Uganda - Northern Reconstruction Project

&iCL7L 3UGa-O - Documet of The World Bank FOR OMCIAL USE ONLY MICROFICHE COPY Report No. P- 5744-UG Type: (PM) ReportNo P-5744-UG TSCHANNERI/ X34079 / J10079/ AF2IN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 51.9 MILLION TO THE REPUBLIC OF UGANDA FOR A NORTHERN RECONSTRUCTION PROJECT APRIL 6, 1992 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.  ii Currncy unit = Uganda Shilling (U Sh) US$1.00 = U Sh 1000 (Febnuy 1992) U Shl = US$ 0.001 SDRI = US$1.38104 (March 4, 1992) US$1.00 = SDR 0.7241 YYEGRIX AMI ^1^ Metric System ABBREVIATIONS AND ACR ADP - Agriculture Development Project CAP - Community Action Program C'rB - Central Tender Board CMEU - Coordination, Monitonng and Evaluation Unit DANIDA - Danish Intemational Development Agency ERP - Economic Rec.very Pregramme of GOU FY - F;Acal Year of the World Bank Group unless stated otheiwise GDP - Gross Domestic Product GON - Govemment of the Netherlands GJOU - Government of Uganda IBRD - International Bank for Reconstbction and Development ICB - intemational Competitive Bidding IDA - Intemational Development Association LCB - Local Competitive Bidding MLHUD - Ministry of Land, Housing and Urban Development MAAIF - Ministry of Agriculture, Animal Industry and Fisheries MOE - Ministry of Education and Sports MOH - Mioistry of Health MOLO - Ministry of Local Government MOWTC - Ministry of Works, Transport and Communications MPED - Ministry of Planning and Economic Development MWEMEP - Ministry of Water, Energy, Minerals and Environment Protection NGO - Non-Govermental Organization: NRP - Northern Reconstmction Project OPM - Office of the Prime Minister PAPSCA - Program for the Alleviation of Poverty and the Social Costs of Adjustment PIU - Project Implementation Unit PPF - Project Prepaation Facility RC - Resistance Council/Committee UNDP - United Nations Development Programme UNICEF - United Nations Children Fund UPTC - Uganda Posts and Telecommunications Corporation WDD - Water Development Department of MWEMEP GOVERNMM July 1 - June 30  FOR OFFCL4L USE ONLY liii REPUBIJC OF UGANDA NORTHERN RECONSTRUCTION PROJECT CREDIT AND PROjECT SRY Bonrower: Republic of Uganda Beneficiary: Uganda Posts & Telecommunications Corporation (UPTC) for a portion of the credit Amount: SDR 51.9 million (US$71.2 million equivalent) Terms: Standard IDA Terms with 40 years maturity Rtieleding Terms: US$11.5 million would be relent to UPTC for 20 years, including 5 years of grace, at an interest rate of 7.73 percent per annum, with UPITC bearing the exchange risk. ~nandng Plan: LO Foregn TRWl (US$ milfion) IDA 10.4 60.8 71.2 Government of Uganda 10.1 - 10.1 Gov. of the Netherlands 2.2 4.2 6.4 DANIDA 3.3 7.2 10.5 Total 26.0 72.2 98.2 Rate of Return: 24 percent for the highways component Sbtff Appraisal Report: Report No. 1041 1-UG Map: IBRD No. 23506 This document has s 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.  - 1 - MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE IDA TO THE EXECUTIVE DIRECrORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UGANDA FOR A NORTHERN RECONSTRUCTION PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Government of Uganda for SDR 51.9 million, the equivalent of US$71.2 million, on standard IDA terms with a maturity of 40 years to help fiance a Northern Reconstmction Project. US$11.5 mil}ion of the Credit would be relent to the Uganda Posts and Telecommunications Corporation (UPTC) to reestablish a telecommunications link from Kampala to Oulu and related works, for 20 years, including 5 years grace, at an interest rate of 7.73 percent per annum, with UPTC bearing the exchange risk. The Government of the Netherlands would finance US$6.4 million for the Community Action Program as a grant to the Government of Uganda. DANIDA would finance US$10.5 mfllion as a grant for the rehabilitation of feeder roads and the improvement of maintenw-ce capacity for feeder roads. wuq and S lBackguound 2. Uganda is endowed with considerable economic potential. Its soils and climate can support the production of a wide variety of crops and livestock, while its lakes are rich in fish. Unfortunately, this potential has not been fully realized. In fact, throughout most of the 1970s and early 1980s the country suffered from civil wars and generalized instability that destroyed the economic base to such an extent that today GDP, the volume of exports, and the number of export products are all much smaller than they were at the beginning of the 1970s. With the coming to power of the National Resistance Movement in 1986, peace and security have gradually been restored in most parts of the country, permitting a resurgence of economic activity. In 1987, the Government introduced its Economic Recovery Programme (ERP) of investments for rehabilitation and policy reform to facilitate the economy's recovery from the devastation of the war years. The principal objectives of the ERP are: to promote economic rehabilitation and growth; to restore internal financial stability and achieve low inflation; and to reduce the imbalances in the exneal accounts, particularly through increases in the volume and diversity of exports. The ERP has been supported by two Economic Recovery Credits (ERC I and ERC II) and a Structural Adjustment Credit from IDA, two arrangements under the Stuctural Adjustment Facility and two arrangements under the Enhanced Structura Adjustment Facility from the IMF, and assistance from other multilateral and bilateral donors. 