Uganda - Local Government Development Program Project

Document of The World Bank Report No: 19745-UG PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 58.7 MILLION (US$ 80.9 MILLION EQUIVALENT) TO THE REPUBLIC OF UGANDA FOR THE LOCAL GOVERNMENT DEVELOPMENT PROGRAM October28, 1999 Water and Urban 1 Tanzania & Uganda Country Department Africa Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective April 1997) Currency Unit = Uganda Shillings (USh) USh = US$0.001 US$ = USh 1000 FISCAL YEAR July I -June 30 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy CBO Community Beneficiary Organization DDP-Pilot District Development Project - Pilot DFID Department for International Development EFMP II Second Economic and Financial Management Project GoU Government of Uganda FUP First Urban Project ICB International Competitive Bidding ICBP Institutional Capacity Building Project IDA International Development Association KCC Kampala City Council LACI Loan Administration Change Initiative LGDP Local Government Development Program LGs Local Governments M&E Monitoring and Evaluation MoFPED Ministry of Finance, Planning and Economic Development MoLG Ministry of Local Government NCRP Nakivubo Channel Rehabilitation Project NGO Non Governmental Organization O&M Operations and Maintenance PIP Program Implementation Plan PMR Project Management Report PPF Project Preparation Facility PHRD Policy and Human Resources Development SDR Special Drawing Rights SFR Strategic Framework for Reform SOE Statement of Expenditure UNCDF United Nations Capital Development Fund UNDP United Nations Development Programme Vice President Callisto E. Madavo Country Director James W. Adams Sector Manager Jeffrey S. Racki Task Team Leader Gautam Sengupta  REPUBLIC OF UGANDA LOCAL GOVERNMENT DEVELOPMENT PROGRAM TABLE OF CONTENTS Project Financing Data ................................................................ i A. Project Development Objective ...............................................................1l l. Project development objective and key performance indicators ........................ l 2. Key Performance Indicators ................................................................1 B. Strategic Context ................................................................2 1. Sector-related CAS goal supported by the project ...................... ....................... 2 2. Main sector issues and Government strategy ..................................................... 2 3. Sector issues to be addressed by the project and strategic choices ..................... 4 C. Project Description Summary ................................................................5 1. Project components ................................................................6 2. Key policy and institutional reforms supported by the project .......................... 12 3. Benefits and target population ............................................................... 12 4. Institutional and implementation arrangements ................................................. 13 D. Project Rationale ......................................................................................................... 15 1. Project alternatives considered and reasons for rejection ................................... 1 5 2. Major related projects financed by the Bank and/or other development agencies ............................................................... 16 3. Lessons learned and reflected in proposed project design .................................. 18 4. Indications of borrower commitment and ownership ......................................... 20 5. Value added of Bank support in this project .......................................... ............ 20 E. Summary Project Analyses ............................................................... 21 1. Economic ............................................................... 21 2. Financial ............................................................... 22 3. Technical ............................................................... 25 4. Institutional ............................................................... 25 5. Social ............................................................... 25 6. Environmental assessment ............................................................... 26 7. Participatory approach ............................................................... 26 F. Sustainability and Risks ............................................................... 28 1. Sustainability ............................................................... 28 2. Critical risks ............................................................... 29 3. Possible controversial aspects ............................................................... 30  G. Main Loan Conditions ..................................................... 30 1. Effectiveness conditions ................................................ 30 2. Other ................................................ 31 H. Readiness for Implementation ..................................................... 32 I. Compliance with Bank Policies ..................................................... 32 Annexes Annex 1. Project Design Summary .33 Annex 2. Detailed Project Description .38 Annex 3. Estimated Project Costs .50 Annex 4. Economic Justification Summary .51 Annex 5. Financial Summary .55 Annex 6. Procurement and Disbursement Arrangements .59 Table A. Project Costs by Procurement Arrangements ...................................... 65 Table Al. Consultant Selection Arrangements ................................ 66 Table B. Thresholds for Procurement Methods and Prior Review ..................... 67 Table C. Allocation of Credit Proceeds ................................................ 68 Annex 7. Project Processing Budget and Schedule .69 Annex 8. Documents in Project File .70 Annex 9. Statement of Loans and Credits .71 Annex 10. Country at a Glance .73 Annex 11. Procurement Strategy and Implementation Schedules .76 Annes 12. Letter of Sectoral Policy .82 Maps: IBRD No. 30513 IBRD No. 30514  - i - The Republic of Uganda Local Government Development Program Project Appraisal Document Africa Region - Country Department 4 Date: October 28, 1999 Team Leader: Gautam Sengupta Country Manager/Director: James W. Adams Sector Manager/Director: Jeffrey S. Racki Project ID: 2992 Sector(s): BD - Decentralization Lending Instrument: Specific Investment Loan (SIL) Theme(s): Decentralization with an advance funding arrangement for Component 2 of the Project Poverty Targeted Intervention: No Project Financing Data Loan [] Credit [X] Grant [] Guarantee [ Other (Specify) [] For Loans/Credits/Others: Amount (US$m) 80.9 Proposed Terms: [X] Multicurrency [ ] Single Currency Grace period (years) : 10 []Standard Variable []Fixed [ LIBOR-based Years to maturity 40 Commitment fee : 0.50% Service charge : 0.75% Financing Plan: Source Local Foreign Total IDA 50.7 30.2 80.9 GoU/KCC/LGs 7.2 1.8 9.0 Total: 57.9 32.0 89.9 Borrower: Republic of Uganda Guarantor: Not Applicable Responsible agency: Ministry of Local Government Implementing agency(ies): Ministry of Local Government, Ministry of Finance, Planning and Economic Development, Kampala City Council, Local Governments Address: Program Management Unit, Ministry of Local Government, P.O. Box 7723, Kampala, Uganda Contact Person: Mr. Martin Onyach-Olaa Telephone: (256-41) 232-741 Fax: (256-41) 232-936 Email: peri@imul.com Estimated disbursements (Bank FY/IJS$M): FY 2000 2001 2002 2003 Annual 19.3 31.2 36.5 2.9 Cumulative 19.3 50.5 87.0 89.9 Project implementation period: 4 years Expected effectiveness date: January 1, 2000 Expected closing date: June 30, 2003   Project Appraisal Document Page 1 Country: Uganda Project Title: Local Government Development Program A: PROJECT DEVELOPMENT OBJECTIVE 1. Project development objective: (see Annex 1) 1. The four key development objectives of the Local Government Development Program (LGDP) are to: (i) Test the feasibility of implementing constitutional and legal mandates with respect to decentralized service provision and devolution of the development budget through the provision of investments funds to the Local Governments (LGs). (ii) Build the capacity of the Ministry of Local Government (MoLG), the Local Government Finance Commission Secretariat (LGFC) and a sub-set of the Local Governments for improved service delivery, accountability and transparency. (iii) Test and institute alternative service delivery mechanisms through the private sector, beneficiary communities and other stakeholders in Kampala City Council. (iv) Monitor and evaluate project implementation for actual experience and good practices for formulating an appropriate strategy, implementation modalities, and phasing for eventual scaling up nationally, over time. 2. LGDP is conceived as an initial pilot phase of a long-term effort to assist the Central Government and Local Governments in their implementation of a national mandate to devolve the development budget and decentralize the provision of basic public services. LGDP will aim to improve LGs' performance of their statutory service obligations through the delivery of effective, efficient and participatory local government planning, budgeting and resource allocation procedures, and enhance the capacities of the Ministry of Local Government, the Local Government Finance Commission Secretariat and the LGs to better deliver on their mandate and consequently contribute towards the national development goal of economic growth and reduction of poverty. 