Document of The World Bank

Report No: 30285

IMPLEMENTATION COMPLETION REPORT(IDA-32030)

ON A

CREDIT

IN THE AMOUNT OF SDR 16.5 MILLION (US$22.38 MILLION EQUIVALENT)

TO THE

REPUBLIC OF UGANDA

FOR THE

NAKIVUBO CHANNEL REHABILITATION PROJECT

December 20, 2004

Water and Urban 1Tanzania & Uganda Country DepartmentAfrica Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 30, 2004)

Currency Unit = Uganda Shillings (Ush) Ush 1 = US$ 0.00056US$ 1 = Ush 1780

FISCAL YEARJuly 1 - June 30

ABBREVIATIONS AND ACRONYMS

ASD Alternative Service DeliveryCAS Country Assistance StrategyCDS City Development StrategyEIA Environmental Impact AssessmentEOP End of ProjectFUP First Urban ProjectGOU Government of UgandaHoD Head of DepartmentIDA International Development AssociationKCC Kampala City CouncilKDMP Kampala Drainage Master Plan StudyKUTIP Kampala Urban Transportation Improvement ProgramLGDP I Local Government Development ProgramM&E Monitoring and EvaluationMTR Mid Term ReviewNEMA National Environmental Management AuthorityNCRP Nakivubo Channel Rehabilitation ProjectNPV Net Present ValueO&M Operations and MaintenancePCU Project Coordinating UnitPDO Project Development ObjectiveRAP Resettlement Action PlanSIA Social Impact AssessmentSFR Strategic Framework for Reform

Vice President: Gobind T. NankaniCountry Director Judy M. O'ConnorSector Manager Jaime M. Biderman

Task Team Leader Lance Morrell

REPUBLIC OF UGANDANAKIVUBO CHANNEL REHABILITATION PROJECT

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 75. Major Factors Affecting Implementation and Outcome 126. Sustainability 137. Bank and Borrower Performance 148. Lessons Learned 169. Partner Comments 1710. Additional Information 18Annex 1. Key Performance Indicators/Log Frame Matrix 19Annex 2. Project Costs and Financing 21Annex 3. Economic Costs and Benefits 25Annex 4. Bank Inputs 30Annex 5. Ratings for Achievement of Objectives/Outputs of Components 32Annex 6. Ratings of Bank and Borrower Performance 33Annex 7. List of Supporting Documents 34Annex 8. Borrower's Contribution 35

Maps IBRD Nos. 30199 and 30200

Project ID: P059223 Project Name: NAKIVUBO CHANNEL REHTeam Leader: Lance Morrell TL Unit: AFTU1ICR Type: Core ICR Report Date: December 20, 2004

1. Project DataName: NAKIVUBO CHANNEL REH L/C/TF Number: IDA-32030

Country/Department: UGANDA Region: Africa Regional Office

Sector/subsector: Flood protection (79%); Sub-national government administration (15%); Roads and highways (6%)

Theme: Natural disaster management (P); Municipal governance and institution building (P); Water resource management (P); Other urban development (S); Municipal finance (S)

KEY DATES Original Revised/ActualPCD: 03/15/1999 Effective: 09/15/1999 11/30/1999

Appraisal: 03/22/1999 MTR: 12/31/2000 10/30/2001Approval: 05/06/1999 Closing: 06/30/2002 06/30/2004

Borrower/Implementing Agency: GOVERNMENT OF UGANDA/CITY COUNCIL OF KAMPALAOther Partners:

STAFF Current At AppraisalVice President: Gobind T. Nankani Callisto E. MadavoCountry Director: Judy M. O'Connor James W. AdamsSector Manager: Jaime M. Biderman Jeffrey S. RackiTeam Leader at ICR: Lance Morrell Gautam SenguptaICR Primary Author: Kate Kuper

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S

Sustainability: L

Institutional Development Impact: M

Bank Performance: S

Borrower Performance: S

QAG (if available) ICRQuality at Entry: S S

Project at Risk at Any Time: No

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:The project’s original objectives were twofold: (i) the physical objective aim[ed] at making a positive impact on the drainage and road network in Kampala by alleviating the frequent and increasing incidence of flooding which has adverse affects on the road network, traffic flow, economic activity and overall living conditions in the city; and (ii) the institutional objectives to (a) encourage and enhance the Kampala City Council’s (KCC) ability to plan, manage and execute complex investment decisions and programs, and (b) to establish the primacy of maintenance of key infrastructure investments.

The project objectives were in line with the IDA’s long-term Country Assistance Strategy (CAS) for Uganda (Report no. 16540-UG April 30 1997), the National Development Strategy (1998/99) and Poverty Eradication Action Plan (1997) to reduce poverty through increased economic activity, flowing directly from the positive effects of the channel in reducing transport costs, increasing property values and improving residents’ social and economic life. The Channel Rehabilitation was part of GoU’s Public Investment Plan. It also “had its anchor in the ongoing reform program in KCC” or Strategic Framework for Reform (SFR), a program developed in-house by KCC in 1997, with IDA support during the restructuring of the Uganda First Urban Project (FUP 1991).

The project was also planned in the context of the promulgation of the Local Government Act of 1997, under which financial resources and functions were being devolved to lower levels of government to ensure more efficient and effective delivery of services. At the time NCRP began, IDA was in the early stages of preparation for the Local Government Development Program (LGDP I) which would provide support to the GoU to strengthen local government capacity and pilot a transfer mechanism. Some work in Kampala, financed under LGDP, was so interconnected with the NCRP work that it is necessary to consider both projects in order to understand the whole picture. The ICRs on the two projects have been prepared at the same time and should be read together.

Given this context and the need for urgent action to address the impact of flooding in Kampala, the physical objective of the project was clear, realistic and important for the country while also recognized as complex and risky. It is estimated that about 80 percent of the country’s industrial and services sectors are located in Kampala and the city generates over 50 percent of Uganda’s GDP. This makes infrastructure bottlenecks in Kampala of critical importance to the national economy.

The ‘without project’ alternative meant improving maintenance which would not have presented even a medium-term solution to the flooding problem which imposed heavy costs on Kampala and the country. The Nakivubo Channel was the largest civil works project ever undertaken by KCC and would serve as the follow-on project and testing ground for the reforms initiated under the IDA-financed First Urban Project and those intended for support under the LGDP. The studies and investments in “Alternative Service Delivery” were less risky, being smaller and less demanding on KCC, although these also represented a new approach to private sector partnerships. In other words, the project was a “calculated risk”, balancing the demanding nature of management required against both the new reality of greater local responsibility and the urgent nature of the flood-related intervention. This shift was consistent with a broader and longer term GoU/IDA program of strengthening local governments.

3.2 Revised Objective:The objective was not revised.

3.3 Original Components:

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The project consisted of four components:

Component 1. Civil Works comprising of the Main Channel, Auxiliary Works and Priority Draining “Black Spots” Rehabilitation. ($20.4 million, 68%):

Main Channel Works. 8.73km of channel to be de-silted and rehabilitated; various existing culverts land bridges to be widened to accommodate the new channel widths; existing footbridges to be replaced with larger ones while several new ones installed at various strategic points along the channel; realignment and/or protection of existing utility services as necessary. Auxiliary Works. Four major auxiliary drainage works including those at (i) Clock Tower Roundabout; l(ii) Lugogo/Uganda Manufacturers’ Association’s Showground; (iii) Kafumbe Road/Kinsenyi Lane Junction; and (iv) Makerere Road/Aga Khan Secondary School. Priority Drainage “Black Spots” Rehabilitation Program. 27 “black spots” identified for lrehabilitation (desilted, rehabilitated and widened) within Nakivubo Channel catchment area to enhance storm water flow and minimize traffic congestion.

Component 2. Consultancy Services comprising of Construction Supervision ($1.44 million, 5%):Consultant services for supervision of construction of civil works. l

Component 3. Program and Policy Studies ($3 million, 10%)Kampala Drainage Master Plan Study: survey and update of Kampala’s drainage systems and related lenvironmental, social and economic issues. Analytical report on current status and projections into twenty-year horizon, including preliminary designs and costs for necessary improvements.Kampala Urban Transportation Improvement Program Study (KUTIP): Study for long-term limprovement of urban transportation in Kampala to provide framework for addressing inter-linkages between roads, drainage and transportation.

Component 4. Institutional Support for KCC’s Strategic Framework for Reform ($5.16 million, 17%)A Kampala City Development Strategy to pilot a participatory, replicable and sustainable process to lmaximize potential for growth with poverty reduction.Revenue Enhancement activities through immediate improvement of property tax revenues.lSeed funds to facilitate contracting out of basic service delivery functions by KCC’s five divisions.lInstitutional Support in form of local resource persons and administrative and office support for l

KCC’s Core Team responsible for SFR.

Assessment of Components

Overall, the design of the components was closely related to achieving the project objectives, with three out of four components and 80% of the funds for the project directly related to the first PDO, namely the physical investment in the Channel as a near ‘emergency’ project. Many of the potential institutional and financial constraints for long term sustainability (such as overall city financial management) were considered outside the project’s scope and some were intended to be addressed under the LGDP. For the second PDO of capacity building to manage complex projects, the scale and design required a “special projects” unit (Core Team) drawn from KCC staff and paid under the project to focus on its activities. Components 1, 2 and 3 were appropriate for enhancing the capacity of this team not only to manage the channel but to transfer learning to division staff under component 4 in particular, Alternative Service Delivery (ASD). Progress towards the third PDO - establishing the primacy of maintenance - was largely achieved in terms of a “culture shift” to appreciating its importance, both in the divisions through ASD and

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through the short term provision made for the Channel’s O&M. However, the resources needed to ensure maintenance could be sustained relied on the broader financial management of the city. A holistic approach to O&M was needed to address O&M programmatically for all local infrastructure. Component 4 therefore needed further clarity in terms of how it was located within the broader institutional and political reforms of KCC and the projects supporting them.

Component 1 was generally well designed and managed, especially given the scale of the project and lrelative inexperience of the Core Team. At nearly 70% of the project cost, this component dominated the project design, making it similar to a large “emergency” type operation. Despite initial delays by parliament in ratifying the project, weather, delays from compensation demands and contractor’s problems accessing equipment, the component did achieve its objectives (albeit with an 11 month delay) and quality was high. Some important lessons were learned regarding early and sufficient consultation with affected communities and organizations (e.g. utilities) during construction.

Component 2 was critical to ensuring the smooth implementation of Component 1 and transfer skills to lKCC. There were no major problems experienced and skills were transferred to the Core Team and to the City Engineer in terms of managing large contracts. These skills developed by the Core Team and City Engineer were also transferred to division staff through ASD investments.

Component 3 was well designed in that it recognized the critical linkages and interdependency between lroads, drainage and transportation in Kampala and were intended to provide the basis for leveraging the management capacities and financial improvements expected to be built in KCC to a broader scope of investments in the future. Some delays and adjustments were made but overall it was effectively completed and laid the groundwork for high impact investments to be financed by potential future operations. It did, however, also create expectations that were not being supported by progress in institutional and financial reform by KCC. This component was significantly helped by Technical Assistance received from Kirklees Metropolitan Council (UK), financed under LGDPI, and skills were transferred to division staff during this process, but not sufficiently measured.

Component 4 was the most complex component. Substantial achievements were realized under ASD, lespecially in transfer of skills to division staff, and some progress was made under revenue enhancement. It was unfortunate, however, that the achievements of ASD in terms of impact and staff development were not measured by impact indicators and the revenue measure was removed. Division staff were eventually able to do the design and preparation work for all ASD projects. Additional formal training in critical areas was provided to key KCC staff but the impact of training was not also measured in the indicators of the project, although 135 people were trained and all but 2 remain in KCC . KCC’s legal framework was reviewed and adjusted (4 amendment bills were prepared and 19 bylaws made and approved by council), but again not measured for impact.

