Document of THE WORLD BANK Report No. 17132-SE STAFF APPRAISAL REPORT REPUBLIC OF SENEGAL URBAN DEVELOPMENT AND DECENTRALIZATION PROGRAM October 22, 1997 Water and Urban Central and Western Africa Country Department 14 Africa Region Currency Equivalents Currency Unit = CFA Franc (FCFA) US$1.0 = FCFA 600 FCFA 1,000 = US$1.67 Weights and Measures Imeter = 3.28 feet I hectare = 2.47 acres I kilometer = 0.625 miles I liter = 0.220 Imperial gallons I Imperial gallon 4.545 liters I cubic meter = 220 Imperial gallons Abbreviations and Acronyms AGETIP Agence de Gestion de Travaux d'lnteret Public pour I 'Emploi (Public Works Executing Agency) AMS Association des Maires du Senigal (Mayors Association of Senegal) BHS Banque de I 'Habitat du Senegal (Housing Bank of Senegal) ccc Compte de Credit Communal (Municipal Development Fund (MDF)) CFD Caisse Franfaise de Developpement CIDA Canadian International Development Agency CMA Contract Management Agency CUD Communaute Urbaine de Dakar (Urban Community of Dakar) DCL Direction des Collectivites Locales (Department of Local Governments) DGID Direction Generale des Imp6ts et des Domaines (Department of Taxation) DTCP Direction du Tresor (Department of the Treasury) DTGC Direction des Travaux Gdographiques et Cartographiques DUA Direction de l 'Urbanisme (Department of Urban Planning) FDD Fonds de Dotation de la D¢ralisation (Funds for the Endowment of the Decentralization) FECL Fonds d 'Equipement des CollectivitWs Locales (Grant System for Local Governments) GDP Gross Domestic Product (Produit Interieur Brut) GOS Government of Senegal (Gouvernement du Senegal) ICB International Competitive Bidding IDA International Development Association IMF International Monetary Fund (Fonds Monetaire International) IFS Inventaire pour la Programmation des Infrastructures et des Equipements (Inventory for Infrastructure and Services) MAP Municipal Adjustment Program MDA Municipal Development Agency (Agence de Developpement Municipal(ADM)) MDF Municipal Development Fund (Compte de Credit Communal (CCC)) NCB National Competitive Bidding NGO Non-goveemmental Organization PAC Programme d 'Appui aux Communes (Urban Development and Decentralization Program (UDDP)) PADDUS Projet dA'ppui a la Decentralisation et au De'veloppement Urbain du Senigal (Decentralization and Urban Development Project) PIC Plans d 'Investissements Communaux (Plan for Municipal Investment) PIP Priority Investment Program PMP Priority Maintenance Program PPF Project Preparation Fund SA Special Account (Compte Special) UDDP Urban Development and Decentralization Program (Programme d'Appui aux Communes (PAC)) Fiscal Year Central and Local Governments - January I to December 31 Senegalese Housing Bank - October I to September 30 Vice President: Jean-Louis Sarbib, AFR Sector Manager: Letitia Obeng, AFTU2 Country Director: Mahmood Ayub, AFC 14 Task Team Leader: Catherine Farvacque-Vitkovic, AFTU2 REPUBLIC OF SENEGAL URBAN DEVELOPMENT AND DECENTRALIZATION PROGRAM (UDDP) Table of Contents Credit and Program Summary 1. Background ............................................... I A. Macroeconomic Context ...............................................lI B. Urban Development Trends ................................................2 C. Previous Experiences in the Urban Development Sector ...............................................2 D. The Institutional Environment: Decentralization Trends ...............................................3 E. Municipal and Intergovernmental Finance ................................................5 II. The Program ............................................... 9 A. Program Development Objectives ................................................9 B. Program Components ................................................9 C. Costs and Financing ............................................... 12 III. Program Implementation ............................................... 14 A. Institutional Arrangements ............................................... 14 B. Procurement ............................................... 15 C. Disbursements ............................................... 20 D. Auditing and Monitoring ............................................... 21 E. Supervision ............................................... 21 IV. Benefits and Risks ............................................... 23 A. Benefits ............................................... 23 B. Risks ............................................... 24 V. Agreements Reached and Recommendation ............................................... 24 Annexes 1. Letter of Sectoral Policy 2. Recent Trends in Decentralization Policy 3. Financial Situation of Municipalities 4. Project Cost Summary 5. Financing of Investments 6. Financial flow 7. Credit to Municipalities 8. MDA Organization Chart 9. Convention between the Government and MDA, 10. Convention between MDA and AGETIP 11. Municipal contract: sample 12. Priority Investment Program: financing agreement 13. Municipal Investment Catalogue: Table of Contents 14. Economic Analysis of Sub-Projects 15. Environmental Impact Assessment of Sub-Projects 16. Key Indicators of Performance 17. Supervision Plan 18. Bibliography and Documentation Map: IBRD No. 28026 REPUBLIC OF SENEGAL URBAN DEVELOPMENT AND DECENTRALIZATION PROGRAM (UDDP) Credit and Program Summary Borrower: Government of Senegal Supervisory Ministry: Ministry of Finance Implementing Agency: Municipal Development Agency (MDA) for PACI and PAC2 and AGETIP for PAC3 Credit Amount: SDR 55.2 million, equivalent to US$75 million Terms: Standard IDA with 40 years maturity. Co-financing: The Senegalese Government and the municipalities will finance an amount estimated at US$19.3 million. The donor community has expressed interest in parallel financing. The CFD (Caisse Franqaise de Developpement) has agreed to a parallel financing of Ffs 50 million. Program Objectives: This program supports the Senegalese Decentralization Policy and aims at gradually shifting responsibility and accountability, in terms of delivery and maintenance of urban services, and infrastructure to municipalities. The program's objectives are to: (a) improve the financial and organizational management of municipalities; (b) improve the programming of priority urban investments; (c) rationalize and simplify the financing of urban investments; and (d) upgrade basic infrastructures in urban and some rural communities. Program Description: The principal components are: (1) capacity building of central and local governments through (a) the implementation of a Municipal Adjustment Program (MAP) based on a municipal contract, a binding agreement between the MDA and municipalities, and (b) support activities aimed at providing an enabling environment for these Municipal Adjustment Programs to take place (training, fiscal reforms study, etc.); and (2)physical investments including the construction, rehabilitation and maintenance of public infrastructure, facilities and services under the responsibility of local governments, including: (a) roads, drainage and lighting; (b) education and health facilities; (c) socio-collective facilities; (d) administrative and technical buildings; (e) revenue generating facilities (markets, bus stations); (f) environmental sub- projects (on-site sanitation and solid waste management); and (h) rehabilitation of historic buildings. A catalogue of investments was prepared during project preparation which provides a menu of eligible sub-projects. Benefits: The program will support the decentralization process and promote a more active role for municipalities. It will: (a) stimulate the capacity of local governments to efficiently program, finance, execute and maintain facilities, as well as to deliver the services; (b) facilitate improved municipal financial performance and contribute to the macroeconomic objectives, through a reduction of the public sector deficit; (c) positively impact the urban and rural population through: (i) reduced costs of and better access to municipal services, and (ii) employment generation through sustained public works activities. Risks: The major program risks are: (a) introduction of parallel competitive, less demanding sources of funding to municipalities by other donors; (b) inability of the Government to enact the required fiscal reforms or effectively manage the decentralization program; (c) failure of municipalities to implement the Municipal Adjustment Programs or to reimburse their share of the credit: and (d) unfavorable macroeconomic conditions during program execution. These risks are reduced by: (a) continued coordination with donors during project preparation and their adherence to the Program as demonstrated in their willingness to participate in UDDP; (b) strong ownership demonstrated by the Government and municipalities through their participation in project preparation; and (c) a realistic assessment of the municipalities' financial capacity and a pragmatic Municipal Adjustment Program catered to specific local circumstances and performances. Economic Rate of Return: When applicable, ranging from 12 to 80 percent. Estimated Project Completion: The project completion date is December 31, 2002. This report is based on the findings of an appraisal mission which took place from April 1, 1997 to April 18, 1997 in Senegal. The appraisal team comprised Messrs/Mmes. C. Farvacque-Vitkovic (Senior Urban Planner and Mission Leader), E. Mbi (Principal Operations Officer), A. Diawara (Operations Officer), A. Seck (Economist), M. Sidibe (Research Assistant), L. Godin (Urban Development Specialist), A. Sinet (Municipal Finance Specialist), A. Basti (Economist), and V. Chomentowski (Municipal Finance Specialist). Messrs/Mmes. R. Maurer, A. Carroll and J. Hicks are peer reviewers. Messrs/Mmes. K. Uprety (LEGAF), B. Abeille (AFTS2), W. Chadab (LOAAF), L. Pean, E. Ouayoro, A. Harth, A. Blakely participated in the preparation of the project. Mrs. Letitia Obeng and Mr. Mahmood Ayub are the Technical Manager and the Country Director, respectively, for this operation. REPUBLIC OF SENEGAL URBAN DEVELOPMENT AND DECENTRALIZATION PROGRAM (UDDP) I. Background A. Macroeconomic Context 1.01 At the time of independence, August 20, 1960, Senegal had one of the most developed economies in West Africa. Its economy, dependent on exports of fish, peanuts, and phosphates, declined with the loss of markets in newly-independent neighboring states, long periods of drought, weak management, declining terms of trade, and population growth. A 50 percent devaluation of the African franc in January 1994 has led to substantial increases in local currency prices for producers that have spurred improved production. A sheltered import-substitution sector, comprising textiles, shoes and other light manufacturing, remains plagued, however, by high labor, transportation, and energy costs. Public finances face a decade-long trend in declining tax revenues, making government increasingly dependent on official development assistance from bilateral donors.' According to World Bank and IMF estimates, the gross national product (GNP) of the Republic of Senegal in 1994 was US$4040 million (CFA francs 2,060,300 million). Based on the estimated population, the per capita GNP was US$610 in 1994.2 1.02 Failure to trim expenditures has led to the accumulation of large debts by the Government, owed both to public enterprises and to the private sector, causing serious cash-flow problems for many companies and contributing to severe liquidity shortages in the banking system. Budgetary deficits place a considerable strain on the economy and relations with donors.3 1.03 The IMF expressed confidence that the government would continue to achieve the macroeconomic targets set under the ESAF, a sign to other donors and creditors of an approval of Senegal's economic plans. Under the economic and financial Policy Framework Paper for the period of July 1995 to June 1998, the government has agreed to the following economic targets: (a) keep GDP growth at around the 1995 level of 4.5 percent; (b) increase the investment (in current prices) from 13.6 percent of GDP in 1994 to 16.9 percent in 1996; (c) achieve primary surpluses in the Government's budget (reduction of the deficit on a commitment basis, excluding grants from 5.7 percent of GDP in 1994 to 2.0 percent in 1996); (d) reduce average inflation by 1996 from 3 to 2 percent; and (e) contain the external current account deficit, excluding official transfers, to 8.0 percent of GDP in 1995, and reduce it to 7.3 percent by 1996. 