2. Key performance indicators: (see Annex 1) 3. Progress in achieving the objectives of the project will be evaluated on the basis of the following performance indicators: * Better planning, financing and delivery of services by the LGs in a sustainable manner. * Strengthened and effective MoLG and LGFC delivering on their statutory mandates. * Improved applications of the provisions of the Local Governments Act, 1997 and the Local Government Financial and Accounting Regulations, 1998 by LGs in their operations. * Better coverage and lower unit costs of various public services delivered. * Increased delivery of basic public services by the private sector. * A sustainable Management Information System integrated with the Monitoring and Evaluation system developed and tested including the collection, analysis, storage and application of data for planning purposes for LGs. * Procedures, arrangements and model documents and guidelines that are fully demonstrated to be ready for replication in all local governments in the country * Scaled-up National LGDP approved by the Govemment.  Project Appraisal Document Page 2 Country: Uganda Project Title: Local Government Development Program B: STRATEGIC CONTEXT 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 16540 Date of latest CAS discussion: May 20, 1997 4. During the 1990s the Government of Uganda (GoU) has established a record of solid economic reform and sustained growth. GDP growth (at factor cost) has averaged 6.3% during President Museveni's tenure and 7.2% over the past five years. Inflation has declined and the annual average inflation is in single digits. Economic policy has been disciplined and the impact on most performance indicators has been positive. The most important structural and institutional reforms include import, export and foreign exchange liberalization, tax administration, and civil service reform. Progress has been slower in the areas of privatization, public enterprise and financial sector reform. However, the Government has taken measures to address weaknesses in the banking sector, increase efficiency in the privatization process, and strengthen the financial monitoring of public enterprises. As a result of over a decade of macroeconomic stability, and because Uganda still remains in the lower tier of low income developing countries and carries a debt above sustainable levels, the country was the first to qualify as a recipient of the HIPC Initiative. The country is now moving into a phase of deepening the reform agenda, a key dimension of which is the decentralized system of governance aimed at better service delivery standards and coverage through efficient and effective utilization of public resources. 5. A primary goal of the CAS is substantial reduction of poverty in Uganda through rapid economic growth. Economic growth is to be achieved in part through improvement in the quality and reliability of basic public services which contribute towards industrial and commercial development. Given that under the Local Governments Act, 1997 Local Governments have a mandated responsibility to deliver basic services, the provision of efficient service delivery at the local government level is central to the achievement of the CAS goal. The CAS includes this project as part of its assistance strategy for supporting local capacity building and providing key infrastructure investments in the districts. 6. To help realize the sector-related CAS objective, LGDP will provide technical and financial resources to enable the development, testing and application of a range of participatory planning, budgeting and resource allocation procedures and program management systems in a sub-set of LGs. The intent is to empower LGs and communities to better manage economic and social development by devolving to them the authority and capacity to identify, deliver and sustain a locally determined investment program for public goods and services. This would help to ensure improved delivery of basic services to the civic society and, in the process, promote efficiency, effectiveness, transparency and accountability. Lessons learned from experience would contribute towards national policy formulation within a sound fiscal framework as to how best to operationalize the devolution of the development budget, over time, to all the districts. 2. Main sector issues and Government strategy: 7. It should be recognized at the outset that LGDP is cross-sectoral in nature given that it deals with the issue of decentralized service delivery and governance. Uganda's national development strategy, contained in its Poverty Eradication Action Plan (1997), is designed to ensure that the benefits of development are widely spread. The Government is committed to the decentralization of planning, delivery and management of basic services and expansion of the role of the private sector as part of its strategy to stimulate economic growth and reduce poverty. Specifically, this includes: * promoting labor-intensive macroeconomic growth; a improving financial services; * promoting increased private sector investment; and * improving infrastructure service coverage and quality of utilities.  Project Appraisal Document Page 3 Country: Uganda Project Title: Local Government Development Program 8. Active involvement and organization of communities are considered necessary for the implementation of this strategy. There is explicit inclusion of policies and actions to ensure good governance. This commitment is entrenched in various legislative documents, most significantly, the Constitution, 1995 and the Local Governments Act, 1997. The decentralization of the recurrent budget has been essentially completed. The Government now wishes to proceed quickly, to start the process of directing finances to service delivery functions, with the decentralization of the development budget based on the following key principles: * Decisions related to investments in infrastructure services, that are the responsibility of the Local Governments, should be made by the local councils and benefiting communities and all key stakeholders; * Selection, planning, implementation, and management of infrastructure investments should be based on an inclusive and participatory decision-making and a demand, and performance-driven process; * Disbursement of funds for local service investments should be handled by district, sub-county, municipal and division councils, the corporate bodies in the local government system; * Delivery of services should be provided by the private sector where this can be done more effectively and efficiently than by Local Governments or parastatals; and * Central government agencies should play a regulatory, facilitation, mentoring, and monitoring role. 9. In this context, LGDP would operationalize the devolution of the development budget, in a limited way and as a part of the Government's Public Investment Plan, in order to: (i) test whether the policies and principles of a decentralized mode of government are implementable and at what cost; (ii) evaluate the actual implementation experience; and (iii) make recommendations for the next phase operation to consider and develop a pragmatic transitional strategy for the full implementation of the program nationally. This would help to analyze whether there is a disconnect between reality on the ground as to how the principles of decentralization can be best implemented within the realities of capacity and resource constraints. 10. Within the context of the CAS, LGDP would help to ensure: * Improved accessibility, equity and sustainability of services devolved to Local Governments under the Second Schedule' (Parts 2-5) of the Local Governments Act, 1997 with Local Governments and beneficiary communities committed to meeting the operations and maintenance costs of the services; * Socially, environmentally and technically competent local government planning, design and appraisal of investments resulting in more efficient and effective service delivery in association with competent Non-governmental Organizations (NGOs), private sector consultants and service producers under contract to Local Governments; * Implementation of effective and efficient instruments for fiscal transfers from the Central Government, transparent procedures for-access by Local Governments, and supervision by the Central Government to ensure performance against stated outputs and outcomes; * Increased private sector and community participation in all aspects of infrastructure development/provision and services production with Local Governments committed to the separation of responsibility for management of services provision from responsibility for services production and clear separation of the roles and responsibilities between contractors, supervisors and clients; and 1 The Second Schedule (Parts 2-5) of the Local Governments Act, 1997 includes the functions and services to be provided by Local Governments. For districts this includes the following sectors: education, health, water supply, roads and agriculture extension. For urban councils, apart from the sectors under the districts, the following are also included: street lighting, communal facilities, slaughter houses, markets, piers and jetties and solid waste management services.  