has submitted sufficient proof that it plans to use the land to be purchased for an acceptable investment project, that the size of the land is close to that needed for the planned investment, that it has considered alternative plots of land that would meet the requirements of the project and that it has chosen the land with the lowest price. 4. Standards: None. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: None. 7. Minimum Size: None. 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council's decision on purchase of land signed by all council members; (c) Cadastral plan(s) showing zone and plot numbers of each plot to be bought; (d) Table for each plot to be bought with zone/plot number and names and addresses of owner(s); (e) Site plan of proposed use of land with indication of land use zoning and setback and other restrictions, if any; and (f) Cost estimates prepared by Governorate level Department of MMRA. -60 - ANNEX 4 Page 3 of 18 SCHOOLS Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application or group of such municipalities and/or village councils. 2. Type of Project: Building new primary, preparatory comprehensive or secondary schools, extending them or substantially rebuilding them. 3. Technical Restrictions: CVDB will only finance new schools or extension if classroom capacity is insufficient in a settlement: - if (2 shifts) daily pupil per classroom ratio is larger than 40 in primary, 50 in preparatory and 60 in secondary schools, or if classroom capacity is sufficient in a settlement and - if rented facilities are considered unsatisfactory by the Ministry of Education or if the yearly cost of rented facilities is more than 6% of the cost of constructing a new school of the same classroom capacity. CVDB will consider financing reconstruction of educational facilities on a case by case basis, but only if reconstruction costs are less or equal to 80% of a new building of the same classroom capacity, and - if the local government has purchased all land needed for the project. 4. Standards: In accordance with specifications set for this purpose by the Ministry of Education. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: The Ministry of Education must agree to finance 50% of the cost of educational facilities. 7. Documents to be provided by applicants: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Letter of approval by Minister of Education; (c) Minutes of Local Council decision concerning proposed school(s) signed by all council members; - 61 - ANNEX 4 Page 4 of 18 (d) Site plan showing proposed building, surrounding building and streets (2m/m); (e) Architectural plans and sections (2cm/m); (f) Soil test results; (g) Cost estimates prepared by Governorate level Department of MMRA; (h) Letter for Local Council specifying by whom the project construction will be supervised; (i) Report of local authority justifying project either on the grounds of crowded existing facilities or on the basis of excessive rental cost; and (j) Letter from the Local Council indicating size, location, and ownership of land on which school(s) is to be built. OFFICES Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application. 2. Type of Project: Construction of new offices as separate buildings or extension of existing buildings. 3. Technical Restrictions: CVDB will finance the construction of offices if: - a careful survey shows that in the settlement where the offices are planned the vacancy rate of offices is less than 10%; - and if local government has submitted a plausible list of potential tenants with proof of their ability to pay proposed rents; - and if no other office buildings are being built which would absorb excess demand for office space; - and if local government can guarantee to transfer all the project income directly to CVDB; - and if the local government has purchased all land needed for the project; - and if the financial rate of return of the office project, based on realistic estimates of costs and rental income, is larger than 12%. - 62 - ANNU 4 Page 5 of 18 4. Standards: Public spaces and unrentable areas should be kept below 20% of total building area. Expensive wall, ceiling and floor finishes should be avoided. Office buildings of 150 m2 or more should include central heating systems and sufficient electrical systems. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: Rent contracts should be written to at least cover capital and recurrent costs of the building. 7. Minimum Size: 100 mz. 8. Documents to be submitted with the loan applications: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed office building signed by all council members; (c) Site plan showing proposed building, surrounding building and streets (2mm/m); (d) Architectural plans and sections (2cm/m); (e) Soil test results; (f) Cost estimates prepared by Governorate level, Department of MMRA; (g) Letter from Local Council specifying by whom the project construction will be supervised; (h) An economic feasibility study. BUS AND TAXI.STATIONS Eligibility Criteria I. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application or group of such municipalities and/or village councils. -63 - ANNEX 4 Page 6 of 18 2. Type of Project: Construction of new bus and taxi stations and/or extensions or renewal of existing facilities. 