1.04 The Bank's last Country Assistance Strategy (CAS), discussed by the Board on February 16, 1995, identified resource mobilization as an important criterion to improve the macroeconomic situation. Achieving higher growth over the long term will depend on the Government's ability to implement a strong package of macroeconomic and structural measures designed to reduce domestic financial imbalances and improve resource allocation. The stabilization of the fiscal position of the country, the development of the human resources base, 'World Wide Web, www.ic.gov:80/94factlcountry/210.htlm. April 1996. 2World Bank, African Development Indicators 1996. p 6. 3The Economist Intelligence Unit, Senegal Country Profile 1995-96. London, United Kingdom. 1995. p30. 2 the establishment of a private sector initiative, and a policy to address the rapid population growth are the key elements of the country strategy. The next CAS is under preparation and is scheduled for Board consideration in January 1998. B. Urban Development Trends 1.05 While the economy of Senegal grew at an average annual rate of 2.2 percent from 1982 to 1992, the population also grew at a relatively high rate of 2.6 percent per year.4 The average urban population growth rate was 3.7 percent 1990 to 1995.5 The population was 3.5 million at independence in 1960, and 8.3 million in 1995.6 The population rate is expected to continue to rise and Senegal is estimated to have a population of 18 million by the year 2021. In 1950, 30.5 percent of the population lived in urban areas and it is estimated that in 2010, 51.7 percent, and in 2025, 62.2 percent will live in urban areas.' These percentages correspond to a population of 762,000 urban habitants in 1950, and an estimated 10.5 million in 2025.8 1.06 There is sustained migration from rural to urban areas, particularly to Dakar. Forty-four percent of Dakar's population are immigrants, aged 25 to 34. Dakar had an estimated growth rate of 5 percent from 1970 to 1975, and 4.2 percent from 1990 to 1995.9 The population of Dakar has grown from 18,000 in 1902, to 1.5 million in 1993 (48.2 percent of the urban population and 22 percent of the total population). It is expected to reach 2.3 million by the year 2000. The remaining 47 Senegalese municipalities are all considerably smaller than Dakar. Today, the largest municipalities include Thies with a population of 353,000, Kaolack with 201,000, and Saint Louis with 199,000.'0 The urban areas are not equipped for the large migration, forcing immigrants to settle in inhabitable, under served neighborhoods. This rapid pace of expansion severely tests the capacity of municipalities to efficiently deliver basic urban services and manage economic, environmental and investment resources. 1.07 Investments in urban infrastructure have increased over the past years, supported by a number of externally funded projects. With the emergence of the decentralization process, municipalities are faced today with the crucial issue of deciding, in a context of limited financial, technical and human resources, what to deliver (priorities), where to deliver it, who should be the primary beneficiaries, and how it should be financed, managed and maintained. C. Previous Experiences in the Urban Development Sector 1.08 The first World Bank urban development project worldwide and the first Senegal urban project, Sites and Services (Cr. 336 SE, approved in FY72), focused on housing and delivered 15,200 serviced plots in Dakar and Thies. Despite the many problems identified during implementation, the philosophy of affordable housing solutions for low-income beneficiaries was accepted. However, the scope of the operation was too ambitious.1 l The second urban project, 'World Bank, African Development Indicators 1996. p 333. 5 United Nations. World Urbanization Prospects: the 1994 Revision. New York 1995. p1 1 O. 6 The Economist Intelligence Unit, Country Report Senegal The Gambia Mauritania Ist quarter 1996. London, United Kingdom. 1996. p4; World Bank, African Development Indicators 1996. p 333. United Nations. World Urbanization Prospects: the 1994 Revision. New York 1995. p78-9. 'United Nations. World Urbanization Prospects: the 1994 Revision. New York 1995. p86-7. 9UNDP. Human Development Report 1995. New York 1995. p185. The Economist Intelligence Unit, Senegal Country Profile 1995-96. London, United Kingdom. 1995. p2. "World Bank. Performance Audit Report Senegal Urban Management and Rehabilitation (Cr. 1458/SF13) April 26, 1993. p.iv. 3 Technical Assistance Project for Urban Management and Rehabilitation (Cr. 1458/SF13, approved in FY84), dealt with municipal finance, housing, and urban service delivery in Dakar. The third urban project, Municipal and Housing Development Project (Cr. 1884 SE, approved in FY88), completed in January 1997, incorporated the findings of the previous projects to address Dakar's infrastructure, finance, and housing needs. In addition, the project initiated municipalities into credit procedures and program evaluations.'2 1.09 The Public Works and Employment Project (Cr. 2075-SE, approved in FY90), created an autonomous agency, AGETIP, to carry out procurement and supervision of public works. The lessons learned, which have been implemented in the Second Public Works Project (Cr. 2369 SE, approved in FY93 and closed in June 1997), include: (a) requiring the deposit of counterpart funds before the review of sub-projects to offset the slow disbursement of funds by the government; (b) increasing community participation and taking into account local priorities and constraints; and (c) considering the proposed project's impact on current projects. 1.10 While the previous two Public Works Projects have been successful in the provision of urban services, they have not addressed the crucial issue of transferring responsibility to local governments for programming, financing and maintenance of these services and infrastructure. 1.11 The Urban Development and Decentralization Program (UDDP) responds to the overall strategic framework including: (a) the Senegalese Decentralization Policy; (b) the Bank's Country Assistance Strategy (CAS); (c) the Senegal Policy Framework Paper (1995-98); and (d) the recent sector work on the Future of African Cities. The priority given to the Dakar region, justified by the dominant position of the capital city and the scope of the issues, should no longer exclude activities in other cities, especially within the policy framework of reinforcing municipal institutions and regional development. 1.12 It is worth noting, relevant experiences financed by other donors, such as the French Ministry of Cooperation's project in support of decentralization, PADDUS (Projet d'Appui a la Decentralisation et au Developpement Urbain du Senegal). Executed by the Ministry of Public Works, Transport, Housing and Urban Planning, it focused on strengthening the liaison between decentralization and urban development through (a) decentralization and urban development training; (b) education; and (c) tool identification. An evaluation of this project has been completed and lessons will be integrated in the UDDP. D. The Institutional Environment: Decentralization Trends 1.13 The Government of Senegal (GOS) has pursued a progressive, yet cautious decentralization policy since independence in 1960. The first phase saw the creation of municipalities and regional development committees including municipal and rural councils. 13 1.14 The second phase of the decentralization policy began in 1990 and aimed at increasing the local government's responsibilities in the management of local affairs. Although these reforms brought about a better definition of roles and responsibilities of local governments, they 12 Sides-Breef Etude de Factibilite du Programme d'Appui aux Communes. Rapport Final. Septembre 1995. p8. 13 World Bank. Aide Mdmoire Projet de la lettre de politique sectorielle. March 1996; Republique du Senegal. Textes de Lois de la Decentralisation. 1996. p5. 4 were not linked to the transfer of financial or technical resources, both essential to municipal development. 14 1.15 Finally, the adoption of legislative reforms in February 1996, and the modification of the Code of Local Governments (Code des Collectivites locales), mark the third and latest phase of the Senegalese decentralization policy, including the creation of a fund, the FDD (Fonds de Dotation de la Decentralisation/ Fund for the Endowment of the Decentralization), to ensure the transfer of financial resources to support the transfer of competencies.15 The reforms and their impact are discussed in the Recent Trends in Decentralization Policy, included in ANNEX 2. Who is what today in the institutional landscape? 