Project Appraisal Document Page 4 Country: Uganda Project Title: Local Government Development Program Transparency, accountability and timely flow of information between the various stakeholders (central and local government, private contractors, NGOs and beneficiary communities). 11. LGDP would be financing, at its peak second year, about seven percent of the Government's development budget. The basic procedures and institutional arrangements governing the transfer of responsibility for service provision and delivery to Local Governments were developed during the project preparation phase. In addition, lessons of experience from the District Development Project - Pilot (DDP- Pilot) financed by the UN Capital Development Fund (IUNCDF) and UNDP which is currently being implemented in five districts were also incorporated into the LGDP project design as the DDP-Pilot has similar objectives. The procedures and institutional arrangements with respect to service delivery by the LGs will be refined, tested and cautiously expanded through LGDP and the replication process initiated. Based upon the findings and conclusions from the implementation experience in LGDP, either a full scaling up could be undertaken in the subsequent phase of the project potentially supported by IDA and other donors, or it could be concluded that implementing decentralization is probably too complex given the capacity constraints that obtain in the country and therefore operating in a fully decentralized mode may have to be phased in gradually over time, either geographically or sectorally. Another scenario could indicate that Local Governments in general are more adept at managing services in certain sectors than others and they could be given resources for those services they deliver well. For the other services, where their performance is not as good, intensive capacity building efforts would be required as also strict supervision from the center during sub-project implementation to bring them up to the required levels of efficiency. In any event, it should be reiterated that given that operating in a decentralized governance mode as per the provisions of the Act still remains largely untested, LGDP will go in simply to test the systems and ascertain their implementability before any conclusions can be arrived at in terms of the future of decentralization implementation without pre-judging the conclusions or the exact nature of any transitional plan, if necessary. 12. While LGDP is designed as a demand-driven project, its implementation will be carried out in the context of hard budget constraints, transparent eligibility and access criteria for participating in the project, aimed at achieving improved service delivery standards. Thus, LGDP will provide a framework which balances the demand for services within the realities of resource and capacity constraints. 3. Sector issues to be addressed by the project and strategic choices: 13. The primary development issue to be addressed by the project is institutional i.e., how to build the capacity of key players at all levels-central government agencies that need to support and mentor the newly empowered Local Governments, the Local Governments themselves as they assume new responsibilities that they are expected to meet effectively, and the public as citizens gradually become accustomed to holding their Local Governments genuinely accountable for their service needs. (i) Capacity Building of Key Central GovernmentAgencies: The Ministry of Finance, Planning and Economic Development (MoFPED), Ministry of Local Government and the Local Government Finance Commission are the primary central government agencies responsible for operationalizing the various financial and operational aspects of decentralization of the development budget. The proposed IDA financed Second Economic and Financial Management Project (EFMP II) will provide support to MoFPED. LGDP will support MoLG and the LGFC Secretariat. With respect to the MoLG, LGDP will provide training to MoLG staff in four critical areas: mentoring, compliance supervision, monitoring, and advocacy of/for Local Governments. LGDP support to the LGFC would aim to strengthen the analytical capacity of the Commission's Secretariat and thus enable it to advise: on the distribution of revenue between the Central Government and Local Governments; on the amounts to be allocated as conditional, unconditional and equalization grants and their allocation to each Local Government; on the potential sources of revenue for Local Governments; and, Local Governments on appropriate tax levels to be levied by Local Governments. Capacity-building initiatives in this regard would be coordinated with existing and proposed donor support to these two institutions.  Project Appraisal Document Page 5 Country: Uganda Project Title: Local Government Development Program (ii) Capacity Building in the Local Governments: In the case of LGs, the capacity building activities will include strengthening the program and financial management capacity of those LGs that will be receiving conditional development funds under the project to enable them to effectively and efficiently utilize these resources for improved service delivery. These capacity-building efforts will be coordinated with the IDA- financed Institutional Capacity Building Project (ICBP), the proposed Second Economic and Financial Management Project, the District Development Project - Pilot financed by the UNCDF and UNDP, DANIDA assistance in selected districts, DFID efforts, as well as the activities of other donors. The experience base from these initiatives are included in the design of LGDP. In this regard, it should also be noted that a key design feature of LGDP will be the annual assessment of LGs to determine whether they meet the minimum requirements in the areas of financial management, planning, engineering and human resources in order to qualify for capital investment resources under the local development grant element of the project. This exercise will assist not only to identify capacity gaps (and, therefore, the delivery of demand-driven capacity improvement programs) within the LGs but also determine performance progressively. 14. Participatory Planning, Allocation and Investment Procedures: A second key development issue that the project would support would be the implementation of participatory planning, allocation and investment procedures for the use of development funds for devolved functions, responsibilities and services by Local Governments (i.e. all sectors under the Second Schedule, Parts 2-5, of the Local Governments Act, 1997). However, these investments must be included in: (i) a high order of a resource constrained "Budget Framework Paper"; and (ii) a more detailed local government development plan and approved by the local government council as required by law. In this context, LGDP would also seek to develop an open active public participation process to ensure that investment allocation decisions are arrived at in a participatory, transparent and accountable manner. The implementation will draw on the procedures and experiences of the preparation phase of LGDP and from the UNCDF's DDP-Pilot. C: PROJECT DESCRIPTION SUMMARY 15. Several principles underlie LGDP, and these principles will guide both the design and implementation of the project. * The first is that the project must proceed in a fiscally prudent way that is consistent with the resources available to the Government, and that will not undermine broader macro-economic objectives. * Second, decentralization is recognized as complex and slow and while it is being implemented, an expensive and a demand-driven technical assistance-intensive process must accompany it. Accordingly, the four components of LGDP should be seen as first steps in a much longer program of assistance which could involve a series of assistance programs over the next 10-20 years. * A third principle which has guided the development of this project is that the nature of LGDP is experimental-it is meant to test a number of key aspects of the institutional structure and financial systems already mandated under the Constitution and the Local Governments Act, 1997 to decentralize various government functions. Thus far, the government has only decentralized the recurrent budget, and this has been done without creating the conditions that would allow Local Governments to manage it effectively (it has, for example, developed detailed local financial management procedures, but not fully implemented them); how to improve this system is one challenge, how to implement the decentralization of the development budget is the next. * Finally, built into each of the components is the central principle that the capacity of government to better manage economic and social development must be expanded and improved at all levels of government.  