Burkina Faso - Supplemental credit to the Second Urban Project

.--f-, -- (. / --ly-Jv DocmCntof (er Z -^& - Z / - 9 The World Bank FOR OMCIAL USE ONLY Repot No. P-6275-BUR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED SUPPLEmENTAL CREDIT IN THE AMOUNT EQUIVALENT TO SDR 6.9 MILLION TO BURKINA FASO FOR A SECOND URBAN PROJECT OCTOBER 20, 1994 MICRPOGRAPHICS Report No: P- 6275 B[1R Type: MOP 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 = CFA franc (CFAF) US$1.0 = CFAF 571.8 CFAF 1 million = US$1,749 FISCAL YEAR January I - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy ERR Economic Rate of Retum GDP Gross Domestic Product GOBF Govemment of Burkina Faso ICB Intemational Competitive Bidding LCB Local Competitive Bidding ONATEL Office National des Telecommunications (Telecommunication Public Utility) ONEA Office National de l'Eau et de l'Assainissement (Water and Sanitation Public Utility) SONATEL Societe Nationale d'Electricite (Electricity Public Utility) UEP Urban Environment Project  FOR OFFICIAL USE ONLY BURKINA FASO SECOND URBAN PROJECT SUPPLEMENTAL CREDIT Credit and Project Summary Borrower: Burkina Faso Beneficiaries: Ministry of the Economy, Finance and Plan Province du Kadiogo and City of Bobo-Dioulasso Credit Amount: SDR 6.9 million (US$10 million equivalent). This supplemental credit would increase the IDA assistance to the initial Project (Cr. 2067-BUR) to a total of SDR 24.9 million (US$32.2 million equivalent) Terms: Standard IDA temis with the same repayment terms as the original Cr. 2067-BUR On lending Terms: Same terms as above Financing Plan: (net of taxes, in US$ million) Current Proposed Total Categories 1. 2. 3. 7. 8. 9: Government 10.8 US$10.8 million IDA 7.8 US$ 7.8 million Categories 4. 5. 6 Govemment IDA 14.4 10.0 US$24.4 million TOTAL US$33.Omillion US$ 10.0million US$43.0 million Economic Rate Respectively 50% and 30% for the road rehabilitation of Return: sub-component in Ouagadougou and Bobo-Dioulasso, (83% of the s!ipplemental credit costs) Original MOP: Report No. P-513 I-BUR Staff Appraisal Report: Report No. 8033-BUR Povery Categorv: N. A. This document has a restricted distribution and may be used by recipients only in the perfomance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF IDA TO THE EXECUTIVE DIRECTORS ON A PROPOSED SUPPLEMENTAL CREDIT TO B1URKINA FASO FOR THE SECOND URBAN PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed supplemental credit to Burkina Faso for SDR 6.9 million, the equivalent of US$10 million, on standard IDA terms, to complement the Second Urban Project (Cr. 2067-BUR). The proposed supplemental credit would finance resource mobilization and infrastructure rehabilitation components for which cofinancing did not materialize. It complements the Economic Recovery Credit (Cr. 2590-BF) that was approved by the Board on March 29, 1994. 2. One of the main objectives of the original project was aimed at helping the local governments of Ouagadougou and Bobo-Dioulasso to cope with increasingly high growth levels of urban populations. The uevaluation of the CFA Franc resulted in a substantial short term increase in urban -,overty that can be expected to persist until the supply response to the devaluation nmaterializes (see para. 8). Thus there is an urgent need to create more short-term employment to alleviate the transitional effects of the devaluation. Fortunately, a reserve set of economically justified projects with significant part of labor costs (see para. 11) had already been identified in the context of the above- mentioned Project. The Government has shown strong commitment to the project which the executing agency is implementing with remarkable diligence and efficiency (see paras. 3-4). However, due to short-term budget constraints, the Government is unable to mobilize the resources required to fund the proposed expansion. Nor has it been possible to mobilize external financing from other donors in a timely manner. Hence, it was decided to pursue the proposed supplemental credit as the most appropriate vehicle for the Bank to respond to the Government's request for assistance. Background: the Second Urban Project 3. Project Objectives and Description. The Second Urban Project was approved on October 24, 1989 and becaine effective on September 6, 1990. Its objectives are: (a) to develop the organizational, technical and financial capacity of the local governments of Ouagadougou and Bobo-Dioulasso to assume full responsibility, as