On the negative side, the component design included too many activities to be effectively managed within one component and the resources allocated. While some good inputs were received, the City Development Strategy (CDS) was not undertaken partly because of an overstretched Core Team and need to focus on other priorities first, such as revenue enhancement. However, these were factors that could have been integrated and managed had the political leadership been committed to its development. The CDS, while not particularly successful, nevertheless provided useful lessons for the future regarding the need for management of organization change and the institutionalization of accountability mechanisms and engagement with the public and key stakeholders. In summary, while project management of strictly NCRP activities was largely effective, critical management tasks by KCC, of some tasks financed under LGDP

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(e.g. KCC financial management), should have been more effectively carried out in order to improve the sustainability of outcomes of both projects.

3.4 Revised Components:(i) Component 1 was revised to include an additional 16 Black Spots, utilizing uncommitted funds

(amendment).(ii) Component 4 was revised to put the Kampala CDS on hold due to other pressing priorities. Initial

analytic work had included a Household Survey and an Institutional Mapping exercise that were completed in mid-2001. It was agreed that the CDS would be restructured as a two-phase process with the SFR being carried out as phase one of the Kampala CDS and under LGDP I. The resources ($0.5 million) were reallocated to revenue enhancement at Mid Term Review.

(iii) Component 3 KUTIP study was revised to limit the scope to an urban traffic improvement plan to address immediate and short-term needs of city but include preparation of a 5-year road maintenance plan for the City. The reason was that an overall national transport master plan was in the process of being prepared under Ministry of Works. The amendment also included provision for pilots to allow for implementation of some of the high priority road improvements.

(iv) A financial covenant of the DCA was amended to reduce required divestiture of housing estates from five to three due to social and political issues surrounding two of them. (Amendment)

(v) At MTR, no restructuring was done but there was agreement to implement measures to ensure physical completion and also to refocus on the SFR.

(vi) At MTR, the Logframe KPIs were revised to be more measurable and also to reflect informal restructuring targets.

(vii) The project was extended to allow time to complete the physical works. (amendment)

3.5 Quality at Entry:The project objectives were generally consistent with the CAS and the Government’s commitment to increase economic activity and reduce poverty. A Quality Assurance Meeting was held in December 1998 and rated the project as satisfactory. The ICR assesses quality at entry as satisfactory even though the design underestimated the risks of diminishing political commitment and slow performance on the Strategic Framework for Reform (SFR). These were receiving more attention under LGDP which was being prepared simultaneously.

The project design was satisfactory in respect of physical objectives which constituted 80% of project funds and constituted an urgent response to a serious flooding situation in Kampala. After a thorough technical analysis looked at various design alternatives, it was decided to construct a hybrid channel lining, with a 40 year project life and estimated investment costs of USD 18.2 million. The estimated NPV was $15.1 million at appraisal, with an IRR of 24%. Some technical flaws can be noted, in retrospect, such as the reliance on maps from utilities that proved inaccurate, not using pre-cast concrete for urban bridge design and failure to identify disposal areas for excavated material. It was also felt ex-post that separate consultancies for design and supervision were unnecessary. Much of the procurement process was completed before effectiveness and some slippage was built into the project term. Nevertheless, the risks of adverse weather and the complexity of negotiating with utilities and communities were underestimated. The initial price estimate also exceeded the actual bids considerably, given the unexpectedly welcome low bid from the Chinese contractors, leaving resources to extend the scope of the contract for additional works. Despite these positive elements, the construction schedule still proved too optimistic and the project was extended for 2 years. With regard to the capacity enhancement objective, the assumptions were reasonable. KCC would take on the responsibility for the Channel but given its scale and complexity, (as well as that of KDMP and

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KUTIP studies), a “Special Projects Unit” was deemed necessary and this led to the Core Team being contracted for the project period, drawn from KCC staff. The supervisory contractor was charged with transferring know-how to the Core Team during construction supervision. Furthermore, under component four, capacity of KCC staff in the divisions, through “learning by doing”, was built to develop, execute and maintain small works under ASD. Although skills transfer clearly took place from the Core Team to division staff, this transfer unfortunately was not articulated nor measured in project design. Part of this “learning by doing” would also inculcate the “culture shift” towards maintenance in KCC.

Overall, the transfer of significant responsibility to KCC was appropriate given the national context in which decentralization was unfolding and Local Governments were expected to take on greater functional and financial responsibility. NCRP was therefore seen as “a testing ground to support the SFR” in terms of giving KCC greater resources to program and manage. Nevertheless, the team may have overestimated the capacity of FUP / LGDP and particularly SFR to deliver results in the time frame necessary to support and sustain the investment in NCRP. (Attribution between NCRP and LGDP also became difficult over time). In particular, GoU and IDA appear to have underestimated the political complexities of the city, the impact of turnover of councilors and the depth of “buy-in” needed to support real financial management and service delivery improvements in the city. Quality at Entry would therefore have been significantly enhanced had the team (particularly for LGDP) sufficiently established commitment from the Council’s political leadership, and the GoU, to drive through the SFR reforms within a set timeframe. Concrete performance measures (e.g., with regard to property tax collections), would also have provided relevant indicators of Component 4 performance.

Design quality overall was good, especially for the first three components. Component 4 may have been too ambitious and scattered in scope given the nature (emergency-like) and time constraint of the project (initially 2 years) and capacity and political will of KCC to implement all the activities. The CDS does not appear to have been well thought through during preparation, either in objective or implementation implications. Revenue enhancement and O&M were also more complex than expected and somewhat underemphasized in both this project and LGDPI, although both were critical for achieving sustainability. While O&M for the short term was built into program design, the risks of not integrating this within the broader KCC financial and political context were underappreciated. Opportunities to increase interaction, accountability and transparency in Kampala, including civil society and private sector involvement, were not clearly identified or articulated in the project design.

The revised Log Frame did not include sufficient indicators of performance for transfer of capacity to KCC, especially in the divisions through ASD (which was substantial), and for measuring progress in revenue enhancement. It also did not capture the capacity enhancement of local contractors. It did, however, measure performance of the main investment of the project, namely the channel’s construction and the supervision and provision for its maintenance.

The project was categorized as Category B because of limited environmental impact, primarily during construction activities; the Environmental Impact Assessment (EIA) was received in November 1998. A Social Impact Assessment (SIA) was carried out during the design phase and at the end of the project, but it was not broad enough to capture the full social impact of the project (ASD). No significant social risks were identified as no permanent structures were located within the proposed channel widening reserve. Significant overall benefits were expected for low-income groups, through flood alleviation, particularly in the areas adjacent to open air market activities near the channel. However, the initial assessment of the SIA seems to have been questionable as it can be argued that Bank safeguards were not satisfactorily applied. There was no Resettlement Action Plan (RAP) although the need for one should have been identified during preparation, due to the complexities of resettling displaced families from two housing estates. The issue

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was identified at the MTR, and this resulted in a change in design to eliminate the problematic areas from the project.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:Overall Assessment. The overall outcome of the project is satisfactory, as the project achieved its key objectives and these objectives were relevant to the GoU’s development priorities. The channel, its supervision and management, and the two studies under component 3 constituted over 80% of the project funds and objectives as designed, and these were completed satisfactorily, despite a 2 year extension for reasons of delays as well as additional works. The channel is expected to have an NPV of $10.5 million equivalent and an IRR of 25%, approximately the same as the appraisal estimates.Economic analysis of two major roads (Katwe Road and Wanakulukuku Road) result in ERR estimates of 120% and 24%, and their NPVs are $20 million and $1.9 million respectively. These are robust returns but do assume an ability to provide periodic and routine maintenance.

The channel has made a substantial difference to quality of life for residents of Kampala according to the SIA. Social, economic and environmental benefits from the channel and the project have clearly improved the income generating capacity and quality of life for communities living and working in the immediate vicinity of the project. These benefits accrued not only to smaller businesses and residents but to large companies such as Oxygas, Caltex Oil, Unilever and others in the old industrial area. 85% of SIA respondents prior to rehabilitation listed general flooding as the biggest problem; 74% of these indicated that the rehabilitation has provided a conducive environment for the smooth operation of businesses, along with other benefits such as elimination of damage to household property (65%), reduced blockage of access roads (61%) and less disruption of industrial activities (50%). Some problems persist such as disposal of solid waste into the channel and lower water quality flowing into the lake due to the increased velocity of water along the channel. Overall, however, most felt it had a significantly positive effect. For example, monthly income for businesses along the channel during the wet season was on average Ushs38,727 before the project and Ushs 502,705 afterwards.

The overall rating is satisfactory because the PDO indicators (i) through (vi) were all achieved within expectations. There were, however, insufficient indicators to measure the achievement of the institutional PDOs for managing complex projects and for the establishment of the primacy of maintenance (of the Core Team and for division staff). Some of the un-measured PDOs can be judged to have been largely successful from other sources such as visits, budgets and O&M plans and interviews. Significant skills transfer did take place and is evidenced by the outputs, and the culture shift to appreciating the importance of maintenance was to some extent achieved in line with PDO (iii), although the resources to enable its implementation are not guaranteed. Three indicators were revised at MTR, mostly to make them more measurable and reflect current realities. Nevertheless, the revenue indicator was removed and an opportunity was missed to include indicators to reflect the transfer of skills and O&M capacity to the divisions under ASD as well as the impact of these investments.

Assessment of each outcome indicator:

(i) Reduced incidence of flooding points. Highly Satisfactory. The project has had a significant impact as evidenced by the SIA and the target achieved by EOP of 47 flooding points worked on. 8.73 km of the main channel were rehabilitated, with 21 bridges and box culverts (2 more than planned) and 4 auxiliary drains built and 43 drainages black spots repaired (16 more than originally planned).

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(ii) No. km of the Nakivubo Channel where there is overflow of Banks. Satisfactory. This indicator was introduced at MTR and the target of no overflow for the 8.61 km of the channel (for the design standard) was achieved (and slightly exceeded) by June 2003.

(iii) Adherence to the Construction Program. Moderately Satisfactory. This was a good indicator and demonstrated the delays in the first two years, but action was taken which, together with the extension, resulted in achievement of the revised targets.

(iv) Percentage contingencies spent. Unsatisfactory. This was not achieved as per targets, and by EOP, the contingencies spent were double those planned (from 10 to 20%). The overall bid prices for the two policy studies and the main channel were less than estimates resulting in uncommitted funds that were reallocated to other works. The main channel came in below contract cost (88%) but the bridges and box culverts, auxiliary drains and drainage black spots resulted in the actual cost of the total civil works being 135% of the contract cost. This was due mainly to design changes and some unanticipated additional works.

(v) Open O&M account and deposit Ush 15 Million quarterly. Satisfactory. The target in the covenant was reached by 2002 and confirmed through semi-annual financial and technical audits. It was not, however, sufficiently linked into the broader O&M strategy and financial context of the city and a risk exists of draw down for other purposes.

(vi) No. of KCC divisions implementing an O&M plan. Moderately Satisfactory. This was an important indicator included after appraisal and while all divisions had plans by 2002, the “implementation” was slow until year four due to delays in appointing contractors or getting approvals through the bureaucracy. By EOP, a steep learning curve had led to significant improvement in the “O&M” culture in the divisions and all had O&M plans under implementation.

4.2 Outputs by components:A table of ratings for outputs by component can be found below, followed by a discussion. The output indicators were revised early on in the project to make them more measurable than the Log Frame, and annual targets were set.