3. The economic recovery in most of Uganda since 1987, which resulted in GDP growth of between six and seven percent annually, has not been matched in the north, where inseurity has persisted and normal development activity was not possible. Over the last couple of years, however, the security situation in much of the north has significandy Improved with large numbers of rebels and bandits surrendering or being captured by the army. The majority of war refugees have returned to their land and have resumed proJuction. The civil war in the north has resulted not only In heavy loss of life, but in the destuction and neglect of upkeep of most of the physical infrastrcture in the area and in a further decline in the already poor social services. The historic economic disparities between  south and north have been widened by the war, threatening the long-term political and social integrity of the nation. 4. The main objective of the proposed Northern Reconstruction Project is the short and medium term reconstruction of essental economic and social infrastructure in secure areas of the north 1/ to restore the economic productivity of the region. This would begin the process of reducing the historical disparity between the north and the south of the country, thus increasing the potential for sustained securty and for a reduction in defense expenditure, which is a major objective of the ERP. Ihe project would also strengthen the capacity of local government agencies to plan and manage the reconstruction and rehabilitation program and increase local capacity to maintain the physical and institutional infrastructure. Longer term reconstruction and capacity building would be included in future sector investment projects, some of which are already under preparation. The proposed project would thus help the Government to address the most urgent needs for reconstruction while at the same time laying the foundation for longer-term economic and social development. Proiect Descito S. The project would include interrelated activities in eight sectors. Increased nroduction in agriculture would be achieved mainly through the sale of inputs to farmers. Inprovement in feeder roads and m urban and rural markets, combined with the rehabilitation of certain sections of highways, would facilitate the marketing of agricultural outputs. Basic telecommunications service would be restored. Social welfare would be improved through assistance to water supply and sanitation, and education and training. A Community Action Program would allow for community initiative in the identification and implementation of micro-projects. 6. Project components: (I) Agriculture ($6.2 million). The ongoing IDA/IFAD-assisted Agricultural Development Project (IFAD II, Cr.1539-UG), approved in 1984, finances agricultural inputs for districts in northern and eastern Uganda and has experienced major delays due to the insecurity in the north. The closing date for the credit was extended to March 1993 to allow this project to be restructured and completed now that the securitjr situation has improved. The Northern Reconstruction Project would support the continuation of the agricultural activities of the Agricultural Development Project beyond March 1993, consisting of the provision of agricultural and fishing inputs through retail traders, adaptive research and improved agricultural extension services, and a pilot rural credit program using a group approach. (Hi) Community Action Program ($6.4 million). A social fund would finance small-scale community-initiated projects in three districts in the project area. Applications from community groups would be evaluated according to an agreed set of criteria by a committee in each district, which would include a technically competent NGO operating in that district. Once approved, the micro project would be execuied by the LI Th projet ama oU pdmrtn conga tf seven disalc: Apc, GCl&, Ei4gm, RWma, L PaOaa, wd Soro. Some acdvAtta wlU aW be cant oe i die foier Wen Mk Re8ion, compw ed of An, Moay, ad Mb Dls$ca.  -3 - communiy wfith the assistne and guidance of the distict repre e of the line Ministry concared and the NGO. The selecdo of micr-projects and their imple on would be done on the district level, with the Coordinaon, Montoring and Evaluadon Unit (CMEU) in the Office of the Prime Minister (OPM) providimg overall guidance and control. The con et wold be wholly financed by the Govermnmet of the Netherlands as a gat. (ii) Education and Taini ($12.3 million). Mhis would consist of iegrat teacher training, provision of tool kits and teahing materWals for technical instues, and rebabilitation or construction of 266 primary schools with commumity participation in the selection and constriction of the schools. (iv) Feeder Roads ($10.5 milion). The rehabilitation of about 270km of priority feeder roads in seven districts would be done by conors. An additional 60km of feeder roads would be rehabilitated by mobile rehabilitation units of the Mmistry of Local Govemment and by local communities. The component would be wholly financed by DANIDA as a grant. (v) Highways ($30.2 million). To reestablish the main regional links, about 360km of eistang roads in the northern disticts would be rehabilitated and regravelled and about 90km of the Kafu-Karume section of the Kampala-Gulu road rehabilitated and resealed. (vi) Telecommunications ($13.3 million). A digital microwave link would be constructed between Kampala and Gulu and related installations provided to reestablish a basic service to the north. (vii) Urban ($8.3 million). The main activities under this component are the rehabilitation of selected public markets, roads and drains in the major towns in the project area. (viii) Water Supply and Sanitation ($6.8 million). This consists mainy of the restoration of a basic service of water supply and sanitation in urban areas through low-ost methods and provision of improved rural water supply to high-priority rural areas (especially those where Guinea worm is prevalent) through the provision of boreholes with handpumps, involving the communities. (ix) Project Administration ($2.5 million). Project Implementation capacity would be strengtened through (a) the provision of technical assistance to district administtions and local councils, and the CMEU, and (b) support of part of the cost of project adiston of tie CMEU. The tWal cost of the project, which is to be completed within five years, is estimated at $98.2 million equivalent, with a foreign exchange component of $72.2 million. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of dibrements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Uganda are given in Schedules C and D, respectively. The locations of project investments are shown on Map IBRD No. 23506. The Staff Appraisal Report No. 10411-TJG, dated April 6, 1992, is also attached. 7. The Iitonal weaknesses which chaterie al government instiutions in Uganda are particularly severe in the nort. Traditionally, the ablest and best educated northerners have migmted to the south, and the war has resulted in the deaths of many of those who remained. Unlike the rest of Uganda, there have been as yet few retunees. Ihe CMEU, under the direct responsibility of the Minister of State in the Office of the Prime Minister Resident in the North, has been established to provide support to the line ministries and district admLiistrations for the implemenation of the project. The project will provide technical assistance and management support to the CMEU and to the implementing agencies in the line minstries to assist project implementation on the national as well as the district level. Experienced and qualified NGO's operating in different districts would provide management, logistical and technical support to the district adiniratns and the communities.  -4- 8. The main tesponibilit for the implementaton of the project componen would be with the line minidsties and the Uganda Post and Telemmuncaions Corporation (UPTC), as fllows: Mistry of Agriculture, Anmal ndustry and Fiheries for agriculture; Minstry of Education and Sports for educaton and trainig; Ministry of Local Governm for feedet roads and for ura works; Minstry of Works, Transport and Cmuca ion br highways; UPTC for tecomunicatons; and Ministry of Water, Energy, Minerals and Environmt Proec for water supply and sanitation. Most of these implementing agencies have already gatered exper with the implementation of Bank-ssistd projects. An adequately staffed CMEU would be mainted in the OPM to coordinate, facilitate and monitor project _mplemenaIon, and to be responsible for the overall implementa of the Community Acton Program. A Steerg Committee - composed, Itner atla, of the Perman Secretaries of the participadng line ministries - would be creatad as the main policy makling body end to facilitat inter-inis coordination. The district adminis on, which include staff from the line ministes, would cary out activities at the local level. P,oec Suafl 9. The components of this project would become part of the w3rk progrm of eist instuions, such as district administrions, line miies, and NGO's. While performance has been mixed in the past, the experience under the NRP and the support to be provided (see paraO 10) would strengthen the exeting capacity. To help further ensure sustanabilit, Government has agreed (a) to increase tariffs so that urban services could be self-financed, and (O) to cary out an anmual review of the road mantenance budget. The Goverment's provsions for would be reviewed during annual Implementn Review Workshops for the project to ensure that they are satisfactry. llsnseAMd from_Pevious PankllDA lvv 10. Since the NRP is a