Report No. PID9122

Project Name Nigeria-Community Based Urban Development (@)

Region Africa Regional Office

Sector Urban Development Adjustment

Project ID NGPE69901

Borrower(s) FEDERAL MINISTRY OF FINANCE

Implementing Agency

Address STATE GOVERNMENTS

1. Akwa Ibom State:

Mr. Ephraim S. Udo, Project Coordinator CBUDP,

Uyo LG Secretariat, P.M.B.

1005, Wellington Bassey Way, Uyo

Phone: 234 - 085 - 203968;

Fax: 234 - 085 - 203109

2.Bauchi State:

Mr. Salisu S. Mohammed, Project Coordinator

CBUDP, Bauchi State

Development Board,, P.M.B. 0086, Bauchi.

Phone: 234 - 077- 542980 /759 /752

3. Ebonyi State:

Mr. Gabriel Emerike, Project Coordinator CBUDP,

Area Engineer's Office,

Ministry of Works and Transport, Abakaliki.

Phone: 234 - 043 - 20993

4. Edo State:

Mr. T.E. Ulinfoh, Project Coordinator CBUDP,

Office of the Secretary,

State Government, Governor's Office, Benin City

Phone: 234 - 052 - 251396

5. Jigawa State:

M.H. Barde Jahun, Project Coordinator CBUDP,

Director of Town Planning,

Land and Survey, Dutse Capital Development

Authority, Block 13 & 18, Old

Secretariat, Dutse, Jigawa State

Phone: 234 - 064- 721 107, 721 485, 721 323.

6. Nassarawa State:

Mr A. S. Muhammad, Project Coordinator CBUDP,

Nassarawa State Liaison

Office, Kwame Nkrumah Crescent, Asokoro, Abuja

Phone: 234 - 09 - 3140294;

Fax: 234 - 09 - 3148454

7. Ogun State:

Mrs. T. A. Adebari, Project Coordinator CBUDP,

Ministry of Works and

Housing, Ibara

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Abeokuta.

Phone: 234 - 039 - 243557

8. The six additional States joining theproject's second phase are: Abia,

Adamawa, Kaduna, Ondo, Rivers and Sokoto.

Federal Ministry of Finance

Address: Central Business Area, Abuja

Contact Person: Mrs. B. A. Fafowora, DeputyDirector, Multilateral

Institutions Department,

Tel: 234 - 09 - 2346962

Federal Ministry of Works and Housing

Address: Urban and Regional Development

Division, Headquarters, Mabushi,

Abuja

Contact Person: Mr. R. 0. Adebayo, Deputy

Director, Urban & Regional

DevelopmentTel: 234 - 09 - 5211632

Environment Category B

Date PID Prepared June 5, 2002

Auth Appr/Negs Date November 29, 2001

Bank Approval Date June 6, 2002

1. Country and Sector Background

The main urban issues in Nigeria are discussed below: (i) Rapid

urbanization, increasing urban poverty, and social unrest in cities:

Nigeria is urbanizing at 5.5 percent a year, and is expected to cross the

50 percent urbanization mark by 2007. Major and medium cities are growing

at rates between 10-15 percent and 7-10 percent per annum, respectively.Urban poverty in Nigeria has increased from 17 percent in 1980 to 58

percent in 1996, and the contribution of the severity of urban poverty tonational poverty has increased from 22 percent to 48 percent between

1985-96. Unemployment, under employment, violence and crime rates are

high, giving rise to increasing insecurity in Nigerian cities. At the

same time, the relative contribution of the urban economy to Nigeria's

Gross Domestic Product (GDP) is higher compared to the rural economy.

About 60 percent of the GDP is generated in urban areas with about 40

percent of the population, indicating the relative difference in

productivity.(ii) Infrastructure deficiencies, especially in low-income

neighborhoods, due to inadequate investment in new facilities and

negligible maintenance of existing facilities: The impacts of

infrastructure deficiencies are much worse in low-income settlements,

exacerbating poverty due to a lack of access to basic municipal services.