Project Appraisal Document Page 6 Country: Uganda Project Title: Local Government Development Program 1. Project components (see Annex 2for a detailed description and Annex 3for a detailed cost breakdown). Indicative % of | Bank- % of Component Sector Costs Total 1 financing Bank- (US$AI)* __ (US$M) financing Component 1: Operationalizing the BD - 9.5 10 6.4 67 Roles of the Ministry of Local Decentralization Government and the Local Government Finance Commission's Secretariat under Decentralized Governance Component 2: Local Governments BD - 52.3 54 47.1 90 Development Fund Decentralization MM - Multi- sector Component 3: Support to the UY - Other 19.5 20 15.0 77 Kampala City Council for Testing Urban Alternative Service Delivery Development Mechanisms Component 4: Program Management, BD - 12.7 13 10.4 82 Monitoring & Evaluation and Future Decentralization Program Preparation PPF Refund 2.00 2 2.0 100 Total Project Costs 96.0 100 80.9 84 Total Financing Required 89.9** 100 80.9 90 * Includes contingencies of 25 percent (where applicable) and taxes of 17 percent (not inclusive of the PPF Refumd). Taxes of 17% for Component 2 will be provided separately by the Local Govemments and are therefore not included here. ** Excluding taxes and duties. 16. The project comprises four components. Each component should be seen as an experimental tool designed to test the viability of various approaches in the Government's effort to decentralize functions and responsibilities for the provision of basic public services. These components include: * Component 1: Supporting and operationalizing the roles of the Ministry of Local Government and the Local Government Finance Commission Secretariat under the Government's decentralization policy. * Component 2: Financing basic service delivery investments through local development grants and capacity building activities through capacity building grants from the Central Government to the Local Governments. * Component 3: Providing support to the Kampala City Council for testing alternative basic service delivery mechanisms. * Component 4: Supporting program management, monitoring and evaluation and future program formulation.  Project Appraisal Document Page 7 Country: Uganda Project Title: Local Government Development Program 17. Component 1: Supporting and Operationalizing the Roles of the MoLG and the LGFC under the Government's Decentralization Policy, is intended to provide a range of technical assistance to the MoLG and LGFC Secretariat to build their capacity as they begin to develop and enhance policy making capacity, to establish an appropriate structure and a set of practical procedures to perform their mandated roles as the implementing agencies in the devolution of the development budget and decentralization of delivery of basic public services. LGDP will link closely with other initiatives already underway such as the EFMP II in order to operationalize the Central Government's role under decentralization. Component 1 will have the following two sub-components: A. Operatinalizing MoLG's role under decentralization; and B. Operationalizing the LGFC secretariat's role under decentralization. A. Operatinalizing MoLG's role under decentralization: This sub-component will support the following six activities: (i) Capacity building of MoLG staff and retooling of its facilities: Under this item the constraints being faced by the MoLG and currently limiting its capability to perform its mandated functions under decentralized governance will be addressed. (ii) Mentoring of Local Governments: Under this item, MoLG will mentor Local Governments in the fields which are considered crucial for improved performances of Local Governments. Those fields which have either no guides/manuals or where the existing ones are in variance with the provisions of the Constitution and the Local Governments Act, 1997 will be addressed first. (iii) Compliance supervision: This will involve the development of a Local Governments Inspection Manual which will include Local Governments performance indicators. It will also include routine inspection and supervision. The Manual will also contain standard sets of indicators, inspection procedures and formats for reporting inspection results as a measure to ensure inspection by MoLG is carried out in a consistent and systematic manner. (iv) Monitoring and Evaluation: This will involve the monitoring of the performances of Local Governments by MoLG. A draft M&E manual including an M&E checklist and scoring system will be developed and produced. Training will be provided to the Districts and Municipal LGs to internalize and operationalize the manual. In this context it should be noted that compliance verification and M&E functions are a logical extension of the "pre-qualification" of local governments for participation. Thus, there is a consistent "quality control" dimension of the project from inception throughout its life, and this dimension will be institutionalized into the government system. (v) Advocacy of/for Local Governments, including inputs to support a proactive role by the Local Authorities Association of Uganda and the Urban Authorities Association of Uganda. This will include: amending the Property Rates decree, 1979 and the Town and Country Planning Act; coordinating, through net working between center-center, center-local, and local-local agencies in areas of donor support to Local Governments, technical support to Local Governments by line ministries, and policy consultation with Local Governments; and coordinating the development of national service delivery standards of Local Governments by line ministries. (vi) Information Communication System to allow timely and effective decision adjustments: An information communication system is required to enable all stakeholders to access accurate and reliable data and/or information easily and quickly. This will involve the establishment of a computerized database at the MoLG Resource Center and providing computers at the District and Municipal Local Government levels, which will be linked to the MoLG database. Information from lower level Local Governments is to be collected by the higher level Local Governments and remitted to MoLG for easy  Project Appraisal Document Page 8 Country: Uganda Project Title: Local Government Development Program storage and retrieval. It should be noted here that many agencies, not just MoLG, will be involved in the collection of data on local government status and activities. MoLG may end up being the repository and/or coordinator of a local government information system, but it will not be the only contributor or the only user. B. Operationalizing the LGFC secretariat's role under decentralization: The Local Government Finance Commission is graduafly assuming the critical role assigned to it by the Constitution, 1995 and the Local Governments Act, 1997. LGFC has completed a staffing plan and made an assessment of space and equipment requirements. LGFC is also in the process of establishing an advisory panel to help prioritize its activities. The full set of LGFC activities supported by the project will evolve as this advisory panel helps LGFC to finalize its work plan and as the scope and volume of support for LGFC from other donors and international agencies is clarified. However, a number of LGFC activities and studies have already been identified as priorities and will be supported under the project. LGDP will also provide resources to help equip the LGFC and to train its staff. In the meantime, therefore, the project will support the following: (i) Local Government Tax Study and establishment and operationalizing monitoring and evaluation of the local government revenue system: The Commission with inputs from consultants will conduct a major revenue enhancement study with three components. The first will review the present legal framework with particular reference to property tax and GPT, the second will advise on the institutionalization of local government revenue collection and the third will establish a monitoring and evaluation system of local revenue within the Commission. The three components of the study will involve collection of data, production of reports and review by stakeholders both at the technical and political levels. (ii) Training of LGFC Staff: To build the capacity of the Commission in order to perform its roles, a number of its staff will be trained through short-term courses both in the country and abroad. (iii) Additional Office Space and Retooling: The Commission has completed its staffing plan. This has created additional demands for office space and equipment for the Commission which will be provided. 18. Component 2: Financing basic service delivery investments and capacity building activities through grants from the Central Government to the Local Governments. Financing from this component will be extended under LGDP as development block grants from the Central Government to Local Governments for provision of their mandated services as prescribed under the Second Schedule (Parts 2-5) of the Local Governments Act, 1997. This financing will be provided through the Government's current budgetary system of inter-governmental fiscal transfers. IDA funds will be made available to the Ministry of Finance, Planning and Economic Development which will then direct these to the Local Governments under a system of performance monitoring and certification by the MoLG (see para 20 for details). This component will help define, test and refine the proposed demand-driven processes of planning, delivery and management of infrastructure and other public services at the various levels of local government-district, sub county, municipal, division, and town councils and parishes. The component will also test various approaches through which national policy on private sector tendering and contracting can be reviewed and refined. 