3. Technical Restrictions: CVDB will only finance the construction of a bus or taxi s-a'ion if: - the settlement does not already have such a facility; - and if a carefully conducted survey proves that bus and taxi traffic is sufficient to require a separate station; - and that the current arrangement of bus stops and taxi stations or parkings causes excessive congestion and/or pollution; - and if the proposed station is located in such a way as to avoid generating unnecessary traffic and traffic mode changes (Example: a bus and taxi station located too far from the settlement centre may force all passengers travelling by bus to travel to and from the center by taxi rather than on foot.); - and if the design of the station satisfies all safety requirements; - and if the station is dimensioned to accommodate a traffic load not greater than the current weekly peak load plus the increase in this load for the next five years; - and if the local government has purchased all land needed for the project; - and if the financial rate of return of the station, based on realistic estimates of costs and benefits, is larger than 12%. 4. Standards: Building and covered areas should be kept to a minimum. Toilet facilities should be provided for each station with more than four bus bays. Cafeteria facilities should only be added if the area surrounding the station does not have such facilities and is unlikely to provide them. Size and access of bus bays should be designed wherever possible to avoid buses and taxis backing up into traffic or in areas where pedestrians are likely to pass. Where necessary, barriers should be used to segregate pedestrians and vehicles. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: Bus and taxi fees and cafeteria rents should be set high enough to cover both capital and recurrent costs of the station. Separate subsidiary accounts should be kept by local government to record expenditures and revenues of the station. 7. Minimum Size: None. 64 - ANNEX 4 - 64 - Page 7 of 18 8. Documents to be submitted with the loan applications: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed bus and taxi station signed by all council members; (c) Site plan showing proposed building, surrounding building and streets (2mm/m); (d) Architectural plans and sections (2cm/m); (e) Soil test results; (f) Cost estimates prepared by Governorate level, Department of MMRA; (g) Letter from Local Council specifying by whom the project construction will be supervised; (h) An econmic feasibility study. STREETS AND ROADS Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application. 2. Type of Project: Paving local streets inside municipal or village council limits, paving through road segments for which the municipality or the village council is responsible and paving sidewalks for eligible streets and through roads. 3. Technical Restrictions: Paving streets and through road segments will only be financed by CVDB if: - the rights of way have been determined and all aecessary land is acquired; - and if the new pajed area directly connects with the pavel street and road network of the settlement; - and if at least 20% of the frontage of each street to be paved consists of properties on which buildings exist or are being - 65 - ANNEX 4 Page 8 of 18 constructed, or if construction of buildings has been assured to t1he municipality or village council by licences backed by substantial financial guarantees for at least 30% of the frontage of each street. 4. Standards: Local streets should not be paved wider than six meters, without median strip, even at intersections. The pavement width should be six meters, even if the right of way is larger than six meters. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: Municipalities and village councils must be prepared to commit themselves in a Covenant of the Loan Agreement to recover up to 50% of street and road paving costs and up to 100% of sidewalk costs, from each beneficiary in proportion to his frontage. Cost recovery should be achieved within at most three years of completion of works. When possible, municipalities and village councils should be encouraged to obtain advance payment from beneficiaries. 7. Minimum Size: Total length of street and road segments must be at least 1 km. 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed streets and roads signed by all council members; (c) Site plan showing proposed streets, sidewalks and road segments and plots on which either buildings exist, buildings are under construction or the construction of buildings is guaranteed by deposits (amanat) (scale: 1/2,500); (d) Cost estimates prepared by Governorate level, Department of MMRA; (e) Letter from local council specifying by whom the project construction will be supervised. TRADE CENTERS AND WORKSHOPS Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application. 2. Type of Project: Construction of groups of workshops and/or small industry sites to be rented to local artisans. -66- ANNEX4 Page 9 of 18 3. Technical Restrictions: CVDB will finance the construction of workshops if: - the vacancy rate of workshops in the settlement does not exceed 10%; - and if the local government has decided to remove artisans using powered machinery ta a common area outside the city center; - and if the union of artisans (or the chamber of commerce) has agreed collectively to pay rents for the new workshops that would be high enough to cover capital and recurrent expenses; - and if the local government has purchased all necessary land for the project; - and if the financial rate of return of the workshops/trade ccnters, based on realistic estimates of costs and rental income, is larger than 12%. 