Negligible periodic and routine maintenance of existing infrastructure has

rendered most cities ill-equipped to provide for the basic needs of a

majority of their present, much less their projected population. MostNigerian cities are characterized by a breakdown of infrastructure and

-2 -

service delivery. This is largely due to inadequate budgetary allocations

for maintenance, inefficient O&M through the public sector, and

maintenance is the first budget item to be deleted when revenues do not

match budget forecasts, because fixed expenses, such as salaries andwages, get priority.(iii) Poor utilization of existing resources:

Typically, decisions on new capital investments in Nigeria are not subject

to the systematic application of screening criteria, such as

cost-effectiveness, financial, economic and social returns on investment,

affordability and actual demand. There exists, therefore, no technical

mechanism to guide prioritization.(iv) Inadequate fiscal decentralization

leading to an unacceptable level of dependency on Federal resource flows

to maintain and increase recurrent and capital expenditures: The high

dependency puts LGs at risk from reduced resources when Federal finances

are impacted adversely by external economic and political factors,

especially the price of oil. Unpredictability of Federal resources makes

financial planning difficult, while dependency engenders LG inefficiency

and lack of management effort. (v) Inadequate access by LGs to financing

for infrastructure investments: LGs are not creditworthy for purposes of

securing reliable financing mechanisms to be able to plan and undertake

capital investments. LGs are dependant on Federal transfers to finance

development. Their internally generated revenues are inadequate tofinance the recurrent expenditures needed to maintain existing assets.

(vi) Inadequate technical and management capacity at both State and LG

levels, coupled with poor urban information systems: LGs do not have the

technical, managerial or financial resources to plan and manage growth in

their areas, and urban information systems are poor. There is a general

lack of trained and experienced personnel and the large number of LGs in

Nigeria has meant that the few trained professional staff are spread

thinly across many States and LGs. The Government's strategy: Federal

Government of Nigeria's (FGN) National Urban Development Policy of 1997

aims to improve the living standards of the Nigerian people, by

facilitating adequate, efficient and functional service delivery This is

to be achieved by providing infrastructure developed to design standards

that make urban facilities and amenities more affordable, through

investments in a package of basic services to upgrade poor urban

settlements.

2. Objectives

The development objectives of this project are:'n to establish

partnerships between communities and their Local Governments (LGs) so that

subproject proposals are developed jointly by them;n to deliver basic

municipal services in poor urban settlements; andn to demonstrate viable

approaches to infrastructure development and service delivery that enable

LGs to move away from a culture of total financial dependency for

infrastructure investment and even recurrent expenditures for

infrastructure operation and maintenance (O&M). The project will

demonstrate inclusive and replicable approaches for the sustainable

delivery of basic municipal services in poor unserviced or underserviced

settlements. Consistent with the community-based decision-making

approach to urban development that has characterized International

Development Association (IDA) supported projects in poor urban areas for

over three decades, the project will facilitate partnerships between poor

urban communities, LG and State Governments (SGs), for decision-making

related to on-site public expenditures in settlements, thereby fosteringgood governance. This project will be implemented in two phases. The

- 3-

seven States participating in Phase I are Akwa-Ibom, Bauchi, Ebonyi, Edo,

Jigawa, Nassarawa and Ogun. The six additional States that will

participate in Phase II, Abia, Adamawa, Kaduna, Ondo, Rivers and Sokoto,

were selected on the basis of criteria agreed during the negotiations(geopolitical balance, size of urban population, degree of urban poverty,

capacity to borrow and meet counterpart funding requirements, and

completed audits from previous IDA credits).

3. Rationale for Bank's Involvement

Given IDA's experience in urban development, including community-based

urban development, this project will enable FGN to develop an approach to

infrastructure provision that promotes demand-led and participatory

planning techniques for public expenditures on infrastructure within

budget constraints, especially in poor urban neighborhoods, thereby

promoting better utilization of resources. It will also assist States in

developing long-term, realistic and workable financing strategies for

scaling-up upgrading interventions in their cities in the future, and help

FMWH draw lessons for urban policy work in Nigeria. Bank experience with

knowledge transfer will support the development of a web facility to

promote learning, knowledge-sharing and transparency.