1.16 At the central government level, the main actors are: (a) The Ministry of Economy, Finance and Plan (Ministere de I 'Economie, des Finances et du Plan) oversees Senegal's finances, defines the economic plan for Senegal, and coordinates development activities. The Ministry supervises the Department of the Treasury (Direction du Tresor (DTCP)). The Ministry is keen to initiate real transfers to relieve some of its financial burden. (b) The Ministry of Public Works and Transport, and the Ministry of Housing and Urban Planning (Ministere de l'Equipement et des Transports Terrestre et le Ministere de l'Urbanisme et de l'Habitat) provide assistance to municipalities in construction, subdivision, and urban planning. The Ministries have not been very involved at the local level but they are planning to have a greater role at the regional level in supporting the physical planning activities of local governments. (c) The Ministry of the Interior (Ministere de l 'Interieur) includes, beyond its traditional security functions, a Ministry delegated to Decentralization (Ministere Delegue aupr&s de l 'Interieur Charge de la Decentralisation) which has the important task of managing the FECL (Fonds d'Equipement des Collectivites Locales). The Ministry also supervises the Department of Local Governments (Direction des Collectivites Locales (DCL)) which is responsible for the approval of municipal budgets and allocation of the FECL. (d) The Ministry of Urban Areas (Ministere de la Ville) is essentially a small think tank on urban issues, with very limited implementation capabilities. 1.17 AGETIP has been, since its conception in 1990, an important actor in the provision of urban services and has developed, over the years, some relationships with municipalities. 1.18 At the regional and local level, each of the ten administrative regions (Dakar, Diourbel, Fatick, Kaolack, Kolda, Louga, Saint-Louis, Tambacounda, Thies, Ziguinchor) are under the authority of a Governor appointed by the President. An elected mayor and municipal council govern each of the 60 municipalities. Overseen by the Ministry of the Interior, these municipalities have only modest power and resources. Ineffective municipalities result from elected figures who have no experience or knowledge of municipal management or finance, 14 World Bank. Aide Memoire Projet de la lettre de politique sectorielle. March 1996. 5 Republique du Senegal. Textes de Lois de la Decentralisation. 1996. pl 11. 5 infrequent municipal council meetings, insufficient resources, a lack of skilled personnel, a complex bureaucracy, and lengthy decision making processes. 1.19 In principle, each municipality is responsible for the provision of basic services that are essential to social and economic development, including the construction, rehabilitation and maintenance of: (a) secondary and tertiary roads, drainage and lighting; (b) on-site sanitation and solid waste services; (c) revenue generating facilities (bus stations, markets, slaughterhouses); and (d) administrative/cultural facilities (health centers, schools, etc.). In practice, implementation of these responsibilities is irregular. Local private enterprises and community based organizations are rarely involved. There are some cases of conflicting overlaps between the national and local authorities (ex. roads), and many cases where neither authority seems to be concerned (ex. maintenance). The availability of resources does not match the level of responsibilities. 1.20 The Mayors Association of Senegal (I'Association des Maires du Senegal (AM4S)) is the only forum facilitating communication and dissemination of information among the mayors and local officials. It has been widely associated in the preparation of the UDDP. 1.21 Non-governmental organizations (NGOs). The African Institute of Urban Management (I 'Institut Africain de Gestion Urbaine) is active in municipal management, a key component of the UDDP. Other NGOs in the urban sector include: (a) Plan International (le Plan International) works on education campaigns primarily based in Dakar; (b) the African Society for Education and Training for Development (la Societe Africaine d'Education et de Formation pour le Developpement (SAFEFOD)) conducts training for local governments; (c) the Seven A (Appui a l'Autopromotion des Adultes Appliquie a l 'Action par l 'Alternance et en Alternative (7A)) plans education campaigns on urban management; (d) the Association for Economic and Social Progress (Association pour une Dynamique du Progres Economique et Social (ADPES)) works with local government institutional development; and (e) the Association for Action (I'Association Conseil pour I'Action (ACA)) works with organizational financial management. These NGOs can be useful in the promotion of increased local participation and education campaigns aimed at improving the quality of life of the urban population. E. Municipal and Intergovernmental Finance The financial volume of municipalities 1.22 The financial volume of urban municipalities (including the urban community of Dakar (CUD)) adds up to about 18 billion CFA francs per year (US$36 million), 6 percent of the national budget (excluding external contributions). After C6te d'Ivoire, it is the second largest in volume in the region, 16 but the first in terns of percentage of national revenues. 1.23 The financing capacity of municipalities varies considerably. On average, it amounts to 5,000 CFA francs per inhabitant,17 with a spread from I to 6 depending upon the size, the fiscal potential and the fiscal effort provided by the municipality. 18 Not including Dakar, this average 26 The local lvorian sector, more important in number of municipalities and in population, attains 30 billion CFA francs (60 million dollars). 17 This data does not take into consideration the recent increase in the number of municipalities which has passed from 48 to 65 and should continue to rise in the future. "For example, Dakar (10,397 CFA francs per inhab.), Pikine (3,387 CFA francs per inhab.), Mbour (1,655 CFA francs per inhab.), etc. 6 is a little below 3,000 CFA francs per inhabitant or two to three times the amount noted in neighboring countries' secondary towns. 1.24 Dakar has 70 percent of the municipal financial capacity and 53 percent of the country's urban population.19 Moreover, an estimated 95 percent of the country's fiscal potential is concentrated in the Cap Vert region, due to the activity generated by the port of Dakar. 1.25 The municipalities devote 25 percent of their budget to investments, largely through mechanisms such as the FECL, AGETIP and the MDF.20 The annual investment volume directly financed by urban municipalities is evaluated at approximately 4 billion CFA francs. More than 80 percent of this total is financed through the FECL; the self financing derived from municipal resources does not exceed 20 percent. 1.26 The negative evolution of the financial indicators during previous fiscal years can be attributed to (a) an increase in management costs; (b) a decrease of resources due to the effects of the devaluation; and (c) a liquidity gap due to the impact of the unified revenue collection (unicite de caisse). In real terms, the municipalities have experienced a significant decrease in available funds. Since 1995, improved public finances and the increased importance allocated by the Government to the decentralization process has allowed for a partial improvement of the situation. The revenues of municipalities 1.27 The municipalities have at their disposal four categories of essentially fiscal revenues: (a) the "ristournes"; (b) the local direct tax system (business tax, land taxes, "minimum fiscal"); (c) municipal taxes and user fees (market fees, road fees, etc.); and (d) the FECL allocations (reserved for investment). Credits and patrimonial revenues (alienation of state properties) are embryonic. The bulk of municipal resources is managed by the central government on behalf of municipalities: identification of the tax base, collection from taxpayers, availability of liquidity by the Treasury. 1.28 Ristournes: Two State taxes, i.e. the tax on motorized vehicles and the capital gain tax are refunded to municipalities on a 50 percent basis.21 The refunds, which operate in relationship to the demographic importance of the municipalities, provide an equalization (cross subsidies) between the municipalities. The total refunds represent on average between 10 percent and 15 percent of municipal revenues. The main, commonly-encountered problems are the under evaluation of refunds and disbursement delays. The transfer of the management of these refunds to the Direction of the Budget at the DCL appears to be the most appropriate solution. 1.29 The local direct tax system includes three taxes, totally allocated to the municipalities, which include the business tax, the property tax (on built properties) and the "minimum fiscal" tax: * The valuation of the business tax base is complicated and accounts for a low level of tax collection: there are more than 25 types and 300 categories of business taxes.22 It 19 It includes the following municipalities: Dakar, Pikine, Guediawaye, Rufisque and Bargny. Following the laws of February 1996, two municipalities were added. 20 A municipal contribution of 10 percent. 2" Deliberation of 1958 of the appreciation of property and the 1960 law for the vehicle tax. 22 Sides-Breef Etude de Factibilite du Programme d'Appui aux Communes. Rapport Final. Septembre 1995. p6. 7 accounts for 20 billion CFA francs, which represents 0.5 percent of the GDP and approximately 5 percent of Senegal's resources. Dakar and its surrounding region represent 75 percent of these resources, approximately 15 billion CFA francs. * The property tax represents 15 percent of all tax revenues and approximately US$3.6 million (1.8 billion CFA francs) for the 60 municipalities. The majority of the property tax, 77 percent or US$2.8 million, is collected in Dakar. The remaining US$0.8 million is collected in Dakar's neighboring municipalities where the property tax per inhabitant is approximately US$0.5 (250 CFA francs). The property tax faces several main issues, including the complexity of property valuation and the existence of numerous exemptions benefiting retired individuals, primary residences and new construction. The exemptions, based on the situation in Dakar, are inappropriate for smaller municipalities and limit the municipal access to tax revenues. In five sample municipalities, less than 10 percent of households were identified, and tax recovery from these households has rarely exceeded 40 to 50 percent.23 * The "minimum fiscal" is no longer collected in municipalities. This tax has traditionally yielded very scarce revenues. The only substitute for it is the tax deducted from civil servants' salaries and wages of private firms' employees ("at the source"). This substitute poses specific distribution problems: the revenues from payroll deductions are mainly allocated to Dakar, to the detriment of other contributing municipalities. 