Table 1. Rating of components and subcomponents (Unsatisfactory, Moderately Satisfactory, Satisfactory, Highly Satisfactory)

Component / Output (Planned) Results1. Restoration and efficient functioning of the main channel and drainage works H

• 8.61 km of main channel rehabilitated by EOP• 4 auxiliary drains rehabilitated by EOP• 27 priority drainage ‘black spots’ completed by EOP• 19 box culverts and bridges completed

8.73 km44321

2. Construction Supervision Consultancy (TOR fulfilled) S3. Kampala Drainage Master Plan (report completed) S4. Kampala Urban Transportation Improvement Plan (report completed) S5. Kampala City Development Strategy (SFR II adopted) U6. Revenue Enhancement U

• Annual Revenue from Rates collection (4.2 Ush. Billion) 1.4 bn3.2 bn

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• Annual revenue from Business licenses (4.3 Ush. Billion)• Total Annual Revenue (38.4 Ush. Billion) 21.3 bn

7. Alternative Service Delivery S• 100% grass cutting, tree cutting and gardening contracted out (baseline

10%)• 50% refuse collection, transportation and disposal contracted out (baseline

0%)• 100% road perching, sweeping, grading and re-gravelling contracted out

(baseline 10%)• 80% cleaning and maintenance of drains contracted out

(baseline 10%)• 100% routine maintenance of KCC’s fleet of vehicles and equipment

contracted out (baseline 50%)• 70% Maintenance of street lights and traffic signals contracted out

(baseline 0%)

50%

70%

95%

90%

90%

70%

When viewing the above table it is important to appreciate the relative importance of the different components and sub-components. The assessment of overall project performance is satisfactory, as reflected in the relative proportion of the total budget and the importance of the component and sub-component to achieving the project objective.

Component 1. Civil Works comprising of the Main Channel, Auxiliary Works and Priority Draining “Black Spots” Rehabilitation Satisfactory.

Main channel. All activities were carried out but the project had to be extended to ensure completion of lcontract. There were delays of six months by Parliament, and then a slow initial mobilization by the contractor, problems with resettlement and negotiations with utilities, as well as unusually wet weather. A revised work program was agreed upon and an 18 month extension granted. The MTR consultants and supervisory consultants for the channel concluded that the construction was delivered to acceptable quality and will provide major benefits to the city. Total cost was underrun at 88% of contract cost (but the remainder was used, and in fact over-run, for additional works and changes in design).Auxiliary works. Four auxiliary channels were planned as part of the main contract and four were lcompleted subject to the delays indicated above and cost overruns due to major design changes.Bridges and Box Culverts. 19 planned and 21 completed with cost overruns due to major design lchanges and additional 2 works. Priority “Black Spots”. 27 were planned and completed within the main contract with cost overruns ldue to major design changes. Additional 16 Black Spots These were identified later and added to the main contract with extra time lallowed. They were completed under the extension with uncommitted funds and no major problems were experienced.

Component 2. Consultancy Services comprising of Construction Supervision. Satisfactory. Based on the indicators for component 1, the reports of the MTR consultants and the experience of the client/Core Team, the construction supervision consultants’ performance was good. There was a cost overrun of 19% in this component which was a result of various factors including new works requiring additional designs of planned works, redesigns and weather and contractor delays. There were no claims which is indicative of good supervision in a project of this size and independent MTR engineers considered the quality very good. The supervising contractor therefore performed very well.

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Component 3. Program and Policy Studies. Satisfactory.Overall the procurement of these studies was done with few delays and no major problems experienced. Actual costs were less than budgeted. The Core Team was somewhat overoptimistic on procurement schedules. The development of the plans was an important learning experience for the Core Team, city councilors, headquarters and division staff who actively participated and conducted extensive consultations with stakeholders.

Kampala Drainage Master Plan . This was effectively completed although a 3 month delay and then a ldeliberate 6 month extension took place to include detailed designs for top priority interventions.Kampala Urban Transportation Improvement Program Strategy. Completed effectively although some ldelays occurred and a 3 month extension was granted as a result of a decision to revise the TORs to include development of a 5 year road maintenance plan and a preliminary traffic management study. A decision was also taken to pilot traffic flow schemes and also to rehabilitate some high priority roads that were all concluded by EOP with a few relocation issues and some minor technical delays. These included:o Katwe Roado Lubiri Ring Roado Wankulukuku Road

Component 4. Institutional Support for KCC’s Strategic Framework for Reform. Moderately Satisfactory

Kampala City Development Strategy. After the institutional Mapping of Services and service lproviders, it was agreed to postpone the full CDS and institute two phases. Phase I would be an update of SFR financed under LGDP mostly focusing on strategic challenges and Phase II would be revisited later under a possible future project. The Core Team did not have the capacity to undertake this task and used the resources for the revenue enhancement strategy instead. Comprehensive Revenue Mobilization Strategy. The scope of this subcomponent and its attribution to lNCRP was never very clear but appears to have focused on improvement of the property tax system through financing of some elements of the “collection privatization” and pilot mass valuations, continued under the SFR consultancy financed by LGDP. Some gains were subsequently made in revenue enhancement from 13 billion Ushs in 1998/9 to Ushs 21 billion in 2002/3 (mostly from business licenses and market fees), but fell far below the anticipated increase (to 38 billion Ushs). This was mostly due to the lack of political will by council to collect property taxes and collect outstanding debt, exacerbated by three changes in the local council and the impact of national political campaigns. While property revaluations were undertaken in the city, this did not result in an increase in revenue, as property rates collections declined from 1.6 billion Ushs in 1998/9 to 1.4 billion Ushs in 2002/3. Substantial problems also occurred with contracting out revenue collections, in terms of the design and management of the fee structure which resulted in a loss of considerable potential revenue. Action also was not taken to address the questions of arrears recovery or restructuring of KCC’s debt. An SFR consultant became acting Finance Director as a result of delays in finding a suitable candidate until May 2004. Implementation Support and Training. 135 staff members of KCC and the Core Team were trained, land all but 2 remain in their functional areas within KCC.Increased proportion of private sector delivery of services (ASD). This subcomponent was satisfactory. lIt provided seed funds for contracting out works in five divisions as part of the SFR shift to private provision. A major issue during implementation was provision for adequate and timely maintenance of these investments and KCC responded effectively by setting up a system where divisions had to submit maintenance plans and allocate budget before new funds could be received. This was done by all

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divisions by EOP. The MTR indicated that despite some difficulties, divisional staff and politicians were well aware of the discipline and procedures required for well planned construction contracts and were capable of replicating this in future. There were also statements that tax payments had improved in areas where the ASD works had been completed, as meeting local infrastructure needs had created an opportunity to build more trust between KCC and its constituents. Funds under NCRP for ASD were used up by December 2002 and more funds were then allocated under LGDP. Between 2000 and 2004 a total of $15.9 million in ASD was financed under NCRP.

4.3 Net Present Value/Economic rate of return:The post-construction cost of the civil works of the Channel was US$ 12 million equivalent covering the construction cost of the main channel (8.73 km), 4 auxiliary drains, and 43 black spots (16 more priority drains than initially appraised). The channel is expected to have a Net Present Value of Ushs.19.91 billion or US$10.48 million equivalent at 12% discount rate and an internal rate of return of 25%, about the same as the appraisal estimates. The quality of the civil works completed is good; and with adequate periodic and routine maintenance provision, the benefit of the channel is likely to be sustainable. Real economic savings from vehicle operators, the increase in the tax base due to property appreciation, and amenities enjoyed by homeowners along the channel, and the merchants who benefit from increased demand from consumers provide a potential tax base for financing the maintenance of the channel on a sustainable basis.

Economic analysis of Katwe Road (US$1.56 million equivalent) and Lubiri Ring road and Wanakulukuku road (together US$2.01 million equivalent) was undertaken based on HDM-4. Their respective ERR estimates are 120% and 23.8 % and their NPV at 12% discount rate are US$20.23 and US$1.86 million, are known to be robust.

The returns estimated above depend not only on the implementation of the 3 year maintenance contract but on the ability of KCC to finance the ongoing maintenance of the channel thereafter. While the plan and technical capacity to implement it are in place, the ability of KCC to finance the maintenance is uncertain given the financial crisis of the city. The channel is a high profile investment, has some in-built trash capture screens and much pressure will be brought to ensure its maintenance, and communities can also make a significant contribution to this, making sustainability more likely. However, the overall financial health of the city and the capacity to finance a holistic O&M plan for the city will influence whether the channel will indeed deliver the ERRs mentioned above. Progress on overall reform by KCC is therefore critical to the likely sustainability rating.

4.4 Financial rate of return:There are no financial rates of returns as such for this project. The project benefits are not income generating activities.

4.5 Institutional development impact:The institutional development impact of the project on KCC overall can be said to be moderate. There were some improvements in the city’s ability to contract for , and manage, ASD arrangements, and some initial steps were taken in the areas of financial management and tax collection. Significant skills transfer occurred from the contractors and consultants to not only the Core Team who were drawn from KCC staff, and some senior KCC staff (e.g. City Engineer), but also to key division staff such as engineers and finance officers. However, the probability of the Core Team staff remaining in KCC without a follow-on project, or increase in salary, is low to medium given their new skills set. While division staff benefited from the skills transfer, it is unclear how sustainable the culture changes will be without an improved institutional context. Steps to establish information systems and standard documentation were also taken but insufficiently institutionalized.

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The extent to which central KCC heads of department (HoDs) improved their management capacity was less clear, as motivation was low in KCC and the Council did not provide the leadership necessary to effect real institutional change. HoDs did increase their appreciation for standardized procurement procedures and accountability for deliverables, project inspection and O&M budgeting, as evidenced by the ASD outputs. However, the level varies among them and diminished after the Town Clerk left. A number of HoDs would rely on the Core Team rather than take responsibility within their divisions and many were negatively affected by delays in implementing the identified actions necessary for ‘right-sizing’ the Council.

The roles of Council (policy and oversight) and Management (implementation) have not been clearly defined and internalized. As a result, claims of “political interference” are routine. There was limited interaction with stakeholders outside KCC which might have introduced greater accountability and transparency by the council. There remained limited appreciation during the project of the severity of the city’s financial and service delivery crisis and a lack of vision and determination to address this at a political and technical level. By EOP, the dire situation was beginning to be internalized by the political leadership and senior management. In summary, while important skills and experience were gained at a technical level, the overall capacity of KCC to deliver on its mandate was constrained by challenges largely outside of the project’s scope. If preparation of the follow-on project facilitates a shift in political buy-in, then NCRP’s deliverables could provide the basis for significant medium-term institutional improvement.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:Wet weather (partially)lWeak local contracting industry in case of ASD (partially)lDelay in Parliament in approving project (partially)lBad planning by contractor in determining availability of materials (partially)lVendors reluctant to take stalls allocated to them in market area instead of outside market in channel lreserve area (partially)Utility companies charged unexpectedly high prices and were slow to move affected underground pipes l(substantially)Pressure from politicians at all levels not to pay taxes (substantially)l

5.2 Factors generally subject to government control:Change to amount of Graduated Tax without sufficient notification and planning (substantially)l

5.3 Factors generally subject to implementing agency control:not enough political backing from councilors for revenue collection (substantially)lslow progress in implementing organizational change/ SFR (substantially)ldeteriorating relationship between KCC management and council, weakening of individual and lcollective leadership (substantially)ineffective contract management particularly in respect of privatized revenue collection (substantially)l

5.4 Costs and financing:The project cost at appraisal was estimated at US$29.9 million equivalent, including taxes and duties of US$4.98 million. Of the total cost, US$22.38 million (75%) was to be financed by IDA and $7.52 million by the GoU. By Mid Term, it was agreed that component 1 would include additional black spots and component 3 would pilot a number of priority road rehabilitations, utilizing uncommitted funds. These funds were available as a result of a large reduction in the bid versus estimated price for the channel itself.