contracting authorities, for the maintenance of urban infrastructure and the provision of urban services in the face of increasingly high growth levels for urban population; and (b) to upgrade infrastructure in these two cities to a satisfactory overall standard, enabling effective, regular maintenance to be continued. The mid-term review, carried out in January 1994, confirmed the validity of these objectives. The Second Urban Project has five components focusing on: (a) municipal management and reform; (b) financial resource mobilization; (c) urban information; (d) technical department strengthening and infrastructure rehabilitation; and (e) solid waste management. 5. Implementation Experience. Although the project had rather a long start-up period, substantial improvements were noted towards the end of 1992. Project execution has been fully satisfactory since then and the overall status of the project is currently rated 2, with project management performance rated 1. This judgment is confirmed by the disbursement performance: out of a total of US$22.2 million, the project disbursed $3.2 million up to December 1992, US$10.1 million in 1993 and US$2.0 million in the first semester of 1994, in spite of the devaluation. Nearly all of the initial credit amount has been committed and the project is expected to be fully disbursed by the closing date of June 30, 1996. When the mid-term review took place, all contractual obligations had been met and the Borrower was in compliance with all covenants in the Development Credit  2 Agreement. No problems in counterpart funding have been encountered. The last Audit was received early and was unqualified. Rationale for IDA Involvement 5. Changing Country Economic Background/Rationale for Project Expansion. In 1991, the Government of Burkina Faso (GOBF) launched, with the support of donors, a structural adjustment program aimed at building the foundations for sustainable economic and social development. Structural reforms were undertaken to liberalize the economy and reform public finance management, in order to increase efficiency in using public and private resources. At the same time, Burkina Faso introduced a democratic political system by adopting a constitution and organizing presidential and legislative elections resulting in the re-establishment of a state under the rule of law in 1992. Economic performance in 1993 fell short of expectations, with the results achieved failing to meet the Government's targets: the growth rate of GDP was below 1%; inflation slightly exceeded projections; and the Government experienced a resource shortfall estimated at 3% of GDP, caused by poor tax revenue and overall program performance and consequent delays in external aid disbursements. 6. Taking into account changes in the external environment as well as economic and financial development in Burkina Faso, the authorities recognized both the limitation of a purely internal adjustment and the need to strengthen the ongoing reform program. Therefore, GOBF decided, together with the other countries of the CPA franc zone, to devalue the CFA franc by 50% in foreign currency terms, effective January 12, 1994. In addition, the authorities have set the following objectives for 1994-96: (a) to accelerate real GDP growth to more than 5% a year by 1996 (real per capita GDP growth of over 2%); (b) to limit inflation, as measured by the GDP deflator, to approximately 6% by 1996 after a rapid increase in 1994 as a result of the currency adjustment; and (c) to reduce the extemal primary current account deficit from 15% of GDP in 1993 to 13.5% in 1996. 7. For years, the CFA zone has suffered a massive loss of competitiveness leading its countries to fmancial crisis and economic depression. Inappropriate domestic policies and major external shocks exacerbated this difficult situation, which an improvement in their exchange parity alone could help reverse. The devaluation of the CFA franc will create an environment in which competitiveness can be re-established. Nevertheless, monetary, fiscal and wage discipline, as well as other structural reforms aimed at liberalizing the labor and production markets should accompany this courageous measure to fully ensure its benefits. However, the supply response to the shift of relative prices will take some time and the associated benefits will be fully visible only in the medium term. 8. In the first six months following the devaluation, food producers have particularly