1.30 User fees and other direct and indirect taxes: Municipalities collect a variety of user fees and other taxes. The direct taxes include a tax on business location, solid waste collection, street sweeping, sewer use, commercial licenses, etc. The indirect taxes include a tax on electricity, slaughterhouses, water, commercial advertisements, food inspection, entertainment, rent, gas, cemetery, parking. The inadequate or nonexistent provision of municipal services limits the user fee potentials from these services.24 1.31 FECL (Fonds d'Equipement des Collectivites Locales): Established on July 4, 1977, its purpose is to provide municipalities with no interest loans or government grants to finance and carry out municipal projects. Since its creation, there have been no FECL loans, all FECL funds have been allocated as grants. The FECL funding includes both ordinary funds (for municipalities outside Dakar) and special funds (for all municipalities including Dakar and rural communities). At the time of its creation in 1977, it was expected that 4 billion CFA francs would be channeled through the FECL per year. On the average, about 2.5 billion CFA francs has been made available. There are a number of issues related to the effectiveness of the FECL. They can be summarized as follows: (a) the annual amount and allocation per municipality is decided by the ministry in charge of decentralization (DCL), on the basis of unclear criteria, leaving room for political interference; (b) the mechanisms of access to FECL funds are complicated and time consuming; and (c) when all steps have been completed, funds may not be available. The new reformns on the regionalization, introduced in January 1997, anticipate that the soon-to-be-created regional councils will also be eligible for FECL funding and that FECL funding will be sustained and replenished through a charge on VAT (value added tax). Municipal Investment financing: A need to rationalize and simplify 3 Sides-Breef. Etude de Factibilite du Programme d'Appui aux Communes. Rapport Final. Septembre 1995. p139, 282. 24 Sides-Breef. Etude de Factibilite du Programme d'Appui aux Communes. Rapport Final. Septembre 1995. p6, 278; R2publique du Sen6gal. Textes de Lois de la Decentralisation. 1996. p.72. 8 1.32 Senegal has had an encouraging experience of financing municipal investments. The FECL, in spite of its weaknesses, represents an important support for the development of new municipal investments. Another source of municipal investmnent financing has been the Municipal Development Fund (MDF or Compte de Credit Communal), created in 1989, through the Municipal and Housing Development Project. This line of credit has contributed to the sensitization of elected officials to the culture of borrowing for revenue-earning facilities. However, its impact in terms of volume of activities has been limited due to internal constraints such as high interest rates and cumbersome selection criteria, as well as external constraints like the introduction of other competitive sources of funding (AGETIP). Finally, AGETIP has channeled an important share of donors' funds towards municipalities on attractive terms. With the closing of AGETIP 2, in June 1997, and the lessons learned from the MDF, the need to simplify and rationalize the financing mechanisms for municipal investments has been at the forefront of the Government's agenda. The UDDP aims to address this need. 9 II. The Program A. Program Development Objectives 2.01 This program supports the Senegalese Decentralization Policy and aims at gradually shifting responsibility and accountability, in terms of delivery and maintenance of urban services, and infrastructure to municipalities. The program's objectives are: (a) to improve the financial and organizational management of municipalities; (b) to improve the programming of priority urban investments; (c) to rationalize and simplify the financing of urban investments; and (d) to upgrade basic infrastructures in urban and some rural communities. 2.02 A sector policy letter has been formulated by the Senegalese Government for the UDDP. This letter is the government's agreement to adopt and implement measures related to the institutional and financial environment of the UDDP. The key aspects of the letter are: (a) the creation of the MDA and its role in supporting municipalities; (b) agreements between the Senegalese Government, the MDA, the contract management agency (CMA), and the financial institutions; and (c) agreements concerning municipal finance: (i) mobilization of local resources through fiscal reform, and (ii) commitments to mobilize the FECL and the FDD. A copy of the sector policy letter is attached as ANNEX 1. B. Program Components 2.03 The principal components are: (1) capacity building of central and local governments through (a) the implementation of a Municipal Adjustment Program (MAP) based on a municipal contract, a binding agreement between the MDA and municipalities, and (b) support activities aimed at providing an enabling environment for these Municipal Adjustment Programs to take place (training, fiscal reforms study, etc.); and (2) physical investments including the construction, rehabilitation and maintenance of public infrastructure, facilities and services under the responsibility of local governments, including: (a) roads, drainage and lighting; (b) education and health facilities; (c) socio-collective facilities; (d) administrative and technical buildings; (e) revenue generating facilities (markets, bus stations); (f) environmental sub-projects (on-site sanitation and solid waste management); and (h) rehabilitation of historic buildings. A catalogue of investments has been prepared during project preparation which provides a menu of eligible sub-projects. (A) Institutional Development Component Municipal Contract and Audits 2.04 The municipal contract is a binding agreement between the MDA and municipalities, signed by the municipality and the Municipal Development Agency (MDA), the government- delegated executing agency for the UDDP. The contract includes the two components previously mentioned: a Municipal Adjustment Program (MAP) and a Priority Investment Program (PIP). 2.05 All 60 Senegalese municipalities are eligible for a municipal contract as long as they follow the steps established in the MDA's Manual of Procedures. These steps include: (a) submitting a request to the MDA (Dossier de Candidature); (b) completing an urban audit to 10 identify a Priority Investment Program (PIP); (c) completing a financial and organizational audit to determine the financial capacity of the municipality, and the content of its Municipal Adjustment Program; and (d) preparing and negotiating the municipal contract. 2.06 The Urban Audit will use the IFS (Inventaire pour la Programmation des Infrastructures et Equipements/ Inventory of Infrastructure and Services), to (a) review the patterns of urban expansion; (b) highlight gaps in the level and location of infrastructure and services, and (c) identify a PIP.25 2.07 The Financial and Organizational Audit will be executed according the MDA's Manual of Procedures, and will focus on (a) a review of the financial situation of the municipality (budgets, accountability, taxes, treasury); (b) an evaluation of the municipal financial capacity, especially the potential financial participation of the municipality in the project; and (c) the identification of a Municipal Adjustrnent Program aimed at improving the financial management of the municipality. 2.08 These audits have been elaborated during project preparation and will be readily available by the MDA to all municipalities. They have been tested during project preparation and at time of negotiations, eight municipal contracts for Diourbel, Kaffrine, Louga, Joal-Fadiouth, Guediawaye, Mbour, NGuekhokh, and Passi using these audits have been almost completed. The audits will be carried out under the supervision of MDA and will be free of charge to municipalities. Support Activities 2.09 Support activities are targeted at two levels: the local government level in the framework of the municipal contracts, and the central government level (i.e., the Departments of Treasury, Urban Planning, Housing and Public Works, and Local Governments). 2.10 The purpose of such activities is to create an enabling environment in which municipal development can take place and respond, in the most pragmatic way, to specific needs of municipalities. They are summarized in ANNEX 4. 2.11 The MDA will provide, at the request of the municipality or the Senegalese Government, administrative and technical assistance for both municipalities and the Senegalese Government, according to the limits of the municipal contract or resources allocated to the central Government. 2.12 Generic training is already provided by other donors. Training needs will be identified during project implementation, and programs will be tailored to meet these specific needs. The project will work with existing training centers whose capacity has been evaluated during project preparation. The urban and municipal management training centers in Dakar include: (a) ENAM (Ecole National d'Administration et de Magistrature), the National School for Administration, focuses on general and territorial administration, public finance, and educational methods; and (b) CFP/CUD, the Center for Training for the Urban Area of Dakar, (Centre de Formation et Perfectionnement de la Communaute Urbaine de Dakar) is involved in training, financial analysis, and management accounting. 25 World Bank. Aide Memoire Cadre de l'Audit Urbain. March 1996. 11 2.13 As a complement to the UDDP preparation, the Canadian International Development Agency (CIDA) is carrying out a study on fiscal reforms which largely builds upon the diagnosis and recommendations of the UDDP feasibility study. This study should be completed during 1998, and implementation of reforms related to the simplification of the local fiscal system, operational tools for tax base identification and tax collection, and simplification of FECL mechanisms will be carried out after the second year of project implementation. (B) Physical Investments Component 2.14 Based on the Urban Audit, each municipality will be able to identify a Priority Investment Program (PIP) and a Priority Maintenance Program (PMP). Each investment must: (a) respond to municipal priorities as defined in the urban audit; (b) be compatible with municipal financial capacity; (c) be maintained and/or upgraded by the municipality; and (d) be environmentally and socially sound. 2.15 A Catalogue of Municipal Projects has been prepared during project preparation on the basis of the formulation of municipal contracts in Louga, Diourbel and Kaffrine. This catalogue, conceived in collaboration with the municipal teams and AGETIP, is a menu of eligible sub- projects including sample plans and unit costs. This menu will facilitate informed decisions on the choice of priority investments matching municipal financing capacity. Seven categories have been selected: (a) infrastructure (roads, drainage, public lighting); (b) health and education facilities; (c) administrative facilities (mayors offices, government offices, tax centers); (d) social facilities; (e) revenue generating facilities (market, bus station); (f) environmental projects; and (g) rehabilitation of historic areas. Each sub-project will be screened on the basis on three evaluation forms included in the Catalogue of Municipal Projects. A table of contents for the Catalog of Municipal Projects is included in ANNEX 13. Maintenance 2.16 Improved maintenance of municipal investments is indispensable. This task falls under the responsibility of municipalities and is rarely effectively carried out. The reasons are diverse: (a) lack of a sense of ownership by the beneficiaries, (b) absence of a maintenance program, (c) weak interest of local authorities for this type of operation, and (d) lack of financial and technical resources. 