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At closing, US$24.68 or 99 % of the IDA credit had been disbursed and US$2.51 from the GoU. Except for the 11 month initial slippage, disbursements were generally on schedule relative to the revised schedule. The major variation in planned versus actual costs was due to unexpectedly low bids from the main channel contractor (and for the policy studies) and major design changes that led to cost overruns for the auxiliary drains, black spots and bridges. Total civil works overruns were 135% of contract cost.

A financial covenant was amended to reduce required divestiture of housing estates from five to three due to social and political issues surrounding two of them. Generally few difficulties in counterpart funds were experienced in the project due to these earmarked funds.

6. Sustainability

6.1 Rationale for sustainability rating:Project sustainability is rated as likely for the following reasons:

(a) Most of the project is the channel and associated consultancies. By its nature and location, the channel is highly visible, making it very politically and socially important and therefore more likely to be sustained by KCC and surrounding communities.

(b) KCC and the GoU are committed to the channel as a priority investment, with borrowing from IDA for a separate project as evidence of this.

(c) Great care was taken to ensure the channel was designed using appropriate design and technology for the local geographic, social and economic context.

(d) Associated investments for Drainage and KUTIP planned under component 4 would be important to ensure critical linkages for sustainability, if implemented in improved institutional context under a follow-on project.

(e) Broad benefits flow from both the channel and the ASD Projects, and are seen to be a response to local demand and, therefore, more likely to be monitored by stakeholders.

(f) Sustainability is even more likely with ASD given the relatively small size of investments and the role of divisions and communities in maintenance.

(g) Ability to maintain the investments under NCRP in a systematic and long term way will depend on improvements in the financial position and management of KCC. The O&M contract for the channel cannot be divorced from the need to manage the O&M obligations of the city as a whole. Given the ongoing financial crisis of the city, this is the biggest risk to sustainability. Initial PAD estimates were that “KCC would continue to run an operating deficit on a gradually declining basis for at least another 8-10 years, beyond which it can reasonably be expected to finance fully all operating and maintenance costs from internally generated revenues and begin to marginally contribute towards capital expenditure budgets.” Limited progress has been made during the project to suggest this will be achieved within the expected timeframe. If, however, SFR improvements are consolidated under a new follow-on program, particularly in terms of leadership to address the financial position, this will lead to greater sustainability. It will, however, depend on three elements (i) Political Commitment of KCC; (ii) Political Commitment of the GoU vis-à-vis KCC, and (iii) Management Capacity of KCC.

(h) The possible negative environmental impact of the channel rehabilitation includes a reduction in water quality flowing into the lake due to the increased velocity of the water and industrial discharges. The chemical cost of production has increased since 2000 but causality is difficult to measure as there is no sudden increase due to the channel rehabilitation. National Environmental Management Authority (NEMA), National Water and Sewerage Corporation and KCC have agreed that a reticulation system needs to be built in the swamp area as part of the next drainage project, to be financed under a possible follow-on project for Kampala. In addition, encroachment

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of farmers onto the wetlands must also be discouraged to allow for natural filtration by the reed system. Furthermore, National Water Corp., Mukwano Industries and various other industries (e.g. abattoirs) are currently discharging insufficiently treated wastes into the channel and these pose the biggest threat to water quality. A mitigation strategy on the farmers issue has been proposed and will be included in the maintenance contract but again, long term monitoring and maintenance will be dependent on the institutional capacity, resources and commitment of KCC and relevant partners. There is therefore a need for NEMA to coordinate a mitigation plan to be agreed between all parties to ensure that water quality does not decrease as a negative externality of the rehabilitated channel.

(i) KCC has prepared a maintenance manual for the future maintenance of the channel and its associated works beyond its defects liability period with the required budgetary provision for implementation.

(j) As part of the revenue enhancement effort, under component 3 of LGDP I, a city-wide valuation of properties was carried out and completed which revealed that there are over 100% more properties than what is in the current valuation rolls which will substantially enhance the revenue for property tax. Improved revenues and expenditure control will make funds available to carry out adequate O&M of the channel and associated works.

6.2 Transition arrangement to regular operations:The primary transition at the beginning of the project was away from the National Government as implementing agency to KCC taking ownership of the project through a grant from the National Government. Furthermore, the SFR was developed inside KCC through a process of consultation within the Council’s political and management structures and adopted by the Council. The Core Team was established to focus on the SFR and the Channel as a “special projects unit” given the limited experience of KCC to manage such complex investments. This team has effectively carried out its mandate and for the future phase under a possible follow-on project, it will be transformed into more of a TA unit or “center of excellence” in KCC. At a technical level, the objective for the next phase would be to consolidate gains and improve capacity of KCC mainstream staff to carry out functions with decreasing reliance on international consultants and increasing reliance on local ones. More importantly, however, the transitional period leading to any future project will depend on the council and senior management of KCC to demonstrate a commitment to improving the financial position and service delivery of KCC. KCC was in the process of drawing up a plan (“SFR II”) to achieve this at EOP.

The specific transition arrangements for management of the channel (maintenance contracts) will be with private contractors once the defects liability period is over. Financing for this transition is assured by the Escrow Account provided the institutional commitment is there to protect these funds. The pressure to use them for other purposes will also depend on KCC’s ability to consolidate and build on progress on financial performance through LGDP and any future support program for Kampala. This is also important to create the conditions necessary for the implementation of plans under component 3 in order to improve sustainability of system. ASD seems relatively more successful and a smoother transition is expected, especially since additional ASD is being done under LGDP II. However, in terms of preparing and executing realistic budgets, establishing sustainable systems and managing contractors effectively, they will need stronger guidance and support from KCC.

7. Bank and Borrower Performance

Bank7.1 Lending:Moderately SatisfactoryPreparation for the project was efficient and technically effective. It reflected an agreed need to change the

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FUP design to ensure KCC took over implementation of the infrastructure under its mandate. The channel would test this within a context of considerable technical assistance. The lending team also recognized the need to ensure improvements in the financial management of the city and a change in the overall institutional context, although these were insufficiently defined, and no clear indicators were agreed. The project was developed in parallel with LGDP I, which provided additional technical assistance that would support the implementation of the SFR. The team probably underestimated the political immaturity of the council and senior management team and the limited mandate or determination of the GoU to play a monitoring role. The political commitment to implementation appeared to be there initially but with changes in Council and a delay in appointing a new Town Clerk, ownership diminished considerably. The risks to the sustainability and impact of the project of the lack of political support were underestimated by the project team.

7.2 Supervision:SatisfactoryThe team provided the necessary flexibility to adapt to changed physical and financial realities, such as the inclusion of Katwe Road and the additional Black Spots, as well as the adaptation of the KUTIP. It was very useful to have the same team as LGDP so that synergies could be exploited in terms of ASD continuation, the solid waste privatization for keeping the channel open and keeping KCC focused on managing the major contracts. While the team did attempt to increase responsiveness of the council and management on key institutional issues, it did not do this early enough with the weight or leverage necessary to bring about real internalization of the financial and institutional crisis until near EOP. This could have been built into project design through specific targets that would trigger investments in Kampala. It could also have been done by using the leverage available through other projects, the Country Team and the GoU. Changes in the supervising team did not appear to affect Bank performance.

7.3 Overall Bank performance:Satisfactory

Borrower7.4 Preparation:SatisfactoryDuring project preparation there was close cooperation between KCC and the Government of Uganda through the MoLG. The project preparation team in KCC and the Town Clerk worked well with the Bank project team and no major problems were experienced during preparation. Some of the lessons learned reflect the ex-post recognition that greater consultation with some key players (e.g. utilities) would have been helpful during preparation and some of the political risks considered in more depth. There were also delays in credit effectiveness due to a lengthy process of Parliamentary approval (it was approved by IDA in May and effective only in November 1999).

7.5 Government implementation performance:SatisfactoryThe GoU allowed KCC to implement the project and did not stand in the way of the major construction of the channel. The MoLG reviewed all payments and carried out its fiduciary responsibilities for the project. The Ministry of Finance met payments of all taxes on contracts executed under the project. The Auditor General conducted project audits promptly and released audit reports within allowed time. However, the GoU did not intervene or facilitate between KCC and management in order to encourage progress on institutional reforms. There were also problems of “political interference” not only from Council members but also other senior government leaders in respect of changes to the Graduated Tax regime and in respect of some tax collection contracts.

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7.6 Implementing Agency:Moderately SatisfactoryAt the technical level and in terms of the project’s major objective and bulk of its funding, KCC effectively implemented the project. This was largely a function of the Core Team and the technical assistance it both received and transferred to division staff. While there were some slippages and delays in procurement, the project was also intended as one of learning-by-doing for KCC in terms of contract management and substantial learning occurred among many KCC staff. Nevertheless, the KCC Department Heads did not take as strong a role in implementing the project and relied too strongly on the Core Team. The Council itself certainly did not provide the leadership, political will and guidance necessary to recruit and support a competent management team in KCC with the authority to improve the service delivery mandate of the Council. The GoU and KCC met all financial covenants and provided counterpart funds.

7.7 Overall Borrower performance:Moderately Satisfactory

8. Lessons Learned

Institutional change requires considerable political will and should be carried out swiftly and lfairly. Institutional change processes are difficult and will encounter resistance. Political will is critical to effect institutional change and must be carefully managed through election turnovers. Assessing the depth of political maturity and its impact on the likelihood of sustained commitment should be carefully assessed during project preparation. One way of securing commitment notwithstanding a change in council is to achieve broad buy-in from non-governmental stakeholders – citizens, businesses, NGOs – and National government. Once commitment is there, swift and decisive decisions must be taken and implemented for restructuring programs. Specific attention should be given to the change management process.

Projects with an institutional change focus that also include infrastructure investments must be lcareful to ensure appropriate sequencing and incentives to achieve institutional reforms. Institutional change processes cannot be included as a small subcomponent in a 2-3 year project but must be core project objectives or provided in a separate project. They must be appropriately achievable in scope and act as clear triggers for infrastructure investments. If not, client attention will tend to be on the investments rather than processes necessary for real change and sustainability. The drivers for real change could, for example, come from more meaningful engagement with the public and/or from leadership that want to be seen as responsive and innovative. Alternatively it might be catalyzed externally by proactive civil society involvement (e.g. media) and harnessing these mechanisms should be considered during the design phase.

Expanding project support to a broader set of actors might be necessary to ensure the lcommitment to reforms, ability to implement large projects and increase accountability of councils. Supporting mechanisms to increase accountability and transparency of local governments (e.g. private sector associations, media, NGOs, council committees, communities) are key to ensuring an early warning system and to improving commitment to reform local finances and service delivery, especially through election changes. Transparent collaborative processes (comprehensive consultations and public relations exercises) between municipalities and their constituencies are also critical to build trust and reduce bottlenecks in implementation of infrastructure investments.

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Maintenance should be planned and financed holistically rather than on an investment by linvestment basis. Maintenance for large investments is tied up with overall financial management (expenditure and revenues) of municipality and cannot be treated as wholly separate. Nor can O&M of specific improvements be usefully separated from overall, programmatic O&M of other infrastructure which competes for the same resources.

Private participation in infrastructure is desirable but must be accompanied by adequate contract lmanagement capacity in the city. With proper planning, supervision and monitoring, the private sector can provide better quality services more competitively in certain service areas. At the same time, in developing countries it is necessary to recognize the limitations of contractor capacity and provide time and support to enhance capacity. Similarly, the contracting municipality must be assisted to improve its ability to design, contract and manage the private contractor effectively. Capacity enhancement in both these areas should be measured by project indicators.

City functioning requires attention to a range of interrelated basic good management techniques land systems. Basic management techniques and systems are critical inputs to improving performance and accountability and need to be institutionalized early on in project life. These are performance-based contracts for staff, reporting requirements such as quarterly financial reports, manuals, MIS systems, billing systems, record keeping, minutes taken and circulated, budget timetables and briefings etc.