4. Description

The Project will finance the following components: (i) Upgrading of basic

municipal infrastructure in select settlements in seven cities of seven

States - Phase I; (ii) Upgrading Fund (referred to in the Development

Credit Agreement as "Subprojects") to finance basic municipal

infrastructure in select settlements in cities of 13 States - Phase

II;(iii) Capacity building and training, one city development strategy,

and knowledge sharing networks;(iv) Implementation support for the Project

Implementation Units (PIU) and the Federal Project Coordination Unit

(FPCU);(v) HIV/AIDS awareness campaign on project sites; and(vi) A Project

Preparation Facility (PPF). States in Phase I will implement subprojects

already prepared, based on pre-allocated funds. Phase II is designed to

enable all 13 States to implement eligible subprojects on a demand-driven

basis, with in-built incentives to reward performance and integrate

lessons learned. The seven Phase I States will become eligible for

participation in Phase II as soon as they have implemented 20 percent ofphysical works of their first subprojects. The six additional States in

Phase II will become eligible for participation as soon as they meet the

eligibility criteria listed in Annex 2: Detailed Project Description. All

States will develop viable proposals up to the preliminary engineering

stage with their own resources guided by the procedures in the Project

Implementation Manual (PIM). (i) Upgrading or delivery of basic municipal

infrastructure: Based on needs and priority assessments undertaken by

Phase I States during project preparation, this component will finance

integrated packages of multisectoral investments developed within budget

constraints, to provide or rehabilitate basic municipal infrastructure and

services necessary to improve the living conditions of people in the

selected settlements. The sectors include water supply, roads, footpaths,

drainage, power reticulation, private and public sanitation facilities,

solid waste management, street lighting, slaughterhouses, markets,

recreational facilities, schools, and clinics. SGs, LGs and communities

will contribute 20 percent of the cost of investments as counterpart

contributions, with respective shares of each to be determined by theStates. The amount of counterpart contributions is based on past

- 4 -

experience in the region and Nigeria, and was agreed upon with the

Borrower, during the early stages of project preparation. IDA will

finance the remaining 80 percent of the physical investment costs. To

ensure sustainable service delivery, SGs and LGs have been encouraged to:(i) adopt technical standards for infrastructure that result in affordable

recurrent expenditures for O&M; (ii) invest the bulk of the available

resources for on-site infrastructure within the selected community; (iii)

make sectoral investments in a manner that is consistent with other

programs in the sector, particularly with respect to user charges and

fees, taking into account sectoral best practice; (iv) prepare and

implement Revenue Improvement Action Plans (RIAPs) and improve financial

management procedures that would generate additional internal resources

for recurrent expenditure; and (v) establish O&M funds to ensure adequate

maintenance of the improved infrastructure to ensure its sustainability

for its design life. (ii) Upgrading Fund: An Upgrading Fund will support

subproject proposals in Phase II. The Fund will be accessible to all 13

States when they meet eligibility criteria, listed in Annex 2: Detailed

Project Description. A basic criterion is development of a State urban

poverty table, to guide selection of LG areas for Phase II, as well as to

target future urban poverty interventions and scale up upgrading

activities. With guidance from the FPCU and IDA, States will identify andcomplete preparation of their approved subproject proposals up to the

preliminary engineering stage with their own funds. Thereafter, they will

be eligible to access the Upgrading Fund for detailed engineering and

subsequent implementation of their subprojects.(iii) Capacity building and

training, City Development Strategy (CDS) and knowledge sharing networks:

Capacity building is supported by information sharing to facilitate

empowerment of communities and civil society to demand better services

from government. The project will initially finance project-related

training to build capacity through the acquisition of skills to enable

each participant to competently perform her/his duties in support of the

project's development objectives. Thereafter, the project will build

capacity in SG and LG agencies and civil society through systematic

information sharing coupled with demand-driven training activities. Prior

to project effectiveness, training for PIU staff will focus on basic

computer applications, project management, procurement, project financial

management system, civil works contract management, participatory andcommunity-based planning techniques, and auditing. The target group for

training will then be expanded to include staff from participating SGs,

LGs, and Community Technical Committees (CTCs), and training content will

be broadened to include: financial management; budgeting; monitoring and

review; internal and external audit procedures; management practices and

effective leadership; monitoring and evaluation; monitoring and quality

control of civil works; infrastructure planning for sustainability; O&M

planning; revenue improvement; environmental management and planning, and

any other relevant training identified by the States. The project will

also finance quantitative and qualitative analytic work and stakeholder

consultations in the city of Karu to develop a City Development Strategy(details in Annex 2: Detailed Project Description). This will demonstrate

how an urban LG can prepare and implement a strategy for: (a) enhanced

economic growth and poverty reduction, based on consultations with its

residents, including both the formal and the informal private sector; (b)

the adoption of equitable and efficient land-use planning techniques; and

(c) the establishment of a systematic mechanism for engagement between thegovernment and non-government sectors. In addition, funds will be made