19. Two investment vehicles are available to Local Governments under Component 2, namely: (a) Local Development Grant (LDG) to finance physical investments under the Second Schedule (Parts 2-5) of the Local Governments Act, 1997; and the (b) Capacity Building Grant (CBG) to finance capacity building activities in the Local Governments. (a) Local Development Grant: Resources for physical investments will be provided under the project as development block grants from the Central Government to Local Governments for provision of their mandated services as prescribed under the Second Schedule (Parts 2-5) of the Local Governments Act,  Project Appraisal Document Page 9 Country: Uganda Project Title: Local Government Development Program 1997. However, a limitation will be placed on the scale of individual investments in water supply, given that larger water sector strategy issues are yet to be agreed upon between the Government and IDA. Therefore, large water supply investments will not be eligible for financing (see Annex 2, Section B for details). All tiers of Local Governments are eligible for accessing the resources under this component. However, access to these funds will be limited to only those LGs, which have met a set of minimum institutional, financial and operational requirements. The minimum requirements are largely drawn from the provisions of the Local Governments Act, 1997 and the Local Governments Financial and Accounting Regulations, 1998. Special attention will be given to tendering and contracting procedures whereby the capacity of local contractors and suppliers will be enhanced during the implementation of LGDP. As an exception, the development financing requirements of Kampala City Council (including its five Divisions), currently the most economically significant Local Government in the country, will be catered for separately under Component 3. KCC will, therefore, be eligible only for investments at the parish level, from the LDG over the project period. (b) Capacity Building Grant: Resources for capacity building activities will be provided to Local Governments on a demand-driven basis to enable them to meet their statutory roles and responsibilities. LGs, through their annual planning and budgeting cycles, will identify capacity gaps and map out strategies for addressing the gaps. The strategies will be in the form of specific and budgeted activities/schedules against which the CBG will be triggered. The CBG will, therefore, enable those LGs which did not qualify for the LDG in the first year of the project to build up their capacity and attain the minimum standards required to access the LDG in the subsequent years. 20. Funds Flow and Disbursement Mechanism for Component 2: IDA funds for this component will be directed through the Government's budgetary system and will finance specific elements of the development budget. The IDA funds for supporting the budget process through the advance funding for expenditures under this component will be released in three annual tranches to the Bank of Uganda in a foreign currency deposit account. The equivalent local currency will then be made available to the Uganda Consolidated Fund from which quarterly releases will be effected to finance locally prioritized investments for a set of qualified districts and capacity building activities to all eligible districts. In order to qualify for access to investment funds, districts have to meet minimum access criteria concerning evidence of adequate planning, financial management (including auditing) and implementation capacity (contract administration). Annual assessments are drawn up by the Ministry of Local Government to determine the list of districts that qualify for investment funding in a given fiscal year. Quarterly releases will continue to be made and the district performance will be monitored on a continuous basis against agreed and legally binding performance agreements between the Central Government and the districts. Annual IDA funding of this advance-funded expenditure component will be based on certification from the Government that the qualified districts are in compliance with the access criteria and performance agreements. These assessments will be included in an annual financial performance assessment report and a report of the status of audits of the Local Governments. Conditions for disbursements from the consolidated fund to the districts are included in Development Credit Agreement as legal covenants. 21. Component 3: Providing support to the Kampala City Council for testing alternative basic service delivery mechanisms. First Urban Project: A brief history of the IDA-financed First Urban Project (Credit 2206-UG) is warranted with regard to explaining the rationale behind this component. The First Urban Project was begun in 1991. During the October 1993 project mid-term review, the Government and IDA agreed that KCC should concentrate on actions to rebuild its institutional capacity and develop and implement a plan of action to improve KCC's finances and operations. A restructured project along these lines was agreed to in April 1994. However, given the slow pace of progress in achieving the targets put forth in the restructured project, around November 1996, a proposal was made to restructure and reorganize the KCC and have it implement a program of "Strategic Framework for Reform" (SFR). It was also recognized that fundamental changes in the way KCC is managed and run needed to be made in the context of the overall policy of decentralization in the country whereby financial resources and functions were being devolved to  Project Appraisal Document Page 10 Country: Uganda Project Title: Local Government Development Program lower levels of government to ensure more efficient and effective delivery of basic services. Though IDA provided input on the guiding principles of the SFR, the program itself was developed in-house in the KCC with full buy-in from all the relevant stakeholders in the organization including the Council, the management of KCC and the labor union. The main elements of the SFR are: * rightsizing of KCC's staff base to retain just core staff for functional responsibilities associated with moving from the traditional department-based organization to a service-based cost-center structure; * contracting out selected functions (both service delivery and management); and * improving financial management practices. 22. Progress under the SFR Program Initiated through the First Urban Project: Appreciable progress has been made since the inception of the SFR in January 1997. KCC has undertaken some fundamental policy reforms which include: (i) Private sector involvement in the provision of basic services through contracting out various service delivery functions. This has resulted in reducing KCC's overhead expenditures and improved service delivery standards. (ii) Organizational restructuring with a view to rationalizing the structure of KCC through reductions in the workforce which has already resulted in wage bills in FY1998/99 reduced by half of what they were in FY1996/97. KCC has also instituted a Core Team to act as a management tool in monitoring and implementing the SFR. (iii) Various initiatives to ensure sound financial management practices and accountability such as introduction of cost center budgeting, preparation of realistic budgets, introduction of more rigorous internal financial regulations and procedures and strengthening of the Internal Audit unit are underway. (iv) A detailed review to update the legal framework is underway. (v) Divestiture of unproductive assets such as old vehicles, plant and equipment has happened- these assets have been sold off by tender. (vi) KCC has also instituted a policy of stakeholder involvement in the decision making process for some of its recent special projects such as the Kyaggwe Road Corridor Traffic Improvement Project financed under the First Urban Project, consultation with private refuse collectors on the Bill for the Solid Waste Management Ordinance, contracting out of landfill operations, conducting a social impact assessment for the Nakivubo Channel Rehabilitation Project and intensive stakeholder participation through its five divisions for the formulation of a Kampala City Development Strategy. 23. Content of Component 3: As has been stated above, one of the key elements of the SFR is contracting out of KCC's key functions in both service delivery and management in order to achieve optimum levels of service delivery both with respect to better quality of services and higher coverage. Component 3, under the proposed LGDP, would therefore further support KCC's initiatives in this regard by providing resources to: (i) Test alternative basic service delivery mechanisms which include: (a) contracting out of basic service delivery functions such as minor (routine) works in the Divisions; and (b) financing and management of key prioritized requirements such as improvements and extensions to the Mpererwe landfill site; providing financing for the management and operations of the landfill site; and financing the contracting out of refuse collection and transportation to address in part the critical issue of solid waste management in the city; and rehabilitation and maintenance of tertiary, secondary and primary anti-malarial drains outside the Central Business District (CBD) area; (ii) Institute measures to improve KCC's: (a) program and financial management performance, and (b) enhance its revenue mobilization efforts/perforrnance; and (iii) Provide: (a) technical assistance in areas such as engineering, financial management, management information systems and organizational reforms; 'and (b) support institutional development and capacity building.  