Uganda - Local Government Development Program Project - Phase I (LGDP I)

Report No. PID7841 Project Name Uganda-Local Government (@+) ... Development Program Region Africa Regional Office Sector Decentralization Project ID UGPE2992 Borrower(s) Government of Uganda Implementing Agency Ministry of Local Government, Local Government Finance Commission (LGFC), Local Governments (LGs) and Kampala City Council (KCC) Environment Category B Date PID Prepared October 25, 1999 Projected Appraisal Date September 20, 1999 Projected Board Date November 30, 1999 1. Country and Sector Background 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 6.39 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. 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 (LGs)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.  To help realize the sector-related CAS objective, the Local Government Development Program (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 Local Governments. 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. Objectives The four key development objectives of LGDP are to: (i) Test the operationability of 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. (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. 3. Rationale for Bank's Involvement The proposed LGDP is fully consistent with the objectives of the CAS 1997, in terms of both providing for improved service delivery and interventions for poverty alleviation through provision of decentralized development funds to Local Governments. The Government hopes that IDA participation in the implementation of LGDP will encourage other donors to provide horizontal financial facilities through a development pool to be accessed by LGs to finance priority investment programs at the local level. The value of the Bank's involvement in the project is, therefore, to assist the Government to implement devolution of the development budget to the LGs in a fiscally prudent manner, with transparent eligibility rules and procedures for access by the LGs. 4. Description The project would consist of the following components: a Component 1: Supporting and operationalizing the roles of the Ministry of Local Government and the Local Government Finance Commission - 2-  Secretariat under the Government's decentralization policy. a 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. a Component 3: Providing support to the Kampala City Council for testing alternative basic service delivery mechanisms. a Component 4: Supporting program management, monitoring and evaluation and future program formulation. 5. Financing Total (US$m) GoU/KCC/LGs 9.0 IDA 80.9 Total Project Cost 89.9 6. Implementation The Ministry of Finance, Planning and Economic Development (MoFPED) is currently responsible for coordinating all development plans at the national level. Higher level LGs (district and municipal councils) are required to develop three-year rolling development plans incorporating investment plans from lower level LGs (sub-counties, municipal divisions and town councils). 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. The Ministry of Local Government will 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, according to the Local Governments Act, 1997 is inspection, monitoring and coordination of LGs. In addition to this statutory mandate the MoLG as the executing ministry of the project will be responsible for effecting and publishing the transfers from the Central Government to the LGs to ensure transparency and accountability. MoLG will also, where necessary, offer training and technical advice to LGs, do compliance verification, and mentor those LGs which have qualified for access to funds under Components 2 and 3 to enhance and improve on their performances. The Local Government Finance Commission will be responsible for the implementation of a part of Component 1 which deals with institutional strengthening of the LGFC for it to deliver on its mandate. Kampala City Council will be responsible for implementing Component 3 of the project and the parish level investments in Kampala under Component 2. The Local Governments (including KCC as mentioned above) will be responsible for implementing Component 2 of the project. In this context they have to ensure that they meet the minimum eligibility criteria to access the funds under this component. 7. Sustainability -3-  Given current capacity constraints at both the Central and Local Governments level, sustainability of individual investments at the local level has been considered within the following context: a enhance locally generated revenue base; a affordability of investments within competing budget constraints; a stakeholders participation in all the project activities; a per capita investment level which reflects the long-term local government fiscal potentials; a local government and community responsibility for development and maintenance costs; and a the charge of user fees to raise the necessary resources for O&M and for asset replacement of the investments made. Technology choice is to be based on the budget envelope and the ability of the beneficiaries to operate and maintain the system. Beneficiaries have to provide a 10 percent contribution towards capital investment costs and be fully responsible for operations and maintenance of the investments so as to ensure that they buy into and own the project. Beneficiary communities will be encouraged to open their private accounts where contributions towards capital investment and future revenues realized from the sales of services under the program will be banked. Such money could be used, for instance, for paying the operations and maintenance costs of the investments. Under LGDP, Local Governments will be encouraged to attract private sector financing to support the resource constraints currently being faced by the Local Governments. Management and operation arrangements have been linked to ownership or where the recurrent expenditure falls. This is to ensure that management and operation of facilities are not divorced from those who have the highest stake in the investment. 8. Lessons learned from past operations in the country/sector The Government of Uganda's Uganda Participatory Poverty Assessment report which details the perceptions and insights of the poor with regard to various aspects such as the nature of poverty, social/economic strategies, services/infrastructure, governance, and security has enabled the Government to recognize it as an invaluable tool for planning purposes in its efforts to reduce poverty. The report's findings as to what may be required for better delivery of services from the perspective of the poor communities has been incorporated in the participatory consultative process with the beneficiary communities--a key design feature of the project. In addition, a detailed Community Participation Review exercise was conducted in the early preparatory stage of LGDP to analyze and document various demand-driven approaches to investment planning, decision-making and implementation. This analysis provided the basis for defining the participatory approach to the project drawing on the best practices that were identified. Most government