- 5-

available to the PIUs to share knowledge, and establish and maintain a

knowledge-sharing network, to:n enable both face-to-face and electronic

exchange and dissemination of information and experiences on urban

upgrading and project-related activities;f stimulate competition forresources between States by enabling them to keep track of other States'

progress under the project in both phases. (iv) Implementation support,

and Monitoring and Evaluation (M&E): Basic office equipment and

facilities would be provided to assist in the establishment of PIUs in all

States once the first subproject has been approved, as well as support for

impact evaluations for all subprojects. IDA will also finance 90 percent

of the operational cost of the PIUs, excluding the cost of staff salaries

(refer to detailed cost tables in Annex 3: Estimated Project Costs). In

addition, support will be provided to the FPCU and to the Federal Ministry

for Works and Housing (FMWH) to enable them to meet their responsibilities

to screen subproject proposals, consolidate and monitor project

activities, and facilitate an external impact evaluation of the project

prior to its closing. (v) HIV/AIDS awareness campaign: The project will

support the development and execution of an appropriate AIDS Education

Information and Communication Campaign in the project areas. This

campaign will be conducted within the framework of activities determined

by the National Action Committee on AIDS (NACA) and the State ActionCommittee on AIDS (SACA). The campaign will be implemented on

construction sites, in project-supported schools and clinics, and along

the solid waste collection, transport and disposal network. (vi) Project

Preparation Facility (PPF): A PPF (referred to in the Development Credit

Agreement as Project Preparation Advance) of US$2 million was made

available by IDA to the FGN to enable project preparation in the seven

Phase I States. This will be reimbursed from project funds when the

project becomes effective.

Rehabilitation or delivery of basic municipal infrastructure

Upgrading Fund

Capacity Building and Training

Implementation Support and M&E

HIV/AIDS awareness Campaign

Project Preparation Facility

5. FinancingTotal ( US$m)

BORROWER $27.52

IBRD

IDA $110.00

Total Project Cost $137.52

6. Implementation

Implementation period: FY2003-2009 Institutional arrangementsFederal

Project Coordination Unit (FPCU): A project coordinating unit will be

established at the Federal level. Chaired by the FMWH's Deputy Director

for Urban and Regional Development, the FPCU will be located in FMWH and

will consist of four representatives from the FMWH and two from the

Federal Ministry of Finance (FMF). These six officers will be designated

by their respective Ministries for the duration of the project, and will

not be changed without first informing IDA. The FPCU will have the

overall responsibility for coordinating project execution. Specifically,

the unit will be responsible for: (i) providing timely technical supportto State PIUs; (ii) consolidating and disseminating all quarterly and

- 6 -

annual reports; (iii) monitoring progress of project activities through

participation in IDA supervision missions; (iv) screening subproject

proposals in accordance with a check-list, to ensure that Phase II

eligibility criteria have been met; (v) maintaining a knowledge network(initially located in the Bank's Nigeria Country Office); and (vi)

conducting an impact assessment before project closing. FMWH's role will

be to guide, facilitate and oversee project activities in order to

proactively help SGs avoid and resolve problems in a timely manner so that

the project's objectives can be achieved. As the Federal agency

responsible for urban development in Nigeria, it will manage the web-based

knowledge interface established by the project once it is transferred from

IDA to FGN, and will organize biannual inter-state meetings for PIU staff

to exchange experiences with each other and with other local urban poverty

champions to enhance their capacity to expand upgrading initiatives.