2.17 The UDDP is attempting to address this issue and proposes to implement the following procedures: (a) identification of a minimum maintenance program in the urban audits (equivalent to 3 percent of current municipal revenues); (b) in the largest towns, a classification will be done between the maintenance work which could be delegated to CMA (mainly on the networks), and those to be executed by the municipality (mainly cleaning); (c) complementary financial participation by the municipality to finance the maintenance work which will be delegated to CMA4; (d) for those executed directly by the municipality, close monitoring under the municipal contract. The success of the maintenance program will be ensured through close involvement of beneficiaries in project identification and planning as well as capacity development at the municipal and community level. The community's maintenance capacities will be one of the project selection criteria for rural infrastructure projects. 12 C. Costs and Financing 2.18 UDDP will benefit from the following lines of financing: * External sources: the IDA credit will finance US$75 million. Other donors, attracted by the framework provided by UDDP, will participate in parallel financing. For example, the CFD has planned to contribute in the amount of US$ 10 million. * Local sources: there are three main sources (a) annual allocation from the FECL of 1 billion CFA francs per year during the Program, equivalent to US$8.3 million over the 5 year program for PAC 1 and 2 and 900 million CFA francs or US$1.5 million for PAC 3); (b) undisbursed balance of FECL initially allocated to the Municipal Development Fund (CCC) which will be reaffected to UDDP (about 3 billion CFA francs or US$5 million); and (c) counterpart funding by municipalities or rural communities (under three options: PAC 1 and 10 percent local counterpart funding or PAC 2 and 10 percent local counterpart funding and 20 percent credit or PAC3 and 10 percent local counterpart funding). 2.19 The financing plan is based on the following principles: * Financing through UDDP is open to all municipalities (communes) of Senegal; * All municipalities must have signed a Municipal Contract (i.e. they have identified, on the basis of the urban audit, a PIP (Priority Investment Program) and, on the basis of the financial and organizational audit, a MAP (Municipal Adjustment Program)). * The "guichets" are being harmonized along three modes of financing: * Mode 1 or PAC 1: the conditions are extremely favorable, that is 90 percent subsidies through the IDA credit and 10 percent local counterpart funding. * Mode 2 or PAC 2: the conditions proposed are still very favorable but a bit more demanding on municipalities: 70 percent subsidies through the IDA credit, 20 percent credit, and 10 percent local counterpart funding. The credit is 4.25 percent over 12 years and is reimbursable on a monthly basis. - Mode 3 or PAC 3: this is a guichet for financing rural community needs on the following basis, 90 percent subsidies through the IDA credit and 10 percent local counterpart funding. The allocation of PAC 1 and 2 will be done on the following basis: * PAC 1: PAC 1 represents 50 percent of the amount of the physical investment component (US$25 million or 15 billion CFA francs). Every municipality will benefit from PAC 1. The amount of PAC 1 allocation to a municipality is based on its population (i.e. on average FCFA 3550 per inhabitant). The amount per municipality cannot be inferior to FCFA 75 million so that a minimal investment program can be carried out. * PAC 2: PAC 2 represents the remaining 50% of the amount of the physical investment component (US$25 million or 15 billion CFA francs)). The envelop per municipality is based on the financial capacity of the municipality and cannot exceed 6% of the average monthly revenues of the municipality. The ceiling is modest enough to allow the additional mandatory contribution by the municipality to Priority Maintenance Program. Envelopes per municipality and financing mechanisms can be found in ANNEX 5. * PAC 3: PAC 3 represents US$15 million and focuses exclusively on rural communities. 13 2.20 These conditions aim at preventing any dysfunctional patterns such as (a) the excessive competition among the various modes of financing; (b) taking into consideration the weak financial capacity of municipalities which could not self finance and borrow in large amounts; (c) prevent the liquidity issue of large annual reimbursement through a spread of both self-financing and credit reimbursement on a monthly basis. Flow of funds 2.21 ANNEX 6 summarizes the flow of funds. The main features are the following: * Financing is coming from three sources: (1) municipal counterpart through both self- financing and credit reimbursement made on a monthly basis; (2) the contribution from the central government through the annual FECL allocation; and (3) IDA and other donors allocated to municipalities as credit or subsidies. * Financing is available for two types of activities: the Priority Investment Programs and the Municipal Adjustment programs. The funds will be made available to either the Municipal Development Agency or the Delegated Contract Management Agency according to their final destination. * Municipalities pay monthly contributions (under PAC 2) to the Municipal Development Agency to a special account opened at the Treasury. These funds are then split by the MDA between the CMA account, opened at the Treasury for the municipal counterpart, and the ADM account opened at a financial institution for the credit part. * The central government pays the annual FECL allocation to the MDA account opened at the Treasury and the left over from the CCC to the MDA account at a financial institution. * IDA funds the CMA account at a financial institution for the PIP and the MDA account at a financial institution for the Municipal Adjustment Program. In total this requires the opening of two accounts at the Treasury, one for MDA and one for CU4 as well as the opening of two accounts at a financial institution, one for MDA and one for CM4. 2.22 This system enables CMA to have funds readily available and accommodate its disbursements needs. The replenishment of CAL4 accounts (at the Treasury and a financial institution) will be done every three months on the basis of committed annual investment programs (devis programmes). The beginning of works will be conditional to the payment by municipalities of their monthly dues which become mandatory as soon as the municipal contract is signed. 14 III. Program Implementation A. Institutional Arrangements 3.01 A participatory process has been emphasized throughout program preparation. Three seminars have been held, including a two day seminar in March 1995 which was attended by over 100 representatives, including 48 mayors, to discuss the institutional framework of the program and the Feasibility study. The study was prepared in collaboration with the Senegalese Government, local experts and the Program Preparation Unit (PPU). Additional PPU activities include: (a) coordinating with the different Ministries, central and local governments and NGOs; (b) working with secondary cities to: (i) analyze past experiences, local management systems and technical capacities, (ii) complete audit proposals, and (iii) simulate future municipal contracts; and (c) update data bases on the financial status of the 60 municipalities. 3.02 The different actors who will participate in the execution of the project, include: (a) the Senegalese Government, (b) the MDA, (c) municipalities, (d) the Mayors Association of Senegal and the Association of rural communities Presidents, (e) accepted contract management agencies, (f) financial institutions, (g) the private sector (contractors, consultants and the beneficiary population). 3.03 The Municipal Development Agency (MDA) has been created, as the government delegated executing agency for the UDDP. A manual of procedures defines the MDA's role and operational procedures. The MDA will: (a) assist municipalities in the preparation of municipal contracts and implementation of their Municipal Adjustment Programs; (b) implement and supervise support activities; and (c) work closely with the contract management agency. The MDA will hire consultants to complete the audits necessary for the preparation of the municipal contract. Although the MDA will not oversee the implementation of physical components of the project, a task which will be assigned to a contract management agency (AGETIP), it will, however, supervise the implementation of all municipal contracts and make sure that any problems in the implementation of the MAP be anticipated so not to endanger the implementation of the PIP. 3.04 The maximum processing time for each step of the project process is: Step Proc~~~~~~~iitaesn Timces iaa aznldbai 3 months Preparation of the Municipal ContIraont 3.05 The board members of the MDA include, among others, the Minister of Economy, Finance and Plan, Minister of Decentralization, President of the Association of Mayors and Director of the MDA. The collaborative, independent relationship between the MDA and the "6World Bank. Aide Memoire Manuel de Procedures. March 1996. 15 administration will enable the MDA to maximize its position of neutrality in decision making while maintaining close contact with the government. 3.06 The Senegalese Government is responsible for the: (a) allocation of the amount of the FECL; (b) provision of administrative assistance to guarantee the creation and functioning of the MDA; and (c) insurance of legislative and local fiscal reforms to assist the MDA's objectives. 3.07 Municipalities elaborate, negotiate and sign a municipal contract, prepare an investment plan, work with the MDA on studies and financing, and work with a contract management agency on project implementation.27 3.08 A Contract Management Agency (CMA) will be the primary agency to execute and supervise the investment program defined in the municipal contract. Once a municipal contract has been negotiated and signed, the contract management agency will proceed with project implementation, including bidding procedures and execution of works. AGETIP will be the primary CMA for PACI and PAC2 and will be the executing agency for PAC3. 