Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 37535-MZ

PROGRAM APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 20 MILLION (USD 30 MILLION EQUIVALENT)

TO THE

REPUBLIC OF MOZAMBIQUE

FOR PROMAPUTO: THE MAPUTO MUNICIPAL DEVELOPMENT PROGRAM

December 2 1,2006

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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AfDB ANT APL

CAS CMM D C U DMF DPFP

ECE EDM ERR ERR ESMF

FPAG

FMR FMS

G C M GDEI GDP GIS G o M GPN GTZ

HDM

IDA I H R M S IMF P A IPRA IRR

CURRENCY EQUIVALENTS

(Exchange Rate Effective December 14,2006)

Currency Unit = New Meticais (MTn)

US$1 = SDR1.50435 26.15 MTn = US$1

FISCAL YEAR January 1 - December31

ABBREVIATIONS AND ACRONYMS

African Development Bank AdministrapTo Nacional de Estradas (National Roads Authority) Adaptable Program Lending

Country Assistance Strategy City Council o f Maputo Department o f Urban Construction Municipal Finance Directorate Decentralized Planning and Finance Program

Eastern and Central Europe Electricidade de Moqambique (Power Supply o f Mozambique) Economic Internal Rate o f Return Economic Rate o f Return Environmental and Social Management Framework

Fundo de Investimento e Patrimonio do Abastecimento de Agua (Water Supply Investiment Fund) Financial Monitoring Report Financial Management System

Global Change Model Office o f Strategy and Institutional Development Gross Domestic Product Geographic Information System Government o f Mozambique General Procurement Notice Cooperap7o Alema" para o Desenvolvimento (German Development Cooperation)

Highway Development and Management Model

International Development Association Integrated Human Resources Management System International Monetary Fund Imposto Pessoal Autarquico (Head or Pool Tax) Imposto Predial Authrquico (Property Tax) Internal Rate o f Return

FOR OFFICIAL USE ONLY JICA JPC

MAE MCC MDB MDP ProMaputo MICOA MTn

NGO NPV NWII

PARPA I1 PPF PPIAF PPP PROL

RAP RPF RUE

SISTAFE SCT S W M TAE TDM TPM

voc

Japan International Cooperation Agency Joint Program Committee

Ministdrio de Administraqio Estatal (Ministry o f State Administration) Marginal Capacity Cost Multilateral Development Banks Municipal Development Program Programa Para Maputo (Name o f Maputo Municipal Development Program) National Environment Agency New Meticais ( Mozambique currency)

Non Governmental Organization Ne t Present Value National Water I1

Poverty Reduction Action Plan Project Preparation Facility Public-Private Infrastructure Advisory Facility Public Private Partnership Program for the Reform o f Local Public Administration

Resettlement Action Plan Resettlement Policy Framework Renamo Uni io Eleitoral (Renamo Electoral Union)

Government Financial System Strategic Coordination Unit Solid Waste Management Taxa por Actividade Econbmica (Fee on Economy Activity) Telecomunicap5es de Moqambique (Telecommunications o f Mozambique) Transportes Publicos de Maputo (Public Transports o f Maputo)

Vehicle Operating Cost

Acting Vice President: Hartwig Schafer Country Managermirector: Michael Baxter

Sector Manager: Jaime Biderman Task Team Leader: Kate KuDer

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

MOZAMBIQUE ProMaputo: The Maputo Municipal Development Program

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ................................................................ 4

Rationale for Bank involvement ...................................................................................... 7 Higher level objectives to which the project contributes .............................................. 8

1 . 2 . 3 .

Country and sector issues ................................................................................................. 4

B . PROJECT DESCRIPTION ................................................................................................. 9 Lending instrument .......................................................................................................... 9 Program development objective and key indicators ................................................... 10

Program Description ...................................................................................................... 11

Lessons learned and reflected in the project design .................................................... 13

1 . 2 . 3 . 4 . 5 . Alternatives considered and reasons for rejection ....................................................... 15

C . IMPLEMENTATION ........................................................................................................ 15 Partnership Arrangements ............................................................................................ 15 1 .

2 . 3 .

Institutional and Implementation arrangements ......................................................... 16 Monitoring and Evaluation of outcomeshesults .......................................................... 18

4 . Sustainability ................................................................................................................... 18

Credit Effectiveness Conditions ..................................................................................... 21

. . 5 . 6 .

Critical Risks and possible controversial aspects ........................................................ 19

D . APPRAISAL SUMMARY ................................................................................................. 21

1 . 2 . 3 . 4 . 5 . 6 . 7 . a .

Economic Analysis ......................................................................................................... 21 Financial Analysis .......................................................................................................... 23 Technical Analysis .......................................................................................................... 24

Fiduciary .......................................................................................................................... 25

Social ................................................................................................................................ 27 Environment .................................................................................................................... 29 Safeguard policies ........................................................................................................... 29

Policy Exceptions and Readiness ................................................................................... 30

Annex 1: Country and Sector or Program Background ......................................................... 31

Annex 2: Major Related Projects Financed by IDA and/or other Agencies ......................... 35

Annex 3: Results Framework and Monitoring ........................................................................ 36

Annex 4: Detailed Project Description ...................................................................................... 43

Annex 5 . Project Costs ................................................................................................................ 53

Annex 6: Implementation Arrangements ................................................................................. 55

Annex 7: Financial Management Arrangements ..................................................................... 58

Annex 8: Procurement Arrangements ...................................................................................... 69

Annex 9: Economic and Financial Analyses ............................................................................. 79

Annex 10: Safeguard Policy Issues ............................................................................................ 93

Annex 11: Project Processing .................................................................................................. 103

Annex 12: Documents in the Project File ............................................................................... 105

Annex 13: Statement of Loans and Credits ............................................................................ 106

Annex 14: Country at a Glance ............................................................................................... 108

Annex 15: Letter o f Sector Policy ........................................................................................... 110

Annex 16: Anti-corruption Strategy ....................................................................................... 115

Annex 17: HIV/AIDS Work Plan ............................................................................................ 117

Annex 18: Poverty Assessment and Report Card .................................................................. 120

Annex 19: Capacity Building Strategy .................................................................................... 123

MAP: IBRD N o . 33451

MOZAMBIQUE ProMaputo: The Maputo Municipal Development Program

Program Appraisal Document Africa Region

AFTUl

Date: December 2 1,2006 Country Director: Michael Baxter Sector ManagerDirector: Jaime M. Biderman

Team Leader: Katherine Kuper Sectors: Sub-national government administration (46%); Solid Waste Management (29%); Roads and Highways (25%) Themes: Municipal governance and institution building (P) Environmental screening category: Partial Assessment

Project ID: PO96332

Lending Instrument: Adaptable Program Lending (APL)

Project Financing Data [ 3 Loan [XI Credit [ ] Grant [ 3 Guarantee [ 3 Other:

For Loans/Credits/Others: Total Bank financing (US$m.): Phase 1 - 3 years (30.00)

30.0

Borrower: Republic o f Mozambique Maputo Mozambique

Responsible Agency: Maputo City Council Maputo Mozambique

1

Project implementation period: Phase I - Start March 1 , 2007 End: February 28,2010 Expected effectiveness date: March 1 , 2007 Expected closing date: August 31,2010

Does the project depart f rom the CAS in content or other significant respects? Re$ PAD A.3 Does the project require any exceptions from Bank policies?

[ No

[ ]Yes [XINO [ ]Yes [XINO

Re$ PAD D. 7 Have these been approved by Bank management? I s approval for any pol icy exception sought from the Board? Does the project include any critical risks rated “substantial” or “high”? Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 APL Phase 1: Strengthen the Maputo Ci ty Council’s institutional and financial capacity to support achievement o f long term service delivery goals, and to implement selected priori ty investments, Project description: Re$ PAD B.3.a, Technical Annex 4

[ ]Yes [XINO

[ X ]Yes [I No.

[XIYes [ ] N o

Component A on institutional development and municipal governance aims at: rationalizing the municipality’s internal processes for service delivery; improving the performance o f the municipality’s functional units; and improving governance.

Component B on municipalfinance will improve the municipal public finance systems by increasing i ts own-source revenues (local taxes and fees) and enhancing the budget planning, execution, and control functions. The component wil l do so through a series o f interlinked activities in the areas o f both revenues and expenditures.

Component C on planning, infrastructure rehabilitation and service delivery improvements will support urban planning and target investments to improve and rehabilitate critical urban services, including roads and drainage, solid waste management, a cemetery and street lighting.

Which safeguard policies are triggered, if any? Re$ PAD 0.6, Technical Annex I O Environmental Assessment (OP4.01) Involuntary Resettlement (OP4.12)

2

Significant, non-standard conditions, if any, for: Re$ PAD C. 7

Board presentation:

Loadcredit effectiveness:

The C M M will have established an adequate financial management system capable o f producing Financial Monitoring Reports in form and substance satisfactory to the Association to ensure proper accounting and monitoring o f program funds. The C M M will have adopted: (i) a financial management manual; (ii) a procurement manual; and (iii) a Project implementation manual, all in form and substance satisfactory to the Association. The CMM’s 2005 audited financial statements wil l have been submitted in a manner satisfactory to the Association. The C M M will have issued a request for proposals for selection o f independent auditors for the audit o f i t s 2006 financial statements, in form and substance satisfactory to the Association. The C M M will have established the office o f strategic and institutional development and appointed i t s head. The C M M will have hired the institutional development advisor, with terms o f reference satisfactory to the Association The C M M will have established a procurement department duly staffed by a qualified department head supported by a senior procurement specialist and a procurement officer with terms o f reference satisfactory to the Association. C M M will have executed a Subsidiary Agreement with the Recipient.

Covenants applicable to project implementation:

0 By no later than 1 September, 2007, the C M M will prepare and submit to the Association, in form and substance satisfactory to the Association, a strategy (including relevant hiring criteria and modalities) to retain qualified and trained staff contracted to enhance i t s capacity. The C M M will implement this strategy by absorbing within i t s workforce the qualified and experienced staff, at the end o f the initial two years o f each staff contract. By 1 September, 2007, the C M M will enter into an agreement with the Electricidude de Mocambique (EDM) for the purposes o f collecting the solid waste fee under Component c3.

0 N o later than 1 September, 2009, prepare and agree with the Association, suitable bidding documents (including qualification criteria) for the competitive selection and employment o f contractors to carry out Components C.2 and C.3 o f the Project, and thereafter apply the agreed selection procedures.

0

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A. STRATEGIC CONTEXT AND RATIONALE

1, Country and sector issues

1. Mozambique, l ike most African countries, i s undergoing rapid urbanization. The urban population represents about 30 percent o f the national total and i s growing at about 5 percent per year. By 2020 more than ha l f o f Mozambicans wil l l i ve in urban areas. By 2010, the urban population o f Maputo City i s expected to increase f rom 1.3 mi l l ion to 1.7 million, more than twice the size o f Beira, the second largest city. Recent studies show that over ha l f o f the urban population can be considered poor, using consumption-based indicators. While urban poverty i s slightly less (52 percent) than in rural areas (55 percent) the difference i s startlingly small; notably poverty has also fallen more rapidly in rural than urban areas due to post-war agricultural gains. In Maputo, the capital c i ty and single largest population center, there has been no decrease in poverty since 1997 despite overall economic growth.

2. Over 70 percent o f the urban population in Mozambique lives in settlements that are informal and have slum characteristics including dense unregulated growth; a lack o f common infrastructure services such as water, sanitation, drainage and electricity; and homes made o f precarious materials. Even the “cement city” (originally the planned colonial urban core) has seen almost no investment or maintenance since independence in 1975 leaving drainage systems inoperative, a major solid waste crisis, inadequate water and sanitation services and an almost complete lack o f physical planning. Unplanned settlements are also often bui l t on unsuitable terrain that i s prone to flooding, erosion, and the accumulation o f solid waste. The high rates o f malaria and frequent cholera outbreaks in Maputo (1997, 2000) are results o f this lack o f infrastructure necessary for improved health outcomes.

3. As early as 1982, the first National Meeting o n Urban Planning discussed these problems and decided that “structure plans” should be prepared for each city. A year later the c iv i l war and generalized economic crisis led to a shift away f rom investment in urban areas to a focus o n rural production. Yet by the late 1980s people were flocking to towns and cities to flee the war, leaving early planning or small improvements in infrastructure overwhelmed under the weight o f incoming migrants. The private sector and organized c iv i l society hardly existed under the socialist era government o f the time, leaving any urban development efforts only to a weakened state and i t s appointed municipal executive committees.

4. After the war, government and donors focused attention on rural reconstruction and development. By 1997, the government had passed two significant laws for urban development, the new Land L a w which kept state ownership but granted effectively transferable usufruct rights, and the Municipal Legislation package (Pacote Autbrquico) which established 33 urban local governments with l imited but autonomous powers and democratically elected mayors and assemblies. Municipal elections have since been held in 1998 and 2003. In accordance with the 1997 Municipal legislation, municipalities are responsible for solid waste management, basic water and sanitation services, environment, urban roads, urbanization, land use, housing and construction licensing, municipal security etc. Some o f these services are provided in conjunction with state bodies. This legislation i s currently being revised (with input from the new Municipal Association currently chaired by Maputo’s mayor) and new municipalities are expected to be established in 2008.

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5. W h i l e the law foresees that municipalities would take over more functions (including health and education) as their capacities and financial base increase, a l l 33 remain extremely weak in terms o f human and financial resources. Municipalities spend o n average only US$5 per year per capita compared with US$15 per capita on average in sub-Saharan Africa, US$249 per capita in Asia and US$252 per capita in Lat in America. Mozambican municipalities are highly dependent on the state for operating costs and almost entirely o n donors for capital investment. Property taxes are the main untapped source o f revenues but this requires updated property registers, valuation rolls and strong polit ical commitment to increase coverage and collection. Local fees and user charges are also outdated and diff icult to collect. In addition, the laws governing municipal fiscal autonomy are very restrictive.

6. The municipalities are also constrained by a centralized culture and a ski l ls shortage not suited to decentralized management and service delivery. They remain mired in an environment largely dependent on a state which provides them with only approximately 1% o f the national budget. Maputo Ci ty i s no exception: during the f i rst municipal mandate Maputo was considered among the poorest performers in terms o f service delivery improvements. I t provides a microcosm o f the problems facing cities in Mozambique.

Maputo City

7. Maputo i s the gateway for investors, tourists and migrants f rom rural areas and surrounding countries. Maputo contributes over 40 percent o f the national Gross Domestic Product having an estimated GDP per capita o f US$1,250 compared to a National GDP per capita o f US$3 10 in 2005. I t i s also a city o f extreme and growing inequality. Approximately 70 percent o f Maputo City’s residents l ive in informal settlements and 54 percent l ive below the poverty l ine o f US$l.50 per day. The l o w level o f investments in urban areas over many years has reduced the quality and quantity o f service delivery, especially in the maintenance o f existing infrastructure. Coverage rates are l o w for solid waste collection (25-50%), drainage (20-30%), road maintenance (1 5% o f unpaved, 47% o f paved) and cemeteries (80% exhumation rate due to inadequate capacity exacerbated by the H IV /A IDS scourge). Private investors have expressed their dissatisfaction with the seriously deteriorated service delivery and infrastructure in Maputo through the Investment Climate Assessment, the Corruption Survey, the media and other survey instruments. Citizens have expressed concern about the quality and coverage o f virtually a l l municipal services through the first municipal Citizen Report Card in late 2005/early 2006.

8. Inefficiencies and resource constraints limit the ability o f the Ci ty Council o f Maputo (CMM) to provide quality services to its citizens. CMM’s highly centralized and bureaucratic organizational structure led to fragmented and cumbersome planning and management functions. Weak operational supervision and information systems also limit the management’s ability to achieve improvements in service delivery. The C M M has only recently begun modest involvement o f sub-municipal officials (District Administrations) and neighborhood structures in participatory planning and service assessments, which are important in advancing accountability and transparency and thereby foster greater citizen confidence in their local government. CMM has also begun to implement public private partnerships and has benefited f rom financing from PPIAF to develop a framework for PPPs, establish a PPP unit and equip i t w i th the methodological instruments and ski l ls necessary to effectively implement PPPs for service delivery.

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9. The C M M i s severely constrained by a lack o f qualified personnel. In 2005, only 1.5 percent o f the CMM’s over 2500 staff had some higher education and only 7 percent had any technical training: substantially less than the Ministry’s o f State Administration’s national target o f 20 percent qualified municipal personnel. Even in key units such as the Municipal Finance Directorate (DMEF) qualified technical staff are extremely scarce: only 54 o f 102 approved DMEF staff positions are filled; only 18 o f these 54 were assessed by independent consultants in 2005 as qualified, 11 o f whom occupy management or supervisory positions: thus only 7 qualified staff work in non-supervisory roles to across the DMEF’s 7 departments and sections. Twenty-six o f the remaining thirty-six DMEF non-supervisory staff has only primary education. This dire situation is not atypical; in fact the DMEF i s better staffed than most o f Maputo directorates.

A. Own-Source revenues a. 1 .Fiscal revenues a.2.Non-fiscal revenues

B. Transfers b. 1. Municipal Compensation Fund (FCA) b.2. Local Investment and Initiative Fund (FIIL)

TOTAL

10. In 2005 the total budget o f the Ci ty o f Maputo amounted to an extremely l ow US$6 per capita. C M M faces serious constraints in both revenue generation and budget planning and control. Currently, i t i s estimated that only approximately 20 percent o f properties o f brick and with piped water and 5 percent o f the total properties in the c i ty are being taxed. The municipality lacks an updated cadastre and other tools to increase property tax revenues as we l l as other local taxes and fees. On the expenditure side, despite recent improvements, weaknesses remain in planning, execution, and control o f expenditures.

2.3 3.6 4.4 0.6 1.1 1.4 1.7 2.5 3.0 2.7 3.5 4.2 1.5 1.8 2.0 0.6 0.8 1 .o 5.0 7.0 8.6

Total revenues of the Municipality of Maputo by year in millions of current USD I 2003 I 2004 I 2005

11. The City must urgently establish a sound organizational and financial base in order to reverse the decline in service provision and infrastructure, or the standard o f living and cost o f doing business in Maputo wil l worsen. This wil l not only increase poverty, marginalization and crime but further inhibit the growth o f smaller and medium sized businesses in particular, which are critical to income generation and poverty reduction in the country as a whole.

The City’s Response: “ProMaputo” - the Maputo Municipal Development Program

12. The CMM, led by Maputo’s second elected mayor, has recognized the crisis facing Maputo City. The mayor and his team have conducted a series o f workshops and consultations with various stakeholders to develop the vision, mission and development program for the City o f Maputo. These stakeholders included the private sector, c iv i l society, national government and members o f the Municipal Assembly (legislature) and Ci ty Council (Executive). Findings fi-om the Municipal Citizen Report Card and various studies on the state o f the city were the inputs to these forums.

6

13. As a result o f these inputs and consultations, the city has developed and widely disseminated i t s vision for the city as we l l as the Council’s mission statement. The vision for Maputo i s for a “prosperous, attractive, clean, secure and united city”. The mission statement o f the Council i s “To lead the process o f raising the quality o f l i fe o f municipal citizens; creating an environment conducive for investment and job creation through improved delivery o f services; and through the mobilization o f citizens and coordinated action between diverse actors”.

14. Based o n these vision and mission statements, the City developed a 10 year Maputo Municipal Development Program (“ProMaputo” or the Program) that forms the basis for the Adaptable Program Loan (APL). The f i rs t phase o f ProMaputo recognizes that the City has extremely l imited capacity to raise i t s own revenues and to provide quality services to i t s citizens. Therefore, the priority for the APL’s Phase I i s to achieve a basic level o f functionality in terms o f good governance, financial stability and institutional capacity in order to provide a platform for subsequent sustainable improvements to service delivery.

2. Rationale for Bank involvement

15. The success o f Mozambique’s cities i s crucial for the development o f the country as a whole. Urbanization and economic development go hand-in-hand as a country moves f rom a rural-agricultural base to an urban base. Migration i s a favorable element in income growth and poverty reduction, both for urban and rural populations. Rural and urban boundaries are artificial distinctions to households, who often distribute members across different spatial and economic activities to diversify income sources and reduce risk. Urban poverty i s also nearly as high as rural poverty and unlike the rest o f the country has not seen any decline in Maputo.

16. In the development literature the “Williamson Effect” demonstrates that a high degree o f urban concentration in the early stages o f economic development i s helpful. By spatially concentrating industrialization, often in coastal cities, the economy conserves ‘economic infrastructure’ - physical infrastructure capital and managerial resources. Such spatial concentration also enhances information spillovers and knowledge accumulation at a time when the economy i s ‘information deficient’ (Davis and Henderson, 2003). Furthermore, the per capita costs o f many forms o f infrastructure and social services are generally lower in large cities, as many more people can be reached. However, unreliable infrastructure and high transactions costs undermine f i rms domestically and can be fatal to potential exporters. Urban local governments can also become the vanguard for good governance and sustainable public finance, as their performance i s highly visible and they are the front l ine o f public administration for citizens.

17. Development partners have been supporting the Government o f Mozambique for nearly 15 years but are now realizing that more emphasis o n sub-national authorities i s needed in order to build long term and sustainable service delivery capacity in the country. Municipalities are the only decentralized elected entities in Mozambique and are important to democratic stability (DFID Strategic Conflict Assessment 2006). However, they are s t i l l nascent, weak structures that require considerable investment over a sustained period o f time to make them into functioning local governments. The two earlier Bank-supported projects in the area o f urban development focused o n the establishment o f municipalities in Mozambique and o n national level frameworks, although IDA channeled small grants to eight cities through the Ministry o f State Administration (MAE) under the MDP. These earlier projects successfully supported the establishment o f a legal and institutional framework for municipalities in Mozambique and drew

7

important lessons in capacity building. They also provided significant information on the binding constraints for more effective municipal development strategies, including the need to work more directly with cities and avoid project structures. However, IDA has provided very limited resources targeted directly at municipalities. The few partners operating in the local government sector are working mainly with smaller municipalities and districts and primarily in the north and center o f the country. Maputo i s the “hole in the donut” in terms o f donor support, despite i t s similar poverty profile and critical importance to the country as a whole.