These exchanges will provide FMWH with the knowledge to evaluate policies

that affect urban development in Nigeria. Since FMWH staff has received

training in infrastructure project M&E under previous Bank-supported

projects, it will have the primary responsibility to monitor project

activities through periodic site visits. FMWH staff will assist IDA

supervision missions by providing a detailed report on site visits

indicating implementation progress, issues, decisions taken and lessonslearned along with recommendations to integrate the findings in future

upgrading activities. The staff's capacity for M&E will be further

strengthened through tailored, on-the-job training programs delivered in

Nigeria. In Phase II of the project, when upgrading activities are

scaled up, FMWH will be responsible for screening subprojects to ensure

they meet the eligibility criteria, in accordance with the check-list

included in the PIM. FMF, in addition to participating in the FPCU, will

have the responsibility of assisting SGs in preparing the PIMs, designing

project financial management systems, and assisting LGs in formulating

their RIAPs. State Level Project Steering Committees (PSCs): A PSC will

be established in each State, to provide overall policy guidance for urban

development. It will be responsible for formulating overarching

directives and making key decisions during the course of the project,

especially to ensure complimentary cross-sectoral improvements to achieve

efficiency gains from the joint production of multiple services in the

same location. The PSC will also provide a forum for discussingimplementation progress and sharing experience. Chaired by the State's

Commissioner of Works or the State Governor's designate, the PSC will meet

quarterly, and include, inter alia, the Coordinator of the PIU,

representatives from the State Ministries of Finance, Planning/

Statistics/ Budget, Transport, Environment, Information, Water

Corporation, Department of Health, Department of Education, Attorney

General's Office, a representative from the Department of Local

Government, traditional leaders, representatives from civil society, as

well as representatives of participating LGs and the Head of the Community

Technical Committee (CTC). All line ministries that will inherit

investments financed by the multisectoral subproject will be represented

on the PSC to ensure approval, ownership and coordination of the

subproject with overall sectoral plans for the State. All appropriate

sectoral ministries will evaluate the subprojects, budget for recurrent

expenditures in their annual budgets to ensure that O&M of economic

infrastructure investments is adequately funded from State and LG budgets,

and recurrent expenditure necessary for social infrastructure, such asschools and clinics, is adequate to meet staffing and the cost of

-7 -

supplies. PSCs will also promote and monitor the delivery of an effective

project information campaign to be delivered by the PIUs. This will

ensure that project-related information flows to the communities in a

timely and effective way through communication channels most accessible bythe beneficiary community, as outlined in the PIM. They will also support

the execution of the HIV/AIDS awareness campaign on relevant project

sites.State Level Project Implementation Units (PIUs): The PIUs, as the

technical secretariat for the PSCs, will have the prime responsibility for

ensuring day-to-day implementation of project activities through the

procurement of consultants and contractors. PIU core staff will consist

of: (i) a project coordinator; (ii) an accountant to head the Project

Accounting Section (PAS); (iii) an internal auditor; (iv) an engineer; (v)

a procurement officer; (vi) a community development officer from the

participating LG; and (vii) a human resources development officer (HRDO).

PIUs will be responsible for guiding, promoting, facilitating, monitoring,

evaluating and reporting project activities. States have been encouraged

to include LG staff as core members of the PIUs to help build capacity at

the LG level. With support from PIUs, LGs may engage the services of

NGOs, where their community development departments lack capacity, to

facilitate partnerships among LGs and poor communities in developing

viable joint upgrading subproject proposals, particularly for thosecommunities that are not among the initial group in the Phase I States.

PIUs will manage all project funds, including disbursements, accounting,

auditing and financial reporting. They will be responsible for

procurement and contract management, management of the capacity building

components, assisting LGs with implementation of their RIAPs and

strengthening of their financial management systems, and for ensuring

delivery of the HIV/AIDS awareness campaign. PIUs will be responsible for

informing LG community development officers and CTCs of the time and place

for technical evaluations and for the opening of bids for contracts so

that the Head of the CTC can attend if desired. It is expected that the

bulk of the civil works, including supervision by consultants, will be

carried out by the private sector. PIUs will also be responsible for

documenting and disseminating lessons learned in their quarterly reports

to FPCU and IDA throughout the project cycle, and for sharing these with

other PIUs and urban poverty champions every six months at inter-state

meetings as part of the knowledge sharing network. One year afterimplementation of each subproject, PIUs will carry out a quantitative and

qualitative impact assessment and develop policy recommendations for PSCs

for scaling-up upgrading to other areas, especially with respect to

planning methodologies that enable the development of appropriate

technical standards for infrastructure. In addition, PIUs will ensure

that the CTC is kept well informed of all project activities to enable

community monitoring, and that they receive updated copies of the PIM.