Project Appraisal Document Page 11 Country: Uganda Project Title: Local Government Development Program 24. Component 4: Supporting program management, monitoring and evaluation and future program formulation. Given that LGDP is a pilot initiative, there is need to carefully monitor its implementation and capture both successes and shortcomings. Component 4 will provide for careful monitoring of progress of the decentralization activities undertaken, which should result in an understanding of what works and what does not. Such knowledge is critical if the project is to move from simpler reforms to more complex ones, and if successes from pilot efforts are to be "scaled-up" and applied to an expanded number of Local Governments. A mid-term review of the project will be conducted in order to determine the way forward in terms of whether to scale up or not based upon evidence from experience on the ground. The three main activities envisaged under this component are: (i) Program Management: LGDP will provide financing towards office and administrative expenses for the Program Management Unit (PMU) in the MoLG which will be responsible for the day-to-day management of the implementation activities.. LGDP will also provide resources to augment the MoLG's capacity by means of short-term consultancy input as and when necessary especially for specialized tasks particularly in reconciling various government policy documents. In addition to providing management and administrative input, the PMU will be responsible for refining the procedures for implementation and, where necessary, developing and testing new procedures for implementation especially with regard to Component 2, the Local Government Development Grant. (ii) Monitoring and Evaluation: LGDP will test and refine the procedures for allocation of resources to Local Governments for improvement of basic service delivery functions. Monitoring and Evaluation (M&E) activities will be undertaken by the various levels of Local Governments (e.g., Districts, Municipalities, Sub-counties, Divisions) appropriate to a particular investment or sub-project. Overall M&E would be consolidated by an MoLG team. The establishment and implementation of a comprehensive M&E system for the project will be essential to ensure that the lessons from LGDP are captured and utilized either for the design of a scaled up national program, if the decision is made to proceed in this manner or making alternative choices in terms of how decentralization should be implemented or whether the capacity exists to implement the statutory obligations of decentralization within the various levels of government. The INCDF DDP-Pilot M&E system has already been adapted for the purposes of M&E in LGDP and an M&E framework has been developed. The lessons to be learned are multifaceted and will encompass such questions as whether: * the fundamental engineering and technical design parameters are appropriate and sustainable; * the implementation procedures adopted are functioning in an efficient and effective manner; * the investments are being implemented in a timely and cost-effective manner to acceptable standards and are functioning in a demand-responsive way; and * the project is contributing to the achievement of the national development goals of the Government, in particular, economic growth and poverty reduction. One of the key elements of the M&E system is the annual audit of the accounts of the Local Governments by the Office of the Auditor General for which a budgetary provision has been made under this cub- component. (iii) Future Program Formulation: Based upon the implementation experience of LGDP and the UNCDF DDP-Pilot, if the decision is made to proceed to scale up these operations at the national level then resources available under this sub-component of LGDP could be used for the preparation of the future national level program. It is anticipated that the preparation of the documentation for the national program will start after a mid-term review of the project in the end of the second year (November 2001). Lessons emanating from the review will be used to design the national program.  Project Appraisal Document Page 12 Country: Uganda Project Title: Local Government Development Program 2. Key policy and institutional reforms supported by the project: 25. Lessons generated from the implementation of LGDP will contribute to the refinement and reconciliation of various national legislation on the procedures for devolving the development budget and implementation of a decentralized mode of governance. The primary institutional reforms supported by LGDP include: (i) strengthening the participatory process in the context of testing the implementation of decentralization; (ii) tendering and contracting to the private sector; and (iii) developing options for improving the revenue and financial performance of LGs. 3. Benefits and target population: 26. The project will benefit several levels of target groups: * The Community level, including "Service Consumers" (communities benefiting directly from community investment projects), and "Service Producers" (small private contractors, NGOs and CBOs whose capacity for service delivery will get enhanced through privatizing and contracting out of services). * Local Governments at the district, sub county, municipal, division, and town council levels, which are mandated to provide certain basic services to the communities under the jurisdiction of the respective councils. * Business enterprises and private sector agencies who will benefit through private-public participation where resources will be provided to urban councils to prepare viable project profiles for attracting private sector resources and skills for implementation of these projects. 27. The benefits of the project, aimed at building credibility of Local Governments through improved accountability, transparency, efficiency and improved service delivery can be categorized under the following main areas: (i) Participatory Planning, Allocation and Investment Management by defining the most appropriate and effective relation between community and local government in investment planning and provision; and by refining, in the context of recent legislation, operational relations between central ministries and Local Governments. (ii) Capacity Building at the: (a) Community Level through empowering communities to take greater responsibility for determining investment priorities, monitoring the implementation process, demanding greater accountability and transparency from their representatives in the Local Governments, as well as constructing and maintaining selected levels of infrastructure. In addition, communities will be assisted to interpret their relationships with various stakeholders (the LGs, NGOs, etc.) in order to harness these to their advantage.(b) Local Government Level including elected councilors, and staff of district, municipal and lower level councils to manage a performance-based system governing the allocation of development funds. (c) Central Ministries (e.g., MoLG), in particular, for determining the most appropriate mechanisms for administering inter-governmental fiscal transfers of development funds and, defining a new "monitoring and mentoring" role of central government according to an agreed planning, allocation and investment management system regarding use of public financial resources. (iii) Attracting the Private Sector for production of basic infrastructure and provision of services. This includes both direct financial contributions and, through various contracting arrangements between Local Governments and the private sector, increased private sector involvement in service provision and maintenance.  Project Appraisal Document Page 13 Country: Uganda Project Title: Local Government Development Program (iv) Increased Private Sector Investment in industrial and commercial activities as a result of improved local government services. (v) Reduction of Poverty as living conditions of the beneficiary communities are improved as a result of enhanced delivery, accessibility and sustainability of services. 