18. The World Bank i s one o f the few development partners (along with DANIDA, USAID and the Swiss Development Cooperation), that i s actively supporting the area o f urban development in Mozambique. I t i s well positioned to invest in programs that require a long term approach to governance and capacity building, in order to lay the foundations for large-scale investments in service delivery in the future. The World Bank’s involvement also creates the basis for leveraging additional partner financing, not only from other development partners but from the private sector as well. Municipal development i s a complex and multi-faceted field. Required municipal investments range from “soft” institutional improvements to large, lumpy infrastructure investments (e.g. landfills, sewage systems, major road rehabilitation) which demand resources at a scale many donors are unable to provide. Also, municipal development i s fundamentally about good governance and capable city management, areas in which the World Bank i s a leading development agency, particularly at a sub-national level.

3. Higher level objectives to which the project contributes

19. The Government’s Five Year Plan refers to the ongoing program o f decentralization as “one o f the pillars o f the process o f modernization o f the state”. The Plan also sets as an objective the consolidation o f the municipalities and improving access to municipal services. Under the objectives o f improving access to housing and land tenure with services, the government intends to ensure the approval o f urban land use plans and to promote the effective coordination o f institutions involved in urbanization and infrastructure provision. Recent progress has been made with the Council o f Ministers approving the first Land Use Planning Law in Mozambique (Lei de Ordenamento do Territdrio) and a regulation on urban soil use, which provides a legal basis from which to move forward.

20. Mozambique’s second Poverty Reduction Strategy Paper (PRSP) (Programa da Acqio da Reduqio da Pobreza Absoluta, PARPA II) includes the areas o f public administration, public finance reforms, decentralization and popular participation as core elements o f i t s Governance pillar. I t also l i nks poverty with poor environmental conditions, including a lack o f drinking water and sanitation, and mentions the need to overcome urban environmental degradation through urban planning and upgrading, including greater investment in infrastructure such as roads and drainage and solid waste management. The International Monetary Fund (IMF) recently issued i ts support for PARPA 11, commending i t s focus on several priorities, which are directly reinforced by ProMaputo, such as an emphasis on infrastructure; fiscal decentralization; strengthening o f local administrative capacity, including financial auditing and reporting; private sector development; governance, transparency and the fight against corruption. These are also at the fore o f the Africa Action Plan o f the Africa region o f the World Bank. Decentralization i s also a focus o f the next PRSC series and as such ProMaputo i s a complementary program to the budget support.

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21. The Municipal Development Policy o f the Mozambican Government, recently prepared by MAE at national level, highlights key priority actions for urban development including the following:

0

0

0

Strengthen leadership and boost the motivation o f staff to ensure their commitment to support municipal policies and provide communities with high quality services. Increase efforts to ensure that municipalities secure an adequate financial basis from their own revenue sources, including taxes and fees Strengthen the role o f municipal authorities in coordinating strategic planning activities that reflect the long-term objectives and priorities o f community representatives and other local socio-economic actors. Develop and improve the legal framework o f State institutions to enable technical support particularly in the areas o f urban and spatial planning, service delivery, municipal infrastructure and finance.

0

22. In Maputo, IDA would finance the majority o f improvements in institutional development and governance, financial management and selected priorities in the area o f service delivery. The Country Assistance Strategy (CAS) notes that strengthening local government i s a key factor in improving service delivery. The CAS mid-term review reinforced the point that ProMaputo was fully in l ine with the CAS objectives and with the Afr ica Action Plan. The program will be included in the new Country Partnership Strategy under preparation. ProMaputo wil l build on prior Bank support for the Municipal Development Project which funded preliminary consultancies and limited c iv i l works in the City. An ancillary objective o f ProMaputo i s to create a vanguard in Maputo Ci ty that will demonstrate to the rest o f the country successful municipal reform, capacity building, and development strategies while contributing to national growth and poverty reduction agendas in the urban context.

B. PROJECT DESCRIPTION

1. Lending instrument

23. The proposed program would be an Adaptable Program Loan (APL) comprising an IDA Credit for Phase I (APL1) o f three years o f US$30 mi l l ion and Phase I1 (APL2) o f f ive years where the IDA contribution wil l be defined at a later stage. Phase I1 wil l be subject to the conditions for Phase I being met (see Annex 3). The new mayoral term begins in 2009 which would allow the new municipal team to demonstrate commitment to continuation o f the Program and prepare the second phase o f the APL.

24. The long term objectives o f the Program are to strengthen the capacity o f the City Council (CMM) to develop, manage and maintain quality service delivery to i t s citizens. The PDO for Phase I i s to strengthen the CMM’s institutional and financial capacity to support achievement o f long term service delivery goals, and to implement selected priority investments.

Phase I (three years; US$43 mi l l ion o f which US$30 mi l l ion in IDA) will focus on:

0

0

0

0

institutional development and municipal governance municipal finance reforms in both revenues and expenditures l ow cost, quick win infrastructure and service delivery improvements planning for Phase I1 larger infrastructure and service delivery investments

9

Phase I1 (five years, IDA contribution to be defined) wil l focus on:

0

0

0

consolidation o f Phase I institutional and financial reforms by the subsequently elected municipal assembly and mayor investment in infrastructure and service delivery improvements o n a larger scale subject to financial viabil ity (especially sustainability) and funds leveraged greater involvement o f non-IDA financing (private sector, AfDB, bilaterals etc.) due to lower risk

25. The scope and cost o f Phase I1 will be determined by various analyses, reviews and the census and the availability o f IDA will also be a major factor. The financing strategy for Phase I1 o f the program i s to use the institutional and financial foundation laid during Phase I with IDA support to leverage funds fiom other partners and the private sector in order to meet the significant investment that wil l be required to improve service delivery. The APL will remain the core o f the financing strategy not only by encouraging diff icult reforms but also by encouraging other partners to support the C M M going forward. Phase I should also provide a better environment to attract other partners since i t wi l l already have improved the transparency and performance o f i ts fiduciary systems. Based on the h d s available and the census o f 2007 in particular (results available only in 2008), the scope, objectives and outcome indicators for APL Phase I1 wil l be defined.

2. Program development objective and key indicators

26. The development objective o f the City’s 10 year ProMaputo Program i s to “Increase the coverage and quality o f Maputo City’s services to i t s citizens by strengthening the Ci ty Council’s institutional and financial capacity”. The PDO for Phase I o f the APL i s “to strengthen the Maputo City Council’s institutional and financial capacity to support achievement o f long term service delivery goals, and to implement selected priori ty investments”. The Program recognizes that Maputo City i s starting f i o m a position o f extremely l imited resources, human and financial, a very weak institutional context where most systems (financial, strategic, urban planning, property registry, information technology, etc.) are lacking and where there i s almost no basic equipment for the functioning o f the C M M itself for the delivery o f services to the citizens.

27. The f i rs t phase focuses mostly on restructuring and strengthening o f the capacity o f the CMM, with approximately US$13 mi l l ion (of which US$11 mi l l ion i s IDA) allocated for institutional development and financial reforms, and approximately US$26 mi l l ion (of which US$15 mi l l ion in IDA) for some quick win investments in visible infrastructure rehabilitation and service delivery. These investments wil l deliver tangible results that wil l help maintain polit ical credibility to continue and provide incentives to deepen the reforms. They wil l also demonstrate that with increased resources and capacity, the city can deliver more services, therefore encouraging citizens to pay taxes and fees to initiate a virtuous cycle.

28. By the end o f Phase 11, significant improvements in service delivery wil l be visible in areas that citizens themselves have identified, such as: solid waste management, street lighting, road rehabilitation and drainage, and cemeteries. A large share o f these investments wil l take place in the poorer urban districts that are mostly informal settlements with slum characteristics, employing a slightly different focus in each district based on the report card priorities, the poverty assessment done for the program and various economic analyses. Maputo i s the gateway

10

for investors and tourists into Mozambique and therefore some o f the investments will also target the “cement city” to remove bottlenecks to productive investments, in order to increase the city’s competitiveness for foreign and local investors and increase employment opportunities. These areas constitute the principal tax base o f the city.

29. Progress towards the CMM’s goals wil l be measured annually through indicators detailed in the Program Results Matrix. The Program’s design emphasizes monitoring as an integral function o f the l ine management, with overall responsibility resting with the Mayor supported by the Municipality’s Office o f Strategic Planning and Institutional Development (GDEI). The governance structures that the mayor has established, such as the mayor’s Consultative Council o f high level local business and community leaders as we l l as the annual Citizens Report Card, will provide additional mechanisms for monitoring progress.

30. Most importantly, the conditions for initiating Phase I1 wil l be measurable indicators that demonstrate whether the institutional and fiscal fundamentals are in place, and whether they are contributing to some improvements in service delivery in priorit ized areas such as solid waste management. Conditions for init iating Phase I1 include a l l three indicators for achievement o f the PDO presented in the Results Framework (Annex 3) and two o f the four Intermediate Outcome Indicators presented in the same Results Framework. In year three o f Phase I, specific outcome indicators for Phase I1 will be determined based on the achievements under Phase I and updated performance targets informed by data provided from the 2007 Census.

3. Program Description

31. Program objectives and activities were selected through a process o f prioritization undertaken by the CMM through dialogue with i t s major stakeholders, including a number o f multi-stakeholder meetings held at various levels to discuss the issues facing the City. Further research was done to assess the state o f the City and the perceptions o f i t s citizens which, combined with a practical assessment by the C M M o f i t s internal capacity and various economic and technical analyses, generated a set o f priorities. These assessments included multiple aspects o f institutional and financial performance along with municipal governance. Targeted beneficiaries are balanced between the private sector and residents o f the poorer neighborhoods in order to establish the virtuous circle o f service delivery in return for tax and fee revenues, and to make progress towards both growth and poverty reduction objectives. T o identify i t s role in supporting the Program, the Wor ld Bank’s comparative advantage and the potential for synergy with other donor projects were also carefully considered. The IDA support therefore focuses on Institutional and Financial Reform and complements the GTZ Technical Assistance provided in Solid Waste Management and support for road investments f rom the Arab Development Bank, JICA and possibly AfDB.

Component A: Institutional Develoument and Municipal Governance (US$8 million of which US$6.2 million in IDA)

Sub-component A.1: Institutional Reform and Strengthening

32. The objective o f this subcomponent i s to enable CMM processes and structures to effectively face the challenges o f municipal development. I t entails six specific objectives: (a) to simplify C M M organization and management which entails restructuring administrative and technical directorates and redefining functional responsibilities l inked to new staffing tables for

11

their subordinate units; (b) to implement strategic human resource management which includes workforce restructuring and reforming incentives systems to attract, retain and motivate qualified and well-performing personnel; to mitigate the impact o f HIV/AIDS; (c) to improve the performance o f support systems and service delivery processes through the implementation o f simplified administrative procedures; (d) to decentralize and integrate planning and management o f C M M programs by building capacity o f municipal districts to formulate basic plans, provide essential documents to citizens, and maintain and manage simple infrastructure and the neighborhood environment; (e) to ensure adequate material resources for CMM operations through procurement, allocation, and maintenance o f municipal buildings, vehicles and office equipment.

Sub-component A.2: Improved Municipal Governance

33. The objective o f this subcomponent i s to improve C M M transparency and responsiveness by increasing the involvement o f various stakeholders in municipal governance. I t entails f ive specific objectives: (a) to increase the transparency o f resource management and improve C M M communication with internal and external actors to better respond to community concerns through improved citizen consultation and awareness campaigns; (b) to improve the interaction between the CMM and the Municipal Assembly by training Assembly members and enhancing information flows with the Council; (c) to improve coordination between C M M and other public sector actors by institutionalizing collaborative mechanisms with central government, de- concentrated bodies and agencies, and public utility companies; and (d) to increase the number and effectiveness o f partnerships between C M M and nongovernmental actors by developing and implementing public-private partnerships and improving collaboration with NGOs and civic associations.

Component B. Municipal Finance (US$4.7 million, all IDA)

Sub-component B.1: Improved Revenue Collection

34. The objective o f this sub-component i s to increase municipal revenues by enhancing the capacity o f the municipality to better uti l ize i t s own revenue sources. I t entails f ive specific objectives: (a) an intermediate solution to improve the current systems o f billing and collection o f taxes and fees, through the involvement o f a private company to distribute property tax bills; and the increasing participation o f urban district administrations in revenue related activities; (b) a medium and long te rm solution to improve the systems o f taxes and fees; design o f a single consolidated database and a new systems for billing, distributing and collecting taxes and fees; (c) to improve the internal management and capacity o f the service-provision units to collect more fees; (d) to improve the capacity o f the municipality to attract additional revenues, including through the revision o f existing tax legislation; and (e) to provide training and equipment to improve the municipal revenue system.

Sub-compon en t B. 2: Improved Expenditure Management

35. financial management system. To do so, the following f ive specific objectives wil l be pursued: (a) to improve the process o f budgetary planning, in order to ensure that the different units submit their budgets in a timely and accurate fashion; (b) to improve the distribution o f financial resources, in order to ensure that budgets are executed according to the plans; (c) to improve the

The objective o f this subcomponent i s to ensure that the municipality has an integrated

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procurement and asset management systems; (d) to improve the budgetary execution and control systems (including audits o f the municipality’s financial statements - including a l l IDA financed activities); and (e) to provide general support to improve the municipal expenditure system.

Component C. Planning and Service Delivew Improvements (US$26.3 million of which US$15.1 million in I D A )

Sub-component C.1: Planning and Management of Urban Space

36. This sub-component will provide support to the municipality to improve the efficacy o f the management and the planning o f services through the development o f Spatial and Sector Plans and the implementation o f a City Information Management System (with spatial mapping). I t wil l provide the municipality with the methodological tools, training, technical assistance and mentoring to undertake strategic, spatial and sector planning. I t wil l also support improvements to the management o f urban space, facilitate the updating o f the existing basic cadastre to be u s e h l for property registration, taxes and other uses, assist in the approval o f infrastructure plans, develop spatial and sector plans, as we l l as restructure the processes and procedures related to the granting o f land use r ights and land ownership, and the implementation o f an information system for these purposes. I t entails two specific objectives: (a) to improve the management o f urban space; and (b) to improve the design and planning o f municipal services.

Sub-component C.2: Infrastructure and Service Delivery Improvements

37. The objective o f the sub-component i s to increase the availability and quality o f infrastructure and equipment to show tangible improvements in service delivery through appropriate management o f investments. The sub-component will include the fol lowing results and associated activities: (a) Rehabilitation o f existing paved and unpaved roads and associated drainage, and establish conditions for future expansion; (b) construction o f a cemetery; (c) increase in public safety through improved street lighting and traffic lighting; and (d) construction o f markets.

Sub-component C.3: Solid Waste Management Services

38. management services through improvements in the CMM’s Solid Waste Management (SWM) operations as we l l as through partnerships with the private and non-government sector.

The objective o f the sub-component i s to increase the quality and coverage o f solid waste

4. Lessons learned and reflected in the project design

39. There have been two urban programs in Mozambique with Wor ld Bank financing to date, PROL (Program for the Reform o f Local Public Administration) (1994 -1999) and the MDP (Municipal Development Project) (2003 - 2007). These projects contributed significantly to the establishment o f the legal framework for local government in Mozambique and to the introduction o f good municipal management practices such as fair, transparent procurement procedures and regular municipal audits. There are numerous lessons to be learned f rom these projects and others in Mozambique including PDDM (GTZ-financed) and PADEM (Swiss- financed) which focused on smaller municipalities and DPFP (IDA-financed) which focuses on rural districts. Lessons have also been drawn f rom an emerging body o f practice in Wor ld Bank projects for other primate cities in Africa, including Kampala, Dar es Salaam and Dakar.

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Political Leadership and Commitment

40. Polit ical leadership and commitment from the mayor and management team i s a necessary precondition for program preparation. Support for a City’s program from national government i s also important.

Agreed focus on institutional andjnancial reforms:

41. An agreed focus o n institutional and financial reforms as the basis for sustainable cities and improved service delivery, with specific targets and triggers, i s necessary before large investments in infrastructure can be absorbed and sustained. Sustainable urban development i s inseparable from local government capacity-building and cannot be achieved simply through investment in urban infrastructure - or by relying o n practices introduced for less complex institutional settings (such as social funds and community driven development).

Implementation Arrangements

42. The implementation capacity should be within the structure o f the municipality i t se l f and not in a project unit, since this limits internalization o f reforms by the whole municipality and undermines ownership and sustainability. I t may therefore require more t ime to achieve outputs than in the case o f a project unit, but since the objectives o f the program are mostly to do with institutional development as an intermediate outcome in order to achieve associated service delivery, this more sustainable approach i s required.

Balance between institutional and service delivery improvements (over time)

43. Even when i t i s clear that the focus needs to be on institutional and financial reform, these can only be undertaken in the context o f polit ical leadership and credibility. As such, the mayor needs to demonstrate improvements in services and greater responsiveness to the citizens o f the city. These “quick wins” are necessary to establish the first step in a virtuous cycle o f citizen payments for service delivery, and thus strengthen the “social contract”. Furthermore, these investments must also be balanced between the poor neighborhoods, and the areas where the private sector and wealthier residential areas are located, since this i s the main tax base for the city and services are therefore expected in return, and there i s also a need to reinforce the abil ity o f the city to attract and retain investments by local and foreign f i rms.

Separate program for major cities

44. Experience in many countries shows that capital cities need to be treated distinctly from other local authorities due to the complexity o f issues and reforms and the scale and lumpiness o f investments needed. In most Afr ican countries, capital cities are many times larger than the secondary c i ty and Maputo i s no exception. Capital cities face problems o f urbanization on a unique scale that requires specific attention, different to that given to other uni ts o f government.

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5. Alternatives considered and reasons for rejection

45. financial and institutional reforms was chosen based on the lessons learned above. alternatives were as follows:

The approach o f working directly with the City as implementing agency and focusing on Some

46. Include Maputo in a second phase of the Municipal Development Project or Decentralized Planning and Financing Project. This option was rejected based on the experience o f the MDP, where working through an interlocutor ministry proved less effective than working directly with municipalities, where the mayor has much greater ownership and direct responsibility and accountability. Furthermore, including the capital ci ty in a program that dealt with cities o f a l l sizes, particularly smaller ones that are more l ike villages, proved to be too broad a scope to achieve results. The capital cities need a separate level o f attention given the scale and nature o f their specific challenges, and the institutional complexity associated with these. Combining Maputo into the DPFP was out o f the question since municipalities are decentralized, autonomous governments unlike the districts, which have a completely separate, de-concentrated status. As such there i s no common framework or institutional context in which to combine these programs and the pol icy and implementation challenges are vastly different.

47. The program does not include additional cities, although this might be revisited for Phase 11, since i t was felt that the challenges o f Maputo were so extensive and that resources were not available to work across two cities at once. I t was decided that Maputo would be the vanguard for the new approach and that opportunities would be created to uti l ize Maputo’s experience as a learning curve for the other cities. A successful capital ci ty and a successful port c i ty are also demonstrated drivers o f growth, and as such Maputo i s a priority for the country’s overall development agenda. Maputo province (mostly the City itself) was also the worst performer in terms o f reduction in poverty and a special effort i s required to reverse this trend and manage the urbanization and i t s impact as a matter o f priori ty to minimize the risk o f an urbanization-without-growth scenario. I t i s also important to reduce complexity o f program design.

Include more than one large city in the APL.

48. APL versus Investment Project. An APL was chosen as the proper instrument given the necessity to focus o n institutional and financial reform in the first phase. Without a second phase, however, and the commitment o f the Wor ld Bank as a primary partner over the medium term, there would be l imited incentive for the diff icult reforms to be undertaken during the first phase, and l imited scope for investment in improved service delivery o n the scale needed to demonstrate pay-offs f rom the institutional and financial reforms in the first phase.

C. IMPLEMENTATION

1. Partnership Arrangements

49. The first phase of the program will be financed by a credit from IDA for US$30 million, funds from the Central Government (US$6.5 mill ion) and own revenues generated by CMM (US$6.5 million). This financing i s intended to catalyze interest from the Recipient’s development partners in supporting Maputo City in future. GTZ has assisted the City with critical technical assistance for solid waste management since 2001 and has agreed to continue this support conditional on the IDA credit being in place to finance much needed investments.

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50. Maputo has seen l imited partner fhding to date, with the exception o f investment in roads by the Arab Development Bank and IDA MDP Grant Fund financing through the Ministry o f State Administration. I t has also received indirect support to the water sector (NWII) from the Ministry o f Public Works. There have been some other minor investments in specific neighborhoods (bairros) but no comprehensive program focused on city management and service delivery. However, several development partners are beginning to be interested in the Ci ty based on i ts Program and management team as wel l as expectations o f the IDA credit and its focus on the institutional and financial reforms o f the City. AfDB and JICA have both expressed interest in providing possible future financing for roads and drainage. These investments would be additional to the Program as the Program was designed within a secured financing envelope. I t i s important to note that the coordination o f partners i s a function o f the mayor’s office and regular coordination meetings are held. The program i s also in l ine with the Paris Declaration as i t s contributions are integrated with the City’s annual budget, approved by the Municipal Assembly, and executed by the Municipal Finance Directorate. There i s no Project Implementation Unit and i t uses (and improves) the City’s o w n systems to the extent possible rather than establish parallel ones.