Community Technical Committees (CTCs): During project preparation,

communities were encouraged to establish a representative group that

includes professionals who are either members of the community or living

near the community (for details, refer to Section E: Summary Analysis:

Social Issues). This representative group, of no less than three members

and including at least one woman, will form the CTC in each community. In

cities in which more than one settlement has been selected for project

participation, the CTC must include representatives from each settlement

or community. CTCs have a critical role to play in meeting the project's

development objectives. They work closely with the PIU to inform residentsof the project objectives, criteria and technical standards, mobilize and

- 8 -

organize their community's participation, and facilitate, with the PIU,

the definition of the final subproject proposals. All subproject

proposals will be cosigned by the CTC. The Head of the CTC will have the

mandate to participate as an observer in the technical evaluation of bidsfor contracts to ensure transparency, and, as a member of the PSC, will be

part of the process for ratifying contract award decisions made by the

PIUs. CTCs will liaise with PIUs on a routine basis to get regular

updates on project progress through their LG community development officer

who will be a core staff member of the PIU, and will be responsible for

ensuring that project-related information is shared with the community

(refer to section on Project Monitoring further in the document). In the

event of any grievance that the CTC is unable to resolve at the PSC level,

it will request IDA and FPCU intervention to avoid implementation

delays.Procurement and disbursement Procurement of works, goods and

services would be the responsibility of each State's PSC. Such

responsibility will be delegated to the States' PIUs. Signed advance

copies of all evaluation reports will be forwarded by the PIUs to the PSCs

and IDA simultaneously. However, prior to issuance of IDA's no objection

for award of contract, the PSC will have the mandate to only ratify (not

approve) all project-related procurement decisions. This ratificationwill be done within five working days after receipt of recommendations

from the PIUs to the PSCs, in the absence of which, decisions will be

considered ratified. To ensure transparency and to serve as a learning

tool, the Head of the CTC, or designate, will participate as an observer

in the evaluation process, and as a member of the PSC during the process

of ratification. The PSC will ensure compliance with a procurement

checklist included in the PIM. Arrangements for selecting and funding

proposals from the Upgrading Fund in Phase II, are detailed in the PIM

prepared by FMF consultants in consultation with the PIUs. All

procurement related activities shall be subject to the same conditions as

applicable in Phase I. Financial management arrangements A Federal

Project Accounting Section (FPAS) will be established by the FMF and

located in the FPCU. The FPAS will be headed by a professionally

qualified project accountant and supported by appropriately qualified

staff. The FPAS will be responsible for preparing (i) progress reports on

a quarterly basis, and (ii) ensuring that the project's financial

management arrangements are acceptable to the Government and IDA. Withineach PIU, a PAS will be established. This PAS, headed by a professionally

qualified project accountant and supported by appropriately qualified

staff will be responsible for preparing activity plans, budgets and

quarterly progress reports and forwarding them to the FPCU and IDA. FPCU

and the PIUs will each appoint internal auditors who will carry out their

functions in accordance with the TOR included in the PIM. Project

activities will be reviewed by Internal Audit Departments (IADs) of the

FMF and participating States. IADs will periodically review SOEs,

physically verify purchases and carry out other relevant functions. By

Credit Effectiveness, the project will not be ready for report-based

disbursements. Thus initially, transaction-based disbursement procedures

(i.e. direct payment, reimbursement, and special commitments) as described

in the World Bank Disbursement Handbook, will be followed. However,

during project implementation, when the borrower requests conversion toreport-based disbursements, IDA will undertake a review to determine the

project's eligibility. With respect to banking arrangements and fundsflow, the overall project funding will consist of the IDA Credit and

counterpart funds. IDA will disburse the credit through the respective

-9-

Special Accounts (SAs) of the seven Phase I States, and through the

Federal Special Account. IDA will sign a Credit Agreement with FMF, and

FMF will sign subsidiary agreements for on-lending Credit proceeds with

the States. The following accounts will be maintained by the FPCU: (i) aSpecial Account in US Dollars to which initial deposits and replenishment

from IDA will be lodged; and (ii) a Current Account in Naira to which

drawdowns from the SA will be credited for eligible expenditures.