Local consultants can manage complex construction projects. Projects of this nature and scale can lbe properly managed by local consultants with limited support from international consultants.

9. Partner Comments

(a) Borrower/implementing agency:The borrower has submitted a completion report which is presented as Annex 8. The overall assessment of the project is consistent with the ICR. It states that the project was satisfactory in meeting its development objectives. Despite some delays the physical objectives of the project were met and in some cases exceeded, and the project has significantly improved the lives of communities and businesses near the channel.

The borrowers’ report indicates that capacity was significantly increased in the Core Team to manage complex projects and that expertise was transferred to the division staff through working together on various projects. The report indicates that the Core Team has ensured that the SFR is “kept alive” and that the Council does not take decision contrary to these reforms. It considers all procurements to have been handled professionally in concordance with IDA procedures and GoU financial regulations.

The borrower’s report cites a number of challenges faced by the project, including: (a) delays in contracting and obstacles experienced by smaller firms as a result of the long procurement processes of the Bank; (b) slippages in implementation caused by contractors failing to mobilize in time or produce performance securities especially before the Bank started to accept insurance guarantees, (c) limited capacity in the divisions to accurately specify requirements, compounded by politicians who kept changing the scope of the works/services, (d) compensation to property owners that was not anticipated, (e) Utility companies with inaccurate maps and demanding more compensation than anticipated for removing or shifting assets, and (f) lack of eligible contractors in the market which limited competition.

Overall the borrower as well as numerous stakeholders interviewed for the ICR (e.g. businesses, contractors, community representatives, NGOs, division staff) were very positive about the impact of the project. Some concerns were raised about the level of consultation with some constituencies but overall the

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project was seen to meet its objectives.

(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

A. The Bank’s ICR Team consisted of the following membersKate Kuper (Snr. Local Government Specialist, AFTU1, and TTL for ICR)Ephrem Asebe (Independent Consultant, for Economic Analysis of ICR)

B. List of Task Team Leaders of the ProjectGautam SenguptaLance Morrell

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome/Impact Indicators:Indicator Projected in PAD (End of

Project)Actual/Latest Estimate

No. flooding points worked on in Kampala

47 47

No. km of Nakivubo Channel where there is overflow of Banks

0 (from 8.61 km) 0 (from 8.73 km)

Adherence to the construction program

0% deviation 0% (MTR revised program)

Percentage Contingencies spent 10% 20%Open O&M Account and deposit Ush15 million quarterly

200 million Ush 200 million Ush

No. of KCC divisions implementing an O&M Plan

5 5

Output IndicatorsComponent / Output (Planned) Actual

1. Restoration and efficient functioning of the main channel and drainage works

• 8.61 km of main channel rehabilitated by EOP• 4 auxiliary drains rehabilitated by EOP• 27 priority drainage ‘black spots’ completed by EOP• 19 bridges and box culverts

8.73 km4

4321

2. Construction Supervision Consultancy Completed Satisfactorily

3. Kampala Drainage Master Plan Completed4. Kampala Urban Transportation Improvement Plan Completed5. Kampala City Development Strategy (SFR II adopted) Phase I

completed6. Revenue Enhancement

• Annual Revenue from Rates collection (4.2 Ush. billion)• Annual revenue from Business licenses (4.3 Ush.billion)• Total Annual revenue (38.4 Ush Billion)

1.4 bn3.2 bn

21.3 bn7. Alternative Service Delivery

• 100% grass cutting, tree cutting and gardening contracted out (baseline 10%)

• 50% refuse collection, transportation and disposal contracted out (baseline 0%)

• 100% road perching, sweeping, grading and re-gravelling contracted out (baseline 10%)

• 80% cleaning and maintenance of drains contracted out (baseline 10%)

• 100% routine maintenance of KCC’s fleet of vehicles and

50%

70%

95%

90%

90%

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equipment contracted out (baseline 50%)• 70% Maintenance of street lights and traffic signals contracted out

(baseline 0%) 70%

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Annex 2. Project Costs and Financing

Annex 2a: Project Cost by Component (in US$million equivalent)

Project Cost by Component Appraisal Actual% of Actual/

Appraisal

A. Civil Works 13.60

16.87 124%

B. Consultancy Services 0.96

1.43 149%

C. Program and Policy Studies 2.00

2.26 113%

D. Institutional Support 3.38

4.12 122%

Total Baseline Cost

19.94 24.68 124%

Physical contingencies

1.00

Price Contingencies

3.99

Total Project Cost

24.92 24.68 99%

Annex 2b: Project Cost by Procurement Arrangements

Project cost by Procurement Arrangement (Appraisal Estimate) (US$ million equivalent)

Procurment Method 1

Expenditure Category ICB NCB Other2 N.B.F. Total Cost

1. Civil Works 17.0 17.0(15.30) (15.30)

2. Goods(a) Office furniture computers 0.09 0.09

(0.072) (0.072)(b) Vehicles 0.23 0.23

(0.184) (0.184)3. Services

(a) Services(i) Contracted out services and 3.7 3.7

studies(3.7) (3.7)

(ii) Contracted out Institutional 1.00 2.3 3.3 Support (0.8) (1.84) (2.64)

(b) Office & Administrative 0.3 (0.3)

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Support (0.24) (0.24)(c) Training 0.3 0.3

(0.24) (0.24)

Total 17.0 1.32 6.6 24.92(15.3) (1.056) (6.02) (22.376)

Project Cost by Procurement Arrangement (Actual/latest estimate)(US$ million equivalent)

Total CostExpenditure Category ICB NCB Other N.B.F

1. Civil Works16.54

(14.89)0.16

(0.14)0.17

(0.15)16.87

(15.18)2. Goods

(a) Office furniture, Computers0.02

(0.02)0.02

(0.02)

(b) Vehicles0.12

(0.10)0.08

(0.06)0.02

(0.16)3. Services(a) Services(i) Contracted out Services and Studies

3.69(3.69)

3.69(3.69)

(ii) Contracted out Institutional Support

1.30(1.04)

1.78(1.42)

3.08(2.46)

(b) Office & Administrative Support

0.49(0.39)

0.49(0.39)

(c) Training0.34

(0.27)0.34

(0.27)

Total16.54

(14.89)1.58

(1.28)6.56

(6.00) -24.68

(22.17)

Procurement MethodACTUAL

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Annex 2 c. Total Cost by Component by Financing Source (US$ million equivalent)

Planned IDA KCC Actual IDA KCC

Component

A. Civil Works

(i) Main Channel, Auxiliary drains and Priority Drainage "Black Spots"

16.00

14.40

1.60

12.69

11.42

1.27

(ii) KCC Office Repair

0.16

0.14

0.02 (iii) Katwe Road 1.27 1.14 0.13 (iv) Prioritised KUTP - Road Upgrading

2.17 1.95 0.22

(v) Prioritised KUTIP - Traffic Improvement

0.42 0.38 0.04

(vi) Kaseese Bridge 0.17 0.15 0.02

B. Consutancy Services

(i) Construction Supervision 1.20 1.20 - 1.43 1.43 -

C. Program and Policy Studies

(i) Kampala Drainage Master Plan Study

1.20 1.20 - 0.99 0.99 -

(ii) Kampala Urban Traffic Improvement Programme study

1.30 1.30 - 0.59 0.59 -

(iii) Design of Lubaga Office 0.03 0.03 -

(iv) Construction Supervision - Rubaga Division Offices

0.03 0.03 -

(v) Divesture of Nakawa - Naguru Estate

0.09 0.09 -

(vi) Construction Supervision - Katwe Road

0.10 0.10 -

(vii) PR Consultancy for Solid Waste

0.13 0.13 -

(viii) Detailed Development Plan For Nakawa Naguru Estates

0.15 0.15 -

(ix) Construction Supervision for Kasese Bridge

0.03 0.03 -

Construction supervision for Prioritised KUTIP

0.10 0.10 -

NCRP Post Rehabilitation Social 0.03 0.03 -

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& Economic Assessment

D. Institutional Support

(i) KCC Reform Programme Under SFR

3.90

3.12

0.78

3.90

3.12

0.78

(ii) Goods 0.32

0.26

0.06

0.22

0.18

0.04

E. Unallocated 1.00

Total 24.92

21.48

2.44

24.68

22.17

2.51

* note. Contingencies are allocated within components in this table.

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Annex 3. Economic Costs and Benefits

Annex 3. Cost Benefit Analysis

The Project financed the following main civil works:

(a) the Rehabilitation of the Nakivubo Channel, auxiliary works and priority drainage black spots (started on Aug 15, 2000 and was completed Sept 24, 2004) at a cost of US$11.95 million;

(b) Road improvements (June 15, 2001 to June 30, 2004) consisting of:(i) Katwe Road Improvement works (1.7km at a cost of US$1.56 equivalent);(ii) Upgrading of Lubiri Ring Road (4.55 km at a cost of US$ equivalent ) and upgrading of

Wankkulukuku Road (3.7 km at a cost of US$ equivalent )(iii) Priority traffic improvement schemes (road kerbs, pedestrian guard rails, lane marking

signs, carriage and footway asphalt, etc)(iv) Extension of Kasese Line Railway Bridge

(c) Refurbishment of City Hall Offices.

The economic analysis focuses on civil works (a), (b) (i) and (ii) which represent most of the total project cost.

a. Nakivubo Channel

A total of 15 potential alternative designs were considered in the economic appraisal of the Rehabilitation of the Nakivubo Channel, based on three alternative storm return period (1 in 10-year, 1 in 50-year, and 1in 100-year) and five alternative channel lining technologies (earth, gabions, stone pitching, stone pitching, reinforced concrete and hybrid). The selected design was the one-in ten year hybrid (combination of earth, stone, gabions and reinforced concrete). The total length of the channel as constructed was 8.73 km.

The Post-construction ERR and NPV Estimates

Methodology. The approach used in re-estimating the post-construction cost benefit analysis is similar to the appraisal. The basis for the post-construction economic evaluation is cost-benefit analysis “with” and “without” project situation for the hybrid lining and 1 in 10-year construction period.

Construction Cost. The actual constructions costs for the 1 in 10-year storm return period were as follows: Table 1a: Nakivubo Channel Rehabilitation Project Actual construction costs

Year Expenditure (Ushs. Millions) Expenditure (US$ millions)2000 1,662,275,330 939,592.472001 5,290,173,597 3,045638.352002 5652,665,530 3161510.132003 6,976,338,342 3617162.312004 2,194,728,602 1,211,604.41

Total 21,776,181,401 11,975,507.67

Maintenance Costs. Maintenance costs were based on routine and periodic maintenance estimates made

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by KCC and are considered adequate in terms of expenditure.

Benefits. The main quantifiable benefits attributable to the channel are: (i) reduction in damages to the building structures and property due to recurrent emergency costs; (ii) reduction in the damage to road assets; (iii) savings in vehicle operating costs; and (iv) passenger time savings. Estimating the quantifiable benefits/savings due to the rehabilitation of the channel presents significant data problems. To overcome these data problems, different approaches were including the use of alternative proxy variables. For example, the appraisal estimated the benefit due to reduction in damages to building structures and property by using the proxy variable of variations in differential rents between flooded and non-flooded areas was used. A key assumption was that the differential rents between flood affected rental residents and shops will narrow down following the construction of the channel. During the post construction assessment, however, consultation with the tenants indicated that no increase in rent has been made by landlords as yet, indicating that not all the assumptions made at appraisal were realizable by EOP. Moreover, it is observed that the City of Kampala has increasingly become multi-polar, with competing centers of services growing in the suburbs. This is likely to keep the rental value growth within reasonable limit. In the post construction evaluation, therefore, the alternative proxy variable of actual clean up cost savings was used.