51. At the partner level, there i s a Municipal Development Working Group in Mozambique in which the Wor ld Bank i s an active member. The Group shares project experiences, discusses pol icy and coordinates interaction with government at key events such as the Joint Review through the Decentralization Working Group and Governance Pillar. The Working Group i s converging towards a programmatic approach for future partner support for municipal development while maintaining a strong direct link with municipalities themselves. The experiences o f various partner-funding projects to date, the ProMaputo approach being taken by Maputo, and the various pol icy and institutional changes in the municipal development landscape need to be carefblly analyzed and lessons and implications drawn. As such, the Group intends to work closely with the Government and the Municipal Association (ANAMM) to undertake analytical work in 2007 that could lay the groundwork for an eventual sector-wide approach.

2. Institutional and Implementation arrangements

52. The credit wil l finance activities to be carried out by the Ci ty Council o f Maputo (CMM) as the implementing agency for the Program. IDA will enter into: (i) a Financing Agreement with the Republic o f Mozambique for which the representative i s the Ministry o f Planning and Development; and (ii) a Project Agreement with the CMM, as Program implementing agency.

53. Preparation has been led by the CMM Secretariat, made up o f f ive executive councilors and the Advisor to the Mayor. Program coordination and monitoring functions will be taken over by the CMM’s Office o f Strategic and Institutional Development (GDEI) that i s being established in the first set o f institutional reforms (by effectiveness) based o n the CMM Restructuring Plan as approved by the Municipal Assembly on October 25, 2006. GDEI will report directly to the President and the Council wil l be responsible for overall coordination o f ProMaputo as well as liaison with l ine departments who wil l manage and implement specific program activities. The GDEI will include CMM technical staff, contracted advisors and consultants, some o f whom are already in place and others that will be recruited by effectiveness. GDEI will be supported by an Implementation Coordination Team (ICT) comprised o f selected Executive Councilors to ensure both operational integration with l ine structures and strategic

16

integration o f Program activities with municipal policies and priorities. Given the capacity constraints o f the municipality, a number o f long term advisors to the mayor and the council are envisaged for the duration o f the f i rs t phase: some will support the GDEI while others will strengthen the Municipal Finance Directorate (DMF) until new systems and adequate capacities for financial management and procurement are established. Other technical advisors, short term technical assistance, and consultancies will be contracted as necessary to support specific program activities and provide technical services to the Council. (Annex 19 provides further details on the Programs’ Capacity Building Strategy).

54. Financial management will be undertaken by the Municipality’s own Finance Department, which will gradually introduce an integrated financial management system. The procurement function will similarly be performed by a Procurement Department within the Finance Directorate staffed by municipal personnel supported init ial ly by contracted procurement specialists. As such, no dedicated program management structures will be created. Rather, the GDEI and DMF will integrate municipal management and ProMaputo management within the same structures and routines. Separate procedures will only be required for establishment and replenishment o f the Special Account. Reporting will be done on the C M M budget as a whole and ProMaputo audits will be included within the annual audits o f the municipality’s budget and accounts by external auditors.

55. The ProMaputo design specifies which organizational units will be responsible for the coordination and implementation o f the activities foreseen in the work plan. Each component and subcomponent has a designated coordinator, just as each activity has a designated implementer/implementation manager. The Institutional Development and Municipal Governance Component (A) will be coordinated by the Office o f Strategic and Institutional Development (GDEI), the Municipal Finance Component (B) will be coordinated by the Municipal Directorate o f Finance (DMF), and the Planning, Infrastructure Rehabilitation and Service Delivery Improvement Component (C) will be coordinated by the Directorate o f Infrastructure.

56. The institutional reforms envisaged under Component A - Institutional Development and Municipal Governance - include a full restructuring o f the city council in order to put into place an organization capable not only o f managing ProMaputo but o f integrating ProMaputo activities and approach into the Municipality’s own structures, systems and processes for governance and service provision. Staff strengthening through both recruitment and training i s therefore a core subcomponent o f the program and a key to the sustainability o f municipal development in Maputo when technical assistance i s reduced at the end o f Phase I; thus capacity building will demand a large amount o f the effort during the first phase. As such, the service delivery ambitions for Phase I need to be modest.

57. The Municipality i s divided into seven Municipal Districts. Part o f the Phase I effort will also be devoted to define a new role for these Urban Districts, drawing o n a slum upgrading pilot that was funded by Cities Alliance, and in others a deconcentration approach that will give the Districts additional responsibilities and resources. In al l districts, some very basic functions will be deconcentrated (street cleaning, lighting maintenance etc.) in order to improve efficiency and accountability as wel l as build capacity at these levels for more effective collaboration between citizens and their local authorities. An evaluation will be made o f these experiences during the program and lessons learned incorporated into Phase 11, including possibly a larger, more decentralized role for the Municipal Districts.

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3. Monitoring and Evaluation of outcomes/results

58. The City Council wil l be responsible for the monitoring and evaluation o f i t s program. The GDEI wil l have direct responsibility to ensure the program results matrix i s being monitored and overall accountability for this function will be undertaken by the mayor himself. The line managers o f each department wil l be responsible for the collection o f monitoring data relevant for their area and to report these to the GDEI through i t s respective component coordinator. Regular evaluations o f municipal performance such as the Report Card wil l be conducted by independent consultants contracted by the City. The results o f Program monitoring and evaluation wil l be published along with the municipal budget as part o f the C M M communication strategy, and will be presented to the Stakeholders’ Forums and the Municipality’s Consultative Council. A full review o f Program performance wil l be done in year three o f the Program.

59. Baseline indicators are being collected through activities financed under the PPF. Capacity to collect monitoring data wil l be strengthened within the C M M itself, whi le independent consultants will be responsible for evaluation instruments. Costs o f M&E will be covered under the credit. Program indicators are designed to enable better decision making by CMM managers as we l l as to permit adjustments in Program work plans during implementation. As the city establishes a sound financial management system, it wil l also be able to move towards activity based budgeting and thereby gather information that will enhance decision making on cost-effectiveness across i ts range o f investments and services.

60. Specified ProMaputo outcomes have been chosen o n the basis that they (i) are achievable within the f i rst phase; and (ii) that they provide an objective, quantifiable basis for assessing performance o f the key elements o f the three components.

4. Sustainability

61. The development objective o f the program i s the improved delivery o f services in a sustainable manner, based on an institution that i s increasingly capable o f acting autonomously through i t s own financial and organizational capacity. The commitment to, and ownership of, the program by the leadership o f the municipality - the mayor, the CMM, and their staff - have been demonstrated during formulation o f ProMaputo. There i s also considerable support f rom the central government, and in particular the Ministry o f Finance, Ministry o f Planning and Development and Ministry o f State Administration. The agreed importance o f program implementation v ia CMM’s own systems rather than by any project-specific structures, along with the significant level o f effort dedicated to capacity building through organizational reform and staff strengthening, will contribute significantly to the sustainability o f processes initiated under ProMaputo. The priori ty given to increasing municipal revenues, evidenced by the key APL trigger, further indicates that financial sustainability and increased autonomy o f the city i s a key concern o f the program. Together these factors - the commitment o f the central government, the mayor and h is executive, municipal leaders, mainstreamed management, a focus on capacity building, and an emphasis on revenue enhancement - reflect the priori ty given to sustainability in the ProMaputo design.

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5. Crit ical Risks and possible controversial aspects

Potential Risks

Phase 1 2007-2009 T o Project Development Obiective Polit ical commitment to Program i s not sustained, at national or local level. Various laws governing municipal autonomy (particularly financial) are revised in a manner prejudicial to the program.

Lack o f support f rom citizens, private sector, and NGOs, particularly for revenue raising activities.

Ineffective implementation o f institutional strategy - lack o f effective systems andor HR capacity.

H I V i A I D S pandemic l i m i t s City’s human resources and revenue base, while creating increased demands and burdens.

Risk Mitigation/Minimization Measures

Active involvement by leadership and key officials already demonstrated and commitment to ongoing engagement f rom Municipal Assembly and National Government. Broad-based buy-in by municipal stakeholders will help sustain political c o m t m e n t . Program to be included in next CAS, thus affirmed by national government. City and Municipal Association actively involved in advocacy regarding revisions to laws and regulations.

Init ial involvement i s already h igh in early stages o f program preparation. Effective stakeholder participation in developing the rest o f the Program and i t s implementation, including greater participation in sub-municipal governance. Consultative Citizens’ Report Cards are bemg undertaken and should gamer increased engagement and support f rom citizens, the private sector and NGOs. “Quick Wins” investments or actions visible to citizens. Public Awareness Programs to explain any tax or fee increases. Ongoing commitment from Mayor and Assembly members (demonstrated already through passage o f increased rates for SWM). Implementation o f Municipal Ant i -Compt ion Strategy. Secretariat established to lead preparation and implementation, and consists o f high level officials. Restructuring Plan approved by Municipal Assembly in October 2006. Support and commitment f rom Ministry o f State Administrabon and Ministry o f Finance to undertake necessary HR reforms within existing legal framework. Commitment from mayor already demonstrated 111 removing non- performing staff and recruiting new h igh capacity staff. Specific targets and measurable indicators o f systemic improvement in institutional and financial areas. Emphasis on capacity building investments for C M M line units,

Strategy for institutional reform w i l l include an H IV /A IDS C M M working place policy and three-year plan, with funding and technical support for implementation to come from National Aids Council.

including contracting o f new qualified t e c h c a l personnel.

M / S

M

S A 4

M

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Lack o f qualified staff in the procurement department and no prior experience with Bank procedures.

Ineffective implementation o f the improved financial management systems and revenue collection mechanisms.

Overall Risk Rat ing

Procurement Department to be established within Finance Directorate and staffed with permanent municipal personnel. A Procurement Specialist with qualifications and experience acceptable to the Bank recruited and should be responsible for training the procurement staff o f the Municipality. Establish a f low o f documentation and conditionality for prior to payment certification o f invoices and templates for contract execution monitoring by procurement. A Procurement Manual produced, acceptable to the Bank.

0 International advisors are being pa red with local team, including new recruits, in revenue and expenditure areas for 2 years. Financial Management Manual has been prepared with recommendations for process changes to be done d m g program. Conditions for APL 2 include an integrated financial management system in place and functioning.

Modest to Substantial

M

S

(H) High (S) Substantial (M) Modest (N) Negligible

62. The program risk overall i s rated as modest to substantial given the lack o f comprehensive integrated (non-project-specific) financial and procurement systems in the municipality and the l imited human resources capacity to date. These are a result o f the recent establishment o f municipalities in Mozambique and the objective o f the program i s principally to reduce these risks by focusing on these aspects as the core o f Phase I o f the APL.

Possible Controversial Aspects.

Public Private Partnerships

63. The contracting out o f services in the City o f Maputo could be polit ically diff icult as the Municipal Assembly has shown some reluctance in this area based o n previous bad experiences but the Assembly also recently approved the Solid Waste Management rate increase and associated strategy that includes private contractors. As such, if rate or tariff increases and private sector involvement can be shown to significantly improve service delivery, this resistance i s l ikely to lessen. A new PPP framework and unit has been set up and a second phase i s under way to train the staff and p i lo t small PPPs (e.g. public parks and gardens and bus stopskiosks) during Phase I o f the APL.

Tax and fees rate changes

64. I t i s normal that any increases in tax rates and fees will be contested. Property tax rates and coverage in Maputo are extremely l ow relative to other countries and property value reassessments wil l result in higher tax obligations. Most opposition i s l ikely to be encountered in the “Cement City”, where the most valuable properties are located and where elite citizens have a louder voice. This wil l need to be mitigated by polit ical leadership, citizen consultation, awareness campaigns (already under way) and improvement in services. Exemptions or other mitigation measures for l o w income households wil l be made to ensure there i s no adverse impact on the poorest segments o f the city’s population.

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6. Credit Effectiveness Conditions and Covenants

Effectiveness Conditions

The CMM will have established an adequate financial management system capable o f producing Financial Monitoring Reports in form and substance satisfactory to the Association to ensure proper accounting and monitoring o f program fimds. The CMM will have adopted: (i) a financial management manual; (ii) a procurement manual; and (iii) a Project implementation manual, a l l in form and substance satisfactory to the Association. The CMM’s 2005 audited financial statements wil l have been submitted in a manner satisfactory to the Association. The CMM will have issued a request for proposals for selection o f independent auditors for the audit o f i t s 2006 financial statements, in form and substance satisfactory to the Association. The CMM will have established the office o f strategic and institutional development and appointed i t s head. The CMM will have hired the institutional development advisor, with terms o f reference satisfactory to the Association The C M M will have established a procurement department duly staffed by a qualified department head supported by a senior procurement specialist and a procurement officer with terms o f reference satisfactory to the Association. C M M will have executed a Subsidiary Agreement with the Recipient.

Coven ants

0

0

0

D.

By no later than 1 September, 2007, the C M M will prepare and submit to the Association, in form and substance satisfactory to the Association, a strategy (including relevant hiring criteria and modalities) to retain qualified and trained staff contracted to enhance i t s capacity. The CMM will implement this strategy by absorbing within i t s workforce the qualified and experienced staff, at the end o f the init ial two years o f each staff contract. By 1 September, 2007, the CMM will enter into an agreement with the Electricidude de Mogmzbique (EDM) for the purposes o f collecting the solid waste fee under Component c3 . No later than 1 September, 2009, prepare and agree with the Association, suitable bidding documents (including qualification criteria) for the competitive selection and employment o f contractors to carry out Components C.2 and C.3 o f the Project, and thereafter apply the agreed selection procedures.

APPRAISAL SUMMARY

1. Economic Analysis (see annex 9)

65. The program consists o f three components: (A) institutional, (B) financial and (C) small- scale capital investments. Only components B and C are subject to an economic and financial analysis. For the base case, the overall Net Present Value (NPV) o f components B and C i s US$39.7 mi l l ion and its Economic Rate o f Return (ERR) i s 61 percent. An increase o f 25

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percent in total costs and a reduction o f 25 percent in total benefits results in a NPV o f US$11.3 mi l l ion and an ERR o f 23 percent. These results show that overall the program has a robust return on investment. The summary o f the results o f the sub-components i s presented below, and expanded in annex 9. The analysis was done on the basis o f pre-appraisal budget f igures although these do not vary substantially from the final budget.

Component A: Institutional Development and Municipal Governance

66. This component lays the necessary conditions for realizing the benefits from the investment in the other two components. This component addresses a number o f constraints related to institutional reforms, capacity building and improvements in municipal governance. This component wil l generate benefits arising from improvements in the execution o f the program and these will be captured in the other two components.

Component B: Municipal Finance

67. See financial analysis below.

Component C: Planning and Service Delivery Improvements

68. Sub-component C.l: Planning and Management of Urban Space. I t i s diff icult to quantify the benefits o f this subcomponent. However, benefits are expected to arise over a long period o f time as a result o f improvements in the management o f urban spaces. Such improvement wil l mostly come from reforms in the distribution o f land use r i g h t s and land ownership as we l l as improved investment decisions for infrastructure and i t s management, and through the adoption o f an information system to expedite these processes.

Sub-component (2.2: Infrastructure and Service Delivery Improvements

a) Roads and associated drainage

69. Most o f these benefits wi l l come from savings in Vehicle Operating Cost (VOC) and also f rom the generation and diversification o f traffic. There are additional potential benefits that are not included in this analysis such as: savings in travel time; additional income coming from rental properties that would have improved access; and savings from the prevention o f damages in roads, properties and structures, due to improvement in drainage. Sensitivity analysis was carried out by (a) increasing the investment by 25 percent; (b) decreasing the benefits by 25 percent; and (c) combining both (a) and (b). For the road investment as a whole the base case has an ERR o f 106 percent and a NPV o f US$38.6 mil l ion. The worst case scenario (c) has an ERR o f 65 percent and a NPV o f US$28.6 mill ion. These results show that overall the program has a robust return o n investment.

b) Construction o f a cemetery

70. The basis o f evaluation o f this intervention i s cost-effectiveness and reasonable cost recovery. CMM has plans to reduce the subsidy which i s about US$1 per burial to a minimum through partnership with the private sector. However, even if costs cannot be recovered in the near future such an investment i s socially justif ied on humanitarian grounds. There i s a social

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obligation o f the state to provide basic cemetery services to i t s population and the current exhumation rate and i t s negative cultural impact i s serious.

c) Improvement in street lighting

71, The objective o f this activity i s to meet in a cost-effective way the concerns o f citizens to enhance public safety through an increase in street lighting. The investment in this area i s not too high and i t s associated benefits measured as savings in crime are diff icult to quantify. However, in addition to any savings arising from crime reduction, this investment may have associated benefits from an extension in the provision o f electricity and waste collection services. This investment i s planning to provide 500 electric poles at a distance o f 40 meters apart along the urban streets. This creates potential for residential access o f electric services to about 2,000 households. Expanding the electricity network would help CMM to charge US$0.6 per household in waste collection fees.

Sub-component C.3: Solid Waste Management

72. This subcomponent i s designed to increase the quality and coverage o f solid waste management both through internal improvements in the CMM’s solid waste management operations, as we l l as in partnership with the private and non-government sectors. Currently CMM collects less than 253 todday or 30 percent o f the solid waste generated daily. The revenue generated from the current residential fee covers less than 30 percent and the total revenue from a l l fees covers less than 50 percent o f total recurrent costs excluding salaries. Affordabil ity relative to the fee i s l ow at 29 percent. C M M i s committed to adopt a sustainable waste management scheme that i s designed to achieve full cost recovery by 2016. CMM also i s renegotiating the collection commission that EDM charges. Assuming the new fee increases for residential waste collection (approved subsequent to this analysis) are implemented on schedule (0.15 MTdkWh per household for 2007, 0.20 MTdkWh for 2009 and 0.25 MTdkWh by 2013) and that C M M succeeds in lowering EDM commission charges, the solid waste management operation can achieve fbll cost recovery by the end o f APL2 (2016). The net present value o f the cash f low at a discount rate o f 12 percent i s positive US$0.65 mill ion; and the internal rate o f return i s 20 percent. Both the NPV and IRR are sensitive to variations in residential waste collection fees and EDM service charges. The sustainability o f the waste management system therefore rests on the t imely execution o f the scheme as planned.

2. Financial Analysis (see annex 9)

73. A financial analysis was prepared for component B o f the program that deals with local revenues and expenditures. The analysis made revenue and cost projections “with” and “without” the program intervention. The financial analysis calculated the net revenues during the first phase o f the program and i t s payback period. All the performed calculations support the financial viabil ity o f the investment in component B.

74. N e t revenues were calculated under a number o f scenarios and the analysis found that by the second year o f the program (2008) net revenues are positive under a l l scenarios. I t i s calculated that the expected net revenue gain o f the program may vary from US$700,000 to US$2.2 mi l l ion depending o n the scenario. The calculations for the payback period estimated that in the first two years o f the program, costs go beyond the projected revenues. By the third year revenues become higher than the costs, and they stay this way in subsequent years. In the

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f irst phase o f the program the additional revenues generated by the program wil l finance between 67% and 85% o f the total investment o f the public finance component. However, i t i s expected that by 2010, one year after the first phase o f the program, the Ci ty o f Maputo will be generating more additional revenues than the total cost o f the investment.

3. Technical Analysis: Component C - Planning and Service Delivery Improvements

75. In the last 30 years, and more strongly during the long c iv i l war period, Maputo suffered the impact o f an intense rural exodus. The c i ty population growth multiplied by five the occupation rate o f outlying areas vulnerable to flood or erosion, and even inner city streets or squares located in already urbanized neighborhoods were quickly occupied without any possibility o f urban space management.

Subcomponent C1 - Planning and Management of Urban Space

76. and incomplete; therefore, subcomponent C 1 proposals are consistent with the development o f modem urban planning that takes advantage o f the inputs from previous projects financed by the Wor ld Bank (PROL, MDP, etc) in order to resume the activities at a more intense pace.

The currently available information about Maputo urban planning i s l imited

77. The subcomponent i s intended to finance a range o f activities aimed at supporting the Maputo City Council in strengthening i t s planning and management. The proposals submitted fol low the rational sequence foreseen in the various prior studies and proposals to improve Maputo’s urban space management.

Subcomponent C2 - Infrastructure and Service Delivery Improvements

78. Several technical studies from the early 1990s have indicated that due to lack o f periodic maintenance nearly a l l urban-infrastructure i s severely degraded. The studies show that the rehabilitation o f such infrastructure should be prioritized among a l l investments. Recently, by applying some funds from both the IDA-supported roads project and MDP, C M M completed a series o f interventions priorit izing the rehabilitation o f the sewage system and asphalt paving on several streets and avenues in the downtown area and in urban neighborhoods.

79. These investments have not only rehabilitated a significant part o f the roads system, but also allowed the municipal technicians to learn by doing in the areas o f procurement, management o f fimds from international agencies, and also acquiring the technical know-how for execution and supervision o f works.

80. This subcomponent will include financing for construction o f works, and consultancies, to prepare detailed designs, supervise works, and design a process to ensure the maintenance o f these investments, particularly in roads and drainage. A number o f roads are being rehabilitated based on various economic and social criteria, including some in the urban core and a major rehabilitation o f Avenue Sebastiao Mabote, aimed at connecting poorer suburban areas to the industrial and commercial center in order to maximize employment opportunities and reduce transport costs and pedestrian accidents. N e w roads use paving technology that i s lower cost over their l i fetime while rehabilitated roads will s t i l l use bitumen for cost-effectiveness reasons.