benefited as witnessed by an increased demand for rice, certain vegetables and livestock products in neighboring countries. However, the supply response to the shift of relative prices will take some time and the associated benefits will be fully visible only in the medium term. Meanwhile, some of the visible impacts are negative, as indicated by an inflation rate of 28 % from December 93 to June 94 (as compared to 2 % to 3 % per year in past years), with a local products index increase of 25 %. Food prices in urban areas have been particularly affected (+ 26 %). In addition the cost of imported medicine has practically doubled, increasing the cost of hygiene and health products for households by 43 %. The transportation and communication index has risen by 35% and the housing and construction index by 30 %. These higher costs have further reduced the purchasing power of the poor thus threatening their food security situation and malnutrition levels. In an environment of increased poverty and unemployment caused by previous economic depression and unsuccessful internal  3 adjustment, it may be politically and socially difficult to sustain the implementation of the new reform prograw. Unless a serious deterioration of the povert levels is prevented, the benefits of the initial sacrifice will be at risk. 9. Therefcre, the major challenge for IDA is to provide a rapid and visible response to the perceived negative social impacts of the reforms, without jeopardizing the longer term objectives of effective and efficient use of scarce resources. Analysis of IDA's policy and lending instruments in Burkina Faso revealed that the proposed supplemental credit is one of the best tools to ensure the two objectives of quick disbursing and visibility through rehabilitation of urban infrastructure. This will allow a greater portion of the population to benefit from basic services and, simultaneously, will generate employment and income--thus working directly on the twin pillars that support IDA's poverty alleviation strategy for the Sahel. The proposed supplemental credit would: (a) increase access to basic urban infrastructure services; and (b) expand employment opportunities and increase incomes in urban areas. In so doing, it will ease the main and most immediate negative impact of the devaluation on the urban poor--notably a higher priced food basket. In concrete terms, the supplemental credit would put approximately 3000 people to work over the eighteen month execution period (4500 person-years of work). In addition, it would contribute to the creation of a facilitating environment for GOBF's efforts to proceed with external adjustments and to continue with internal adjustment measures. 10. Consistency with the Country Assistance Strategy The current CAS 1994-98 staternent was reviewed by the Board with the Population/AIDS Project on May 31, 1994. It contains a full discussion of recent economic developments and IDA's assistance program. The proposed supplemental credit is fully consistent with IDA strategy, which stresses the need to focus on key actions requirel to alleviate long-term constraints on economic and social development, to help GOBF to improve public resource management and ensure adequate support for sustained development and to alleviate poverty. The proposed supplemental credit is an important element of the program designed to support the strategv. Along with the Economic Recovery Credit (Cr. 2590-BUR), efforts to increase the implementation rate for the existing portfolio and the proposed supplemental credit will alleviate the impact of the devaluation on the urban poor. Description of the Proposed Supplemental Credit 11. During the mid-tern review of the Second Urban Project (which was carried out in January 1994 concurrently with the appraisal of the supplemental credit), it was noted that the construction of one building and the remainder of the road rehabilitation program that were identified and appraised as part of the Second Urban Project had not been implemented, due to a lack of financing. Final designs and bidding documents prepared and financed by the initial credit are available, so th.se sub- components can be executed immediately. The savings generated by the devaluation, although very limited due to an increase in the amounts of the main contracts ranging from 60 to 70%, were directed during the mid-term review to fulfilling a street signing program in Ouagadougou and Bobo-Dioulasso and expanding an