4. Standards: Individual workshops should not be larger than 60 mz and not higher than 4.50 m (inside dimensions). Expensive finishing materials should be avoided. Sufficient electric installations should be provided. One flush toilet will be provided in each workshop. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: Rent contracts for the workshops should be written to at least cover capital and recurrent costs and should include a rent escalation clause to keep rents at least on par with the general price level. 7. Minimum Size: Five workshops. 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed workshops/trade center signed by all council members; (c) Site plan showing proposed building, surrounding buildings and streets (scale 2mm/m); (d) Architectural plans and sections (2cm/m); (e) Soil test results; (f) Cost estimates prepared by Governorate level, Department of MMRA; - 67 - ANNEX 4 Page 10 of 18 (g) Letter from Local Council specifying by whom the project construction will be supervised; (h) An economic feasibility study. VEGETABLE AND OTHER MUNICIPAL MARKETS (RETAIL AND WHOLESALE) Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application or any group of such municipalities and/or village councils. 2. Type of Project: Construction of new vegetable markets with individual closeable stalls and/or extension or renewal of existing market. 3. Technical Restrictions: CVDB will only finance the construction of a vegetable market if: - the settlement does not have any vegetable market; - and if a carefully conducted survey has estimated the number of stalls required, their size and the likely rents to be charged for them; - and if the settlement already has a market and if a careful survey has estimated the number of additional stalls .equired; - and if a building cost estimate has been made based on a preliminary design; - and if all information has been provided by the local authorities to perform a careful economic and financial evaluation of the proposed market and if this evaluation has shown that the proposed market is economically and financially justified. Extension of existing markets by 20% or more must be justified by a demand survey similar to those conducted for new markets. Extension of less than 20% will be justified by a list of applicants and/or rental contracts for the planned additional stalls. Renewal should be justified only on grounds of health improvement or maintenance cost reduction; - and if the local government has purchased all land needed for the project; -68 - ANNEX 4 Page 11 of 18 - and if the financial rate of return of the vegetable market, based on realistic estimates of costs and benefits, is larger than, 12%. 4. Standards: The design and specification of the market building should reduce construction costs to a minimum. Use of expensive cantilevers, covered passage-ways and other formalistic architectural additions should be avoided. Covering of walls and floors with decorative stone will not be allowed. Both design and specifications should ensure easy cleaning and maintenance. For retail markets, individual stalls should not exceed 18 m7 and not be higher than 4.50 m (inside dimensions) and parking space should not exceed 160 M2 per stall. One toilet should be provided for each six stalls and should be located in a convenient centrally located area. For wholesale markets, individual stalls should not exceed 60 mz and not be higher than 5 m (inside dimensions) and parking spaces should not exceed 240 m2 per stall. One toilet should be provided in each stall. Renewals and extensions should also satisfy the above quantity and quality standards. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: Vegetable market fees and rents should be set high enough to cover both capital and recurrent cost of the facilities. Separate subsidiary accounts should be kept by the local government to record expenditures and incomes for the market services. 7. Minimum Size: None. 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed vegetable market signed by all council members; (c) Site plan showing proposed building, surrounding buildings and streets (2mm/m); (d) Architectural plans and sections (2cm/m); (e) Soil test results; (f) Cost estimates prepared by Governorate level, Department of MMRA; (g) Letter from Local Council specifying by whom the project construction will be supervised; - 69 - ANNEX 4 Page 12 of 18 (h) An economic feasibility study. (i) Letter from the Local Council indicating size, location, and ownership of land on which the proposed markets are to be built. PARKING GARAGES Eligibility Criteria 1. Type of Settlement: Any municipality. 2. Type of Project: Construction of parking garages. 3. Technical Restrictions: CVDB will finance the construction of parking garages if: - _a carefully conducted feasibility study prepared by an independent economic consultant for the municipality proves that a garage is needed and would be profitable; - and if the local government has purchased all land necessary for the project; - and if the financial rate of return of the parking garage, based on realistic estimate of costs and benefits, is larger than 12%. 4. Standards: The efficiency of space utilization in the garage should be maximized. Gross area per car parking place should not exceed 27 m2. 