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81. Regarding the short-term deterioration o f infrastructure, the C M M will contract a consultancy to design a maintenance strategy/plan and it wil l allocate its own source revenues to finance the current expenditure budget, as shown by the target and monitoring indicators set up in the results matrix. I t i s therefore expected that Phase I would make considerable progress towards improving the historical backlog o f non-maintained investments. Finally, the investments in public lighting, although small, are necessary f rom a social standpoint to reduce crime and improve l ivabi l i ty in suburban and poor areas.

82. The results o f the 2005 Report Card show that funeral services are a priori ty for citizens. With the purpose o f solving, at least in the short term, the critical lack o f funeral services, the Municipality requested resources for the construction o f a new cemetery. The proposal to finance the construction o f a cemetery not only responds to the immediate and urgent needs o f the population; the investments are also technically sound and meet environmental standards. The construction o f a new cemetery, although not a long term solution to the problem, wil l reduce the number o f exhumations to a more acceptable level in the short term.

Sub-component C3 - Solid Waste Management

83. This component builds o n the results o f the 2005 Citizen Report Card as we l l as other relevant technical studies. The collection o f solid waste i s a principle priori ty for citizens, which has long been the subject o f discussion among the members o f the Assembly and the C M M .

84. C M M studies show that the poor delivery o f solid waste services i s due to a number o f aspects that cannot be solved in isolation, ranging from the use o f aged and obsolete equipment without appropriate maintenance conditions, to equipment poorly operated by unskilled employees. With the purpose o f significantly improving the solid waste collection and disposal system the Municipality requested resources to improve SWM.

85. After many years o f frustrated attempts to directly operate the S W M collection and waste disposal system, as we l l as a failed attempt at contracting in a private company, the C M M has now decided to fol low a more comprehensive p lan designed with the technical assistance o f GTZ and to transfer nearly a l l public service operation for S W M to the private sector. The private operation o f S W M i s one o f the most widely used public service models in the world, as it i s a model that can work we l l provided there i s good contract management in the city and a competitive private sector supply response. The proposals to finance the contracting o f S W M collection services not on ly respond to the immediate and urgent needs o f the population; the investments are also technically sound. The privately operated S W M collection services wil l be provided in compliance with the international quality standards and will be closely monitored through performance-based contracts.

4. Fiduciary

Financial Management (see Annex 7)

86. The program wil l make use o f the institutional framework o f the Maputo Municipal Council (CMM), as we l l as arrangements in place for procurement and financial management. The program will be embedded in the CMM’s operations, to be implemented by the relevant departments o f the CMM. The finance department will support additional supervision and

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guidance activities, including clear guidelines and definition o f roles o f the department, i t s staff and relationships to other units o f the C M M .

87. The CMM i s a continuing entity with an existence independent o f the implementation o f the program to be financed by the IDA credit. Therefore, the annual financial statements IDA requires wil l be for the entity as a whole, and not just for the program. In this regard, the C M M will submit a hll set o f financial statements (balance sheet, income statement, etc.), with additional disclosure (for example, by way o f note or supporting schedule or statement) o f sufficient information on sources and uses o f funds associated with the IDA-financed activities.

88. The auditor’s report wil l be submitted to the Bank n o later than six months after the end o f each fiscal year together with a management letter, highlighting any identified internal control weaknesses, which wil l contribute to the strengthening o f the control environment. The annual financial statements wil l be required to be prepared in accordance w i th the “Financial Management Practices in World Bank-Financed Investment Operations (November 3, 2005)”. Acceptable accounting standards are: (a) International Financial Reporting Standards and International Accounting Standards (IFRS/IAS) issued by the International Accounting Standards Board (IASB); or (b) International Public Sector Accounting Standards (PSAS), issued by the Public Sector Committee o f the International Federation o f Accountants (IFAC-PSC). A broad outline o f the expected contents o f the annual financial statements has already been agreed upon and confirmed during negotiations.

89. The Bank has assessed the financial management and accounting systems o f the CMM. The risk rating for the program in the area o f financial management i s substantial, reflecting the general weak control environment within the CMM. As a core component o f the program, therefore, capacity i s being strengthened to address identified weaknesses and provide the necessary expertise. Mit igating factors to address identified risks include strengthening existing structures not only during the program implementation, but we l l beyond. The proposed Finance component under the program aims at improving the accounting practices, as well as addressing the long term staffing and other resource requirements o f CMM.

90. The conclusion i s that the accounting and financial management systems o f the municipality need to be upgraded to comply w i th the minimum requirements. These currently comprise o f separate and non-integrated accounting and manual processes, including widespread use o f spreadsheets. A number o f initiatives are already in progress, including a draft financial procedures manual documenting financial procedures and internal controls to help staff in the execution o f their duties. Additional staff i s also being recruited in the finance department. In the meantime, an action plan has been agreed with the client to ensure that acceptable financial management arrangements are put in place in readiness for implementation. See Annex 7 .

Procurement (see Annex 8)

91. Procurement activities under the program wil l be carried out by the Procurement Department (Departamento de Aquisip3es) within the Municipal Directorate o f Finance. The Procurement Department i s vested w i th the overall responsibility for procurement activities within the Municipality, including those activities financed by other B iMul t i la tera l Donors as wel l as the Municipality’s own h d s . The Department will receive specialized support f rom the beneficiary DepartmentsDirectorates in the preparation o f technical specifications and or terms o f reference as well as in contract supervision.

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92. The Department wil l be staffed with a head o f Department, reporting to the Municipal Director o f Finance, and at least three full time procurement officers led by a Senior Procurement Specialist with qualifications and experience with procurement procedures from Mult ihi lateral Development Banks including the Wor ld Bank. Some o f the procurement officers are currently involved in the procurement activities financed by the on-going Municipal Development Project.

93. Under the decentralized structure o f the Municipality i t i s l ikely that minor procurement activities funded by the Program will also be procured at the level o f Municipal Directorates and Municipal Districts. The overall responsibility for supervision and oversight o f the decentralized procurement will rest with the Procurement Department. The procedures to be used by the decentralized units will be laid out in the OperationsProcurement Manual.

94. The key issues and r isks concerning procurement for implementation o f the program have been identified and include no prior experience in large technical assistance contracts, needed improvement o f filing and record keeping systems, increased work load and adoption o f proper incentives by the Municipality to motivate staff.

95. The staff will require that adequate capacity building and more acquaintance with Multi lateral Development Banks (MDB) procedures be provided before and through effectiveness o f the program and subsequently on an intermittent basis to monitor and provide on the job support. T o ensure that adequate ski l ls wil l be provided to permanent municipal procurement staff, a Senior Procurement Specialist and a procurement officer wil l be recruited under TOR satisfactory to IDA, before program effectiveness.

5. Social

Political context

96. The elected Municipal Presidente (mayor) appoints members o f the executive branch o f the municipal government. Named Vereadores, these 16 members o f the CMM are the President’s executive councilors and are divided in two groups made up equally o f appointed staff and from elected councilors, the latter being those in charge o f the seven administrative temtories named Distritos Municipais (municipal districts). Below this structure are local structures representing neighborhoods at political, territorial or administrative level. These include, in order o f importance vis-a-vis their relation with the CMM: Secrethios de Bairros, Chefes de Quarteirces, Chefes de 10 Familias. The Muncipal Assembly has approved a CMM proposal to formalize these structures in order to reduce any ambiguities in their relationships.

97. The legislative branch i s made o f a Municipal Assembly that has the mandate to pass local legislation. The assembly has a President, appointed by the majority party. There are currently three polit ical parties represented in the Assernbleia: Frelimo (majority), Renamo Uni io Eleitoral (RUE) (the largest opposition party) and Joint Program Committee (JPC) (a citizens’ movement). The legal and judicial branch includes the municipal police. There are currently some grey zones o f authority between municipal and national police (particularly in respect o f zoning issues, tax collection, justice) that require greater clarity or coordination.

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Stakeholder Participation

98. city. Among the most significant are:

The current CMM has consistently used different forms o f inclusion in governing the

Municipal Assembly sessions are formally open to the public. Open Presidency. Twice a year, the President and his Executive (especially Vereadores) organize thematic open discussions with the population on the issues o f interest for them. These meetings serve different purpose, among them as a tool used by the C M M to pass information about rights and obligations o f the population; i t has also been used as an instrument for the CMM to assess the people’s perception and their actual performance in the field. Public Accountability Meetings for Vereadores. At least once a year the members o f the executive meet with the population to report on their activities. The “Provedor” i s the “municipal ear” o f the population in the C M M and when well used can help bridge the distance between the authorities and the population. H e reports to the Mayor once a week. The Consultative Citizen’s Report Card. This i s a very effective tool that helps the Council assess i t s own performance in a more systematized and scientific manner which has been employed since 2005. The C M M Budget i s a public document and the annual “Conta de Gergncia” i s sent to the Administrative Court that publishes it. The Mayor reports to the Municipal Assembly, quarterly, and these sessions are open to the public.

HIV/AIDS strategy

99. HIV/AIDS poses a significant risk to the C M M human resources and therefore to i t s service delivery and revenue raising efforts. The Mayor and C M M have the political commitment to address the H IV /A IDS pandemic institutionally but need to establish internal structures and processes that will enable the implementation o f the CMM HIV /A IDS workplace policy and plans. CMM will temporarily be supported by technical assistance that will facilitate the implementation o f the policy and plans and strengthen the institutional capacity o f the structures to be established. In addition, it i s also expected that the C M M will receive the necessary financial resources to implement i t s plans from the National HIV/AIDS Council, which has expressed i t s willingness to provide this support.

100. Building on the work that the C M M has initiated to address the issue o f HIV/AIDS at the municipal level, and given the importance o f creating a strong response plan that will address HIV/AIDS internally, a working group was formed during preparation whose primary objective i s precisely to develop the working place policy and three year implementation plan that will be submitted to the National A I D S Council for funding. (See Annex 17)

Social Safeguards

101. Under sub component C2: Infrastructure Rehabilitation and Service Delivery Improvements, the objective o f the sub component i s to increase the availability and the quality o f infrastructure and equipment to improve service delivery through an adequate management o f investments to show tangible improvements. The associated activities are (a) Rehabilitation o f existing paved and unpaved roads and associated drainage, and establishment o f conditions for

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future expansion; (b) increase the quality and coverage o f solid waste management services through improvements in the CMM’s internal S W M operations as we l l as partnerships w i th the private and non-governmental sector; (c) improve the quality o f cemeteries provided by municipalities; and (d) increase public safety through increased street lighting. These activities wil l have positive social impacts as a result o f the planned improvements and al l o f the actions wil l yield positive social benefits. However, i t i s envisaged that some o f the activities may result in triggering the Wor ld Bank’s safeguard pol icy OPBP 4.12, Involuntary Resettlement and as such, the Borrower has prepared a Resettlement Policy Framework to ensure that should there be loss o f economic activity, land take and/ or acquisition due to any o f the above activities, a we l l costed Resettlement Action Plan (RAP) will be prepared by effectiveness and appropriately implemented.

6. Environment

102. Environmental impacts are l ikely to arise from the proposed activities albeit insignificant as the negative environmental impacts are construction related and short-lived. To protect people and the biophysical environment from the negative impacts and minimize their potential damage to the environment, the program has prepared an Environmental and Social Management Framework (ESMF) which outlines the institutional arrangements and related environmental training needs for the implementation and monitoring o f the mitigation measures. The ESMF provides environmental guidelines and a screening mechanism for contractors and qualified members o f the Municipal i ty to ensure that construction and subsequent operation and maintenance o f the infrastructure are carried out in an environmentally and socially sustainable manner. Under component C2, the ESMF draws on the experience gained during the implementation o f the Environmental Management Plan o f the Municipal Development Project. To consolidate the environmental management achievements o f the Municipal Development Project, the program wil l involve the National Environment Agency (MICOA) at al l stages o f the program a l l through implementation. A memorandum o f understanding wil l be signed between the Municipality o f Maputo and the MICOA to collaborate and to assist in enhancing the institutional and human resources capacity o f the Municipal i ty o f Maputo for environmental management. As the second phase o f the program will involve much more infrastructure development activities, i t i s envisaged that the ESMF and the RPF will need to be revisited and updated where necessary.

7. Safeguard policies

103. The program has triggered safeguard policies OP 4.01 Environmental Assessment and OP4.12 Involuntary Resettlement. The safeguard screening category i s S2 and the environmental screening category i s B. These rating are due to the proposed infrastructure activities as we l l as the site identification and establishment o f cemeteries. Potential safeguard related issues are l ike ly to be air pollution, noise, loss o f vegetation, soil erosion and on the social side loss o f economic activity may occur. In the case o f the proposed cemeteries, a feasibility study i s being camed out to select the most appropriate and environmentally and social acceptable site(s). Cemetery sites that were considered before carrying out the technical , environmental and social due diligence resulted in their abandonment as i t was discovered that the ground water table was too close to the surface and therefore impossible to use as burial grounds. The Bank and Borrower have agreed that should the technical studies result in land take, loss o f economic activities whether temporarily o r permanently or to relocation, a Resettlement Action Plan wil l be prepared and disclosed in country and at the InfoShop prior to

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Project Effectiveness. Likewise, after the completion o f the design o f a f ive kilometer stretch o f road under Component C2 i s complete and the design indicates that the Bank’s OP on involuntary resettlement wil l be triggered, the requisite actions (design and disclosure o f abbreviated RAP) wil l be taken prior to program effectiveness.

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/GP 4.01) [XI [I Natural Habitats (OP/BP 4.04) [I [ X I Pest Management (OP 4.09) [I [XI Cultural Property (OPN 11.03, being revised as OP 4.11) [X I

Involuntary Resettlement (OPBP 4.12) [XI [I Indigenous Peoples (OD 4.20, being revised as OP 4.10) [XI Forests (OP/BP 4.36) [I [XI

Safety o f Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP/GP 7.60)’ [I [XI Projects on International Waterways (OP/BP/GP 7.50) [I [XI

[ ]

[I

8. Policy Exceptions and Readiness

104. The Program does not require any exceptions f rom Bank policies;

0

0

0

0

The ESMF and RPF were disclosed on October 21 in-country and October 24 in Infoshop. The results matrix has been completed and baseline data collected. Procurement documents for the first year’s activities are complete and ready for the start o f program implementation. The engineering design documents for the first year’s activities are complete and ready for the start o f program implementation. Program Implementation Plan has been appraised and has been found to be realistic and o f satisfactory quality.

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Annex 1: Country and Sector or Program Background Mozambique

ProMaputo: The Maputo Municipal Development Program

1. By 2004 Mozambique’s population was estimated at 19.4 mi l l ion o f which 30 percent i s urbanized. Maputo, the capital ci ty and single largest population center, will grow from 1.3 to 1.7 mi l l ion people by 2010, given the high growth rate o f the city. By 2010, the city wil l be more than twice the size o f Beira, the second largest city in the country. Approximately 70 percent o f Maputo City’s residents l ive in informal settlements, reflecting a national trend, and 54 percent live below the poverty line. Maputo i s the nucleus o f the country’s economic, polit ical and administrative activities.

Legal and Policy Framework

2. Urban planning has been on the national agenda since 1982 when the first National Meeting o f Urban Planning discussed the many problems faced by Mozambican cities. A key decision from that meeting was that “structure plans” for each city should be prepared. However, the c iv i l war and a generalized economic crisis that characterized the country throughout the 1980s up to the mid-1990s led to a shift in investment from urban to rural areas. At the same time there was a rapid increase in the urban population from new migrants fleeing the war, overwhelming the already poor and nascent planning framework. After the peace agreement, the government passed the new Land L a w in 1997 which kept state ownership but granted effectively transferable usufruct rights, and the Municipal Legislation package (Pacote Autcirquico) which established 33 urban local governments with l imited but autonomous powers and democratically elected mayors and assemblies. In accordance with this legislation, municipalities are responsible for solid waste management, basic sanitation, environment, urbanization, land use, housing and construction licensing, etc. Some o f these services are provided in conjunction with other state bodies and there i s some uncertainty regarding responsibilities in a number o f areas.

3. Under the municipal legislation municipalities take on many hnctions that should be increased as their capacities and financial base grow. Yet a l l 33 municipalities remain extremely weak in terms o f human and financial resources. Municipalities are also constrained by a centralized culture with ski l ls set unfit for decentralized management and service delivery, and are highly dependent o n the 1 percent o f the national budget provided by the state.

Economic Simificance o f Maputo

4. Maputo i s the gateway for investors, tourists and migrants f rom rural areas and surrounding countries and plays an important role in the overall economy. Maputo contributes over 40 percent o f the national Gross Domestic Product. Despite i t s economic contribution, the city displays severe socio-economic characteristics that need to be addressed if the city i s to strengthen i t s economic position and boost economic growth in Mozambique. The combination o f a high number o f Maputo residents who live in informal settlements (approx. 70 percent), most o f whom belong within the 53.6 percent that are classified as living below the poverty line, and a noted lack o f investment in urban areas for many years has led to increasing inequality and the reduced quality and quantity o f service delivery, notably in the maintenance o f existing infrastructure. The situation seriously impedes the interest and investment o f the private sector,

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and contributes to the rise o f strong concerns f rom citizens about the quality and coverage o f virtually al l municipal services. Inefficiencies and resource constraints limit the abil ity o f the City Council o f Maputo (CMM) to provide quality services to i t s citizens.

5. The City must urgently establish a sound organizational and financial base in order to reverse the decline in service provision and infrastructure, otherwise crime and the cost o f living and doing business in Maputo will worsen. This wil l not on ly increase poverty and marginalization but further inhibit the growth o f smaller and medium sized businesses in particular, that are critical to income generation and poverty reduction in the country as a whole.

6. Addressing these challenges requires designing and implementing institutional reforms aimed at strengthening municipal governance and service delivery. This i s essential for improved financial management, increased revenues, and enhanced planning, execution and control functions.

Past Bank Support to Maputo

7 . AAer nearly 15 years o f providing support to the Government o f Mozambique, Development partners are now putting more emphasis on sub-national authorities in order to build long term and sustainable service delivery capacity in the country. Municipalities are the only decentralized entities in Mozambique but their functioning i s impeded by their weak structures. Despite two earlier projects in the area o f urban development, cities have had no direct support f rom the Wor ld Bank, except for the p i lo t grants fund administered by MAE under the MDP, targeted at the 8 largest cities. Despite sharing a poverty profi le o f critical importance similar to the country as whole, Maputo has had very l imited Donor support. The Wor ld Bank i s one o f the few development partners, and certainly the largest, that i s supporting the area o f urban development in Mozambique. I t i s we l l positioned to invest in programs that require a long term approach to governance and capacity building, in order to lay the foundations for large-scale investments in service delivery in the future. The Wor ld Bank’s involvement also creates the basis for leveraging additional partner financing, not only f rom other development partners but f rom the private sector.

The Maputo Municipal Development Program

8. The GOM poverty reduction strategy (PARPA 11) l i n k s poverty with poor environmental conditions, including a lack o f drinking water and sanitation, and mentions the need to overcome urban environmental degradation through urban planning and upgrading, including greater investment in infrastructure. Building on this national strategy as we l l as the GoM’s 5 Year Plan that endeavors the ongoing program o f decentralization a status as a “key pillar” in the “modernization” o f the state, the Ci ty Council o f Maputo recognized the crisis facing Maputo Ci ty and undertook a series o f consultations and opened discussions with the various stakeholders to develop and disseminate i t s vision for Maputo as a “prosperous, attractive, clean, secure and unified city”. The CMM also adopted i t s mission statement which i s “To lead the process o f raising the quality o f l i f e o f municipal citizens; creating an environment conducive for investment and job creation through improved delivery o f services; and mobil ization o f citizens and coordinated action between diverse actors”.

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9. Based o n these vision and mission statements, the City developed a 10 year Maputo Municipal Development Program (“ProMaputo”) that forms the basis for the Adaptable Program Loan (APL). The priority for the APL’s Phase I i s to achieve a basic level o f hnctional i ty in terms o f good governance, financial stability and institutional capacity in order to provide a platform for sustainable improvements to service delivery. Thus the first phase (APL 1 for 3 years) o f ProMaputo aims to address the City’s extremely limited capacity to raise i t s own revenues and to provide quality services to i t s citizens. The second phase (APL 2 for 5 years), which wil l be subject to the conditions for phase I being met and wil l focus on consolidation o f the reforms and financial viability, wil l trigger larger investment in infrastructure and service delivery than under the first phase based on a greater involvement o f non- IDA financing as risk i s lowered.

10. In Maputo, IDA will finance the majority o f improvements in institutional development and governance, financial management and selected priorities in the area o f service delivery. The 2003 Country Assistance Strategy (CAS) notes that strengthening local government i s a key factor in improving service delivery and the CAS mid-term review reinforced that ProMaputo was h l ly in l ine with the CAS objectives and with the Afr ica Action Plan. I t complements the next PRSC series focus on Decentralization. ProMaputo will build o n prior Bank support for the Municipal Development Project which funded preliminary consultancies and l imited c iv i l works in the City. An additional objective o f ProMaputo i s to create a vanguard in Maputo City that wil l demonstrate to the rest o f the country successful municipal development strategies while contributing to national growth and poverty reduction agendas in the urban context.