Post-construction Main Assumptions

Design ChannelDesign life of the Channel 40 years Construction Commencement year 2000Construction completion year 2004Traffic Growth 3% per annum 2004-2010Traffic Growth 2% per annumDiscount Rate 12% per annumResidual Value of the Channel zero

Construction Period. Actual construction started in 2000 and was fully completed in 2004. However, a two-year construction period was assumed in the preparation of the project bid document. At the time, this period was considered reasonable, given the repetitive nature of the many of the construction activities and the relatively simple technology being applied.

Frequency, Duration and Coverage of Flooding. The frequency of flooding varies over the length of the channel. In the upper part of the channel the flooding frequency was three to four annually. However, the Clock Tower Roundabout and the surrounding area, the Access roads to the Clock Tower and the Industrial areas were frequently flooded, often ten to fifteen times per year during the rainy season. For example, in the Industrial area, a coffee processing plant had made elaborate embankments. This has made the loading and unloading of the coffee to trucks difficult, resulting in additional expenses and lowering labor productivity. For the purpose of the benefit estimates, the average frequency of 10 floods per year assumed at appraisal is still valid. The duration of the flood’s impact, which used to last on the average about two to three years after a heavy rain, is now reduced to less than a half hour.

Design Scale Choice- Alternative Storm Return Periods. The technical study generated and evaluated technical solution for Channel design criteria, channel alignment and channel selections. Based upon these, the one in ten-year storm period was selected.

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Table 2: Property Affected by Different Flooded Zone

Impact of Design 1 in 10-Year Storm Period Hectares

Zone/land use BuildingsRoads & Squares Vegetation Others Total %

1 in 10-year 12.4 10.0 55.4 14.6 92.41 in 50-year 51.9 24.7 82.6 35.6 194.81 in 100-year 81.5 28.6 97.6 48.7 256.4

Incremental Values1 in 10-year 12.4 10.0 55.4 14.6 92.4 36%1 in 50-year 39.5 14.7 27.2 21.0 102.4 40%1 in 100-year 29.7 3.9 15.0 13.1 61.7 24%Total 81.5 28.6 97.6 48.7 256.4 100%

Technology Choices – Five alternative Channel Linings. Based on a 40-year design life of the project, the hybrid option ( a combination of grass earth side slope (earth), stone masonry (stone), wire mesh gabions and mattresses (Gabions), Reinforced Concrete for side and retaining walls (concrete) were used.

Channel Alignment: As per design, the constructed channel has maintained existing channel alignment and has made no major alteration in the channel routes except for the local meandering and the extension of the channel by 100 meters which while allowing rapid flow of the channel water has affected the wetland with consequence of potential future impact on the quality of water into the channel. Based on data available, it has not been possible to quantify the adverse impact of the channel on the quality of the water supply and the potential cost is not taken into account in estimating the ERR and NPV.

Results of the Economic Analysis

Based on the foregoing methodology and assumptions, the estimated net present value and internal rates of return for the implemented 1 in 10-year storm period and hybrid lining technology are summarized below:

Table 3: Summary of NPV & IRR Estimates (NPV in billion Uganda Shillings)

Appraisal Post Construction EstimatesNet Present Value 15.067 19.91Economic Rate of Return 24% 25%

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Sensitivity Analysis. The switching of values indicates that the no one variable is dominant. Given the significant growth in the channel area, the savings in travel time appear to be a relatively significant factor contributing to the future ERR. The probabilities of the expected values for 1 in 10-year storm return period over the life of the project are shown below:

Table 4: Probability of Excedance of Storm Storm Scale Probability of

excedance in any one year (p)

Expected value of excedance (no. of storms) over the life of the project of 40 years (n); n*p

Probability that the expected storm will occur over the design life of the project fx (4, 40, 0.1)

Probability of zero occurrence of 1 in 10; 1 in 50; and 1 in 100

1 in 10-year storm return period

0.1 4 0.2059 0.01478

Project beneficiaries. The project benefits several groups, both residents in proximity of the channel and those outside it. These include:

The commercial, industrial and residential property owners and tenants; lThe Government of Uganda and the Kampala City Council;lVehicle operators;lPassengers; and lGeneral public.l

Most of the quantifiable benefits from the project would accrue to the commercial, industrial and residential owners and tenants within the areas which are relieved from the cost of repairs and recurrent emergency expenses. The project will also have a substantial fiscal impact on the Government of Uganda and Kampala City Council budget due to deferral of major investments arising from premature deterioration of the road pavement. In addition, the reduction in frequent flooding and size of flooded area would result in the possible appreciation in the values of urban land and property in Kampala City, thereby increasing the revenue base of the city. Further, the City Council of Kampala, its residents and the traveling public all benefited from the non-quantifiable impact. The process of implementation has helped KCC build institutional and managerial capabilities for planning and operations of projects; a culture of maintenance first has been instilled and will serve the city well into the distant future.

While it is difficult to assign a direct link between disease and quantify the economic benefits of improved health impact such as malaria, because of potential infections outside the area, the functioning of the Nakivubo Channel drainage works has yielded positive environmental impact on the people living around the Channel. Its impact on market activities along the channel is one highly appreciated.

Cost Recovery. The Rehabilitation of the channel has enhanced the economic life of over 11.8 km of primary roads; 4.48km of secondary roads and 3.38km of tertiary roads. Further vehicle operating cost savings have been realized. The later is real resources savings accruing to the vehicle operator. Also because of improved amenities, merchants adjoining the channel now attract more customers during the rainy season than was the case before the rehabilitation of the channel. The tax base of the city has improved as property value has improved along the channel.

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Economic and Financial Sustainability. As noted above real economic savings from vehicle operators, the increase in the tax base due to property appreciation, and amenities enjoyed by homeowners along the channel, and the merchants who benefit from increased demand from consumers have benefited and should be put in the position to pay a portion of the benefit they gained as a result of the rehabilitation of the Channel.

Risks. If KCC manages to tax a portion of the benefits and apply them to maintain the channel, sustainability would be likely. Assuming the funds are captured, the risks of sustainability of the benefits arising from the operation of the channel is low. The risk over the design life of the project that flooding will exceed the design capacity of the channel is reasonable. There is still, however, a 55% and 33% chance respectively that the flood over the life of the project will exceed the 1 in 50-year and the 1 in 100-year over the 40 year economic life of the channel.

The major risk to the channel is a failure to provide the ongoing financing for the maintenance of the channel. The 3 year maintenance contract is funded but beyond that there will need to be an allocation from KCC’s budget. The visibility of the channel will provide public pressure to maintain the channel and the communities can do a lot to keep it clean, which will require a public relations exercise. However, the current financial situation of KCC will not provide the revenues necessary to sustain O&M of the NCRP investments without diverting resources from other priorities. The O&M for these investments needs to be considered as part of an overall O&M plan for the city’s assets which in turn will require a significant improvement in KCC financial health to realize. If KCC undertakes the reforms necessary in this regard, the risks to the sustainability of the channel lesson and the ERR becomes more robust.

1b Road Improvement

The Standard HDM-4 was used for the Economic analysis of Katwe Road, Lubiri Ring road and Wanakulukuku road. (i) Katwe Road (1.7 km) construction cost US$1.56 million and (ii) Upgrading of Lubiri Ring Road (4.55 km) and upgrading of Wankkulukuku Road (3.7 km) at an aggregate construction cost of US$2.01 million equivalent. Their respective ERR estimates are 120% and 23.8 % and their NPV estimates 12% discount rate are US$20.23 and US$1.86 million. The results appear robust. Similar risks regarding maintenance are applicable as described above for the Channel.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation/Preappraisal

06/1998 3 TTL, 2ME, OA08/1998 5 TTL, 2ME, OA10/1998 6 TTL, 3ME, FMS, OA

Appraisal/Negotiation03/1999 5 TTL, ME, Eco, FMS, OA

Supervision

06/01/1999 4 TTL, FMS, ME, OA S S11/19/1999 3 TTL, ME, OA S S03/06/2000 4 TTL, FMS, ME, OA S S05/09/2000 4 TTL, FMS, ME, OA S S10/02/2000 6 TTL, SE, 2UFS, FMS, Eco S S02/25/2001 5 TTL, OpO, SSE, UFS, RS S S06/27/2001 4 TTL, SSE, UFS, OpO S S10/26/2001 4 TTL, SSE, UFS, OpO S S03/08/2002 4 TTL, SSE, UFS, OpO S S07/05/2002 4 TTL, SSE, SUFS, OpO S S10/04/2002 4 TTL, SSE, SUFS, OpO S S03/11/2003 4 TTL, SSE, SUFS, OpO S S10/02/2003 6 TTL, SSE, SUFS, OpO, IS, CE S S02/13/2004 7 TTL, OpO, SSE, IS, SUDS, SUS,

CES S

ICR

TTL Task Team Leader OpO Operations OfficerCE Civil Engineer SSE Sr. Sanitary EngineerEco Economist SUDS Sr. Urban Development SpecialistFMS Financial Management Spec. SUFS Sr. Urban Finance SpecialistIS Information Spec. SUS Sr. Urban SpecialistME Municipal Engineer UFS Urban Finance SpecialistOA Operations Analyst

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(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/Preparation/Preappraisal

7 10.3

Appraisal/Negotiation 11 34.9Supervision 128 387.8ICR 19 65.8Total 165 498.80

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

Project Appraisal DocumentMemorandum and Recommendation of the PresidentSupervision Aide MemoiresMid Term Review ReportDevelopment Credit Agreement (DCA)Amendments to the DCAKampala Urban Traffic Improvement Plan (KUTIP), Final Report, June 2003, Rites Ltd. & Assoc.Road Sector Development Program, Phase 2 Project, Republic of Uganda, Ministry of Works, Housing and CommunicationsNational Transport Plan, Vol. 1 & 2 Main Report, TAHAL Consulting Engineering Ltd. Feb. 2004

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Additional Annex 8. Borrower's Contribution

Annex 8. Borrower’s Contribution

1. Project Background

Nakivubo Channel Rehabilitation Project (NCRP) had its origin in the World Bank (IDA) -financed Uganda First Urban Project (UFUP). During the mid-term review of the UFUP, the Government of Uganda and the IDA agreed that Kampala City Council (KCC) should concentrate on actions to rebuild its institutional capacity and implement a plan of action to improve its finances and operations. As a result, the UFUP was restructured to support these actions. However, given the slow progress in achieving the targets put forth in the restructured project, a proposal was made to restructure and reorganize KCC and have it implement a program of strategic reforms called the Strategic Framework for Reform (SFR). The SFR is a long term process of incremental actions, the sum of which would impact on KCC’s ability to have services delivered efficiently and at least cost. The SFR focuses on the improvement in service delivery through increased private sector participation, improvement of the financial management and revenue collection and internal reforms in KCC as an institution. The NCRP was therefore designed to support the SFR and to encourage and enhance KCC’s ability to plan, manage and execute complex investment decisions and programmes.

The Nakivubo Channel is one of the key drainage channels in Kampala city, with catchment area covering about 99% of the city center. It was originally a natural earth drain constructed in the 1930s mainly as an anti-malarial measure. As the city developed, the channel’s main role changed from drying up the mosquito breeding areas to carrying the city’s floodwater. Over the years since the construction of the channel considerable development has taken place within Kampala city. This development has progressively encroached on the channel’s flood plain. This coupled with poor maintenance and increased run off progressively reduced the channel’s efficacy. By the early 1990s, the channel used to flood frequently during rains causing considerable hindrance to economic activity and damage to property in the channel’s flood plain. Attempts to rehabilitate this channel during the early 90s failed due to inadequate resources within KCC. Consequently, in 1998 the Government requested IDA for assistance to finance the rehabilitation of the Nakivubo Channel and support KCC’s SFR.