5. General Financial Conditions: The municipality should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: Parking rates should be set so that revenues would at least cover capital and recurrent expenditures during the third year of operation. The municipality should be required to keep a separate subsidiary account to keep track of the parking garage's revenue and expenses. If the garage is used for part of the time by municipal employees, their parking charges should be debited from the municipality's salaries and benefits account and credited to the parking garage account. 7. Minimum Size: 20 car parking places. 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; -70- ANNEX 4 Page 13 of 18 (b) Minutes of Local Council decision concerning proposed parking garage signed by all council members; (c) Site plan showing proposed building, surrounding buildings and streets (2mm/m); (d) Architectural plans and sections (2cm/m); (e) Soil test results; (f) Cost estimates prepared by Governorate level, Department of MMRA; (g) Letter from Local Council specifying by whom the project construction will be supervised; (h) Feasibility study on proposed project commissioned by local authority; (i) Letter from the Local Council indicating size, location, and ownership of land on which the proposed parking garage is to be built. SOLID WASTE COLLECTION EQUIPMENT Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application or group of such municipalities and/or village councils. 2. Type of Project: Purchasing solid waste compactor, bin or drum trucks, night soil collection vehicles, street sweeping vehicles, containers, and compost treatment plants; 3. Technical Restrictions: CVDB will finance: - a solid waste collection vehicle, only if it can be justified by a sufficient quantity of solid waste uncollected or collected by open trucks (calculations should be based on not more than 0.5 kg/day/person not properly served); - a night soil collection vehicle, only if it can be justified by a sufficient number of septic or holding tanks that need to be served by the proposed vehicle; and - a compost plant, only if a feasibility study proves that the population it will serve would generate compostable solid waste to operate the plant. 4. Standards: None. - 71 - ANNEX 4 Page 14 of 18 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: Garbage and night soil collection fees should be raised gradually to cover the full cost of garbage and night soil collection and street cleaning. Separate subsidiary accounts should be kept by the local government to record expenditure, income and arrears for these services. 7. Minimum Size: One solid waste or night soil collection truck, or 10 containers or one compost plant. 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed solid waste collection equipment signed by all council members; (c) Detailed technical specifications for proposed equipment; (d) Cost estimates prepared by Governorate level, Department of MMRA; (e) Feasibility study justifying need for proposed equipment. PUBLIC PARKS, SPORT FACILITIES AND RECREATION AREAS Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application or group of such municipalities and/or village councils. 2. Type of Project: Establishment or improvement of public parks, sport facilities and recreation areas. 3. Technical Restrictions: CVDB will only finance such projects if: - the local authority can justify the proposed investment, based on unmet social and health requirements of its population; - and if such facilities will be accessible to all inhabitants of the local community on foot or by public transportation; - and if the facility has been carefully studied and designed and represents the least cost solution meeting requirements; - and if the local authority has the means to properly maintain and operate the facilities. -72 - ANNEX 4 Page 15 of 18 - and if the local authority has purchased all land needed for the project. 4. Standards: None. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: The local authority should try to recover as much as possible the cost of facilities from users. This can be done by charging entry fees or by auctioning off the right to exploit food and drink facilities. 7. Minimum Size: None. 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed facilities signed by all council members; (c) Site plan showing proposed facilities, surrounding buildings and streets (2mm/m); (d) Architectural plans and section and landscaping plans (5mm/m); (e) Cost estimates prepared by Governorate level, Department of MMRA; (f) Letter from Local Council specifying by whom the project construction will be supervised; (g) Letter from the Local Council indicating size, location, and ownership of land on which the proposed facilities are to be built; (h) An economic feasiblity study. SLAUGHTERHOUSES Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application or group of such municipalities and/or village councils. 2. Type of Project: Construction of slaughterhouses. - 73 - ANNEX 4 Page 16 of 18 3. Technical Restrictions: CVDB will only finance such projects if: - the proposed slaughterhouse is justified by properly prepared estimations of the number of animals now slaughtered in unsanitary conditions; - and if the proposed abattoir is designed so as to minimize investment and operation costs; - and if the proposed facilities will be served by clean piped water and proper sewer evacuation; - and if the local authority has the means to operate the proposed facilities; - and if the local authority has purchased all land needed for the project. 4. Standards: None. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: The local authority should agree to charge users of the slaughterhouse fees that would cover as much as possible of the capital and operation costs of the facilities. 