11. Development Obiectives, Prorrram Outline and Conditions for the Two Phases o f the promam

Program Phases Years Development Objective The PDO for Phase I is to strengthen the Maputo City Council’s institutional and financial capacity to support achievement o f long term service delivery goals, and to implement selected priority investments

PDO for full program i s to increase the coverage and quality o f Maputo City’s services to i t s citizens by strengthening the Ci ty Council’s institutional and

Phase 1 2007-2010 Component Outcomes

A. Strategic, effective, participatory and transparent mumcipal governance.

Improved citizen satisfaction with service quality Reduction in average response time to clients Improved organization o f CMM with respect to defined staffing and personnel redeployment Improved support processes performance Improved staffing at C M M with increased competencies Implementation o f steps o f Decentralization Plan to Municipal Districts Improved interaction with stakeholders through report cards Increased transparency through communication and contact with citizens

B. Improved Mumcipal financial management, increasing revenues and promoting efficiency and Effectiveness in expenditure

m Increased financial self-sufficiency

Phase 2 2010-2015 Outl ine

Consolidation o f fust phase reforms by the subsequently elected municipal assembly and mayor Investment in infrastructure and service delivery improvements on a larger scale subject to financial viability (especially sustainability) and funds leveraged Greater involvement o f non- IDA financing

Conditions fo r APL I to APL 2:

(1) 120% n o m a 1 increase in own-source revenues

(2) amount o f solid waste deposited in the waste dump reaches 600 tonslday

(3) Integrated Financial Management System in use and

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inancial capacity.

I

Improved planning, budgeting and execution o f investment spending Increase in CMM's own source revenue Improved revenue base (tax payers) Improved budgetary execution of investment spending of Municipal Directorates

fully functional as designed

Two of the following four indicators must also be achieved:

(1) 100% o f Organizational Units with the new staffing table defined and existing personnel redeployed (2) Citizen Report card

conducted independently and disseminated regularly (1 per Year)

budget spent

in good condition

(3) 80% of investment

(4) 50 km of unpaved roads

34

Annex 2: Major Related Projects Financed by IDA and/or other Agencies Mozambique

ProMaputo: The Maputo Municipal Development Program

20,000,000.00 USD Rehabilitation o f some streets in the centre o f Maputo BADENOPEC

35

Annex 3: Results Framework and Monitoring Mozambique

ProMaputo: The Maputo Municipal Development Program

3.1 Results Framework

Project Development Objective The PDO for Phase I i s to strengthen the Maputo City Council’s institutional and financial capacity to support achievement o f long t e r m service delivery goals, and to implement selected priority investments

Intermediate Outcomes

Cestructured and simplified CMM xganization and management for mproved effectiveness

mproved C M M communication with internal and external actors to ietter respond to community :oncems .mproved financial management if the Municipality by increasmg ts revenues and enhancing the iudget planning, execution, and :ontrol fhct ions and systems.

Increased availability and quality o f infrastructure to improve service delivery

Project Outcome Indicators 120% nominal increase in own- source revenues

Increase the amount o f solid waste deposited in the waste dump from 253 to 600 todday

A n Integrated Financial Management System in use and f i l ly functional as designed

Intermediate Outcome Indicators

100% o f Organizational Units with the new staffing table defined and existing personnel redeployed

Report card conducted and results disseminated annually

80% o f investment budget spent

50 km o f unpaved roads in good condition

Use of Project Outcome Informat ion These three conditions are indicative o f overall reform YR1 -YR2 Measure the achievement o f the KPIs YR3 Lead into the implementation o f the second phase o f the program

Use of Intermediate Outcome Mon i to r i ng

Monitor institutional reform and polit ical commitment to diff icult decisions

Monitor ongoing commitment to transparency and community participation

Monitor progress towards increased revenues

Improve credibility through better service delivery to both business distnct and poorer areas o f city

36

3.2 Arrangements for Results Monitoring and Conditions for APL The three overall outcome indicators for Year 3 are required conditions for APL 2. In addition at least 2 o f the 4 component indicators for Year 3 will need to be achieved as conditions for APL2.

APL 1 Conditions for APL 2

Target Values

Outcome Indicators

Baseline YR3 2009

Frequency and reports

Quarterly progress reports Annual audits

Quarterly Progress Reports from dump

Quarterly progress reports Audit

Data collection Instruments Financial data Audits

Field data collected daily at dump

Financial data Audits

Responsibility for data collection

DMF- CMM

DMSS- CMM

DMF- CMM

YRl 2007

YR2 2008

% nominal increase in own-source revenues (over baseline)

USD 3.5 million

253 tonlday

No integrated system

20%

400 ton/day

Specifications finalized and contract signed for implementation

60%

500 ton/day

Implementation of at least budget execution functions

120%

600 tonlday

An Integrated Financial Management System in use and fully functional as designed

amount of solid waste deposited in the waste dump

an Integrated Financial Management System in use and fully functional as designed

Res u I ts indicators for each component Component A % of Organizational Units with the new staffing table defined and existing personnel redeployed

Report card conducted and disseminated regularly

0%

Report 2006

20% ou implemented

Report 2007

50% ou implemented

Report 2008

100% ou implemented

Report 2009

Quarterly Progress Reports

Consultant's report Meetings to present findings

Consultant Reports Department reports

Field work for survey

GDEVDRH

CMM Consultant firm

Component B: Quarterly progress reports Annual Audit

Financial data Audits

DMF Yo of investment budget spent

60% 70% 75% 80%

Component C: Reports and Statistics of

DMI

DMI 9dditional krn ,f unpaved 'oads in good mndition per fear

0 Quarterly progress reports

15Km 15 Km 20 Km

This i s the truncated version o f the results matrix for ProMaputo (see 3.3 below).

37

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Annex 4: Detailed Project Description Mozambique

ProMaputo: The Maputo Municipal Development Program

1. The objective o f the Project i s to support the Recipient in the development o f the Maputo Municipality through the strengthening o f Maputo City Council’s institutional and financial capacity to achieve long term service delivery goals and to implement selected priority investments.

Component A: Institutional Development and Municipal Governance (US$8 million total of which US$6.2 million in IDA)

2. transparent municipal governance.

The objective o f this component i s to ensure strategic, effective, participatory and

Subcomponent A-1: Institutional Reform and Strengthening. (US$6.6 million total of which US$4.8 million in IDA)

3. effectively face the challenges o f municipal development. I t entails six specific objectives:

The objective o f this subcomponent i s to enable CMM processes and structure to

1. to simplify CMM organization and management, 2. to implement strategic human resource management, including HIV/AIDS mitigation 3. to improve the performance o f support systems and service delivery processes, 4. to decentralize and integrate planning and management o f C M M programs, 5. to improve CMM information systems and technology, and 6. to ensure adequate material resources for C M M operations.

4. The Municipal Assembly approved the C M M Restructuring Plan on October 25, 2006. Restructuring the CMM will improve i t s administrative and service delivery capacities. Reducing the number o f organizational units and improving the allocation o f responsibilities and functions among them within a streamlined structure will provide the foundation for workforce redeployment. Strategic planning capabilities l inked to the monitoring o f organizational performance and services delivered will allow the CMM to more effectively set priorities, establish effective operational systems, allocate resources, and steer l ine operations.

5. As CMM reorganization proceeds, a new staffing structure with clearly defined job descriptions and associated qualifications wil l provide the basis for gradual staff redeployment including recruitment, reassignment and separation from service for under-qualified municipal staff. Based on the CMM’s Human Resource Policy, a partially computerized Integrated Human Resources Management System ( M R M S ) wil l be developed and implemented, to the extent possible based on adaptation o f existing elements employed by the national c iv i l service; including recruitment, career and remuneration, training, and performance evaluation subsystems. The recruitment o f technical staff as part o f the organizational restructuring will be supported by IDA funds. These staff will be paid out o f the credit for a fixed term as contract staff at C M M staff salary levels i.e. not c iv i l servants, for a maximum o f two years per staff

43

member, after which the qualified and experienced staff will be absorbed by the C M M budget and incorporated into the CMM's regular staff system. This follows a model that has been employed in Mozambique under the Decentralized Planning and Finance Project since 2004 and has demonstrated significant success in sustainable increasing the technical capacity o f local administration. In the case o f ProMaputo, this initiative i s further l inked to a reform o f the Human Resource Management and Remuneration System as wel l as supported by increased municipal revenues, therefore the likelihood o f sustainability i s even higher. The full cost o f this initiative isUS$4.3 mi l l ion over phase I, o f which US$2.5 mi l l ion f rom IDA and US$l.8 mi l l ion to be provided by CMM's own revenues on an increasing basis. Financial projections for municipal own source revenues strongly suggest that the US$l .8 mi l l ion per annum required to fully sustain the increased wage bil l after A P L phase I are we l l within CMM's revenue capacity.

6. A comprehensive staff training program will be financed, including both job-relevant courses and longer term investments in the professional development o f C M M personnel. In addition, the training program will also entail a strategy that will al low CMM to benefit from the short and, in particular, the long-term technical assistance that will hire, in terms o f human resource capacity building. The objective i s to have a clear exit strategy for the technical assistance once the institutional capacity i s created or reinforced in order to promote sustainability and avoid disruptions between phases I and I1 o f the A P L (See Annex 19). An institutional pol icy and plan to prevent and fight H IV /A IDS within the CMM will be developed and implemented in concert with the National AIDS Council (see Annex 17).

7. Both cross-cutting processes and those linked to the delivery o f specific services will gradually be redesigned to enhance quality and efficiency. One key objective o f CMM's administrative reform i s to improve the articulation between core support systems - for financial and human resource management - and the line directorates which deliver services. As CMM revises and optimizes institutional procedures, clear user friendly manuals will be developed to serve as both training aids and workplace references. A computerized system for document management will include the digitization o f existing archives and the development o f new, computer-based administrative tools and routines. Later in Phase I, an Information Systems and Technology Master Plan will be formulated to serve as the basis for more consistent investments in hardware, software, and training to support increasingly computer-based and networked municipal management.

8. Strengthening the role o f municipal districts i s a key pil lar o f C M M reform. The introduction o f participatory spatial planning will link governance reform with the gradual deconcentration o f selected services to the districts. Beginning with routine infrastructure maintenance and the provision o f essential documents, district capacity to manage front-line service delivery will be cumulatively strengthened through a comprehensive capacity building program. By linking the deconcentration o f service delivery to improved transparency and accountability at local level, a foundation will be developed for later enhancements o f district roles in the collection o f municipal revenues and in the management o f modest expenditures related to the delivery o f basic services.

9. Activities to be financed by IDA under this subcomponent include:

a) Development and implementation o f an institutional reform and capacity building program and o f change and strategic planning processes.

b) Establishment o f an integrated human resource management system and staffing structure .

44

c) Support for staff recruitment o f a number no larger than 200 for a period o f no longer than 24 months for each contract.

d) Training o f municipal staff on municipal norms and governance, cross-cutting municipal systems and procedures, and job-specific professional services.

e) Establishment and operation o f municipal information systems for staff communication and for document management, including the creation o f an internet page.

f, Carrying out o f works to rehabilitate municipal administration offices. g) Incremental Operating Costs for the Project.

10. Activities to be financed by C M M under this subcomponent include:

h) Support for retention o f the staff mentioned under c) above fol lowing the period referred to therein.

i) Support for increased remuneration for Project Implementing Entity’s existing staff,

Subcomponent A-2: Improved Municipal Governance. (US$1.4 million total, in IDA)

1 1. The objective o f this subcomponent i s to improve CMM transparency and responsiveness by increasing the involvement o f various stakeholders in municipal governance. I t entails four specific objectives:

1. to increase the transparency o f resource management and improve CMM communication with internal and external actors to better respond to community concerns through improved citizen consultation and awareness campaigns, to improve the interaction between the C M M and the Municipal Assembly, to improve coordination between CMM and other public sector actors, and

nongovernmental actors.

2. 3. 4. to increase the number and effectiveness o f partnerships between CMM

12. The CMM’s capacity to communicate effectively with its various audiences wil l be strengthened as a basis for improved governance. A crosscutting communication strategy wil l guide provision o f t imely and relevant information aimed to engage citizens in the management o f their urban environment and to enhance their participation in municipal governance. Accessible messages wil l be developed and disseminated regarding municipal policies, programs and regulations as we l l as the rights and responsibilities o f citizens and municipal officials. Improved information flows between the CMM and key local polit ical officials, including members o f the Municipal Assembly and Bairro Secretaries, wil l improve the consistency and quality o f municipal policies and their implementation.

13. To ensure responsiveness o f CMM to citizens’ needs and priorities, a full, Consultative Municipal Service Report Card wil l be conducted annually and i t s results - identified citizen service priorities and citizens’ evaluation o f municipal governance and service quality - wil l be widely disseminated. T o enhance citizen participation in public decision-making, CMM capacity for preparing budget, expenditure and procurement information in an understandable form will be strengthened. Mechanisms to channel this information regularly to citizens, including not only Maputo’s intellectual and private sector elites but also peri-urban community leaders and neighborhood residents with l i t t le formal education, wil l be improved. Efforts to include citizens’ input in the budget formulation process wil l be strengthened. Complementing the supply o f this information, the capacity o f municipal citizens and community-based

45

institutions to articulate their concerns and to contribute to municipal planning and budgeting wil l also be strengthened, progressively l inked to CMM’s decentralization process as the roles o f district and bairro structures are gradually enhanced.

14. Cooperation between the C M M and key public sector actors wil l be strengthened to support better service delivery. Coordinating arrangements wil l be improved between the C M M and the “Government o f the Ci ty o f Maputo” (GCM), the State’s deconcentrated structure sharing the CMM’s jurisdiction, and where necessary with related l ine ministries. Collaborative arrangements with public uti l i t ies such as EZectricidade de Mogambique (EDM), F IPAG and Aguas de Mogambique (AdeM), Transportes Pziblicos de Maputo (TPM), and Telecomunicap5es de MoGambique (TDM) will also be improved.

15. The capacity o f C M M to formulate, negotiate, and manage public-private partnerships (PPPs) will be strengthened. A PPP framework has been prepared and two specialists recruited during preparation o f the Program. A PPP unit wil l be supported within the CMM’s top management structure to promote partnerships and to assist l ine service provision directorates to formulate, negotiate, manage, and monitor partnership agreements with both private sector and nonprof i t service providers to ensure that they result in increased coverage, improved quality, and greater cost effectiveness o f service delivery. Training o f this unit i s underway.

16. Activities to be financed by IDA under this subcomponent include:

a) Development and implementation o f a communication strategy including dissemination and information campaigns and c iv i l society consultations;

b) Carrying out o f annual Municipal Report Card Surveys; c) Training to C M M staff and Municipal Assembly members o n al l aspects o f municipal

management and oversight; d) Development o f partnerships to provide investment and management capacity for

services between the CMM and both key public sector actors and private sector firms.

Component B. Municipal Finance (US$4.7 million total, in IDA)

17. The objective o f this component i s to improve the financial management o f the Municipality by increasing i t s revenues and enhancing the budget’s planning, execution, and control functions and systems.

Sub-component B.1: Improved Revenue Collection (US$2.6 million, in IDA)

18. capacity o f the municipality to better exploit i t s own revenue sources. I t entails f ive specific objectives:

The objective o f this sub-component i s to increase municipal revenues by enhancing the

1. to enhance the collection o f local revenues in the short term, 2. to improve the overall systems o f taxes and fees, 3. to improve the internal management o f the different municipal fees, 4. to strengthen the capacity o f the municipality to attract additional revenues, and 5. to provide training and technical support in the area o f municipal revenues.

46

19. The f i rst objective seeks to create an intermediate solution to improve the current systems o f taxes and fees in the short term. I t wil l do so by selecting a private company to distribute property tax bills; increasing the role o f the district administration in the distribution o f tax and fee information and notifications, and by reassessing about 14,000 valuable properties (once this i s legally permitted). The second objective consists o f a medium and long term solution to improve the systems o f taxes and fees. This i s the main objective o f the revenue sub-component. I t seeks to create a single consolidated database, and to review and redesign the systems for billing, distribution and collection o f taxes and fees. I t wil l also review and redesign the mechanisms to collect arrears and fines. In addition, the program wil l promote communications’ campaigns to make tax legislation more easily accessible and understandable to citizens.

20. The third objective i s to improve the internal management o f the different municipal fees. Currently, fees are administered by each o f the different service-provision uni ts without much coordination with the finance department. However, since the provisions o f a number o f municipal services are revenue-generating activities, the program wil l also make sure that specific activities are undertaking to increase the collection o f fees. The fourth objective i s to improve the capacity o f the municipality to attract additional revenues. This wil l be done by enhancing the capacity o f the C M M to collect and manage donations and provide adequate working conditions. The last objective seeks to provide general support to improve the municipal revenue system. This will entail both training and provision o f equipment. Due to the importance o f revenue enhancement for the program, an increase in own-source revenues was selected as a trigger for the second phase o f the program.

21. Activities to be financed by IDA under this subcomponent include:

a) Design o f systems for assessing properties and billing, distributing and collecting taxes and fees, including arrears and fines;

b) Design and implement a single consolidated database for local taxes and fees: c) Carrying out of: (i) a communications campaigns to make tax legislation accessible to

citizens, (ii) property tax bills distribution; (iii) the reassessment o f about 14,000 valuable properties; and (iv) hndraising and management o f activities for grants and donations;

d) Carrying out o f training to municipal staff on tax and fee revenue collection.

Sub-component B.2: Improved Expenditure Management (US$2.1 million total, in IDA)

22. financial management system. It will do so through the fol lowing specific objectives:

The objective o f this subcomponent i s to ensure that the municipality has an integrated

1. to improve the process o f budgetary planning, 2. to improve the distribution o f financial resources, 3. to improve the procurement and asset management systems, 4. to improve the budgetary execution and control systems, and 5. to provide training and technical support in the area o f municipal revenues.

23. The first objective i s to improve the process o f budgetary planning. I t seeks to ensure that the different departments, units, and districts o f the municipality submit their budget plans in a timely and accurate fashion. This wil l be done by conducting a thorough revision and simplification o f the whole budgetary process to make it more effective and efficient. The second objective i s to improve the distribution o f financial resources in order to ensure that

47

budgets are executed according to the plans. This will be done by designing and implementing methodologies and instruments to improve the cash-flow systems and, more broadly, the implementation o f new methodologies to improve the internal distribution o f financial resources.

24. The third objective seeks to improve the financial, procurement, and management systems. This wil l be achieved by increasing the municipal departments, units, and districts’ knowledge o f the guidelines and procedures o f asset and financial management. The program will also support the creation o f a procurement unit, and the design o f mechanisms for procuring, controlling, and managing municipal assets. The fourth objective i s to improve the budgetary execution and control systems. This wil l be done by increasing the Municipal departments, units, and districts’ knowledge o f the norms and procedures o f budget execution. The systems o f budget controls will also be strengthened by reviewing and improving the information and accounting systems o f the municipality, and by creating capacity to perform financial and performance audits.

25. The last objective seeks to provide general support to improve the system o f municipal expenditures. This wil l entail both training and provision o f adequate technical equipment. The different municipal units wil l be trained in the areas o f budget planning and execution, financial and asset management, and internal control. Due to the importance o f having an integrated financial management system in place, its full operation was selected as a trigger for the second phase o f the program.

26. Specific attention wil l be placed to the integration and coordination o f a l l the budgetary systems operating in the municipality. Financial Statements o f the Municipal i ty wil l be audited every year and finalized and disseminated within 6 months o f the financial year end. These will include audits o f al l IDA funds under the Program.

27. Activities to be financed by IDA under this subcomponent include:

a) Carrying out o f an analysis to assess the current financial systems o f the municipality; b) Design, implement and support an integrated financial management system; c) Design o f mechanisms for the procurement and management o f municipal assets; d) Establishment o f a procurement department and training o f i t s staff; e) Dissemination o f the guidelines, procedures and norms o f the integrated financial

management system; f ) Carrying out o f training to CMM staff to perform financial and performance audits,

budget planning and execution, financial and asset management, and internal controls; g) Support for international study trips for municipal staff to observe the operation o f

integrated financial management systems in a number o f municipalities; h) Carrying out o f audits for the Project.

Component C: Planning and Service Delivery Improvements (US$26.3 million total of which US$15.1 million in IDA)

28. This component wil l support urban planning and targeted investments to construct or rehabilitate critical urban services, including roads and drainage, solid waste management, a cemetery and street lighting.

48

Sub-component CI: Planning and Management of Urban Space (US$5.3 million of which US$3.7 million in IDA)

29. This subcomponent entails the following objectives:

1.

2.

3.

to improve the efficacy o f the management and planning o f services through the development o f spatial and sectoral plans, to provide the methodological tools, training, technical assistance and mentoring to undertake urban planning, and to identify and undertake the tasks necessary to improve the management o f urban space, including updating the cadastre, processes and procedures, and establishment o f an information system necessary for the granting o f land use rights and land ownership.

30. This sub-component wil l provide support to the municipality to improve the efficacy o f the management and the planning o f services through the development o f Spatial and Sectoral Plans and the implementation o f a City Information Management System (CIMS) that includes georeferencing. I t wil l provide the municipality w i th the methodological tools, training, technical assistance and mentoring to undertake planning. I t will also review the tasks that are needed to improve the management o f urban space, assist in the approval o f infrastructure plans, develop spatial and sectoral plans, as we l l as the restructuring o f the processes and procedures related to the granting o f land use rights and land ownership, and the implementation o f an information system for these purposes, building upon the existing very basic cadastre.

31. Improved management and planning o f services and the CIMS will help improve the design and quality o f services and products, optimize the design process, and prioritize infrastructure maintenance within the activities o f the municipality. CIMS wil l benefit the municipality in terms o f urban planning, land use planning, and infrastructure improvements with the land and tax registry.

32. The CMM will achieve these results through coordinated steps and actions involving key officials in charge o f Services together with their counterparts in the Finance Department, GDEI and municipal districts, to ensure a harmonization o f views and actions o n elaborating and finalizing hndamental documents such as spatial and sectoral development plans and other important documents for implementing an effective urban planning strategy.