3.09 All studies and projects will be implemented by private sector firms. As is currently the practice, the CMA does not execute any operations itself and, therefore, contracts out all the sub- projects to local consultants, entrepreneurs and suppliers in order to maximize the participation of local entrepreneurs and generate employment through labor intensive approaches to public works. Contracting enables the municipality and the CMA to avoid hiring additional technical staff and remain focused on increasing work quality and developing skills of managers and workers. An improved quality of work will be obtained through training consultants and contracting staff, tightening classification criteria for contract awards, and improving supervision of work. B. Procurement 3.10 A Country Procurement Assessment Review (CPAR) was carried out in July 1994. For the program, findings of the CPAR remain valid. In general, Senegal's procurement laws and regulations do not conflict with IDA Guidelines. No special exceptions, permits, or licenses need to be specified in the Credit documents for International Competitive Bidding (ICB), since Senegal's procurement practices allow IDA procedures to take precedence over any contrary provisions in local regulations. IDA-financed Works and Goods will be procured in accordance with Bank's Guidelines under IBRD Loans and IDA Credits (January 1995, revised in January and August 1996). National Competitive Bidding (NCB) advertised locally would be carried out in accordance with Senegal's procurement laws and regulations, acceptable to IDA provided that: (i) any bidder is given sufficient time to submit bids (four weeks); (ii) bid evaluation and bidder qualification are clearly specified in bidding documents; (iii) no preference margin is granted to domestic manufacturers; (iv) eligible firms are not precluded from participation; (v) award will be made to the lowest evaluated bidder; and (vi) prior to issuing the first call for bids, draft standard bidding documents are submitted to IDA and found acceptable. Consultant Services contracts financed by IDA will be procured in accordance with the Bank's Guidelines for the Selection of Consultants by World Bank Borrower published in January 1997. Table 3.1 below summarizes project costs by disbursement category and procurement methods. 17 Sides-Breef Etude de Factibilite du Programme d'Appui aux Communes. Rapport Final. Septembre 1995. p78. 16 Table 3.1 Procurement (US$ million net of taxes and duties) Program Element Procurement Method Other Non-IDA TOTAL ICB NCB Financed 1. Civil Works 11.36 44.44 1.00 5.52 62.32 (10.00) (38.70) (0.90) (-) (49.60) (a) For Municipal Sub-Projects 10.36 34.04 1.00 4.42 49.82 (b) ForRural Sub-Projects 1.00 10.40 - 1.10 12.50 2. Consultant Services 9.50 9.50 (9.50) (9.50) (a) For Municipal Sub-Projects - - 9.00 9.00 (b) For Rural Sub-Projects - 0.50 0.50 3. Goods, Equipment and Materials 7.40 1.70 0.50 0.08 9.68 (7.40) (1.50) (0.40) (--) (9.30) (a) For Municipal Sub-Projects 5.00 0.50 - 0.05 5.55 (b) For Institutional Development 1.60 0.50 0.08 0.02 2.20 (c) For Rural Sub-Projects 0.80 0.70 0.49 0.01 2.00 4. Training 2.50 2.50 (2.50) (2.50) 5. Operating expenses 3.50 0.70 4.2 (3.50) (--) (3.5) 6. Management fees 0.60 0.20 0.80 (0.60) (--) (0.60) TOTAL 18.76 46.14 17.60 6.50 89.00 (of which IDA) (17.40) (40.20) (17.40) (--) (75.00) Note: figures in parentheses are the respective amount financed by the IDA credit 3.11 Civil works. Generally speaking, civil engineering contracts (construction, rehabilitation of street pavements, primary classrooms, primary health centers, drainage cleaning, etc.) should relate to amounts under US$500,000 equivalent. If the contract amount exceeds this threshold, the ICB procedures in agreement with the Bank Guidelines for Procurement (January 1995, revised in January and August 1996) will be applied. Contracts are not expected to exceed US$10 million. The Bank Standard Bidding Documents for works (Droit Civil) under ICB will be used. Contracts under the threshold (US$500,000) will be awarded using the CMA's Manual of Procedures. The manual will include National Competitive Bidding (NCB), based on the standard bidding documents of the Manual of Procedures and a register of approved enterprises, which are acceptable to IDA. The CMA will maintain a record of entrepreneurs eligible for 17 participation in NCB, which will remain open during project execution so that new candidates can be admitted at any time. Prequalification criteria spelled out in the CMA's Manual of Procedures is typical of that used in works' contracts. The procedure will consist essentially of a local announcement of a proposed contract for a given project to the enterprises listed in the register. Notices will be published in local newspapers, informning potential bidders that have not yet asked to be registered by the CMA. Contracts for small works estimated to cost less than US$50,000 per contract, up to an aggregate amount of US$1 million, would be procured under lump-sum, fixed-price contracts awarded on the basis of quotations obtained from three qualified domestic contractors invited to bid by way of discounts either on the total price or on the unit prices. The invitation shall include reference unit prices established by an engineer/architect, a detailed description of the works, including basic specifications, the required completion period, a basic form of agreement acceptable to IDA, and relevant drawings, where applicable. The award would be made to contractor who offers the lowest price quotation for the required work, provided he demonstrates he has the experience and resources to complete the contract successfully. 3.12 Consutants Services. Consulting services financed by IDA would be for: (i) studies: urban audits, financial audits, designs, preparation of bidding documents, data collection, accounting systems, financial management supports, and impact analysis; (ii) consultancies on technical matters and training: skills gap analysis, skills development; and (iii) training of municipal personnel and central government staff. Consultants financed by IDA, totaling US$9.5 million, would be hired in accordance with the Bank's Guidelines for the Selection and Employment of Consultants (January 1997). It would be addressed through competition among qualified short-listed firms in which the selection will be based on Quality-and Cost-Based Selection (QCBS), by evaluating the quality of the proposal before comparing the cost of the services to be provided. For audits of project finances, and any missions of a standard nature, the Least-Cost Selection would be the most appropriate method -- the firm with the lowest price will be selected, provided its technical proposal received the minimum mark. Consultants services for advisory services on capacity building (estimated to cost less than US$100,000 per contract and up to an aggregate of US$500,000) would be based on Consultants' Qualifications taking into account the consultants' experience and competence relevant to the assignment. Services for small studies, which can be delivered by Individual Consultants, would be selected through comparison of qualifications among those expressing interest in the assignment or approached directly. Single Source Selection would be exceptionally used for selecting the CMA. The Government of Senegal proposed to select AGETIP as Contract Management Agency (CMA) for the execution of PIP under the first municipal contracts agreed during the first project year; in case of need, after the end of the first year, selection of any other CMA would be handled in accordance with the Guidelines for the use of consulting services. 3.13 For training abroad and in-country training sessions, the programs, containing names of candidates, cost estimates, content of courses, period of training, institutions selected, would be reviewed by IDA annually. 3.14 Short-lists for contracts estimated under US$100,000 may be comprised entirely of national consultants, if a sufficient number of qualified firms (at least three) are available locally at competitive costs. This would particularly apply to contracts for architectural and engineering services. However, if foreign firms have expressed interest for those contracts, they will not be excluded from consideration. The standard Letter of Invitation and Form of Contract, as developed by the Bank, will be used for appointment of consultants. Simplified contracts will be 18 used for short-term assignments, i.e. those not exceeding six months, carried out by firms or individual consultants. The Government has been briefed during appraisal and has received additional clarification during negotiations about the features of the new Consultants Guidelines, in particular with regards to advertisement and public bid opening. 3.15 Procurement for Goods. Goods would normally be procured through ICB procedures in accordance with Bank's Guidelines for Procurement (January 1995, revised in January and August 1996). However Contracts for goods (including office equipment and supplies, computers, vehicles, and furniture) to be procured several times during project implementation are not likely to be grouped into a package exceeding US$200,000 equivalent. These items are not expected to attract foreign bidders because of their small size and because of the diversity of site and period delivery, will be awarded on the basis of NCB, in accordance with procedures acceptable to IDA. Items, not exceeding US$30,000 individually, and totaling US$300,000, mostly office supplies, would be purchased through International Shopping, and items not exceeding US$20,000 individually, and totaling US$200,000, would be purchased through National Shopping by soliciting quotations from at least three reliable suppliers (in two different countries in the case of International Shopping). 3.16 Review by IDA. IDA will examine the roster of contractors and will ensure the procedures conform with the Manual of Procedures. IDA-financed contracts above the value of US$200,000 equivalent for CMA works and goods, will be subject to IDA's prior review. Documentation for contracts under these thresholds will be maintained for ex-post reviews by auditors and IDA supervisory staff. In addition, for all contracts for works, for which there are less than five bidders or for any decision not to select the lowest evaluated bid, the CMA will submit its proposal to IDA for approval, prior to notifying the winning bidder. During negotiations draft bidding documents for NCB were reviewed and agreed upon with IDA. IDA prior review for the hiring of consultants will include the review of budgets, terms of reference, short-lists, selection procedures, letters of invitation, evaluation reports, proposals for contract award and draft negotiated contracts. Prior review will not apply to contracts for the recruitment of consulting firms and individuals estimated to cost less than US$100,000 and US$50,000 equivalent respectively. However, the exception to prior IDA review will not apply to the Terms of Reference of such contracts, regardless of value, to single-source hiring, to assignments of a critical nature as determined by IDA, or to amendments of contracts raising the contract value above the prior review threshold. For consultant contracts estimated above US$200,000, opening the financial envelopes will take place only after issuance of Bank's no-objection to the technical evaluation. For contracts estimated to cost less than US$200,000 and more than US$ 100,000 the borrower will notify IDA of the results of the technical evaluation prior to opening the financial proposals. Documents related to procurement below the prior review thresholds will be maintained by the borrowers for ex-post review by auditors and by IDA supervision missions. 