4. Institutional and implementation arrangements: 28. The overall project implementation period is 4 years. The institutional and implementation arrangements for the four components of the project will be as follows: (i) The Ministry of Finance, Planning and Economic Development is currently responsible for coordinating all development plans at the national level. This function is, however, envisaged to change if the Constitutional provision for parliament to create a National Planning Authority is effected. District/municipal councils are required to develop three-year rolling development plans incorporating investment plans from lower LGs. In the absence of the National Planning Authority, the MoFPED is expected to receive development plans from the districts/municipalities and incorporate them in the overall national development plans. However, given the various stages at which Local Governments currently are in terms of the quality of their development plans, MoFPED will focus its attention more on ensuring that the Local Government Budget Framework Papers are realistic and prepared in time as they will be fed into the National Budget by MoFPED. In this context, MoFPED's role in the planning process of LGDP is an important one. (ii) (a) Ministry of Local Government: The respective roles and responsibilities of the Central Government and Local Governments are defined under the Constitution 1995 and the Local Governments Act, 1997. While the Local Governments in Uganda are autonomous corporate entities in the context of the country's decentralization program, the Central Government, through the Ministry of Local Government, exercises broad oversight on the performance of all Local Governments. The MoLG will, therefore, be the executing ministry for LGDP and also the agency responsible for implementing most of Component 1 and Component 4. MoLG will manage the project by coordinating the activities across the various components and evaluating Local Governments performance with respect to project implementation. The primary role of the MoLG is inspection, monitoring and coordination of LGs (Section 97 - 101 of the LGs Act, 1997). In addition to the above-referred statutory mandate the MoLG as the executing ministry of the project will be responsible for effecting and publishing the transfers to ensure transparency and accountability. MoLG will also, where necessary, offer training and technical advice to Local Governments, do compliance verification, and mentor those Local Governments which have qualified for access to funds under Components 2 and 3 to enhance and improve on their performances. This will be done through counseling, on the job training, technical support/advice and guidance to Local Governments. The MoLG will also monitor and evaluate the performances of Local Governments to ensure compliance with national policies, regulations, standards, procedures, and adherence to guidelines. Areas which requires compliance supervision of Local Governments by MoLG are in tendering/contracting; recruitment; schemes of service; design specifications; statutory requirements (such as final accounts, balanced budget, LG Development Plans); sharing of revenue between Local Governments and preparation of quarterly reports. Local Governments, which would fail to comply with such performance measures, will be subject to sanctions. (b) MoLG through its Program Management Unit shall manage the project by coordinating the activities of all other component managers. The IDA Credit for Components 1, 3 and 4 will initially be disbursed under IDA's traditional methods. Upon completion of certain actions outlined in the Action Plan in the Program Implementation Plan for MoLG and KCC, these components will qualify for disbursements under the new disbursement method i.e., the Loan Administrative Change Initiative (LACI). This initiative integrates project accounting, procurement, contract management, disbursement and audit with physical progress through the Project Management Report (PMR). Disbursements will be on a quarterly basis, based on satisfactory  Project Appraisal Document Page 14 Country: Uganda Project Title: Local Government Development Program implementation progress as reported in the PMR. The PMU shall maintain a strong financial management system capable of producing these reports, monitoring the implementation of the project and producing the reports under LACI. (c) The IDA Credit to finance activities under Component 2 of the project will be disbursed in three tranches directly from the Credit to a Deposit Account in the Bank of Uganda. The initial release will be made upon the submission of workplans and cashflow forecasts for the first six months and subsequent releases will be made following a report on financial performance assessments carried out by MoLG and reports of satisfactory audit status of the Local Governments (see section G.2.(iii) for details). (iii) The LGFC is a body created by the Constitution. Its mandate is prescribed under Article 194 of the Constitution, 1995 and Section 77 of the LGs Act, 1997. To realize its statutory responsibilities the LGFC will be responsible for the implementation of sub-component B of Component I of the project which deals with institutional strengthening of the LGFC for it to deliver on its mandate. (iv) The Local Governments will be responsible for implementing Component 2 of the project. The participating LGs will have the following responsibilities: (a) Meeting the entire set of minimum conditions before the Local Development Grant is disbursed. (b) Utilizing the Local Development Grant funds for provision of services falling under the Second Schedule (Parts 2-5) of the Local Governments Act, 1997. (c) Ensuring that only those projects, which are contained in the three year Rolling2 Development Plan, budgeted for and approved by the Council, are financed by the Local Development Grant under the project. (d) Ensuring that investment-servicing costs do not exceed 15% of the total amount of Local Development Grant for that year. (e) Quarterly accountability to PMU for funds transferred clearly indicating the sector, type of investment in the sector and the amount of money spent. (f) Keeping all supporting documents regarding disbursement and utilization of financial resources at source, which shall be produced on demand for audit purposes. (g) The District/Municipal LGs will undertake necessary capacity building and mentoring activities for lower level LGs in their jurisdictions. (h) Opening of a Project account for the implementation of the project at the LG. (i) Transfer of the 10% co-financing of the first quarter into the LG project account by the beginning of a given financial year and the balance for the last three quarters of the financial year fully transferred by the fourth quarter of the financial year. (j) The District/Municipal LGs will integrate lower level Council plans into their plans as required by the LGs Act, 1997. (k) Ensuring the overall monitoring and evaluation of projects being implemented under its jurisdiction and quarterly progress reports submitted to PMU. (I) Ensuring that all the Technical Departments and relevant Council Technical Committees are in place and functional. (m) Taking responsibility for the implementation, supervision and certification of LGs projects through the District Technical Departments, relevant Council committees, contractors and/or NGOs. (n) Ensuring that payments to contractors engaged by the LGs are effected as per contract agreements. (v) Kampala City Council, under a separate Project Agreement, will be responsible for implementing Component 3 of the project and managing the implementation of the parish level investments in Kampala under Component 2. KCC has established a Core Team within its organizational structure which consists of a group of professionals selected by KCC from its own staff, under contractual terms, to carry out management 2A Rolling plan would allow Districts to update their plans on an annual basis.  Project Appraisal Document Page 15 Country: Uganda Project Title: Local Government Development Program functions for the implementation of its reform program initiated under the Strategic Framework for Reform and execute its special projects such as the IDA-financed First Urban Project, the Nakivubo Channel Rehabilitation Project and Component 3 and the parish level investments for Kampala under Component 2 of LGDP under the overall management of the Town Clerk. The specific responsibilities and functions of the Core Team will be: (a) overall project management; (b) planning, budgeting, and quality assurance of works and services; (c) initiate and take a lead role in institutional reforms; (d) procurement management and contract administration; (e) project accounting, financial management and control; (f) general administration and facilities management; and (g) monitoring and evaluation. 