muti-sectoral project, experience from IDA operations in agriculture, roads, education, health, water, poverty alleviation and teecommunications is relevant to it Lessons learned, which have been taken into consideration in the design of tLe proposed project, include: the need for specific arrangements and conditionalities to assure the timely avaiability of countpart funds; the need to define clearly titutional arrangementB by the time of appraisal, inluding the job description of all new positions and the identification of suitable candidtes for the national posts. The implemention experience of the Alleviation of Poverty and the Social Costs of Adjustment Projec (PAPSCA, Credit No. 2088-UG) is most directy relevant to the NRP, namely that there should be clearly defined Implemeion arrangements, particuarly for procurement and d and that complexity should be avoided. Even though the NRP is maltisectora, the primary responsibility for implementation of the diferent sectoral componens lies with the respecive line Mistry, where experienced proje imple ion units exist in most cases. Additional measures incorporated in this project to ensure efficient project eecution and to minimize delays in Implentatin a reliance on a rationaly administered salary supplementation for national s, involvcment of Non-Governmea Organizations, and technical assistance where needed.  -5s- gaioeA foBnk vmD 11. Since 1987 the Bank has taken the lead among donors in assisting Govermnt to etablish and fumd a ptogram for the reconstuction of southern and central Uganda, following 15 years of devastaton to the counuty's economic and socil inastructre. The Govenmen and dons now look to the Bank to play a siar role !n northern Uganda, a partdcularly vulnerable regio, so far left out of the recovey progm becs of seuriy conern. Te efforts of the Naional Resistance Movemem Govenmntm to reestblish peace and security in this region through selective use of the military need to be complemented by economic ant social programs to reduce the disparity between the north and the rest of the country so as to big the n IN Into the ecomic mainstream. IDA support for this reconsruction effort woud help assure tat the project is designed so that priority needs are addressed, instittional development requirements are taken into account, and that adequate operation and maintenance arr;ngements are created. A successful beginning to northern reconstruction, with assistace fom ID ., the Govermnent of the Netherlands, and DANIDA, is likely to attract the assistance of other donors in the fuure. Areed ActO!= 12. It has been agreed (a) with the Governnt that it would: (i) sign grnmt agreements with the Govenmnt of the Netherlands for the Community Action Program by February 28, 1993, and with DANIDA for the feeder roads component by March 31, 1993; Qi) carwy out he rural credit scheme with the assistance of an appropriate fnanci intmediary and not procure insecticides or other agro-chemicals which are included in its list of environmentally- banned agro-chemicals; (Iii) by not later than four months before the begiig of each fiscal year over te period of FY93 to FY98, review with the Association the budgetay requiremens and the proposed budgetary allocation for road maintenan; (Iv) through local authordties, revise the tariff and charges for urban services by June 30, 1993, to achieve cost recovery fur recurrent expenditures; (v) limit the total additional external fiacing for invesments to be carried out by Coordination, Monitoring and Evaluation Unit (CMEU) during the project period to $12 million equivalent, except with prior cosultation of IDA; (vi) open and mahitain a Project Account and make deposits adequate to cover the quarterly expeaditure in U Sh covered by the Government; and (vii) cary out a Mid-Term Review joindy with IDA by March 15, 1994. 13. ( of credi effectiveness would be for the Govermnent to (i) open the Project Account and deposit the Wit amount in U Sh, and (ii) appoint the key staff of the CMEU. Cndi Of m would be: (i) for tihe agritwue cmponent, Government to provide IDA with overdue audited acounts for the Agriculura Development Project (Cr. 1539-UG) and the Southwest Region Agricultre Rehabilitation Project (Cr. 1869-UG); (1i) for the highwas component, Government to provide IDA with overdue audited accounts fur the Fourth Highway Project (Cr. 1803-UG); and (ii) for the t imao component, (a) the signing of a subsidiary loan agreement, satisfactory to IDA, by the Government and the UPTC, (b) UFIrC to provide IDA with overdue audited accounts fur the Second Telecommunications Project (Cr. 1991-UG), (c) the Associaton to be satisfied tht UVPC is able tD caay out Its operations and conduct its affais in conformity with sound administrative praices, and (d) UPTC to pwvide satisfactory evidence that land and dghts in respect to land are available for the sites required for the enicati cponenet  Edllviro Am=ec 14. lhe project has been designed to minimize e onentl risk (Environmental Screening Category B). A National Enviroment Action Plan