3.17 Procurement Status of Ongoing Projects and Proposed Arrangements. National Bidding Procedures for public sector procurement in Senegal have proven slow and cumbersome in several past and on-going IDA-financed projects. A revised procurement code is expected to be approved by the national Assembly; the introduction of simplified procedures and training of staff which would accompany the issuance of the new procurement code would normally improve the current situation. Under previous IDA-financed projects (Urban and Public Works Projects), central Government already gained a substantial experience of Bank's procedures. Procurement would be managed by MDA and the CMA. The newly created MDA will handle consultants services for the definition of municipal contracts and will be staffed with 19 professionals with sufficient experience, mostly from the private sector. It will also: (i) hire individual consultants and ad hoc short-term consultant services as required; and (ii) organize training sessions as necessary. AGETIP which has been selected by the Goveinment as CMA has the capacity to handle procurement of public works. 3.18 Procurement Schedule. The General Procurement Notice (GPN) for the project was issued during negotiations. Standard processing times for the different types of procurement were discussed during negotiations and included in the implementation manual as well as in the MDA's Manual of Procedures. The Government has given assurance at negotiations that it will take the necessary measures to ensure that procurement phases do not exceed the following target time periods: Procurement Phases Maximum number of weeks * Preparation of bidding documents 4 (12 for large contracts) * Preparation of bids by bidders 4 (12 for ICB) * Bid evaluation 2 (4 for large contracts) * Signature of contracts 2 * Payments 4 3.19 During negotiations, the Government submitted to IDA: (a) a draft procurement plan for the first two program years; (b) two draft Manuals of Procedures for MDA and AGETIP for Program Management and Implementation including target time periods for the various procurement phases; (c) three municipal contracts ; (d) standard bidding documents to be used under NCB procedures for civil works and goods. During negotiations, agreement was reached on the proper monitoring of procurement, as well as the standard procurement documents to be used for NCB. The Government gave assurance at negotiations that it will: (a) use Manuals of procedures for Program Management and Implementation; (b) use the Bank's Standard Bidding Documents for ICB and the Standard Bid Evaluation reports; (c) apply the procurement procedures and arrangements outlined in the above documents; and (d) review the procurement plan and procurement arrangements each year at the annual review with IDA and other donors. The Government will submit a final version of the Operational Manual before Credit effectiveness. During implementation, all bidding documents, bid evaluation reports, and draft contracts transmitted to IDA for review will contain an updated copy of the procurement plan. Procurement information will be collected and recorded as follows: (a) prompt recording of contract award information by the Borrower; and (b) semi-annual reports to the Bank by the Borrower indicating: (i) revised cost estimates for individual contracts and the total program, including best estimates of allowances for contingencies; (ii) revised timing of estimated procurement actions, including experience with completion time and completion costs for individual contracts; and (iii) compliance with aggregate limits on specified methods of procurement. 3.20 Contracts Financed by Other Institutions. The MDA's Manual of Procedures provides for the case of parallel financing by another donor, which will decide the procedures to be followed. If there were to be joint financing or administration by IDA, the procedure used would conform to the Bank's guidelines for procurement. 20 C. Disbursements 3.21 The percentages of IDA participation will be as shown below. Table 3.2 Disbursement (US$ million, in percentage of costs net of taxes and custom duties) Category Amount % of Expenditure to be of Credit financed by IDA 1. Civil Works 41.5 90% of total expenditures (a)For Municipal Sub-Projects 31.3 (b)For Rural Sub-Projects 10.2 2. Consultant Services 9.5 100% of total expenditures (a) For Municipal Sub-Projects 9 (b) For Rural Sub-Projects 0.5 3. Training 2.5 100% of total expenditures 4. Goods, Equipment and Materials 9.1 100% of foreign and 90% of (a) For Municipal Sub-Projects 5.0 total local expenditures (b) For Institutional Development and Administration 2.1 (c) For Rural Sub-Projects 2.0 5. Operating expenses for MDA 3.2 100% of expenditures during the four first years, 80% the fifth year 6. Management fees for AGETIP 0.8 100% of expenditures 7. Refunding of PPF 1.4 8. Unallocated 7 TOTAL 75 Table 3.3 Disbursement projection (US$ million) JDsuseet 1998@7337. 1999.o ' ' ""2000 ' 2;"t' 001000 2 00'''02g' Aunuafiltt_ 11.75 14.25 15.00 18.00 16.00 11.75 26.00 41.00 59.00 75.00 FY = IDA fiscal year, e.g. FY 96 = July 1, 1995 - June 30, 1996. 3.22 The Disbursement of the Credit would be fully documented, except for expenditures valued at less than US$200,000 equivalent for works, US$150,000 equivalent for goods, US$100,000 equivalent for consulting firms, and US$50,000 equivalent for individual consultants, all of these would be made against the Statements of Expenditures (SOEs). Documentation for withdrawal under SOEs would be retained by MDA and AGETIP for review by IDA supervision and for annual and quarterly audits. To facilitate disbursements, MDA and AGETIP would respectively open a Special Account in a commercial bank acceptable to IDA to cover IDA's share of eligible expenditures managed by MDA and AGETIP. Based on the disbursement experience of the previous projects, the authorized allocation for the MDA Special Account (SA) would be equivalent to 1 billion CFA francs and the authorized allocation for AGETIP Special Account (SA) would be equivalent to 300 million CFA francs. IDA would make an initial deposit of that amount from the proposed credit upon credit effectiveness and 21 would replenish the SA upon receipt of satisfactory proof of incurred eligible expenditure. Replenishment requests would be accompanied by up-to-date bank statements and reconciliation of the SA. 3.23 MDA Management Fee. IDA will finance MDA's operating costs at one hundred percent over the four first years. Then this contribution will be decreased to up to eighty percent the fifth year with the remaining twenty percent to be covered through the monthly credit payment made by municipalities. A financing plan for MDA's operating costs will be adopted at the end of the project fifth year based on a digressive IDA contribution and an increasing share of self-financing based on the monthly credit payment. D. Auditing and Monitoring 3.24 Reporting and Accounting. Following its manual of procedures, the MDA will maintain the project accounts and issue periodic reports as follows: (i) summary monthly bulletins, within a month; (ii) quarterly reports, within two months; (iii)an annual report, slightly longer than an ordinary quarterly report, within three months; (iv) a detailed mid-term review report, within two months after the review; and (v) a project completion report, within six months of the closing date. Each of these reports, except the monthly bulletins, will be complemented by consolidated accounts of the reference period. 3.25 Audits. The consolidated accounts will be audited by independent auditors acceptable to IDA. The reports on the first legal semester of each year will be submitted to the Government and IDA within four months. The annual audit report will be submitted within five months after the end of the related year or after project closure, respectively. Auditors will review and comment on expenses and special accounts (financial audit), management procedures (management audit), and quality of works carried out (technical audit). Agreements on periodicity and terms of reference of financial, technical, managerial, and environmental audits, and on the short-list of potential auditing firms or joint-ventures was confirmed at negotiations. The appointment of auditors acceptable to IDA, and with terms of reference acceptable to IDA, will be a condition of credit effectiveness. 3.26 Performance Monitoring. A detailed set of performance indicators for municipalities, MDA, and project effectiveness are described in ANNEX 16. Municipal contract implementation progress will also be monitored on an annual basis and published in the press. E. Supervision 3.27 Supervision Missions. The project will be supervised on a regular basis by visiting Bank missions which will review progress, evaluate performance, visit works sites, scrutinize project management, and evaluate the impact on the development of small firms and employment. 3.28 Annual Reviews and Beneficiary Surveys. Annual reviews will be organized between the Senegalese Government, MDA, municipalities and the Bank in order to evaluate the effectiveness of the program. Program effects include: (a) the performance of the actors, (b) the relevance of the performance indicators, and (c) the municipal contracts. Annual reviews will 22 include a one day workshop with representatives of all stakeholders and beneficiaries. Each annual review will present a summary of beneficiary satisfaction with the program. 3.29 Mid-term Review. A more in-depth, mid-term review will be carried out at the end of the second year of project implementation. The review will be an opportunity to discuss with a larger group of stakeholders: mayors, central and regional government authorities, communities, NGOs, and donors during a two-day workshop. This review will include an environmental assessment of all sub-projects. With regard to decentralization, the review will take stock of the progresses of municipal fiscal reforms, and draw lessons. The review will allow for modification of project features to improve effectiveness. 