29. The roles and responsibilities of other institutions involved in LGDP are as follows: (a) The Public Service Reform (PSR) II 2002 Coordinating Committee is a national committee for coordinating reforms. It is chaired by the Vice President, and attended by the Permanent Secretaries of the Ministries of Education, Public Service, Justice and Constitutional Affairs, Finance, Planning and Economic Development, and Local Government. The committee's mandate is to coordinate the implementation of reform programs nationally. It shall therefore coordinate the implementation of LGDP with those other national programs such as the EMFP II and the Public Service Reform Program. The PSR 2002 Committee would also provide the forum for ensuring consistency and coordination among other sectoral line ministries in the context of decentralization. (b) Policy Steering Committee (PSC): The PSC would provide policy and strategic guidance for the implementation of the project to the LGDP executing ministry i.e., Ministry of Local Government. The outcome of the quarterly PSC meetings would be presented to the relevant project component managers through the Program Technical Committee for implementation. The PSC would consist of the Permanent Secretaries of the Ministries of Local Government, Finance, Planning and Economic Development, and Gender, Labor and Social Development. (c) Program Technical Committee (PTC): The PTC's main responsibility would be to coordinate technical implementation issues of the project and forward policy issues to the PSC for advice. The PTC would also liaise with the Donor Sub-group on Decentralization and provide it with regular updates on project implementation. The PTC would meet once every quarter. It would have the following composition based on stakeholder representation: Director, MoLG (Chairperson); Director, MoFPED (Co-Chairperson); Coordinator, PMU (Secretary); a representative from MoLG; a representative from MoFPED; a representative from Ministry of Gender, Labor and Social Development; a representative from LGFC; a representative from the Uganda Local Authorities Association; a representative from the Uganda Urban Authorities Association; a representative from the NGO forum; a representative from the private contractors; and any other person invited by the PTC. D: PROJECT RATIONALE 1. Project alternatives considered and reasonsfor rejection: 30. LGDP is in itself "experimental" in nature as one of the key project objectives is to test implementation realities of various provisions of the existing legislation on decentralization. The design of the project reflects the demand-driven approach that is articulated in the legislation. 31. The project formulation and implementation approach, therefore, is different from the traditional approach. It has not been designed from a sectoral investment point of view since such an approach would undermine one of the key decentralization policy objectives of a bottom-up (local level) demand-driven investment priority setting. LGDP has been designed as a development conditional grant to support development budgets of Local Governments which will allow these Local Governments to exercise their discretionary powers to plan and allocate development resources based on the needs of their respective  Project Appraisal Document Page 16 Country: Uganda Project Title: Local Government Development Program constituencies but within the parameter of the law; hence the Second Schedule of the Local Governments Act, 1997 will constitute the investment bracket for LGs. Given the bottom-up approach that LGDP has to follow, the exact investment compositions cannot be determined a priori. However, the investments will have to be determined based on hard budget constraints and clear output and outcome targets. Local Governments have to buy into LGDP by meeting some minimum requirements which have been largely drawn from statutory provisions. 32. The participatory and consultative process will be maintained throughout project implementation. It is expected that this approach will ensure sustainability since the stakeholders will identify themselves with the project and own the process. LGDP will thus depart from the supply-driven mode of implementation to a demand-driven negotiated approach to service delivery. Local Government development/investment plans- will form the basis for allocations/investments. As a requirement these would have to reflect lower level needs and a universality of the needs of "Marginalized Groups" such as the youth, persons with disabilities, and women, etc. To ensure ownership, the beneficiaries would be required to contribute at least 10 percent of the total capital investment cost and thereafter be responsible for the operation and maintenance of the investments. Past supply-driven projects, where little consultation has been carried out with beneficiaries, have proven, by and large, not to be sustainable. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). 33. LGDP will complement and deepen initiatives already underway, particularly by the Ministry of Local Government and the Ministry of Finance, Planning and Economic Development to define the practical implications of decentralization. New planning guidelines have been developed for the preparation of district plans, and these are to be linked with appropriate planning procedures for investment identification, planning and appraisal at lower levels. 34. IDA is already supporting participatory planning in the health, education and agriculture sectors and this is assisting the Government to redefine the roles traditionally played by the relevant central line ministries. This includes, for instance, redefinition of the implications of the statutory requirement for integrated planning and relations between Local Governments and the future National Planning Authority. Similarly, support will be extended to the offices of the Inspector General of Government and Auditor General in upgrading the Central Government's capacity to fulfill responsibilities in the field of fiscal management and accountability. Other national programs, such as the ICBP which deals with capacity building in Local Governments and the proposed EFMP II on expenditure management reform will provide the context for the essential policy, financial, planning, accountability and transparency context for LGDP. Under the local government component of ICBP, a number of tools and manuals have been developed towards strengthening planning, budgeting and accounting capacity of the LGs. LGDP would take into account the lessons learned from the implementation of the LG component of ICBP, with a view towards utilizing the relevant tools and approaches for capacity building in the LGs. With respect to EFMP II, LGDP would rely heavily on the planning, accounting and budgeting systems which would be developed and implemented under EFMP II to ensure transparency and accountability in the use of development funds under LGDP. 35. During 1995, the Government reached agreement with IDA and the UNCDF about the design and testing of instruments for devolution of development budgets to Local Governments. GoU indicated that it would seek an IDA credit to finance nation-wide devolution of development resources to Local Governments. However, ahead of this, it was agreed that UNCDF would assist GoU to design and implement a pilot District Development Project to test alternate systems for allocation, planning and management of investment funds by Local Governments. It was agreed that the DDP Pilot would be implemented in four districts (Mukono, Jinja, Arua and Kabale - with Kotido being added subsequently) reflecting the range of institutional capacities, socio-economic and environmental circumstances of Local Governments across the country. The DDP-Pilot, which commenced in November 1997, financed by UNDP and UNCDF (approximately  Project Appraisal Document Page 17 Country: Uganda Project Title: Local Government Development Program US$15million over three years), was to serve as the template for the design of LGDP. Together with the DDP-Pilot, tNDP has provided important complementary assistance through the Sub-Program on Decentralized Govemance, also implemented by MoLG, focussing on local govemment planning and data management. 36. Since completion of the DDP-Pilot formulation in June 1997, LGDP has incorporated all the main features of the DDP-Pilot Planning, Allocation and Investment Management System (PAIMS) developed to articulate the policy and statutory framework of decentralization into practical procedures for devolved service provision. With almost two fiscal cycles of DDP-Pilot implementation, the GoU, UNCDF and IDA have field tested all major design parameters of LGDP. Of particular note are the procedures for allocation, fiscal sharing and co-financing; the approach taken to promote Local Govemment compliance with regulations and encourage better performance by Local Governments; the creation of a demand-driven mechanism for financing capacity building activities; and the overall framework for M&E and integration of performance evaluation into the fiscal allocation process. 37. Whilst these are all innovative features of the LGDP, their prior definition and testing under the DDP in five Districts and more than 100 Sub-county Local Governments means that IDA can more confidently extend a line of credit to upscale to 30 Districts and 13 Municipalities. Latest Supervision (PSR) Ratings Sector Issue Project (Bank-financed projects only) Implementation Development Progress (IP) Objective (DO) Bank-financed * Restoration of key infrastructure services First Urban Project (Credit S S * Improvement of service delivery standards 2206-UG) . Institutional strengthening of Kampala City Council to support the development of decentralized local urban management . Financing of key deferred infrastructure Nakivubo Channel S S needs i.e. the main Nakivubo drainage Rehabilitation Project channel; (Credit 3203-UG) * Alternative basic service delivery to improve service delivery standards; . Institutional support to strengthen Kampala City Council's reforrn program * Small scale infrastructure rehabilitation to Program for Alleviation of S S improve the living standards and working Poverty and Social Costs conditions of some of the poorest of Adjustment (Credit communities 2088-UG)