Following the immediate payments of eligible expenditures, the balance on

this account should be zero. The following accounts will be maintained by

each PIU: (i) a Special Account in US Dollars to which the initial

deposit and replenishments from IDA will be lodged; (ii) a Current

Account in Naira to which drawdowns from the Special Account will be

credited once or twice per month with respect to eligible expenditures

incurred. Following the immediate payments of eligible expenditures, the

balance on this account should be zero; (iii) a Project Current Account

in Naira to which counterpart funds will be deposited; (iv) a Current

Account in Naira into which O&M funds from the State will be deposited;

(v) a Current Account in Naira into which O&M funds from participating LGs

will be deposited; and (vi) a Current Account in Naira to which the

interest income on SAs will be deposited. Additionally, the FPCU and PIUs

will each maintain an IDA Ledger Loan Account (Washington) in USDollars/Naira/SDR to keep track of drawdowns from the IDA credit. The

account will show (a) deposits made into SAs by IDA; (b) direct payments

by IDA; and (c) opening and closing balances. The FPCU and PIUs will each

prepare and submit to IDA audited project financial statements within six

months after year end. By Credit Effectiveness, qualified external

auditors will be appointed by the FMF and participating States, in

accordance with TOR acceptable to IDA. Audit reports will include opinion

paragraphs on audited project financial statements, the accuracy and

propriety of expenditures made under SOE procedures, including the extent

to which these can be relied upon as a basis for loan disbursements, and

the Special Account Reconciliation Statement in accordance with

International Standards on Auditing (ISAs). The overall conclusion of the

financial management assessment is that, provided the conditions outlined

in section G: Main Loan Conditions of this document are met by the FMF and

the States prior to Credit Effectiveness, the Bank's financial management

requirements would be satisfied. Project Monitoring Duringimplementation, the FPCU will consolidate quarterly and annual reports,

review annual performance audits and the overall financial status of the

project, and participate in the project's Mid-Term Review in August -September, 2005. Additionally, it will coordinate with the Bank's Country

Office to resolve any community grievances under the project, referred to

it by the CTC, when the CTC is unable to get satisfactory action at the

State level despite its membership in the PSC, to avoid implementation

delays. PIUs will operate and maintain an effective monitoring and

evaluation system that will ensure the capture, analysis and flow of the

information needed to track performance of project interventions. This

will serve as a decision-making tool for project managers and

policymakers. It will consist of performance monitoring, which will track

progress of activities against planned targets, including financial,

physical inputs and outputs, information dissemination, timeliness and

efficiency of works. This information will be gathered and analyzed by

PIUs, using key procurement and disbursement progress indicators (included

in the PIM) in formats agreed upon with IDA. Monthly activity reportswith simple tables of targets and achievements and remarks for explaining

- 10 -

deviations will be produced, and will include inputs from LG community

development officers and CTCs. Every quarter, these will be consolidated

by the PIUs into quarterly progress reports, and submitted to the FPCU,

PSCs, LG community development officers, CTCs, and IDA. These reportswill also be posted on the electronic interface that will be part of the

knowledge sharing network under this project to ensure sharing of progress

by FPCU. Community development officers, together with CTCs will be

responsible for ensuring continuous communication with the communities

during the project cycle to keep them abreast of developments. They will

also be responsible for soliciting feedback from the communities and

communicating this to the PIUs to ensure that problems are addressed in a

timely and effective manner. CTCs and community development officers will

ensure that quarterly reports are posted or displayed in at least two

prominent and appropriately selected public places in respective project

areas, within three days of receipt of the reports from the PIU. Public

places will be selected to ensure that both men and women of the community

can have access to the information. This will be part of the continuous

monitoring throughout the project's life. Regular Bank supervision

missions (at least twice a year) will also monitor project progress. In

addition, annual reviews as well as a mid-term review in August-September

2005, will be carried out jointly by the Bank, the Borrower, and allstakeholders. IDA Procurement supervision missions, including special

procurement supervision for post-review/audits, will take place once every

quarter.Impact Evaluations PIUs will undertake impact evaluations of

subprojects in their States one year after completion of physical works.