ongoing operation on Bobo-Dioulasso's drainage network. The proposed supplemental credit would complete the works started under the Second Urban Project and the Public Works and Employment Project (Cr. 2282-BUR) by financing the following sub-components: a) the construction of a third h6tel des finances in Ouagadougou to house the local branches of the tax, land registry and treasury authorities in order to facilitate coordination, cooperation and exchange of information among these otherwise separate entities. The supplemental credit would finance the construction and equipment  4 contracts and the related consultant services to supervise the works (US$1.0 million); and b) the rehabilitation of 11.1 kilometers of road and drainage infrastructure (7.7 km in Ouagadougou and 3.4 km in Bobo-Dioulasso) in order to bring the road and drainage networks of the two cities up to an acceptable level. The supplementai credit would finance the construction contracts and the related consultant services to supervise the works (US$9.0 million). The proposed supp!emental credit of US$10 million would finance 100% of project costs, net of duties and taxes, exactly as was the case in the relevant disbursement categories of the initial credit. 12. Project Benefits. The economic rate of return (ERR) for the road and drainage rehabilitation program is 32% for Ouagadougou and 30% for Bobo-Dioulasso, representing 83% of the supplemental credit costs. The additional construction of an h6tel des finances would ease the tax collection of local resources and improve the management of municipal finance. This construction, as well as the infrastructure rehabilitation would be undertaken through medium-sized contracts similar to those financed by the initial credit, and 20 to 26% of the total amount would be directed toward income creation. 13. Program Objective Categories. The supplemental credit will enhance the contribution of the Second Urban Project to improving access to urban senrices by urban poor and will contribute to immediate as well as longer term employment creation. 14. Environmental Aspects. The project's ultimnate objective is to create a sustained improvement of the living and working environment of the two main cities of Burkina Faso, and there are no activities in the proposed supplemental project which could create adverse environmental effects. Such improvements in the urban environment were identified as a high priority item in Burkina Faso's National Environmental Action Plan (NEAP). Indeed, the twin pillars of the NEAP are improving natural resource management and improving the urban environment. An analysis of the urban environment was carried out as part of the ongoing preparation of the proposed urban environment project FY95 for similar investments and did not identify any specific constraints in terms of respecting the presenrt ecological equilibrium for this kind of investment. Finally, the project is expected to have a positive impact by repairing and cleaning part of the drainage system. 15. Risks. The main risk foreseen is the possibility of a lack of sufficient commitment from GOBF and the municipalities to carry out the resource mobilization program. This risk was identified and addressed in the Staff Appraisal Report of the Second Urban Project but has not materialized. Implementation of the Supplemental Credit 16. Institutional Arrangements. Arrangements for implementation of the supplemental credit make use of existing institutions and technical staff. The proposed supplement would be implemented by a specific division within the existing project unit in charge of the Second Urban Project, whose management capabilities were carefully checked during the mid-term review. This division would benefit from the experience gained since the effectiveness of the initial credit, including adequate training and regular use of standard IDA bidding procedures. Its main responsibility would be the preparation of the investments financed by the supplemental credit and their implementation. In order  5 to ensure a smooth and quick implementation and to avoid the bottlenecks identified during the initial credit, especially regarding procurement procedures, it has been agreed that this division would function as a delegated contract manager, based on the successful experience with specialized contract management in urban projects in the Sahel. All mandatory documents and a specific manual of procedures have been approved by GOBF and IDA. In addition to the annual audit of the initial credit, a semi-annual technical and financial audit will monitor the strict compliance of the division with agreed procedures and performance contracts for all operations financed by the supplnmental credit. Procurement and disbursement procedures would follow the procedures of the original Credit. 