Project preparation was carried out by KCC between February 1998 and February 1999. Negotiations between the Government and IDA were completed in March 1999. The project was approved in May 1999 and declared effective on 30th November 1999 when all the conditions for credit effectiveness were fulfilled. The total cost of the project was US $ 24. 92 Million, out of which IDA provided US$ 22.38 Million and KCC provided US$ 2.54 Million as counterpart funds. The Project had an initial implementation life of two years ending June 2002 but was extended by 2 years to end of June 2004 due to delays in implementation as explained elsewhere in this report.

2. Project Objectives

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The project had the following two specific objectives:1. The project’s physical objective was to achieve a positive impact on the drainage and road network in Kampala by alleviating the frequent and increasing incidence of flooding which has adverse effects on the road network, traffic flow, economic activity and overall living conditions in the city. 2. The institutional objectives of the project at design were: (a) to encourage and enhance the KCC’s ability to plan, manage and execute complex investment decisions and programs; and (b) to establish the primacy of maintenance of key infrastructure investments.

This is the most complex project that KCC had ever undertaken. It served as a testing ground of KCC’s commitment to the reform programme, which is articulated in the SFR document of November 1997.

3. Project Components

The project had the following specific components at appraisal:• Civil Works comprising of the Main Channel, Auxiliary Works and Priority Drainage "Black Spots'' Rehabilitation.• Project Implementation Support i.e. a consultant for Construction Supervision.• Program and Policy Studies consisting of the Kampala Drainage Master Plan Study and the Kampala Urban Transportation Improvement Programme Study.• Institutional Support to KCC's Strategic Framework for Reform Program which included the Kampala City Development Strategy; Revenue Enhancement Activities; Seed Funds to kick-start Contracting out of Basic Service Delivery Functions; Implementation Support and Training.

4. Strategic Context

The government’s strategy is articulated in the Poverty Eradication Action Plan (PEAP), which forms the basis of IDA’s Country Assistance Strategy (CAS) for Uganda. The Nakivubo Channel Rehabilitation Project was designed with all its components responding/supporting the PEAP and the CAS in the following ways:(i) Improving the reliability of urban road usage would reduce transportation costs thus encouraging industrial and commercial development, leading to job creation which would support poverty alleviation.(ii) Reduction in the frequency and amount of flooding will result in appreciation of urban land/property values for Kampala, thus improving the city’s capacity for economic development.(iii) Less disruptions to the city residents’ social and economic life will improve their condition of leaving and capacity for productive work.

5. Project Start-up and Implementation Experience

The Project was approved in May 1999 and became effective in November 1999. The six months delay in credit effectiveness was due to a lengthy government approval process of the Credit. Commencement of the major civil works for the rehabilitation of the main channel and auxiliary

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works and construction supervision consultancy under the project were delayed by nearly a year due to the unusually long time taken to complete the procurement process. The civil works contract was signed on July 24, 2000 with M/S China Civil Engineering Construction Corporation (CCECC). The contract period commenced on August 15, 2000, with a target completion date of August 14, 2002 while at project approval, the civil works were schedule to begin 1st September 1999. This slippage called for an extension of the project closing date by one year, at the outset. The Construction Supervision Consultant’s contract was signed on June 20, 2000 with M/s Arab Consulting Engineers (ACE) and the contract period commenced on August 14, 2000. Slow mobilization by the Contractor after accepting to undertake the works, and local disturbances and demand for compensation from the local communities who were cultivating in the channel reserve, further hindered a quick and smooth start of the work during the early period of the project implementation.

5.1 Specific output for each of the project components

A. Civil Works(a) Main Channel Works: Under this component 8.73 km of the Nakivubo channel was rehabilitated to accommodate a ten year return period storm, as planned. The major part has sides lined with gabions to the top including free board and the bed unlined earth. All along the rehabilitated channel from upstream to downstream, the various existing culverts and bridges were widened to accommodate the new channel widths. Similarly, existing footbridges were replaced with larger ones while several new ones have been constructed at points of increased pedestrian traffic. Guardrails and rubbish screens have been installed at various strategic points along the channel to control rubbish in the channel and control access to it. Realignment and/or protection of existing utility services such as water mains, sewer mains, telephone and electricity cables were also done.(b) Auxiliary Works. In addition, the following four major auxiliary drainage works close to the Nakivubo Channel or its tributaries which also contribute to the flooding problem, were rehabilitated to handle a ten year return period storm: (i) Clock Tower Roundabout where improvements included construction of stone pitched and concrete lined drains; installation of large diameter pipe culverts; construction of large storm water catch pits to replace the small ones and cleaning of existing underground drains; (ii) Lugogo/UMA Showground where improvements included widening and lining of about 200m of Lugogo channels; and construction of large box culverts across Jinja road ; (iii) Kafumbe Road/Kisenyi Lane Junction where improvements included demolishing and removal of existing pipe culverts and replacing them with box culvert across the junction; and construction of a bigger storm water open drain to replace the under-capacity pipe culverts; reconstruction and widening of an existing channel; and (iv) Makerere Road/Aga Khan Secondary School where improvements included demolishing of an existing pipe culvert and replacing it with a large box culvert; trimming, shaping and stone lining 50m of channel; construction of a silt trap and reconstruction of a section of road over the new culvert.(c) Priority Drainage "Black Spots" Rehabilitation Program: To further enhance storm water flow and minimize disruptions caused by flooding, 27 drainage "black spots" that were initially identified for rehabilitation within the city centre were desilted, rehabilitated and widened (See Appendix I). During the execution, 16 additional drainage “black spots” areas were added to

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further reduce the flooding in areas surrounding the Nakivubo Channel.

The increase in scope of works and adverse weather conditions that were experienced during project implementation are some of the key factors that necessitated a time extension of the main civil works contract by 18 months. The civil works component was revised to include implementation of some pilot traffic improvement plans. Katwe Road, Lubiri Ring Road and Wankulukuku Road were rehabilitated and selected traffic management schemes in Central Kampala were implemented.

B. Project Implementation Support (Construction Supervision)

Under this component consulting services for supervision of construction of civil works were provided through a Construction Supervision Consultant. This was intended to ensure that the Nakivubo Channel Rehabilitation works were completed to a high degree of workmanship and quality of materials, on schedule and within budget, in accordance with the contract drawings and specification, and to acceptable environmental standards. Under this component consulting services were also provided by local firms for construction supervision of the pilot traffic management plans and rehabilitation of Katwe road, Lubiri Ring Road and Wankulukuku Road.

C. Program and Policy Studies

During the design and preparation of the NCRP, it became clear to KCC that the programme was not going to provide a total solution to the flooding in Kampala, as its magnitude was far bigger than what was being addressed under the project. In addition, the poor state of the road network and the traffic congestion, were matters of serious concern. IDA therefore accepted KCC’s request to finance two major policy studies: the Kampala Drainage Master Plan (KDMP) and the Kampala Urban Transport Improvement Plan (KUTIP). (a) Kampala Drainage Master Plan Study: A comprehensive Kampala drainage master plan study was undertaken. In the study, a survey and update of Kampala's drainage systems/environmental and social/economic status was carried out. The Plan came up with an analytical report on the current situation and projections into a forty year horizon, including preliminary designs and costs for the necessary short-term improvements.(b) Kampala Urban Traffic Improvement Programme Study: Originally this was planned to be a transportation improvement study for Kampala in the long term. It was changed to a short term Traffic Improvement study, after the Ministry of Works, Housing and Communication (MOWHC) undertook to carry out a long term transportation master plan study for the country including a transport master plan for the greater Kampala Metropolitan Area. In the KUTIP study a five-year traffic improvement plan and road maintenance plan were prepared. The traffic improvement plans range from changes in traffic circulation and introduction of one-way systems to major junction improvements and road widening schemes to remove traffic bottlenecks. The road maintenance plan defines the nature and scope of road maintenance interventions required for each of the roads to be maintained in the plan in the next five years. The maintenance interventions range from simple routine maintenance to major road rehabilitation and upgrading of priority gravel roads to tarmac. Detailed designs and cost estimates of the KUTIP interventions were also prepared. Implementation of the recommendations from the two policy studies will no

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doubt improve the social and economic conditions of the city and also bolster the revenue base of KCC.

D. Institutional Support

Under this component, measures were implemented in support of the ongoing initiatives under KCC's Strategic Framework for Reform Program, for a broader and long-term agenda of policy, institutional and operational reforms:

(a) Kampala City Development Strategy: The process of developing a city development strategy for Kampala had been started under the Uganda First Urban Project. The intention was to initiate a process of preparing and developing a strategy for Kampala, which looked at the social, institutional, economic and political aspects of the city with a view to developing, in a participatory and inclusive process of all stakeholders, leading to a prioritised long-term future action plan which supported economic growth whilst alleviating poverty. The development of a CDS was however pragmatically put on hold in March 2000 as the Core Team had a lot of activities to attend to at the time. It was later realized that the CDS will be more effective after the institutional reforms have been effected and a restructured organisation, which would be much more focused and capable of developing and implementing long-term strategies, is in place. It was therefore decided that developing a CDS would be transferred to the SFR support consultancy financed under the LGDP, which was tasked with the review of the SFR progress and development of a long term Kampala Strategic Framework and the KCC vision for the future. Resources for this activity amounting to US$ 0.5 million were reallocated to finance additional costs of the SFR implementation support activities, and office and administration support for the extended project duration.

(b) Revenue Enhancement: Revenue enhancement activities focused on improvement of property tax revenues. Revaluation of all the properties in the city was undertaken. The number of valued properties has increased by over 120% from approximately 58,000 to about 130,000. The KCC revenues from this source are expected to increase by at least 100% in the short term.

(c) Seed Funds to Facilitate Contracting out of Basic Service Delivery Functions— Under the SFR, KCC took a decision that in order to improve basic service delivery in its five divisions, various minor works should be contracted out. Under this component, money was provided to the divisions to kick-start Alternative Service Delivery (ASD), i.e. service delivery through a third party, with KCC concentrating on supervision and regulation. The objective was to test the success of this methodology and build the technical capacity to formulate, award and supervise service delivery contracts.

More than 80% of the KCC minor works are now provided by the private sector. Most of the contracts executed were in road and drain repairs. Other services that have been contracted out include solid waste management, road sweeping and grass cutting. The projects have been a success within the community and completed to an acceptable quality. Also, the inclusive methods of project selection using a mix of technical and community priorities have been suitably robust. Capacity in project preparation, procurement and contract management has been

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developed among the KCC personnel at the Divisions, as evidenced by the increase in number and size of contracts awarded to-date, and the quality of service delivery.

(d) Program Implementation Support —The Strategic Reform Program was managed by the Core Team of contracted staff drawn from within KCC. Under this component resources were provided to hire the local consultants along with the attendant administrative and office support, and for training and some equipment. The Core Team has been backstopping and passing over the skills to other staff in KCC. In addition, training focusing on the critical areas for the implementation of reforms such as procurement, contract management, financial management, records management, etc, was extended to a cross section of staff and Councillors through short courses, on-the-job training attachments and workshops.

6. Institutional and Implementation arrangements

6.1 Project Implementation Period.The original Project Implementation period was 3 years, from 1st July 1999 to 30th June 2002. Early delays in project effectiveness and procurement, and later delays due to adverse weather conditions that affected the civil works program and the increase in scope of the main civil works, necessitated a project extension of two years (1st July 2002 – 30th June 2004)

6.2 Implementing Agency.The Project implementing agency was Kampala City Council. The KCC Core Team, which reports directly to the Town Clerk, carried out the day-to-day management of the respective activities of the project implementation. The KCC Core Team was established by selecting a group of professionals from within KCC’s staff, under contractual terms, to carry out management functions for the implementation of its reform programme initiated under the SFR and to execute its special projects such as the UFUP, the NCRP and the KCC component of the LGDP I. This was a very effective strategy as many skills and capacity have been built within the Core Team and KCC in general.