This will include a quantitative assessment to assess changes in the

baseline information recorded by the PIUs during subproject preparation,

as well as qualitative assessments that will include feedback from CTCs,

and focus group discussions with members of the community. Prior to

project closure, FMWH will engage external evaluators to carry out an

impact assessment of the project, in accordance with TORs acceptable to

IDA, to provide input into the project's Implementation Completion Report

(ICR).

7. Sustainability

Sustainability of investments made by the project will depend on (i)

ownership of the choice of investments by communities, SGs and LGs; (ii)availability of resources for O&M (including making investment choices and

choosing technical standards in consideration of their costs and

institutional structures for O&M); and (iii) the management capacity at

the SG, LG or community levels for maintaining or ensuring maintenance of

investments that will belong to them. Involvement of communities and

their LGs is an integral part of project design. SGs, LGs and identified

communities will contribute 20 percent to overall investment costs, and

establish O&M accounts into which LGs will deposit a percentage of their

revenues on a monthly basis, for recurrent expenditure and developing

mechanisms for collecting the community's share of O&M. Functioning O&M

arrangements will be a performance indicator for States and cities to

receive continued support for additional subprojects.

8. Lessons learned from past operations in the country/sector

This project's design builds lessons from urban upgrading for the

sustainable delivery of economic and social infrastructure and services to

the urban poor. Key lessons from over three decades of internationalexperience with community-based urban projects are:n political commitment

- 11 -

to improving the lives of the urban poor is a necessary but not sufficient

condition for operations to be effective and on a scale to make a

significant impact; n a programmatic approach, as opposed to a traditional

project approach, is needed to scale up activities; n governments canafford to improve the lives of the urban poor by providing basic services,

provided appropriate and affordable standards for infrastructure are

developed and adopted; n the poor are willing to pay for infrastructure

investments and services that are reliable, affordable and respond to

their needs, and must be enabled to contribute towards improvements to

take joint ownership of interventions with the LGs; n project designs

should be simple; n capacity building activities are essential for both

communities and local governments; n meaningful community participation

that empowers people to make informed contributions to decision-making is

critical; n city-wide infrastructure networks will require improvements to

ensure the flow of services to upgrading sites;f improving the physical

environment in poor communities provides a sound foundation for additional

actions and programs to deal with other social services and economic

problems facing the community; and n upgrading projects are less likely to

succeed if implemented by a single central government or state government

agency, because success depends on the implementation and coordination

capacity of the one agency, and it is more likely to fail. Experiencehighlights that implementation should be led by LGs and linked to other

stakeholders, such as NGOs, private service providers, communities, and

other service agencies. The Bank has supported community-based urban

interventions through its urban projects in Nigeria, between 1978-99. The

key lessons from these projects, highlighted by FMWH during project

preparation workshops with Phase I States are: ownership by communities is

critical and best ensured through community involvement and fostered

through strong partnerships between LGs and communities; appropriate

standards and continuous monitoring are critical for the success of such

projects. Lessons learned by IDA highlight the need to ensure effective

implementation arrangements that minimize political interference and

overcome bureaucratic delays over contract award and payment

authorization. They also highlight the need to develop appropriate design

standards for infrastructure that are workable, sustainable and replicable

to enable scaling-up and mainstreaming of interventions in poor urban

communities to become an integral part of a local government's developmentprogram. This includes assessing which service options local governments

can realistically offer, the recurrent costs and human resources

associated with them, and the revenue needed to make them viable in the

long term. Government agencies need to re-think the purpose of technical

standards; and if they do not lead to effective, manageable

infrastructure, then they should be changed. These lessons have been

taken into consideration in the design of this project.

9. Program of Targeted Intervention (PTI) N

10. Environment Aspects (including any public consultation)

Issues

11. Contact Point:

Task Manager

- 12 -

Alison C. N. Cave

The World Bank

1818 H Street, NW

Washington D.C. 20433Telephone: 202 473 3952Fax: 202 473 8249

12. For information on other project related documents contact:

The InfoShop

The World Bank

1818 H Street, NW

Washington, D.C. 20433

Telephone: (202) 458-5454Fax: (202) 522-1500

Web: http:// www.worldbank.org/infoshop

Note: This is information on an evolving project. Certain components maynot be necessarily included in the final project.

This PID was processed by the InfoShop during the week endingJuly 14, 2002.

- 13 -