17. Given recent experience under the Second Urban Project, it is expected that the supplemental credit will be executed in about 12 months and fully disbursed in 18 months, not requiring an extension of the initial closing date. Agreed Actions/Changes in the DCA 18. Conditions of effectiveness are: (a) appointment of a public works engineer and a financial analyst acceptable to IDA; (b) signing of a contract amendment with an external auditor acceptable to IDA for the additional work; and (c ,. he Bobo-Dioulasso Subsidiary Loan Agreement and the Kadiogo Subsidiary Loan Agreement have been amended in a manner satisfactory to the Association. 19. Recommendation. I am satisfied that the proposed supplemental 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. Octobe; 20, 1994  6 Schedule A BURKINA FASO SECOND URBAN PROJECT SUPPLEMENTAL CREDIT PROJECT COST ESTIMATES (US$ million, net of taxes) Local Foreign Total % Total F-reign Costs INFRASTRUCTURE REHABILITATION a) Ouagadougou 1.80 4.20 6.00 70 % 60 % b) Bobo-Dioulasso 0.90 2.10 3.00 70 % 30 % Sub-total 2.70 6.30 9.00 70 % 90 % FINANCIAL RESOURCE MOBILIZATION Hotel des finances 0.42 0.58 1.00 58 % 10 % Sub-total 0.42 0.58 1.00 58 % 10% TOTAL PROJECT COSTS 3.12 6.88 10.00 69 % 100 % FINANCING PLAN (US$ million) |____ _ Local Foreign Total % of Total IDA Credit 3.12 j 6.88 | 10.00 | 100 % TOTAL 3.12 | 6.88 10.00 | 100 %  7 Schedule B BURKINA FASO SECOND URBAN PROJECT SUPPLEMENTAL CREDIT PROCUREMENT METHODS (US$ million) Project Element Procurement Method _ ICB LCB Others Total Cost Road and drainage rehabilitation 8.3 8.3 Construction and Equip. of H8tel des Finances 0.9 - 0.9 Suprvision of works - - 0.8 0.8 TOTAL: 8.3 0.9 0.8 10.0 D3ISBURSEMENTS Disbursement Table by Category (US$ million) Category Amount of Credit Disbursement (as in initial credit) percentages 4. Construction of buildings, reconstruction and scheduled maintenance of infrastructure, materials, equipment and supplies: (a) Ouagadougou 5.5 100% (b) Bobo-Dioulasso 2.8 100% 5. Public works and equipment for Hotels des Finances and Colma drainage network 0.9 100% 6. Consultants' services and training 0.8 100% TOTAL 10.0 100% Disbursement Schedule (USS million) FY and semester Disbursements per Cumulative Percentage semester . Jan - June 1995 1.5 1.5 15% July - Dec 1995 6.0 7.5 75% Jan - June 1996 2.5 10.0 100%  8 Schedule C BURKINA FASO SECOND URBAN PROJECT SUPPLEMENTAL CREDJT Timetable of Key Project Processing Events: (a) Time taken to prepare: 9 months (b) Prepared by 1: Government with IDA assistance (c) Planned date of Effectiveness: November 1994 1This project was prepared by Mr. Christian Diou, AF4IN, with support from Mr. Robert Maurer. Processing assistance was provided by Ms JoAnne Nickerson, AF5IN. Mr. James Wright and Mr. Olivier Lafourcade are the managing Division Chief and Departnent Director, respectively, for this operation.  9 Scheduleg D Page I 13IKMNA FASQ SECOND URBAN PROJCT 5UPPLEMENTAL CREDIT STATUS OF BANK OPERATIONS i BURKINA FASO Aaont in US$ illion (leos eancellationag Loan of Fiscal Undia- Closing Credit No. Year Borrower Purpose Bank IDA bursed Date ---- ---- --- -- ---- -- - --- - -- --- ----- ---- - Crodits 30 Credits(a closed 252.76 c1s9oo-FsS 1985 BURICINA FASO BWScATIO?I III 21.60 1.96 03/31/94(R) C16070-psS 1985 BURKINA PASO HSALTH I 26.60 4.79 12/31/94(R) C15960-FSs 1988 SURKINA FASO AG.RESSARCN 17.90 6.53 03/31/95(R) C19790-rSs 1989 BURKINA PASO ACRtC. SERVII.W 42.00 20.96 12/31/95(R) C20670-FSS 1990 URKSNA PASO URBAN 22.20 9.81 06/30/96 C22290-tSS 1991 BuRiaNA PASO NVSRONMNTAL I>T 16.50 13.25 12/31/98 C22440-SSA 1991 BURKINA PASO SDUCATION IV 24.00 22.71 06/30/98 u22810S-fS(S) 1991 BURKINA FASO SAL r 80.00 21.83 06/30/95(R) C22820-FSS 1991 BURKSNA FASO PUBLIC WORKS S WLO 20.00 3.51 06/30/95 C23320-FSS 1992 BWRKINA PASO TRANSPORT SECAL 66.00 52.96 12/31/96 C23780-PSi 1992 BURKINA PASO PUBLIC INSTITUTIONAL 15.00 13.72 03/31/97 C23810-FS5(S) 1992 BURINA FASO AG. SSCAL 28.00 19.34 12/31/94 C24140-FSj 1993 BURKINA FASO FOOD SSWARITY 7.50 6.73 06/30/99 C24720-PS9 1993 BURKINA PASO PRIVATS SECTOR ASSIS 7.00 6.95 12/31/97 C25190-PS