for Ugarda is being prepared with the asisnce of the Bank, which would provide a frmework for fire environmental decision-making. The NRP has been identified and planned with the close involvement of the intended beneficiaries through visits of Bank and (IOU staff to all the districts proposed for inclusion in the proJeat area, and the active paicipation of the district administrations and NGO's. Since the project deals almost exclusively with the rehabilitation of exing facilies, no major adverse envirnmevtal impact is likely to occur. Ithe main environmental concerns in YaIaI relte ft agto-chemicals, the well-being of livestock, and livestock watering. No agro-chemicals would be financed that are included in the eiroenlly banned list. Integrad pest management would be introduced where appropriate. Watering points already exist, and their sdection for rehabilitation will partly depend on whether there is a danger of overgrazingTeconservation of ccments wfll be addressed where necessary; no major rivers originate in the project area. Measures to control soil ersion would be incorporated into m rhabilitaion and improvement In reconstruction, components would be inluded for adequate sanitation facilities and for solid waste removal. Where appropriate, measure for carrying out dnvironmentg d the implemenation of agricultural etnion work would be nsited. No involunty resettlemen of groups of families would be involved in the project. Pro Objective CaX=gfie 15. The project would benefit the population in the poorest and most war-devastated distrc in Uganda, who have t far gained very little from the recovery program. Women would in particular benefit through the integration of their concerns into the relevant project eomponents. 16. Relatively small investments in esnt iructure, socia services, and support to agriculture will remove the major bottlenecks to thrsump of productive activities and will begiS to alleviate poverty. The project would also spport the government's long-term nation-builgobjectives by beginning the process of reducing the hircal economic diswies between the north and th south, thus increasing the ptenta for _suned peace in the region and allowing for a reduction in defense expendtu, which would contribute to overall economic growth in Uganda. An eoonomic analysi was carried out on the highways component (accounting for 31 percent of total project costs), which gave an economic rate of return (ERR) of 24 percen Riska 17. E= although the securi sitbation in the north has improved considerably in the last coule of years, small groups of armed bandits remain In Kiqgum, Gulu and Soroti District. The proje-t ;s desiged with sufficient flexibility to allow s -ne degres of  -7- reallocation of resources between districts and sectors. The priority to be given to different geographical areas In the implementation of some project components would therefore be periodically adjusted to minimize risks to personal safety, to provide unhindered access to project areas, and to ensure that all project components can be effectively implemented and adequately supervised. Second, the investments - in both physical structures and institutional reforms - may not be adequately maintained after the completion of the project. This issue would be addressed through community involvement in constructicn and maintenance wherever appropriate. It would also be addressed through the choice of technologies to make maintenance and operation more affordable to the communities and more suitable for community participation. Third, the risk that the Government may not have sufficient capacity to implement the project in the north in a timely ana efficient manner is being minimized by providing institutional support (including a Central Monitoring and Evaluation Unit), the use of experienced implementation units in the line ministries, and involvement of qualified and experienced non-governmental organizations and the private sector. Recolmmedation 18. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Lewis T. Preston President Attachments Washington D.C. April 6, 1992  -S8- UGANDA NORTHERN RECONSTRUCTION PROJECT ESINMATED COSS AND FINANCING PLAN Estimated CoSt4 Component as X of -USS million (1) Aj-4tdft 1.8 3.3 5.1 6 (2) CommuityActionPropam 2.1 4.1 6.2 7 (3) Education and Training 3.7 6.5 10.2 12 (4) Feedx Roads 2.8 5.9 8.7 10 O Highways 5.2 20.4 25.6 31 (6) Teleommunications 1.6 10.2 11.8 14 O7) Urban 1.7 5.2 6.9 8 (8) Water Supply and Sanitation 1.4 4.2 5.6 7 (9) Project Adminison 1.6 0.7 2.3 3 (10) PrectP aion Facility 0.4 1.1 1.5 2 Total Base Cost 22.3 61.6 83.9 100 Contiencies Physical 1.5 4.9 6.4 Price 2.2 5.7 7.9 sub-total 3.7 10.6 14.3 TOTAL PROJECT COST * 26.0 72.2 98.2 Fimcing Plan: % of LewI EQWi Total Total -.--J-{US$ million) l IDA 10.4 60.8 71.2 72 Govarment ofUSanda 10.1 * - 10.1 * 10 Govemgnt of the Nethedands 2.2 4.2 6.4 7 DANIDA 3.3 7.2 10.S 11 Total 26.0 * 72.2 98.2 * 100 * Includs taxes estimated at $2.26 nillion equivalent.  -9- Scbedulo B UGANDA NORTHWERN RECONSTRUCTION PROJECT FqRQClUlRE2U NEEf AMET