33. This sub-component wil l include several activities that address various issues in specific sectors as well as Urbanization, Cadastre and Geographic Information Systems, Monitoring and Quality Assurance.

34. Activities to be financed by IDA under this subcomponent include:

a) Carrying out o f a review o f the Urban Development Plan for the metropolitan areas o f Maputo and Matola;

b) Design o f an urban plan for the area within the boundaries defined by the Port o f Maputo, Avenue Josina Machel, Ponta Vermelha and Marginal Avenue;

c) Design o f a territorial urban plan for the neighbourhood o f Magoanine; d) Design and implementation o f the City Information Management System with spatial

georeferencing, for land use rights, ownership and infrastructure planning; including: (i)

49

the carrying out o f training o f local technicians, and (ii) the development o f an urban space planning and management strategy and implementation plan.

35 . Activities to be financed by CMM under this subcomponent include:

e) Design o f a territorial urban plan for the neighbourhood o f Zimpeto; f ) Design o f an Ecological Zoning Plan and for the protection o f environmental reserves in

the area o f Maputo.

Subcomponent C2: Sub-component C.2: Infrastructure Rehabilitation and Service Delivery Improvements (US$13.8 million of which US $8.2 million in IDA)

Infrastructure Rehabilitation and Construction

36. This entails the following objectives: 1.

2. 3. 4. 5.

to rehabilitate existing paved and unpaved roads and associated drainage and establishment o f conditions for future expansion, and to increase public safety through street lighting to increase network o f traffic l igh ts to construct and rehabilitate markets to construct a new cemetery

37 . The component wil l support improvement o f the conditions o f existing paved and unpaved roads and associated drainage and ensure conditions for future expansion (including minimizing erosion o f coastal areas). These are a combination o f paved roads nearer the urban core and key to economic activity o f the private sector and the main tax base o f the city, and a major trunk road connecting more suburban, poorer areas to the commercial and employment center o f the city, thereby reducing transport costs and increasing access to employment.

38. The component provides support for construction o f a new cemetery. This wil l help CMM to effectively start tackling the economic and social burden resulting from increasing health issues stemming from cemeteries. I t wil l also reduce the high level o f exhumations currently occurring (mostly due to HIV/AIDS), which are culturally unacceptable in Mozambique. Cemeteries wil l be better managed as processes and procedures for their management will be systemized through the development o f various types o f support such as manuals, software, and related equipment. In addition a human resources development plan will be designed and a system o f monitoring and control o f cemeteries wil l be implemented.

39. The component wil l also support C M M to increase public safety through increased street lighting: partnership with EDM will be established to enable the extension o f the electrical network and expansion o f street coverage and maintenance in urban areas. Through improved management and involvement o f the District in maintenance, CMM will build partnerships to benefit from EDM’s existing potential. The component wil l also support improvements to the system o f traffic l ights in Maputo.

40. Activities to be financed by IDA under this subcomponent include:

a) Implementation o f a 5.6 km long urban transport corridor for connecting the neighborhoods o f Magoanine, Albasine, and Guava to the existing road system;

b) Design o f a plan and specifications for access roads to outlying neighborhoods;

50

c) Carrying out o f independent supervision o f highways; d) Development o f project design and inspection procedures for Maputo’s traffic light

system; e) Carrying out o f works to complete Maputo’s traffic lights system; f) Design o f an implementation strategy for a maintenance program for CMM; g) Installation andor connection o f public lights on about 30 km o f streets in suburban

areas; h) Carrying out o f works for the construction and rehabilitation o f market premises and

structures; i) Carrying out o f works for the construction o f an additional cemetery for Maputo.

41. Activities to be financed by the Central Government under this subcomponent include:

j) Carrying out o f works for rehabilitation o f Maputo’s sewage systems, roads and overhead crossings.

Under (j) above, activities to be financed include: carrying out o f works to rehabilitate Maputo’s sewage systems and paving o f streets in the urban neighborhoods o f Coop, Malhagalene, and Polana; canying out o f works to rehabilitation the paving in suburban areas belonging to districts 4 and 5; carrying out o f works to rehabilitate approximately 50 km o f unpaved roads in several outlying neighborhoods, in order to improve the access and urban transportation; carrying out o f works to rehabilitate the overhead crossing connecting av. Julius Nyerere to Avenida 25 de Septembro; carrying out o f works to rehabilitate Nelson Mandela Avenue.

Subcomponent C 3: Improvements in Solid Waste Management Services (US$7.2 million of which US$3.2 million to befinanced by IDA).

42. This entails the fol lowing objectives: 1. to increase the quality and coverage o f solid waste management services by

implementing a sustainable plan for solid waste management through the collection o f an earmarked fee added to electricity bills.

2. to establish an efficient solid waste collection system with private operators, with decreasing annual financial contributions from IDA as earmarked revenues increase. IDA’S contribution wil l finance 80% o f the costs in the first year, 65% in the second year and 50% in the third year.

43. This component seeks to increase the quality and coverage o f solid waste management services: the quantity o f solid waste collected will be increased through the expansion and improvement o f solid waste collection services made available to the public. Public education and sensitization o f the citizens o n solid waste collection wil l be implemented to increase community participation. The C M M will therefore encourage and increase local participation through the implementation o f an integrated civic education program by building partnerships with community based organizations; i t wil l also enter into PPPs with the private sector.

51

44. Activities to be financed by IDA under this subcomponent include:

a) Collection o f solid waste in Maputo’s urban, suburban and marginal zones including those f iom markets;

b) Transportation and disposal o f solid waste collected in Maputo; c) Elimination o f informal dumps; d) Establishment o f an upgraded refuse dump; e) Carrying out o f works to rehabilitate workshops and offices for the solid waste

management department.

52

Annex 5. Project Costs Mozambique

ProMaputo: The Maputo Municipal Development Program

Table 1: Total Estimated Program Requirements (US$ million per calendar year)

Table 2: Estimated Program Costs per Component (US$ million per calendar year)

Table 3: Estimated Program Costs per Component to be financed by IDA (US$ million per calendar year)

I Total Program Costs (IDA) I 6.9 I 15.7 I 7.2 I 0.4 30 I 100 I

53

Table 4: Estimated Program Costs per Component in Foreign and Local Currency (US$ million)

Central I IDA I CMM 1 Government Program Cost By Expenditure Category

Program Cost By

Total

Table 5: Estimated Program Costs per Expenditure Category by Source (US$ million)

(a) for subcomponent C3 (solid waste management)

54

Annex 6: Implementation Arrangements Mozambique

ProMaputo: The Maputo Municipal Development Program

1. The credit will finance the activities to be carried out by the Ci ty Council o f Maputo (CMM) as the implementing agency for the Program. IDA will enter into: (i) a Financing Agreement with the Republic o f Mozambique for which the representative i s the Ministry o f Planning and Development; and (ii) a Project Agreement with the CMM, as Program implementing agency. This Project Agreement recognizes the legal and institutional autonomy o f the C M M as a democratically elected local government.

2. The C M M became an autonomous local government in 1997 under the Pacote Autarquico and the f i r s t municipal elections were held in 1998. During the first mandate l i t t le improvement in municipal services was achieved and the C M M was constrained by a near complete lack o f human and financial resources. Since 2003, the Municipal Development Project provided a small amount o f financing to assist Maputo with some small-scale infrastructure under the pi lot Grants Fund, and during the final year o f M D P Maputo has benefited from project-financed consultancies and basic equipment which along with the PPF, financed preparation o f i t s 10 year Municipal Development Program, ProMaputo.

3. During program formulation, the C M M established a Program Secretariat which reported to the Mayor, comprised o f five Executive Councilors and the Secretary to the Council. The Secretariat has been responsible for the overall coordination and management o f the formulation phase as well as liaison with their respective departments. An Advisor to the Mayor on Strategy and External Relations chaired the Program Secretariat and a facilitation consultant and technical advisor to the Secretariat assisted respectively in the process and substantive aspects o f formulation. These organizational arrangements were considered provisional, subject to revision for program implementation.

4. Insofar as the planning o f CMM’s institutional reform was undertaken as part o f ProMaputo formulation process, the development o f institutional arrangements and the assurance o f adequate management and technical capacity for program implementation were an integral part o f the municipality’s new organizational design. To ensure adequate capacity to implement the Program, the C M M reorganization - which was approved by the Municipal Assembly on 25 October 2006 - establishes an Office o f Strategic and Institutional Development (GDEI) which reports directly to the President and the Council. The GDEI includes C M M technical staff, contracted advisors and consultants, and will be supported by an Implementation Coordination Team (ICT) comprised o f selected executive councilors.

5. The GDEI i s responsible for overall coordination and management o f ProMaputo as well as liaison with l ine departments who will manage and implement specific ProMaputo activities. Given the capacity constraints o f the municipality, a number o f long term advisors to the mayor and the council are envisaged for the duration o f the f i r s t phase: some will support the GDEI while others will strengthen the Municipal Finance Directorate (DMF) until new systems and adequate capacities for financial management and procurement are established. Other technical advisors, short term technical assistance, and consultancies will be contracted as necessary to support specific program activities and provide technical services to the Council. (The Program’s Capacity Building Strategy i s described in Annex 19.)

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6. The ProMaputo design specifies which organizational units wil l be responsible for the coordination and implementation o f the activities foreseen in the workplan. Component coordinators are responsible for supervising the planning and reporting processes undertaken by implementing units, then integrating these contributions into overall component plans and budgets. In addition, component coordinators oversee and monitor implementation. Coordinators also assist implementing uni ts in resolving management problems and bottlenecks which may slow implementation by l ine units.

7. As overall Program coordinator the GDEI i s responsible for the preparation (based on contributions by implementation managers o f specific activities channeled through component coordinators, as described above) o f annual plans and budgets; for supervision and monitoring o f implementation activities; and, when needed, the provision o f strategic and management assistance to coordinators and implementation managers. The GDEI reports directory to the Mayor and the CMM and serves as their executive agent to ensure effective program implementation.

8. Each component (and subcomponent) has a designated coordinator, just as each activity has a designated implementerhmplementation manager. The Institutional Development and Municipal Governance Component (A) will be coordinated by the Office o f Strategic and Institutional Development (GDEI), the Municipal Finance Component (B) wil l be coordinated by the Municipal Directorate o f Finance (DMF), and the Planning, Infrastructure Rehabilitation and Service Delivery Improvement Component (C) will be coordinated by the Directorate o f Infrastructure.

9. responsibilities by component

The following table summarizes other coordinating and implementation management

A

B

Subcomponent

A1 Institutional Reform and

Strengthening

A2 Improved Municipal Governance

B1 Improved Revenue Collection

B2 Improved Expenditure Management

Subcomponent Coordinator

Office o f Strategic and Institutional Development

(GDEI)

Office o f Strategic and Institutional Development

(GDEI)

Finance Directorate

Finance Directorate

Activity Implementation Managers

GDEI Human Resource Directorate Information Systems Directorate Finance Directorate Health and Sanitation Directorate (for HIV/AIDS) GDEI Office o f Communication Secretariat o f C M M Municipal Districts Economic Activities Directorate (for PPPs) Office o f the Municipal President Finance Directorate Economic Activities Directorate Infrastructure Directorate Urban P l a m n g and Envlr. Directorate Health and Sanitation Directorate Markets and Fairs Directorate Municinal Districts Finance Directorate Information Systems Directorate GDEI

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C

10. Financial management wil l be undertaken by the Municipality’s own Finance Department, which will gradually introduce an integrated financial management system. The procurement h c t i o n wil l similarly be performed by a Procurement Department within the Finance Directorate staffed by municipal personnel supported init ial ly by contracted procurement specialists. As such, no dedicated program management structures wil l be created, rather the GDEI and DMF will integrate municipal management and ProMaputo management within the same structures and routines. Separate procedures wil l be required only for establishment and replenishment o f the Special Account which wil l f low into the municipal account. However, once funds have left the Special Account reporting wil l be done on the CMM budget as a whole and ProMaputo audits wil l be included within comprehensive annual audits o f the municipality’s budget and accounts by external auditors.

Urban Planning and Envr. Directorate Information Systems Directorate GDEI

Municipal Districts

Health and Sanitation Directorate

I Urban Planning and

Environment Directorate

C1 Planning and Management o f Urban

Space Infrastructure Directorate

C2 Infrastructure Infrastructure Directorate Rehabilitation and Service Delivery Infrastructure Directorate Markets and Fairs Directorate Improvements Municipal Districts

11. The institutional reforms envisaged under Component A include a full restructuring o f the c i ty council in order to put into place an organization capable not only o f managing ProMaputo but o f integrating ProMaputo activities and approach into the Municipality’s own structures, systems and processes for governance and service provision. Staff strengthening through both recruitment and training i s therefore a core subcomponent o f the program and a key to the sustainability o f municipal development in Maputo when technical assistance i s reduced at the end o f Phase I; thus capacity building wil l demand a large amount o f the effort during the first phase. As such, the service delivery ambitions for phase I need to be modest.

12. The Municipality i s divided into seven Municipal Districts. Part o f the Phase I effort will also be to define a new role for these districts by learning f rom a s l u m upgrading pi lot that was funded by Cities Alliance and a deconcentration process that will give Districts additional administrative and operation and maintenance responsibilities along with modest increases in resources. In al l districts, some very basic functions wil l be deconcentrated (such as street cleaning, maintenance o f surface drains, refuse removal, etc.) in order to improve efficiency and accountability as we l l as build capacity at these levels for more effective collaboration between citizens and their local authorities.

13. The private sector and c iv i l society will play important roles in the implementation o f the Program. A Municipal Framework for Public Private Partnerships (PPPs) has been developed and two staff recruited. A department will be established in the Directorate o f Economic Activities to develop and manage initiatives and to provide specialized expertise to the other departments in contracting out and contracting in various municipal services.

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Annex 7: Financial Management Arrangements Mozambique

ProMaputo: The Maputo Municipal Development Program

1. This report summarizes the assessment o f the financial management arrangements for the proposed Maputo Municipal Development Program (ProMaputo). The program wil l make use o f the institutional framework o f the Maputo Municipal Council (CMM), as we l l as arrangements to be put in place for procurement and financial management. The work in the area o f financial management focused on the assessment o f the financial management arrangements o f the CMM, both as the implementing agency o f the proposed program, as we l l as a beneficiary under the program. As the proposed program progressed to appraisal, and in order to help the C M M focus on immediate critical issues, a distinction was made between those financial management arrangements required to meet the Bank’s minimum requirements and which needed to be attended to immediately, and those that would specifically be addressed under the program to improve the accounting practices o f the C M M .

2. An ini t ial financial management review was carried out at pre-appraisal in August 2006 and the conclusion then was that both inherent and control risks existed that may have implications for efficiency, effectiveness, and accountability in the use o f program resources. Specific weaknesses were identified and summarized in an action plan to complete a series o f activities to address the noted weaknesses. Once this time-bound action plan was carried out successfully, the CMM would have in place financial management systems that would be able to properly account for program resources, as we l l as produce the required level o f financial management reports in a timely fashion.

3. The purpose o f the November 2006 appraisal review therefore was (a) to assess the extent o f preparedness by the CMM in terms o f financial management arrangements; and (b) identify any necessary additional time-bound action plan for strengthening the financial management systems in readiness for project implementation.

Financial Management in the Government of Mozambique

4. A Public Financial Management Assessment conducted in September 2004 as follow-on to the 200 1 Country Financial Accountability Assessment (CFAA) concluded that the overall public sector financial management risk in Mozambique remained high. Management o f the economy was quite satisfactory, but comprehensiveness and transparency o f the budget needs to be strengthened, the medium-term planning and budgeting was weak, while budget execution and accounting and reporting presented quite serious weaknesses.

5. At the same time, a number o f reforms were moving ahead in a very structured and comprehensive manner. The government has completed a number o f key preparatory reforms and has: (i) issued regulations for the Financial Management law; (ii) initiated the introduction o f a new and more-detailed functional classifier into the budget; (iii) started to formulate the budget in current prices; (iv) introduced restrictions o n bank accounts held by public institutions; (v) started to incorporate off-budget revenues as we l l as d o n o r - h d e d expenditures into the budget; (vi) initiated training for budget staff in double-entry accounting; and (vii) established a consolidated electronic treasury account to improve control of treasury operations and cash management.

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6. One key reform has been the introduction and implementation o f a computerized integrated financial management information system, e-SISTAFE. This has been rolled out ini t ial ly in selected ministries at central government. I t i s planned to ro l l out this system to al l government agencies including sub-national entities. The Bank i s part o f a group o f donors which has financed selected components o f the system, and i s also part o f a Quality Assurance Group established to provide an independent view o f the management, progress, and achievements o f the SISTAFE project. A report o f this grouping issued in November 2005, noted the satisfactory production o f budget execution reports for the period January to August 2005.

Budget

Accounting

Internal Controls

Funds Flow

7. A report o n the Assessment o f Financial Management for 2004/05 using the Public Expenditure and Financial Accountability (PEFA) methodology concluded that there have been improvements in a number o f important areas which were beginning to have an impact. The budget was a credible document with final out-turns reasonably close to init ial approvals; there was also a steady improvement in revenue collection and administration. Fundamental weaknesses remained in the quality o f the public financial management systems (PFM) especially in internal control systems, l imited coverage o f the external audit, and the high-level o f off-budget spending mainly from external project finance. The report noted that the quality o f the PFM was expected to continue improving as a natural consequence o f ongoing reforms such as e-SISTAFE; however, this would take time.

M Budget preparation well defined, and there i s some M

S Accounting policies/procedures now documented in a S regular monitoring on the use o f funds

financial manual. Capacity o f staff is weak but to be increased following approval from the Mayor to recruit 10 additional finance staff

S Policies now documented. Reconciliations now S updated on a l l bank accounts although there are s t i l l outstanding reconciling items; fixed assets register not updated

procurement and payment for program activities. However, changes to transfer hnds to cost centers at

M Relatively simple funds f low with centralized M

Risk Assessment

oses the institutional reform o f the CMM’s

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lower levels would push th is to Substantial

timely. However, data integr i ty questionable as t h i s i s obtamed f rom fragmented systems.

Delays in audit reports.

Financial Reporting S Compilation o f accounting information regular and

Auditing S Institutional arrangements for external audit not clear.

S OVERALL CONTROL RISK

H - High S - Substantial M - Modest L - L o w

S

S

8. The risk rating for the program in the area o f financial management has been appraised as substantial, reflecting the general weak control environment wi th in the CMM alluded to above. Capacity and experience i s being strengthened to address identified weaknesses and provide the necessary expertise. Mit igating factors to address identified risks are detailed below and include strengthening existing structures not only during the program implementation, but we l l beyond. In addition, an action plan has also been agreed with the client to ensure that acceptable financial management arrangements are put in place in readiness for program implementation.

Coun try-Specific

9. Pre-2002 assessments have alluded to the weaknesses in the public financial management (PFM). However, a number o f reforms instituted by the government have started to yield gains in the quality o f PFM. This i s confirmed by recent independent reviews which have noted the continuing improvements in important areas o f PFM, as we l l as the expected continued improvement as a natural consequence o f ongoing reforms such as e-SISTAFE.

En tity-Specific

10. The program wil l be implemented by various cost centers o f the C M M as part o f i t s annual program o f activities. The CMM i s a municipality which operates fairly autonomously under the guidance and supervision o f a Council headed by an elected President. However, some o f the funding for the CMM comes from the central government; this arrangement has implications for the abil ity o f the C M M to achieve the desired financial self-sufficiency. I t also has staffing shortages in critical areas o f the finance department. The above may have an impact on the timely preparation and submission o f regular reporting requirements for program implementation. During appraisal, the Bank mission was informed that approval has now been given for the recruitment o f additional staff in the finance department, which should go a long way towards the enhancement o f the department.

Program Specific

11. The program i s embedded in the CMM’s operations, to be implemented by the relevant departments o f the C M M o f varying degrees of capabilities. The program would also involve numerous transactions. There i s therefore need for an effective control and coordination by the finance department o f these departments especially in the use and accounting for the use o f funds. The finance department wil l support additional supervision and guidance activities, including clear guidelines and definition o f roles of the department, i t s staff and relationships to other uni ts o f the C M M .

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Planning and Budgeting

12. The activities o f the program to be funded by the Bank will be embedded in the CMM’s budget setting process. Budget preparation in the C M M i s well defined and there i s some regular monitoring on the use o f funds. However, this i s mainly routine comparison o f actual expenditures to original budget estimates - there i s no concerted effort to determine whether the funds are economically used. The annual budget i s prepared based on the pol icy guidelines and regulations issued by the Ministry o f Finance. A program budget has been drawn up and i s included in the PAD. This includes identification and costing o f major activities to be carried out under the program. Financial Monitoring Reports (FMRs), which include activity reports, will be prepared on a quarterly basis to monitor program implementation.

Accounting Systems and Internal Controls

13. The C M M generates a number o f financial transactions on a daily basis and from different sources using both manual and computer systems, including spreadsheets. The different levels o f sophistication o f these systems make it diff icult to have a complete picture o f the performance o f the municipality. I t i s also not possible to determine whether at any point, a l l the transactions o f the municipality are complete.

14. The CMM has now provided a written manual o f financial procedures that describes the accounting systems, internal control procedures, basis o f accounting, standards to be followed, and policies and procedures that guide activities o f the municipality and ensure staff accountability. A draft manual was made available to the Bank team and the C M M management has been provided with both written and oral comments on issues that have not been adequately addressed in the current version o f the manual.