projects, however, have tended to be "top-down" with "vertical or parallel" structures although quite a number of projects in Uganda have been conceptualized and implemented using the participatory approach, mainly by NGOs. These projects omitted and/or limited the involvement of the key stakeholders or target beneficiaries in the decision- making and implementation phase. As a result, such projects have been regarded as "external" lacking beneficiary support, commitment, and ownership and, therefore, have not been sustainable. - 4 -  In this context the lessons learned from these previous projects include: (i) Lack of community consultation resulting in adverse public reaction; (ii) Lack of ownership due to inadequate involvement of the client in the decision making process; (iii) Unsustainable investments due to inadequate attention to operations and maintenance; (iv) Lack of capacity in the client to effectively manage investment contracts. Successful implementation of this project is, therefore, dependent on a strong sense of ownership by the clients, effective community participation and consultation, identification of the most appropriate, affordable, cost- effective solutions taking into account both capital and maintenance costs, proper design, selection of qualified contractors, a strong construction supervision team to oversee those investments which include civil works construction, and proper provision for operations and maintenance. Some of these aspects were successfully incorporated in the preparatory phase of LGDP which included micro investments at the community level in four pilot municipalities. An evaluation of this process was carried out recently and its findings testify to the success of this approach. 9. Program of Targeted Intervention (PTI) No 10. Environment Aspects (including any public consultation) Issues: LGDP has been classified as a Category B project as the investments under consideration focus on improving the delivery of basic services thereby resulting in improved living conditions. As can be discerned from the description of the four components of LGDP, only Component 2, Local Government Development Grants, contains a minor degree of environmental impact significance. Under this component, grant funds will be availed to Local Governments to assist in realizing their development plans. Funds may be used to finance investments in the provision of services that are outlined in the Second Schedule of the Local Governments Act, 1997. These services include water supply, sanitation, drainage improvements, access roads, solid waste management, agricultural extension activities, primary health, primary education plus some other services. Under the preparatory phase of LGDP, from 1997-1999, a pilot micro-projects program was implemented in the four municipalities of Mbale, Masaka, Fort Portal and Lira. The objective of the micro projects program was to implement small community level investments to test the demand-driven investment prioritization concept as well as identify capacity, resource gaps, etc. which would help to inform the design of LGDP. An environmental assessment study in the four pilot towns included under the micro projects program was carried out in early 1997 and findings of that study are contained in Annex XVI to the Program Implementation Plan. The issues identified therein for urban and peri-urban areas are similar in nature across population centers all over the country. The investments under the project would be sectorally varied given that they will be determined by local-level priorities which will differ from one local government to another. Due to the diverse nature of the investments, the scope of the environmental analysis for each investment would also vary. As part of the 1997 environmental assessment, two Operational Checklists have been prepared. They contained modular sector-specific (for water supply, sanitation, drainage, solid waste disposal - 5 -  and access roads) environmental checklists. These checklists have been refined over the last two years based upon lessons from the implementation of the micro projects program and other preparatory activities under LGDP and incorporated in the Environmental Mitigation Plan. Under the project, these revised checklists would be used by the Local Governments and beneficiary communities while planning, to assist them to evaluate potential interventions from an environmental perspective. The checklists also provide for mitigating measures. The project has been designed as a demand-driven, community participatory and performance-based operation. Participatory techniques will, therefore, continue to be used during the formulation of specific investments at the local level. Intensive consultations will be undertaken with the stakeholders using various methods such as Stakeholder Analysis, Focus Group Discussions, Seminars and Workshops, and Gender Analysis. This participatory approach will be enforced by providing an investment budget envelope to all the levels of Local Governments including the parish/communities which may be accessed after they meet the eligibility requirements. Being a participatory project, beneficiaries are expected to be directly involved in the whole project cycle right from the design and technology choice so as to ensure that an appropriate technology and technique which is within their capabilities to manage, operate and maintain is obtained. Choice of investment levels will be determined partly also by the budget envelope that can be mobilized by the communities/beneficiaries while those funds coming from the project will, to a large extent, be used to supplement beneficiaries' efforts. The involvement of Councilors at all tiers of the Local Council system will enhance the much needed participation of the local leadership and decision makers at the respective levels. "Marginalized" (i.e. women, disabled persons, youth, etc.) group needs will also be incorporated. 11. Program Objective Category: EN 12. Project Benefits (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. -6-  (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. (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. 13. Project Risks Key risks include: (i) Central Government agencies meeting their resource transfer and supervision/inspection responsibilities to ensure accountability in the Local Governments. (ii) Capacity of Central Government agencies to provide clear and coordinated direction for national policies, standards, and regulatory arrangements for the Local Governments. (iii) Capacity of Local Governments to implement sub-projects following the procedures designed under LGDP. (iv) Where local government is weak and local government accountability to constituents is not well developed, Local Governments may not choose appropriate projects and deliver the service efficiently. 14. Contact Point The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Task Manager Gautam Sengupta The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: (202) 473-4152 Fax: (202) 473-8301 Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending October 29, 1999. - 7 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. -8-