The skills and capacities within the KCC Core Team were augmented through the Technical Advisory services from the KCC partners, particularly the Kirklees Metropolitan Council (UK) (the KCC/KMC Cooperation Agreement was financed through LGDP Component 3 until September 2002), and private consultants who provided construction supervision services for major works.

The Government of Uganda, had the responsibility to pass on the proceeds of the credit to KCC as grant. Through the Ministry of Finance, the government also had other responsibilities such as payment for taxes on all the projects, and carrying out timely project audits through the Auditor General’s Office, in accordance with the Credit Agreement. KCC like other districts is supervised by the Ministry of Local Government under the governments’ decentralization policy. During the project implementation the Ministry, provided support on key management, financial and operational actions that had direct bearing on project implementation. Through its contracts committee, the Ministry was responsible for approving procurements under this project after the reforms that took place within Government’s Central Tender Board.

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7. Impacts and Outcomes assessment Also refer to the Social and Environmental Impact Assessment of Post Nakivubo Channel Rehabilitation Project, Wardrop, August 2004..

7.1 Institutional Development.The Midterm review assessment which was carried out in Sept/Oct 2001 found that although at that time of the assessment; progress on some of the activities was behind schedule; the project was progressively achieving the development objectives as designed. The review confirmed that capacity in the Core Team was progressively increasing, and high levels of skill and sophistication in planning, procuring and managing complex projects had been acquired. The expertise gained has been transferred to the division staff through working together on various projects and through international exposure and training.

The successful completion of this project, arguably the largest and most complex project ever to be prepared and implemented by a local authority in Uganda; and in particular the finalization of various policy studies and strategies that provide a roadmap for future investments; is evidence that KCC is gradually emerging as a forward looking organization capable of creating strategic frameworks for action, policy formulation and analysis, project identification, supervising consultants and contractors as well as project management, in line with the SFR objectives.

7.2 Environmental Impacts• The biggest positive impact of the Nakivubo Channel rehabilitation has been controlling the flooding which was causing economic loss through damage to buildings, merchandise, raw materials and disruption of traffic flow. Floods also caused poor hygiene leading to susceptibility of the population to diseases like malaria and cholera. • The rehabilitation of the channel has exposed the level of pollution and degradation of the Nakivubo wetland that was hitherto unidentified. Consequently, the relevant agencies have been stirred into action to protect the environment.

7.3 Improvement in transport and access• The rehabilitation of the channel has eliminated transport bottlenecks and improved access to social-economic activities. The reduction in flooding has broadened physical access to social and economic services, drastically reduced road damage, vehicle operating costs, travel time and travel costs.• Several roads under the project were rehabilitated and upgraded. In addition, preliminary traffic improvement schemes were carried out. All these led to significant improvement of the road network and traffic flow. In some instances, travel time has reduced tenfold.

7.4 Social and economic Impacts• Increased economic activities

Available evidence indicates that the project registered a fairly high impact towards poverty reduction. Control and/or elimination of flooding resulted in increased sales and profits, as premises and access roads were clear of floods and mud that previously stopped business operations and repelled customers. Survey results indicate that the rehabilitation of the channel was associated with substantial increase in monthly incomes during the wet

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season of up to ten times in the areas formerly affected by flooding of the channel.• The capacity of small contractors has been boosted through their participation in the ASD programme.• Improvement in social services

The rehabilitation of the channel has resulted in uninterrupted delivery of social services. The biggest impact has been registered at social institutions located in the channel flood plain such as schools, theatres and hospitals.

7.5 Improvement in Service Delivery.• The level of service delivery in KCC is at its highest in the past 20 years. Previously poorly serviced areas have now received services in terms of road and drainage improvements under the ASD programme. As a result of the ASD, public appreciation of links between actual service delivery and funding provided through the various local taxes is slowly being realized.• The image of KCC as an institution has also improved as a result of improved service delivery. This can be evidenced through the positive comments in the press and radio talk shows.

8. Major Factors affecting implementation and Outcome.

Most of the project objectives have been achieved. However, there are several problems/challenges, which the project experienced during implementation and the most notable ones are as follows:

8.1 Procurement.Generally all the procurements of works, goods and consultancy services were handled professionally and in consonance with the IDA procurement procedures and guidelines, and in accordance with the Government of Uganda financial regulations. However, there were critical delays in procurement of the main civil works contractor and supervision consultant at the beginning of the project leading to an early drift in the project programme. This slip can be attributed to an over ambitious time schedule. Whereas bidding documents were completed on schedule, the IDA No Objection was received nearly two months later than the planned one month. The bid evaluation process was planned to take about one month but it took six months, while the IDA approval of the bid evaluation report was planned to take three days, but it took sixty nine days. The Core Team team now appreciate the need for making appropriate time allowances for the various approvals and contract processes when initially preparing project programmes.

8.2 Difficulties during execution of the main civil worksThere were significant changes in design as well as increase in scope of works to ensure that the project objectives are met. Whereas efforts were made to identify all utility services at the time of project design, the information obtained from utility companies was later found to be extremely inadequate, leading to disruptions in progress of works. A shortage of construction materials (particularly rock) was experienced at some stage of the project paralysing the contractor’s output. These factors coupled with the adverse weather and ground conditions experienced and the complexity of working in a very busy city environment, made it very difficult for the project to be completed on time and within the budget.

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8.3 Lack of capacity in the local construction industry. There was a general lack of capacity in the local industry that affected initial ASD contracts. Many of the small contractors were not conversant with the complex IDA bidding procedures used and in some cases, failed to obtain the requisite securities. This resulted in many contracts especially in the field of road improvements being undertaken by a few companies which had capacity and knowledge of the procurement procedures. This problem was partly solved when insurance bonds were included among the acceptable forms of bid and performance securities.

8.4 Decline in commitment to Institutional Reforms.The origins of the Strategic Framework stem from KCC workshops across the whole senior management structure. As such it had wide support and ownership. However, this partnership approach broke down as some of the implications of change become clear. Officers at various levels knew what needed to be done but there appeared to be a sense of resignation, with no individual or collective will to address the difficulties the organisation was facing. Strong collective leadership was not evident. This, together with the lack of commitment from the Council itself hampered the smooth implementation of institutional reforms and revenue enhancement efforts.

Also, the plan that was put in place to retrench excess staff could not be fully implemented as this exercise was hampered by the lack of funds in KCC. Divisions failed to satisfactorily implement their operation and maintenance plans to ensure sustainability of ASD investments. This was largely due to low commitment and progress of the reforms and low revenues. As KCC makes efforts to improve revenue collection, maintenance and sustenance of the levels and standards of service delivery that have been set remains a challenge. KCC has made operation and maintenance provisions for this purpose in both the budgets of headquarters and the Divisions and there is a deliberate policy to progressively increase the allocated amounts for this purpose as the revenue improves.

8.5 Complexity of divesting the Nakawa and Naguru housing estates.

The divestiture of all KCC housing stock was a covenant in the DCA. Out of the five housing estates, KCC was not able to fulfill its covenant for the sale of two (Naguru and Nakawa Estates) because of the unforeseen social and political issues that surrounded the divestiture of the two estates. This necessitated an amendment of the DCA to exclude the deadline for the sale of these two estates from the covenant.

9. Borrower’s Performance

The Government of Uganda borrowed the funds for the NCRP and passed the entire credit proceeds to Kampala City Council as a grant. During the project identification and preparation, there was very close interaction between Kampala City Council and the Government of Uganda through the Ministry of Local Government. The Government of Uganda had the responsibility of paying for the local taxes under the project. The Government, through the Ministry of Finance, has met its obligations with respect to local taxes. However, in the case of PAYE taxes for one of the consultancy contracts, (CSC for Nakivubo Channel) it took a considerable amount of time, long discussions and explanation to convince the Uganda Revenue Authority (URA) that this tax

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should be paid by the borrower. This was because treatment of this tax and other tax issues in general were not explicitly defined in the DCA. The Government’s Auditor General conducted the project audits promptly which enabled timely submission of audited reports for the project.

10. Performance of the Executing agency

The Executing Agency of the project has been Kampala City Council through its Core Team. The KCC Management team, headed by the Town Clerk, in consultation with the Executive Committee of Council played the steering role for the project. Project preparation was carried out by KCC and completed in a record period of one year.

KCC met the financial covenants in the Project Agreement except the divestiture of Naguru and Nakawa Estates. The deadline for the sale of these two estates was later removed from the project covenants. KCC fully met all its other obligations under the project, including the timely provision of counterpart funding. However, the submission of entity Audited Accounts was usually late.

The Core Team competently managed the project. Procurements were carried out transparently and professionally, to the general satisfaction of the bidders. Projects were executed and completed to satisfactory standards. Most of the problems experienced were addressed in consultation with the stakeholders and resolved in a timely manner. The quality and timeliness of annual audited project accounts demonstrated a sound management of the project finances by the Core Team.

11. Bank Performance

The overall performance of the Bank was highly satisfactory. Although there was a change in the supervising Team, this did not affect the performance of the Bank during implementation of the project. The Bank responded satisfactorily to all requests for No Objection, professional advice and guidance during the project life. Most of the disbursements were timely.

The Bank was flexible where necessary and provided requisite technical assistance to ensure that the project is implemented successfully. An example is the bank’s support to the need for amendment of the DCA when it became apparent that some of the provisions of the covenants were unachievable by KCC within the project life. The Bank also accepted the Borrower’s request to extend the project duration on two occasions.

12. Lessons learned

• The need for making appropriate time allowances for the various approvals and contract processes when initially preparing project programmes.• Comprehensive identification and analysis of all likely risks and their impacts as basis for the risk mitigation measures is crucial. For example the risk of KCC’s commitment to the SFR was identified as moderate but it turned out to be substantial, its impact was not well assessed and the mitigation measures identified were not adequate. The risk and impact of adverse weather and

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the complex local environment was not identified, but these factors had a substantial impact on the civil works programme. The risk of social-political complications in divesting the housing stock was also not identified. • Identification of a dedicated and reliable source of revenue for counterpart funds is necessary. Inclusion of this commitment in the DCA as a covenant can be considered as a risk mitigation measure. This was done and it is the reason why problems of counterpart funding were not experienced by a cash strapped organisation. • Project implementation by a dedicated unit manned by professionals from within the beneficiary organization enhances project ownership and capacity development within the organization. It also fosters innovation and proactive identification of solutions to local problems that could affect the project. • Institutional reforms cannot be implemented rapidly. It takes a long time for reforms to be understood, internalized both internally and externally and tested in order to be accepted, before results can be realized. Hence, institutional cultural change requires patience and can only be achieved gradually. • Internal KCC capacity in project planning, supervision and management is crucial for successful service delivery through the private sector.

13. Sustainability

The need for sustainability was identified during project preparation and the necessary measures were identified. During the implementation of the project, the issue of sustainability was always emphasized and by project closure, both technical staff and politicians had learnt to appreciate its importance.

At the time of project preparation it was estimated that maintenance of the main civil works after project closure would cost Shs 60 million per year. An operation and maintenance escrow account was opened by KCC at the beginning of the project. By the time of project closure, KCC had accumulated over Shs 200 million on the O&M account. Procurement of the maintenance Contractor is already underway. However on basis of the bids received, the available amount will be sufficient to finance the routine, periodic and emergency maintenance requirements for the Channel, auxiliary drains and drainage “black spots” for a period of six months after project closure. KCC has made arrangements in its budget to provide the funds required for O&M.

All Divisions have prepared operation and maintenance arrangements for their ASD investments and Budget provisions have been made for the O&M activities.

Whereas it is apparent that KCC Headquarters and the Divisions have made adequate arrangements for sustainability, its realization will largely depend on the revenue enhancement and sound financial management.

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