15. The conceptual framework behind the e-SISTAFE was that o f upgrading the computerized accounting system o f the government o f Mozambique at central and provincial levels. I t was not originally formulated to address the specific circumstances o f quasi- governmental but legally separate entities such as municipalities. In discussions with the government agency responsible for the roll-out o f e-SISTAFE, issues were identified in meeting the specific requirements o f the CMM, which in some cases, would require significant customization to the current modules o f the e-SISTAFE before they are rolled out to the C M M . The CMM management has recognized the potential delays as we l l as the likely impact on the accounting systems and financial controls o f the CMM, and has now opted for the long-term financial management requirements o f the municipality to be addressed under the proposed program. Component B.2 for Municipal Finance aims at improving the planning, execution and control o f budgetary functions and systems, and includes an upgrading o f the CMM’s financial management system to achieve this.

Reporting and Monitoring

16. The financial transactions relating to this program would be recorded and monitored using the CMM’s management and accounting system. The contents o f the reports would include al l the activities o f the C M M . The CMM i s used to reporting on a regular basis on the use o f funds to the President and Council, as we l l as the Ministry o f Finance. However, the use o f information from fragmented accounting systems to compile these reports raises the question

61

o f data integrity, as we l l as the accuracy and speed o f reporting facilities. The enhanced integrated financial management system alluded to above wil l also address the long-term reporting requirements o f the C M M .

17. Details o f the reporting requirements, including the formats, content, as we l l as frequency, have been defined in the draft financial manual. These include Financial Monitoring Reports (FMRs) which wil l comprise o f (i) Financial Reports, including a statement o f sources and uses o f funds by funding source, and a statement o f uses o f funds by program component and sub-component; (ii) Physical progress (output monitoring) report, and (iii) a procurement plan and progress report. FMRs will cover a l l program activities, including those provided by the CMh4 and the government. Quarterly FMRs are due within 45 days fol lowing the end o f each calendar quarter.

Auditing Arrangements

Internal Auditing

18. The C M M has an internal audit department which was created by the current President about three years ago. I t reports to the President. However, the internal audit does not currently audit donor finances, and the work i s l imited to the audit o f the CMM’s own resources as wel l as those f rom the government. The proposed program wil l use the existing structures o f the CMM, including those o f the internal audit. There wil l therefore be need to expand the current l imited scope o f the internal audit function. The frequency and extent o f the internal audit reviews and testing o f the internal controls should be consistent with the nature, complexity and risk o f the relevant activities. With this mind, the internal audit function should be appraised o f the specific objectives o f the proposed program, as well as enhanced, in order to prepare for these added responsibilities.

External Auditing

19. The required annual financial statements will be those o f the C M M as whole, covering the entire operations o f the municipality. These financial statements will be audited by independent auditors, acceptable to the Bank, in accordance with acceptable auditing standards. Auditors will be required to issue a single opinion on the program’s financial statements, as per the guidelines ‘‘Financial Management Practices in World Bank-Financed Investment Operations”, o f November 3, 2005. In addition, auditors wil l be required to issue a management letter, highlighting any identified internal control weaknesses, which wil l contribute to the strengthening o f the control environment. The auditor’s report wil l be submitted to the Bank no later than six months after the end o f each fiscal year. The proceeds o f the IDA credit may be used to finance audit costs.

20. The CMM i s one o f eight selected municipalities that are beneficiaries from an on-going Bank-financed project, the Municipal Development Project (MDP) that i s expected to close in February 2007. One o f the requirements i s for the beneficiary municipals to prepare audited financial statements, w i th the audit costs covered by the MDP. This i s not a covered covenant and there i s no set time limit in which to prepare these financial statements. At the time o f the Bank’s mission in November 2006, the latest audited financial statements were for 2004, with the 2005 audit s t i l l to be completed. Under the proposed program, the CMM will be required to submit audited financial statements within six months following the end o f each fiscal year. The lack o f completion o f the 2005 audit may impact on the timely submission o f audit reports for

62

the proposed program. There i s therefore need to complete the 2005 audit as soon as possible, while making preparation for the audit o f the financial statements for year ending on December 3 1,2006.

Impact of Procurement Arrangements

21. The overall program risk for procurement has been assessed as high due to lack o f prior experience in large technical assistance contracts, filing, contract monitoring and record-keeping, as we l l as the expected increased work load. The C M M management has decided to establish a procurement unit within the finance department; in additional, the payments for goods and services procured by the CMM’s cost centres will be made through a centralized payment system at headquarters. The proposed fund flows recognize the requirements for resources to be available as close as possible to where most o f the program activities will be taking place. Procurement arrangements wil l therefore be crucial to the smooth implementation o f the program.

Financial Management Action Plan

Proposed Actions

Clear the back-log o f accumulated reconciling transaction items on bank reconciliations and update the cash books accordingly.

The finance department should amend instructions to ensure the cost centers include bank reconciliations o n monthly returns.

The finance department should define policy on back-up and storage o f computer f i l es o f financial information o f C M M . The finance department should prepare and implement training plan for accounting staff, including staff workmg in the cost centers.

There i s need to select an independent audit fm to carry out an audit o f the C M M accounts for the year ended December 2005. C M M must also prepare an action plan to address the weakness in the C M M internal controls noted by the auditor in the last audit report and management letter.

Agreed Deadline

February 28, 2007

February 28, 2007

February 28, 2007

February 28, 2007

Effectiveness

Current Status

Progress has been made. However, there are s t i l l numerous outstanding items on the Revenue Account. C M M to clear these in consultation with their bankers by February 2007. The Returns s t i l l do not contain the bank statements and bank reconciliations. C M M to incorporate th i s requirement in the revised manual. C M M to recruit an IT expert as part o f the institutional reform under the program.

T h i s i s s t i l l in progress

Funds to complete the 2005 audit have been sourced and work i s to commence soon. The completion o f the 2005 audit as well as the issuance o f a request for proposals for selection o f independent auditors for 2006 audit i s an effectiveness condition.

Conditionality

22. The fol lowing actions have been identified to be completed prior to credit effectiveness:

e The C M M will have established an adequate financial management system, and adequate capacity to produce FMRs, in form and substance satisfactory to the Association, to ensure proper accounting and monitoring o f proj ect funds; The CMM will have adopted a Financial Management Manual, in form and substance satisfactory to the Association;

e

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a The CMM will have submitted i t s 2005 audited financial statements to IDA; The CMM will have issued the request for proposal for selection o f independent auditors for the 2006 financial statements, in form and substance satisfactory to the Association;

a

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Funds Flow and Reporting Chart

(MTn)

4 I I I I

Bank Accounts

Designated Account

(US$)

23, The CMM maintains separate bank accounts for program resources as follows:

Investment Recurrent

Designated Account: A Designated Account (formerly called Special Account) with Mi l len ium BIM Bank in United States Dollars which would be used to deposit advances f i om the IDA Credit Account; make payments in foreign currency to suppliers; and transfer the local currency equivalents to the Other Account in local currency noted below;

L A J L t I I I I I -

/ \ Other Account

(MTn)

L J

Foreign Local Currency Provide:s

Other Account: An account in local currency, preferably in the same bank as above to which draw downs from the Designated Account should be credited for financing eligible local currency expenditures under the program;

J \ J

of Goods and Services

0 Revenue Account: Denominated in local currency, revenue f rom the central government (both capital and recurrent) as we l l as that generated by the C M M i s deposited into this account;

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0 Investment Account:-Funds in respect o f investments (capital expenditures) are transferred from the Revenue account to meet approved expenditures are indicated in the budget;

0 Recurrent Account: Funds to meet recurrent expenditures are transferred from the Revenue account to meet approved expenditures.

24. The CMM intends to consolidate these accounts into one account in line with the requirements o f the SISTAFE, but this i s not l ikely to happen in the implementation period o f the program, and the depicted funds f low and reporting wil l be applied to the program.

Disbursement o f IDA Funds

25. The program wil l use a combination o f Advance, Direct Payment and Special Commitments disbursement methods to access finds from the IDA credit. Supporting documentation to provide evidence that withdrawals from the credit are for eligible expenditures wil l be in the form o f original records and/or a summary report in the form o f statements o f expenditure (SOEs), providing information o n payments for eligible expenditures.

26. Under the Advance disbursement method, the CMM will be required to submit a withdrawal application for the init ial deposit to a separate Designated Account in an amount to be specified in the disbursement letter. Replenishment o f funds to the Designated Account wil l be made upon evidence o f satisfactory utilization o f the advance, reflected in SOEs and/or on full documentation for payments above SOE thresholds. The same Designated Account opened for the Project Preparation Faci l i ty (PPF) may continue to be used for the follow-on IDA credit. Any amount outstanding in the Designated Account at the time the PPF i s refinanced i s treated as a partial advance o f the amount agreed under the follow-on credit.

27. Proceeds on deposit in Designated Account may be transferred to another account o f the program if the need exists and if appropriate arrangements are in place to ensure that the proceeds so advanced wil l only be used for the purposes intended. These advances may be appropriate, among other things, to facilitate the payment o f large batches o f expenditures in the local currency. Any advances from the Designated Account, such as to the Other Account, would be l imited to amounts needed to cover 30 days forecasted local expenditures. Such advances would be reconciled back to the Designated Account at the end o f each month.

28. Replenishment applications would be required to be submitted monthly. The program wil l prepare Financial Monitoring Reports (FMRs) to track expenditures for the program, while there will be scope to continue exploring opportunities for the program to provide supporting documentation using summary reports in the form o f interim unaudited financial reports.

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Table A 1 - Disbursement per Expenditure Category to be financed by IDA (USD million and YO )

2,300,000

6,400,000

1,200,000

3,200,000

Category

100%

100%

100%

80% in 2007; 65% in 2008; and 50% thereafter

(1) Works under Parts A 1 (h); C2; and C3 (e)

(2) Goods

(3) Consultants’ Services (including audits) except for Parts C1 (d) and ( f ) )

(4) Training

(5) Services (other than Consultants’ Services) for (a) Part C3 o f the Project

(b)for all other Parts o f the Project

(6) Incremental Operating Costs except for Parts A 1 (d) and (e)

(7) Refund o f Project Preparation Advance

(8) Unallocated

TOTAL AMOUNT

Foreign Exchange Pavments

Allocated Expenditures to Be

1,200,000 100%

1,200,000

30,000,0000 I

29. Any required payments in foreign currency wil l be made at the center by the C M M using the funds in the Designated Account. The option of disbursing the funds through direct payments and special commitments from IDA will only be made for expenditures above a certain threshold to be specified in the Disbursement Letter. Withdrawal applications for such payments wil l be accompanied by relevant supporting documents such as copies o f the contract, contractors’ invoices and appropriate certifications.

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Conclusion

30. The overall conclusion o f the financial management assessment i s that in order to establish an acceptable control environment and mitigate the financial management risk, measures outlined in the Financial Management Action Plan should be taken.

Supervision

31. Financial management supervision will be carried out regularly by the Bank Financial Management Specialist (FMS) at least twice a year in line with the substantial risk rating. The init ial supervision wil l be a review o f the implementation progress o f agreed action plans noted above. The F M S will also:

0

0

0

Conduct a financial management supervision before effectiveness/disbursement; Review the financial component o f the quarterly FMRs as soon as they are submitted to the Wor ld Bank; and, Review the annual audit reports and management letters from the external auditors and follow-up on material accountability issues by engaging with the TTL, Client, andor auditors.

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Annex 8: Procurement Arrangements Mozambique

ProMaputo: The Maputo Municipal Development Program

A. General

1. Procurement for the proposed program would be carried out in accordance with the Wor ld Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" dated M a y 2004; and "Guidelines: Selection and Employment o f Consultants by Wor ld Bank Borrowers" dated M a y 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods or consultant selection methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan.

2. The Procurement arrangements for the Project are adequate. The Procurement Plan wil l be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

3. Procurement of Works: Works procured under this program would include: Rehabilitation and extension o f roads network, rehabilitation o f sewage and drainage systems, construction and rehabilitation o f municipal office premises, rehabilitation and construction o f new traffic lights system, rehabilitation and construction o f markets, construction o f a cemetery. The procurement will be done using the Bank's Standard Bidding Documents (SBD) for a l l ICB and National SBD agreed with or satisfactory to the Bank. Small works may be procured by requesting at least three written quotations from qualified contractors.

4. Procurement o f Goods: Goods procured under this program would include: office furniture, office equipment, information technology equipment, vehicles, solid waste collection equipment (containers and tractors), landfill machinery (bulldozer and compactor), work tools and equipment (for primary collection), materials for rehabilitation and maintenance o f street lights, and didactic materials (including books). Vehicles may be procured through IAPSO (United Nations agency). The procurement will be done using the Bank's SBD for a l l I C B and National SBD agreed with or satisfactory to the Bank. Small value goods may be procured under shopping procedures. United Nations Agencies and Direct Contracting may also be considered with the Bank prior review and approval

5. Procurement of Services (other than consultants' services): Services (other than consultants' services) to be procured under the program wil l include services for contracts for solid waste collection in urban and peri-urban areas, services for installation and technical support o f computerized systems, awareness campaigns, distribution o f notices for taxes payments, tax collection, f ield surveys and data aggregation. The procurement wil l be done using the Bank's SBD for a l l ICB and National SBD agreed with or satisfactory to the Bank.

6. Selection o f Consultants : Consultants' services required would cover consultancies for: works supervision; urban plans and detailed designs; review and upgrade City's directorate development plans; human resource management systems; training providers; institutional reforms; design o f a database and tax collection system to enhance revenue collection;

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development o f urban space planning and management using a c i ty information management system; advisory services.

7. All consulting service contracts costing more than US$100,000.00 equivalent for f i rms wil l be awarded through Quality and Cost Based Selection (QCBS) method. Contracts for highly specialized assignments estimated to cost less than US$lOO,OOO.OO equivalent may be contracted through Consultants’ Qualification (CQ).

8. Least-Cost Selection (LCS) will be used for selecting consultants for assignments o f a standard or routine nature (audit services) where well-established practices and standards exist estimated to cost less than US$100,000.00.

9. be in accordance w i th paragraphs 3.9 to 3.12 o f the Consultant Guidelines.

Single Source Selection (SSS) may be employed with prior approval o f the Bank and wil l

10. accordance with the provisions o f paragraphs 5.1 to 5.4 o f the Guidelines.

All services o f individual consultants (IC) wi l l be procured under individual contracts in

11. Short l ists o f consultants for services estimated to cost less than US$100,000.00 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

12. Training: This category would cover a l l costs related to the carrying out training courses and workshops, i.e. hiring o f venues and related expenses, stationery, and resources required to deliver the workshops as well as costs associated with financing the participation o f C M M sponsored personnel in short-courses, seminars and conferences including associated per diem and travel costs. Training programs would be part o f the Annual Work Plan and Budget and wil l be included in the procurement plan. Prior review o f training plans, including proposed budget, agenda, participants, location o f training and other relevant details, wil l be required only on annual basis. The C M M may, with prior approval, reimburse direct costs incurred by existing public sector institutions which provide training within their areas o f specialized expertise to municipal personnel.

13. Operating costs shall consist o f office supplies; operation and maintenance costs for vehicles and equipment; financing o f salaries o f on ly newly recruited staff up to a maximum o f 2 years for each staff member; travel expenses and subsistence expenditures; among others.

Operating Costs:

14. The procurement procedures and SBDs to be used for each procurement method, as well as model contracts for works and goods procured, are presented in the OperationsProcurement Manual prepared by the Borrower.

B. Assessment of the agency’s capacity to implement procurement

15. Department, Departamento de Aquisiq6es, within the Directorate o f Municipal Finances.

Procurement activities under the program wil l be carried out by the Procurement

70

16. The Procurement Department i s vested with the overall responsibility for procurement activities within the Municipality, including those activities financed by other B imul t i la tera l Donors as we l l as the Central Government and the municipality’s own funds. The Department wil l receive specialized support from the beneficiary DepartmentsDirectorates in the preparation o f technical specifications and or terms o f reference as we l l as in Contract supervision.

17. The Department wil l be staffed with a head o f Department, reporting to the Director for Municipal Finance, and at least three full time procurement officers lead by a Senior Procurement Specialist w i th qualifications and experience with procurement procedures from Mult ihi lateral Development Banks including the Wor ld Bank. Some o f the procurement officers are currently involved in the procurement activities financed by the on-going Municipal Development Project (MDP).

18. Under the decentralized structure o f the Municipality i t i s l ikely that minor procurement activities funded by the Program will also be procured at the level o f Municipal Directorates and Distritos Municipais. The overall responsibility o f supervision and oversight o f the decentralized procurement will rest under the Procurement Department. The procedures to be used by the decentralized units will be laid out in the OperationsProcurement Manual.

19. An ini t ial assessment o f the capacity o f the Implementing Agency to implement procurement actions for the project has been camed out by Ant6nio Chamuqo, CO Procurement Officer, under the supervision o f Mr. Slaheddine Ben-Halima, Senior Procurement Specialist and Hub-Coordinator on February 16, 2005. The assessment reviewed the organizational structure for implementing the project and the interaction between the program staff responsible for procurement financed under MDP and the Directorate o f Municipal Finances.

20. The key issues and risks concerning procurement for implementation o f the Program have been identified and include: no prior experience in large technical assistance contracts, needed improvement o f filing, contract monitoring and record keeping systems, increased work load.

21. The permanent procurement staff will require that adequate capacity building and more acquaintance with Multilateral Development Banks (MDB) procedures be provided before and through effectiveness o f the program and subsequently o n an intermittent basis to monitor and provide on the job support.

22. To ensure that adequate ski l ls wil l be provided to permanent municipal procurement staff, a Senior Procurement Specialist and a procurement officer wil l be recruited under TOR satisfactory to IDA.

71

Procurement Management Action Plan

arly in Program Works, Goods, Consultant’s Services for staff in the ocurement Unit

23. The overall project risk for procurement i s high. AEter one year o f Program implementation, the Bank will conduct procurement post-review to re-assess the Project risk.

C. Procurement Plan

24. The Borrower, at appraisal, developed a procurement plan for project implementation which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team on 8 December 2006 and i s available at the City Council of Maputo (CMM), Praqa da Independencia, Maputo. I t will also be available in the project’s database and in the Bank’s external website. The Procurement Plan wil l be updated in agreement w i th the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

25. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended semi-annual supervision missions to visit the f ield to carry out post review o f procurement actions.

72

Table A - Project Costs by Procurement Arrangements (IDA funds) Amounts in US$ million

12.2"

Expenditure

2.1 2.7 17.1

Category Works Goods

Consultants' Services F I R M S IND

Consultants' Services

Method QCBS CQS LCS I C TOTAL 4.2 1.1 0.2 0.0 5.5 0.0 0.0 0.0 2.5 2.5

Services (other than Consultants' services) (a) For subcomponent C3 Sol id Waste Management (b) For other subcomponent s Training Incremental Operating Costs TOTAL * $3.2 million financed by

ICB

5.5 1.5

5.2*

NCB IOTHER

I 7.3

Table A 2 - Consultant Selection Arrangements (All Sources) Amounts in US$ million

TOTAL IDA 8.3 2.5

7.3

3.2

1.2 1.4

2.1 30.0

73

Table B: Thresholds for Procurement Methods and Prior Review’

Expenditure

1. Works >1,000,000 ICB All

Category

>500,000 - 1,000,000 NCB All 50,000 - 500,000 NCB Post Review <50,000 3 quotations Post Review (small works)

Contracts Subject to Prior Review Procurement

Method

Contract Threshold

(US$) (US$>

Package Number

A-O8/06/G

B-O2/06/S

B-l1/06/G

C-O1/06/S

C-O1/06/W

c-03’06’s

C-05/06/G

A-01/06/G

2. Goods and Services (other than Consultants’ Services) 2. Consultants’ Services

Firms

Bid Estimated Funding Procurement PriorlPost Closing- Amount Method Review Opening Description

date Supply o f 30 light vehicles 702,000.00 IDA IAPSO Prior Apr-07 Site survey and incorporation of data in the system 884,900.00 IDA ICB Prior Jw-07

Supply of I T equipment for DP, Municipal Inspection and 212,600.00 IDA ICB Prior Jan-07 disbursement Collection of MSW (Municipal Solid Waste) in the high density 1,695,000.00 IDNCMM ICB Prior Jan-07 cement c i ty (3 years contract out) Rehabilitation and Widening Works ofAvenue General 5,500,000.00 IDA ICB Prior Apr-07 Sebastilo Marcos Mabote Secondary collection of SW in suburb areas and collection of MSW at markets and fairs (3 years contract out) Bulldozer and compactor for Hulene Dump Site Supply o f photocopy machines (15 average size and 1 heavy duty) for RAF and DP and audiovisual equipment (training)

2,7 10,000.00 IDNCMM ICB Prior Jan-07

622,000.00 IDA ICB Prior Sept-07

85,100.00 IDA NCB Post Aug-07

74

Individuals

>200,000 ICB 50,000-200,000 NCB <50,000 Shopping

DC

>100,000 QCBS ~100,000 QCBS,LCS and CQ >50,000 IC <50,000 IC

A l l First two contracts None All

All First two contracts All none

E. Details of the Procurement Arrangements Involving International Competition

1. Goods, Works, and Services (other than Consultants’ Services)

Package Estimated Funding Procurement Prior/Post Number Amount Method Review Description

Bid Closing- Opening

date A-06106IG

A-O7/06/G

C-04106iG

B-03106iS

B-05106iW

(a) Contracts estimated to cost above US$500,000 for works and US$200,000 for goods and services per contract and all direct contracting wil l be subject to prior review by the Bank.