23 IV. Benefits and Risks A. Benefits 4.01 The program will support the decentralization process and promote a more active role for municipalities. It will: (a) stimulate the capacity of local governments to efficiently program, finance, execute and maintain facilities, as well as the delivery of services; (b) facilitate improved municipal financial performance and contribute to the national institutional development objectives, through a reduction of the public sector deficit; (c) impact economically and socially the urban and rural population through: (i) reduced costs of and better access to municipal services and basic rural infrastructure, and (ii) employment generation through sustained public works activities. Economic Analysis 4.02 An economic analysis of sub-projects was carried out during project preparation. ANNEX 14 gives a detailed presentation of the methodology and conclusions of this sample analysis. Each sub-project will be selected on the basis of its economic feasibility. Impact on Poverty and Unemployment 4.03 The program will have an impact on a large percentage of the urban and rural population, particularly in low-income, urban neighborhoods which currently endure inadequate levels of services with serious environmental risks. The Priority Investment Program (PIP) is selected on the basis of an inventory of basic infrastrcuture and services (Inventaire pour la Programmation des Infrastructures et Equipements/IPIE), a tool which assesses and identifies gaps in the level of neighborhood services. Each sub-project is then screened on the basis of a poverty impact evaluation. Furthermore, the urban audit process places an emphasis on underserved areas and aims to enhance the population's access to basic services. Impact on the Environment 4.04 This category B program will facilitate sustainable improvements in the living and working environment of Senegal's urban areas. The physical and socio-economic conditions of the urban population will improve due to the upgrading of urban infrastructure and increased provision of basic urban services. In order to ensure the physical components have a positive impact on the urban environment, an environmental impact checklist will be included in the preparation of the municipal contract. The checklist capitalizes on the 1993 final environmental report (Etude sur l'Environnement Urbain au Sinigal) and the 1994 complementary study (Compliment de l'Etude sur 1'Environnement Urbain au Senegal). The creation of a checklist has the dual advantage of: (a) screening sub-projects in a more operational manner than with an environmental assessment; and (b) enhancing the pedagogical value of raising local governments' awareness of their proposed projects' environmental impact. Each sub-project will be selected on the basis of an environmental impact evaluation form, highlighting specific eligibility criteria. A copy of the environmental checklist is included in ANNEX 15. 24 4.05 The checklist data will result in a series of recommendations to be incorporated into the municipal contract. The fulfillment of these recommendations will be supervised by the CMA which reports to the MDA. Impact on Capacity Building and Participation 4.06 Private Sector Development. The program will provide opportunities for consultants and entrepreneurs to strengthen their technical and administrative skills. It is expected that a pool of local consultants will immediately be trained at carrying out the financial and urban audits elaborated during project preparation. A training program is also included for small scale enterprises in order to improve the performance of public works enterprises. Finally, the revenue-generating facilities such as markets and bus stations will be eligible to UDDP financing if sound management of the facilities is included in the municipal contract and UDDP can provide assistance with delegated management. 4.07 Municipal Development. Citizens and elected officials will better manage municipal infrastructure, give a sense of ownership of the city, and establish a power balance between the central and municipal governments. Furthermore the program will enhance rural communities capacity in project formulation which will result in a quicker upgrade from village to municipality level status. Sustainability 4.08 The program is timely, considering the recent Decentralization reforms and the latest municipal elections (December 1996). The tools to improve the programming of municipal investments and the overall management of municipalities have been designed with the major objective of being user-friendly and becoming, over time, part of common management practices. The overall institutional framework of UDDP responds to the need to simplify and rationalize the distribution of responsibilities among the various public and private actors in the financing and delivery of infrastructure and services in a political climate which is today ripe for these changes. B. Risks 4.09 The major program risks are: (a) introduction of parallel competitive, less demanding sources of funding to municipalities by other donors; (b) inability of the Government to enact the required fiscal reforms or effectively manage the decentralization program; (c) failure of municipalities to implement the municipal adjustment programs or to reimburse their share of the credit; and (d) unfavorable macroeconomic conditions during program execution. 4.10 These are important risks which cannot be ignored, although the rewards from the successful implementation of the Program are also very high. Several factors reduce these risks: (a) continued coordination with donors during project preparation and their adherence to the Program as demonstrated in their willingness to participate in UDDP; (b) strong ownership demonstrated by the Government's and municipalities' participation during project preparation; and (c) a realistic assessment of the municipalities' financial capacity and a pragmatic Municipal Adjustment Program catered to specific local circumstances and performances. 25 V. Agreements Reached and Recommendation 5.01 Prior to negotiations with IDA, the Government: (a) adopted the Letter of Sectoral Policy; and (b) created the Municipal Development Agency. 5.02 During negotiations the Government furnished the following documents: (a) finalisation of three municipal contracts; (b) draft manuals of procedures for MDA and AGETIP; (c) draft convention between the Government, Association of Mayors and MDA; (d) draft amendment to the convention between the Government and AGETIP; (e) draft convention between the MDA and AGETIP; (f) draft catalogue of municipal equipment; and (g) list of selected sub-projects for rural communities. 5.03 During negotiations, the Government gave assurance that it will: (a) allocate one billion F CFA for each year of the UDDP; allocate the remaining balance from the Municipal Development Fund to the UDDP; (b) apply the procurement procedures and arrangements outlined in the Bank's Standard Bidding Documents for ICB, NCB, and in the procedures manuals; (c) approve (i) the terms of reference for the consultants to be recruited to establish the accounting and financial management system for the MDA (ii) the terms of reference, the short list of firms and the selection procedures for audits contracts; (d) submit to IDA, within six months of the end of each fiscal year, audited accounts and the auditor's report, including the Management Letter (Long Form) and a statement as to whether or not IDA funds had been used for their intended purpose, and separate opinion with respect to statement of expenditures and the Special Account; and (e) submit an Implementation Completion Report (ICR) within six months of the Credit closing. 5.04 As conditions of Credit effectiveness, the Government will: (a) adopt the procedures manual of MDA; (b) adopt the procedures manual of AGETIP; (c) sign the convention between the Government and MDA; (d) sign the convention between the Government and AGETIP; (e) sign the convention between MDA and AGETIP; (f) make a deposit of an initial amount of F CFA 400 million from the FECL in an account for MDA and from the allocation of one billion F CFA for the UDDP; (g) sign a decree closing the CCC and make available funds from the CCC to the ADM; (h) sign at least three municipal contracts; (i) establish a financial management and accounting system for the MDA; and (j) sign a multi-year contract award for auditing the project account, acceptable to IDA; 5.05 Recommendation. Subject to the above terms and conditions, the proposed project would be suitable for an IDA credit of SDR 55.2 million (equivalent to US$75 million) to the Republic of Senegal on standard IDA terms. Annexes 1. Letter of Sectoral Policy 2. Recent Trends in Decentralization Policy 3. Financial Situation of Municipalities 4. Project Cost Summary 5. Financing of investments 6. Financial flow 7. Credit to Municipalities 8. MDA Organization Chart 9. Convention between the Govemment and MDA, 10. Convention between MDA and AGETIP 11. Municipal contract: sample 12. Priority Investment Program: financing agreement 13. Municipal Investment Catalogue: Table of Content 14. Economic Analysis of Sub-Projects 15. Environmental Impact Assessment of Sub-Projects 16. Key Indicators of Performance 17. Supervision Plan 18. Bibliography and Documentation Map: IBRD No 28026 Annexe I Page I / 7 Lettre de Politique Sectorielle I. LES ORIENTATIONS STRATEGIQUES Depuis 1960, les pouvoirs publics ont opte pour un systeme administratif decentralise. Des efforts consid6rables ont 6te consentis ces dernieres annees pour att6nuer le desequilibre spatial, maitriser l'essor urbain et am6liorer le cadre de vie. En 1996, le processus de d6centralisation s'inscnt comme un element essentiel du IXeme Plan. Ceci se traduit par les orientations specifiques suivantes: * Renforcer le developpement des regions et la capacit6 des entites decentralisees; - D6velopper l'initiative prvee et accompagner les mutations dans le domaine de l'auto-organisation:; * Exprimer le d6sengagement de l'Etat par un cadre reglementaire favorisont la synergie entre le secteur modeme et le secteur informel. Cette lettre de politique sectorielle au Senegal a pour objectif de renforcer la politique de d6centralisafion par la stimulation de l'effort de redressement des collectivites locales d'une part, et de soutenir leur effort d'investissement, d'autre part. Elle permet de replacer le Programme d'Appui aux Communes dans la politique de deveioppement de ia decentralisation qui prend un nouvel essor avec les lois de 1996. 11. LES PRINCIPALES ETAPES DE LA DECENTRALISATION (1960 - 1996) Le Senegal, depuis son accession a la souverainet6 nationale, a opte pour une politique de decentralisation progressive et prudente. Quelques dates significatives illustrent cette evolution: en 1960, le statut de commune de plein exercice est elargi a toutes les communes; en 1966, le Code de l'Administration Communcle est promulgue par la loi n
Группа Всемирного банка · Staff Appraisal Report
Senegal - Urban Development and Decentralization Program Project
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