7. Minimum Size: 15 m2. 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed facilities signed by all council members (including decision to recover part of cost of facilities); (c) Site plan showing proposed facilities, surrounding buildings and streets (2mm/m); (d) Architectural plans and section (2cm/m); (e) Cost estimates prepared by Governorate level, Department of MMRA; (f) Letter from Local Council specifying by whom the project construction will be supervised; (g) Letter from the Local Council indicating size, location, and ownership of land on which the proposed slaughter house is to be built. (h) An economic feasibility study. 74 - ANNEX 4 Page 17 of 18 CIVIL WORKS EQUIPMENT Eligibility Criteria 1. Type of Settlement: Any municipality or group of village councils. 2. Type of Project: Purchase of civil works equipment such as front loaders, bulldozers, scrapers, etc... 3. Technical Restrictions: CVDB will finance the purchase of civil works equipment if: - the local authority is able to justify at least 70% capacity utilization (based on a 40-hour week); - and if the local authority has drawn up performance specifications to be used for the procurement of the proposed equipment that is acceptable to the Ministry of Municipal and Rural Affairs. 4. Standards: None. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: None. 7. Minimum Size: None. 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed civil works equipment signed by all council members; (c) Detailed technical specifications for the proposed equipment; (d) Cost estimates prepared by Governorate level, Department of MMRA; (e) Feasibility study justifying need for the proposed equipment. FOOTPATHS, SIDEWALKS AND STAIRS Eligibility Criteria 1. Type of Settlement: Any municipality or area governed by a village council at the time of submission of the loan application or group of such municipalities and/or village councils. -75 - ANNEX 4 Page 18 of 18 2. Type of Project: Paving of footpaths, sidewalks and stairs. 3. Technical Restrictions: CVDB will finance: - sidewalks: if they are built alongside already paved roads, if the local authority pledges to recover 100% of this cost from beneficiaries in three years or less, and if all land has been acquired for the project; - footpaths and stairs: if they connect dwelling and other buildings to paved streets or other footpaths, if the local authority pledges to recover 100% of their cost from beneficiaries in three years or less and if all land has been acquired for the project. 4. Standards: Sidewalks should not be paved wider than 2.50 meter, even if the right of way is wider. Footpaths and stairs should not be paved wider than 1.50 meter even if the right of way is wider. At intersections between footpaths and streets bollards should be installed to prevent vehicles from using footpaths. 5. General Financial Conditions: The municipality or village council should pass CVDB's "General Solvency Test." 6. Specific Financial Conditions: Municipalities and village councils must be prepared to commit themselves in a covenant of the Loan Agreement to recover 100% of paving sidewalks, footpaths and stairs from each beneficiary in proportion to his frontage. Cost recovery should be achieved within at most three years of completion of works. When possible, municipalities and village councils should be encouraged to obtain advance payment from benefiriaries. 7. Minimum Size: None (except minimum loan amounts mentioned in CVDB's Policy Statement). 8. Documents to be submitted with the loan application: (a) Letter of endorsement by Minister of Municipal and Rural Affairs; (b) Minutes of Local Council decision concerning proposed footpaths, sidewalks and stairs signed by all council members; (c) Site plan showing proposed footpaths, sidewalks and stairs (scale: 1/2,500); (d) Cost estimates prepared by Governorate level, Department of MMRA; (e) Letter from Local Council specifying by whom the project construction will be supervised. -76- ANNEX 5 Page 1 of 1 JORDAN CITIES AND VILLAGES DEVELOPMENT BANK Estimated Disbursement Schedule Disbursement Cumulative during period Disbursement Cumulative IBRD FY CY (US$ million) (US$ million) Percentage 1986 Second Semester 1985 0.75 0.75 5.0 First Semester 1986 0.75 1.50 10.0 1987 Second Semester 1986 1.20 2.70 18.0 First Semester 1987 1.80 4.50 30.0 1988 Second Semester 1987 2.50 7.00 46.7 First Semester 1988 3.00 10.00 66.7 1989 Second Semester 1988 2.10 12.10 80.7 First Semester 1989 1.50 13.60 90.7 1990 Second Semester 1989 0.60 14.20 94.7 First Semester 1990 0.40 14.60 97.3 1991 Second Semester 1990 0.40 15.00 100.0 -77 - ANNEX 6 Page 1 of 1 JORDAN CITIES AND VILLAGES DEVELOPMENT BANK Project Files Listing 1. Service Delivery System 2. Local Government Finance in Jordan 3. Review of the Five Most Important Specialized Financial Institutions in Jordan 4. CVDB Appraisal Form IBRD 14569R .-.N OCTOBER 1983 - - fLEBANON S Y R I A N A R A B R E P U BLIC l R AQ MEDTERRANEAN SEA * 5At 2 s 1 R B D -A M M A N 5 A U D 1 A R A B l A l S R A E L 07 \ ? 1o R D A N M'., -..POPULATION DISTRIBUTION AND M A A N ADMINISTRATIVE DIVISIONS ARAB -.- ELECTEDAN CrNTERS-&a ARAEUB L C180 pmo REPUBLIC 3=00 OF EGYPT °·00° PERsON5 PER SOUARE KILOMETER: - - -.--=' 7o - Od 500 - 3000 [ 4 ETER50 0 60 - - - - SU.GOVERNORATE 90uNDARIES io-- --- GOVERNORATE COUNDARIES S A U D I A R A B I A \\\X\, OCCUPPIED TERRITORIES