Furniture for CMM and 15 RAF 40,500.00 IDA NCB Post Ju-07 Architectural equipment and

mcluding licenses during 3 years Supply of 2 dump trucks and 2

Services for the marketing

schedule Installation o f electrical and data

software and computer network 150,000.00 IDA NCB Post NOV-07

IDA NCB Post Apr-07 180,000~oo tractors

campaign nr. 1 of tributary 100,000.00 IDA NCB Post Jul-07

networks and interconnection 140,000.00 IDA NCB Post Aug-07

75

2. Consultants’ Services

76

Package Number

Estimated Amount Description

Bid Funding Selection PriorPost Closing-

Method Review Opening date

B- 5/06/cs

B-16/06/CS

B-19/06/CS

B-2 1/06/cs

C-O8/06/CS

c-14/06/cs

C-l5/06/CS

C-l6/06/CS

c-17/06/cs

36,000.00 IDA IC Post NOV-07 Short Term Consulting Services - Bid evaluations Short Term Consulting Services - software development Design and Tender Documents for the Installation of Electrical and data networks and interconnection between buildings

192,000.00 IDA IC Prior Feb-07 Hiring o f International Consultant for sub component B2 Urban Plamng Advisor 96,000.00 IDA IC Prior Mar-07 Supervision o f Rehabilitation Works for the Viaduct Elaboration of Traffic Lights Project 45,000.00 IDA IC Post Mar-07 Hiring Supervision for Traffic Lights

Construction Supervision of the new Directorate - DMSS Consulting Services for the closing

9,000.00 IDA IC Post Jw-07

10,000.00 IDA IC Post Apr-07

21,000.00 GOM IC Post Ju~-07

IDA IC Post NOV-07 15,000~oo

15,000.00 IDA IC Post May-07

Pro.ect I

C-20/06/CS

C-22/06/CS

(a) Consultancy services estimated to cost above US$100,000.00 equivalent per contract for f i r m s and US$50,000.00 equivalent per contract for individuals and single source selection (SSS) o f consultants will be subject to prior review by the Bank.

down and-rehabilitation of Hulene- 50,000.00 IDA IC Pnor Jul-07 Dump Site Technical Advisor for Infrastructures 128.000.00 IDA IC Prior Feb-07

77

(b) Short l is ts composed entirely o f national consultants: Short l ists o f consultants for services estimated to cost less than US$100,000.00 equivalent per contract, may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 of the Consultant Guidelines.

78

Annex 9: Economic and Financial Analyses Mozambique

ProMaputo: The Maputo Municipal Development Program

9.1 Economic Analysis

1. Maputo’s Municipal Development Program (“ProMaputo”) i s being supported by an Adaptable Program Loan comprising an IDA Credit for the first phase (APL 1) o f 3 years o f US$30 mill ion, The second phase (APL2) i s expected to last 5 years and to have an investment from IDA to be defined later, and subject to the conditions o f phase 1 being met. This analysis was done o n the basis o f the pre-appraisal budget and therefore differs somewhat f rom the final program budget. With regard to revenues, the data used were slightly more conservative at pre- appraisal than subsequently. This analysis i s only based on the first phase (APLl) o f the program that comprises three components: Component (A) Institutional Development and Municipal Governance (US$8.9 mi l l ion or 20 percent o f the total program baseline cost); (B) Municipal Finance (US$6.11 mi l l ion or 14 percent); and (iii) Improved Service Delivery (US$29.35.8 or 66 percent). The total investment for the program i s estimated in US$44.39 mil l ion.

2. Component (A), Institutional Development and Municipal Governance lays the foundations for realizing the benefits from the investment in the remaining components. This component lays the necessary conditions for realizing the benefits from the investment in the other two components. This component addresses a number o f constraints related to institutional reforms, capacity building and improvements in municipal governance. This component wil l generate benefits arising from improvements in the execution o f the program and these will be captured in the other two components.

3. Component (B), Municipal Finance has two subcomponents B1: Revenues and B2: Expenditures. Subcomponent B1 i s comprised o f a number o f revenue generating activities and i t s financial analysis i s presented in annex 9. The financial analysis o f component B shows an internal rate o f return (IRR) o f 42 percent and a net present value (NPV) o f US$4 mill ion.

4. The economic analysis o f ProMaputo focuses primarily on Component C: Planning, Infrastructure Rehabilitation and Service Delivery Improvements. Component C has 2 subcomponents: (Cl) Planning and Management o f Urban Space and (C2) Infrastructure and Service Delivery. Improvements (C2), which has four major activity areas (i) Roads and Drainage; (ii) Increased Quality and Coverage o f Solid Waste Management Services; (iii) Improve the Quality o f Cemeteries; and (iv) Enhance Public Safety through an Increase in Street Lighting and Traffic Lighting.

Component C: Improved Service Delivery (US$29.3 million).

Sub-component C.l: Planning and Management of Urban Space (US$5.7 million):

5. I t i s diff icult to quantify the benefits o f this subcomponent. However, benefits are expected to arise over a long period o f t ime as a result o f improvements in the management o f urban spaces. Such improvement will mostly come from reforms in the distribution o f land use

79

r igh ts and land ownership, and better planning and management o f infrastructure, and through the adoption o f an information system to expedite these processes.

Sub-component C2: Infrastructure and Service Delivery Improvements.

C2-1: Road Works and Associated Drainages (US$10.9 million):

6. The rate o f road expansion in the City o f Maputo i s insufficient to cope with the continuous expansion road traffic demand. Moreover, existing road facilities continue to suffer progressive deterioration due to inadequacy and delay in maintenance. To address this situation a Master Plan and Feasibility Study for the Road Sector in the Ci ty o f Maputo (target year 2020) was completed in October 2001, and also some priority investments in the sector have been completed. The Study covers the entire area o f the Ci ty o f Maputo (excluding Inhaca) and some o f the road sections identified in the Study are included in the APLl .

7. The first phase o f the program includes investments in 16.4 km o f street roads and 11.6 km o f rehabilitation o f arterial roads. The roads were selected on the basis o f improvements in traffic management, the opening o f access to new settlements, and enhancement in property values through improvements in access. This subcomponent i s expected to provide Maputo City with improved access to properties and integrated road networks for more efficient traffic f low management.

8. Methodology: The methodology used i s cost-benefit analysis o f a “with-project” and “without-project” cases. The investments cover priority streets and main urban arterial roads. The economic analysis i s based on homogenous road sections, in terms o f traffic and road condition. The roads considered in the economic analysis are grouped around the main streets noted in the first column o f Table 1. The main assumptions used in estimating the Net Present Value (NPV) and the Economic Internal Rate o f Return (ERR) are as follows:

9. Investment costs. The investment costs for both periodic maintenance and upgrading are shown in Table 1. The costs for periodic maintenance range between US$58,000ikm and US$123,000ikm. The investment costs o f the upgrading works ranges between US$158,000/k~n and US$840,0OOh. Road maintenance unit costs i s o n average US$1,675/km for paved roads and U S $ 7 , 5 6 O h for gravel roads.

No. of side streets

80

Tramc Length (km) Total Cost Periodic Maintenance Count cost

Routine Maintenance cost

10. The construction period for most work i s expected to be about one year, although some o f them may be completed in shorter periods. The cost-benefit analysis o f the c iv i l works i s based on detailed cost and traffic data that the CMM collected as part o f the Appraisal o f APL 1. The discount rate used was 12 percent and the expected economic l i fe was set at 15 years with periodic maintenance every 7 years.

Av. Marginal

G. Sebastiao

Sub-total

11. Program Benefits. The main benefits o f the road works and associated drainage are due to savings in Vehicle Operating Cost (VOC) and accidents, and benefits from generated and diversified traffic. Net benefits estimates were calculated with the Highway Development and Management Model (HDM-4/ RED), which stimulates highway l i fe cycles; vehicle operation conditions; and costs for multiple road designs and maintenance alternatives. There are number o f potential benefits associated with the investment but they were not quantified due to lack o f data. These benefits arise from savings in travel time; additional income coming from rental properties that would have improved access; and savings from the prevention o f damages in roads, properties and structures, due to improvement in drainage. Vehicle Operating Costs were calculated for four categories o f vehicles: light vehicles (91 percent o f the traffic count), buses (2 percent o f the traffic count), medium size trucks (3 percent o f the traffic count) and heavy trucks (4 percent o f the traffic count).

16,382 3.000 546.00 319.80 5.02

19,084 5.600 4,704.00 688.80 42.34

1 1.600 8,5 9 7.8 5 2084.52 98.68

Paved IRI=3 Good Paved IRI=12 Poor Difference Weighted

Table 4: Structure of traffic

81

Light Vehicle Bus Medium Heavy Truck 0.245 0.270 0.474 0.760 0.325 0.380 0.710 0.1.150 0.080 0.110 0.236 0.390 0.073 0.003 0.007 0.015

12. Traffic Count. The post-construction traffic i s based on traffic counts in main streets made in 2006 for the purpose o f the appraisal o f the program. The traffic counts o n the minor streets are estimated at 5 percent o f those o f the main streets. The improved access i s expected to generate 2 percent and to divert another 2 percent o f the projected traffic on minor streets. I t i s assumed that post-construction traffic wil l grow from 2006 levels at annual rate o f 4.1 percent for the economic l i fe o f the program. This rate i s in l ine with the GDP projections for Mozambique.

Road sections

Ave. Vladmir b i n

13. Accident savings. The improvement in foot paths will have a positive impact on the reduction o f accidents among pedestrian. However, there i s not sufficient data to quantify the full impact o f these savings. Regarding Savings in Travel Time, the potential benefits due to travel t ime savings are not included for the calculations o f the minor streets.

Investment +25% and Investment Benefit

ERRs/NPV Base Case +25% -25% Benefits -25%

18% 13% 11% 6% $180,627 1 $23,163 I ($21,993) I ($179,457)

ERR NPV

14. Results of the Cost-benefit analysis. Table 5 presents the results for the base case. Sensitivity analysis i s carried out by (a) increasing the investment by 25 percent; (b) decreasing the net benefit by 25 percent and (c) by combining both (a) and (b). For the road investment as a whole the base case has an ERR o f 106 percent and a NPV o f US$38.6 mil l ion. The worst case scenario (c) has an overall return o f 65 percent and a NFV o f US$28.6 mill ion. All these results show that overall the program has a robust return on investment.

18% ERR 12% 10% 5%

24% $388,797

ERR

NPV Ave. Julius Nyrere 18% 16% 11%

$219,474 I $122,275 I ($47,047)

20% ERR 15% 13% 8%

25%

$436,848

ERR NPV Ave G. Popular& Rua

da Beira

100% I 80% I 75% I 60% $3,172,755 I $3,009,061 I $2,215,873 I $2,052,179

ERR

NPV Ave. G. Sabasteo.

19% 18% 14%

$309,605 $200,392 $73,149

17% ERR

82

12% 10% 6% $166,522 NPV ($6,818) I ($48,448) I ($221,787)

106% ERR 85% 80% 65%

C2-2: Solid Waste Management (US$9.1 million):

Year Revenue

(‘000) Investment

(‘000) Operation & Manag..

(‘000) Cash flow

Cumulative cash flow

15. This subcomponent i s designed to increase the quality and coverage o f solid waste management both through internal improvements in the CMM’s solid waste management operations, as we l l as in partnership with the private and non-government sectors. As currently organized C M M collects less than 253 todday or 40.5 percent o f the daily generated solid waste. The revenue generated from the residential fee covers less than 30 percent o f the total cost and the total revenue covers less than 50 percent o f total costs. Affordabil ity relative to the fee i s l o w at 29 percent. C M M i s committed to adopt a sustainable waste management scheme that i s designed to achieve fbll cost recovery by the end o f APL2 (2013). The basis o f the cost recovery i s as follows:

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 908.9 1,718.9 2,640.1 3,803.4 4,288.1 4,593.1 4,970.0 6,027.3 6,230.0 6,441.0 6,659.6

586.2 1,163.1 302.7 333.5 934.6 185.3 963.7 1,049.9 300.2 319.2 404.8

1,040.90 1,813.7 2320.5 2,825.6 3,587.6 4,053.9 4,484.2 4,625.5 4,758.6 4,871 4,985.6

-718.20 -1,257.9 16.9 644.3 -234.1 353.9 -477.9 351.8 1,171.2 1,250.8 1,269.2 -1,976.1 -1,241.0 -596.7 -830.8 -476.9 -954.8 -602.9 568.2 1,819.0 3,088.2

16. Changes in fees: C M M plans to base i ts residential waste collection fees on the amount o f electricity consumed. The proposed monthly rates were 0.15 MTn/kWh per household for 2007, 0.25 MTn/kWh for 2009 and 0.25 MTn/kWh by 2013. (These rates were approved after this analysis).

17. commission that EDM charges from 20 to 10 percent.

Renegotiation of the EDM commission: CMM also plans to renegotiate the collection

18. Revenue: Revenue estimates are based on a set o f assumptions o n the growth rates of: population, economy, number household EDM can reach, electric consumption, and level o f EDM’s commission charged.

19. Investments: Investments are foreseen on basic hand carts, roll-on-roll-off small containers, dump-trucks, containers, compactors, etc. A detailed schedule o f investments for the sustainable management o f solid waste in the Ci ty o f Maputo has been worked out.

20. Operation and Management: In line with the policies o f public-private partnerships and the participation o f non governmental bodies, the design o f the solid waste management system calls for contracting out the disposal o f solid waste. The program includes the financing o f such contracts.

21. Assuming, the proposed fee increases for residential waste collection i s implemented on schedule (0.15 MTn/kWh per household for 2007, 0.25 MTn/kWh for 2009 and 0.25 MTn/kWh by 2013) and that C M M succeeds in lowering EDM commission charges, the solid waste management operation can achieve full cost recovery by the end o f APL2 (2013). The net

83

present value o f the cash f low at a discount rate o f 12 percent i s positive US$0.65 mill ion; and the internal rate o f return i s 20 percent. Both the NPV and IRR are sensitive to variations in residential waste collection fees and EDM service charges. The sustainability o f the waste management system therefore rests on the timely execution o f the scheme as planned.

1

C2-3: Construction of a new cemetery (US$1.1 million):

Receipts Monthly (Mtn) Burial semces (75Mtn- 25Mtn bunal, 5OMtn markings) 40,000

22. The current cemetery in the City o f Maputo has reached i t s full capacity. The CMM has an urgent need to develop a new site for providing adequate cemetery services. The current monthly revenue and operation maintenance costs o f the city cemetery are as follows:

1 2 3 4 5 6

Table 6: Revenues and costs of cemetery services

Expenditure Items Salaries 299,650 Water 70,000 Electricity 6,000 Other expenses (fuel, materials, etc) 40,000 Stationenes 1,000 Sub-total 416.650

I Subsidy -376,650

23. To fill the financing gap the CMM i s considering a number o f alternatives, including the participation o f the private sector. The participation o f the private sector will be determined by a study that will be carried out. I t i s possible that the financing gap would be narrowed with the participation o f the private sector in cemetery services. Nevertheless, even if costs cannot be h l l y recovered there i s a social obligation o f the state to provide basic cemetery services to i t s population. Local customs and traditions as wel l as the l o w income level o f many o f the residents o f Maputo do not seem to support significant increases in cemetery fees, not even to cover the operating cost. Therefore, i t i s likely that the C M M will have to increase i t s revenue through the provision o f other services to cover the cemetery subsidy, which i s now estimated at about US$1 per burial.

On the average, burial services are provided for 40 people every day.

C2-4: Increase public safety through an increase street lighting (US$0.3 million):

24. The objective o f this activity i s to meet in a cost-effective way the concerns o f citizens to enhance public safety through an increase in street lighting. The investment in this area i s small compared to the overall cost o f the program and i t s associated benefits measured as savings in crime are diff icult to quantify. However, in addition to any savings arising from crime reduction, this investment may have associated benefits from an extension in the provision o f electricity and waste collection services. This investment i s planning to provide 500 electric poles at a distance o f 40 meters apart along the urban streets. This creates potential for residential access o f electric services to about 2,000 households. Expanding the electricity network would help CMM to charge US$0.6 per household in waste collection fees.

84

9.2 Financial Analysis

I. Summary

25. A financial analysis was prepared for component B o f the program. All the results f rom the analysis support the financial viabil ity o f the investment in component B. According to the calculations by the second year o f the program (2008) the expected revenues wil l be higher than the projected administrative and collection costs. The analysis also shows that by 2010, which i s one year after the termination o f the first phase o f the program, the investment o f this component wil l become sustainable. Based on the program costs and revenue projections, the analysis calculated an IRR o f 42 percent and a NPV o f US$4 mill ion. Such results are the product o f a number o f assumptions and calculations that are discussed below.

11. Revenue projections

26. The revenue projections o f the program were calculated as the difference in projected revenues “with” and “without” the program intervention. Bo th projections, with versus without the intervention, were based on a number o f assumptions. 2005 was used as a baseline year. The revenue projections used for the different calculations o f this analysis are the net or marginal increases that result f rom the program intervention. The “with” and “without” project scenarios were prepared according to a number o f assumptions mostly coming from: R. Faber and M.L. Rodrigues (2006) “Study to determine the revenue potential o f the Municipal i ty o f Maputo”. The assumptions used in this analysis were selected very conservatively so as to calculate l o w case scenarios. Thus, in case more revenues are actually generated during the program, then the financial analysis here presented will improve.

Own source-revenues

27. The taxes and fees used in the analysis are:

(1) Head or po l l tax: Imposto Pessoal Authrquico (PA) (2) Property tax: Imposto Predial Autdrquico (PR4) (3) Fee on economic activity: Taxa por Actividade Economica (TAE) (4) Market fees: Taxa do mercados (5) Parking fees: Taxa do estacionamento de veiculos (6) Fees for the use o f public space: Taxa depublicidade

28. These taxes and fees, together with the waste collection fee (Taxa de Lixo), represent more than 90 percent o f the total own source revenues o f the City o f Maputo. This financial analysis o f component B excludes the waste collection fee, because this fee i s being considered in the calculations o f the economic analysis o f the investments covered in component C. However, notice that this fee i s highly significant as a proportion o f total own source revenues (1 8 percent) and including it in the analysis would render the investment under this component sustainable by the second year o f the program.

Revenue projections without program intervention

29. For these projections a number o f calculations were made using a different number o f assumptions. Finally, i t was decided prudently to project the revenues with a 10 percent annual

85

increase, which amounts to roughly the average inflation rate o f 2004 and 2005 - the only two years for which reliable data i s available. The baseline year for the projections was 2005 and revenues were projected for ten years - until 2015. These same assumptions were used for projecting all the six own-sources o f revenue considered in this analysis.

Revenue projections with program intervention

IPA

30. The P A projections were calculated at a fixed rate o f 5OMTn per year for the three years. No rate increase was considered. An expansion o f the base o f 50,000 persons per year (1 50,000 total) was assumed. This implies an absolute increase in the tax base from 105,000 persons in 2005 (base year) to 250,000 persons in 2009. This represents 60 percent o f the total calculated universe o f this tax base (410,000 persons) and i s considered to be a conservative and realistic estimate o f taxpayers who can be identified, billed and collected from. Following the same assumption, by 2012 the tax base would reached 400,000 taxpayers. From 2012 onwards, no mher expansion o f the base was considered, so the total number o f taxpayers from 2013 to 201 5 was taken as 400,000 per year.

IPRA

3 1. PRA i s the municipal tax with the highest revenue potential. However, the current legal framework o f municipalities limits this potential in a number o f ways as explained below. For this reason, the projections made for this tax are based on very low-case scenarios that do not require any type o f legal changes.

32. In 2005 (baseline year) the municipal cadastre o f PRA had 13,127 registries. I t was calculated that the City o f Maputo has 223,888 properties o f which 56,061 are made o f brick and have a water connection (Faber and Rodrigues, 2006). From the current cadastre o f 13,127 properties, only about 300 properties pay taxes based on a close to market value. The rest o f the properties make very low payments, whose values are calculated on the sale prices at the time when these properties were sold by the state. Taken all together, the taxes paid by the 13,127 properties result in an average payment o f 1,766MTn (US$71), and excluding the high-value properties o f 950MTn (US$38).

33. Due to the legal restrictions in place to reassess the properties to a close to market values and to adjust the tax rates, ' two scenarios were calculated according to the following assumptions. Both scenarios used the most conservative average payment value o f 950MTn for their calculations. Both scenarios only consider for the duration o f the program the properties o f brick and with piped water (56,061) as the total number o f taxable properties. The remaining 167,000 existing properties may also have some value and could pay a property tax (perhaps a very low flat rate); however, they are only included in the calculations after the year 2009.

' Currently, there are a number o f legal restrictions in place that prevent the CCM to take full advantage o f i t s potential property taxes. These restrictions apply both to properties that s t i l l belong to the state as well as to those properties that used to belong to the state, but that now are privately owned. Concerning the properties that s t i l l belong to the state, the main restriction i s that there are many properties that are pnvately occupied but because they formally belong to the state, they are exempted f rom IPRA. The problem with the pnvately owned properties that used to belong to the state is that the value o f these properties (which i s used to calculate the IPRA) i s the one set at the time when the state sold these properties, which i s far lower than the market value o f these properties.

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34. From the existing 56,061 properties o f br ick and with piped water, 13,127 are already registered in the cadastre. This means that there are about 42,000 taxable properties that can and should be incorporated into the cadastre. Scenario 1, considers that only ha l f o f that potential (about 20,000) are incorporated into the cadastre during the three years o f the program, and the remaining 20,000 properties are incorporated during 2010 and 201 1. Scenario 2 considers that a l l the 42,000 properties are registered and taxed during the three years o f the program. Both scenarios consider that once a l l the properties o f brick and with piped water are incorporated into the cadastre the very l o w value properties wil l also become taxable in the remaining years o f the analysis-until 2015. There are 167,827 properties o f very l o w value, and it was assumed that only ha l f o f those properties (83,913) will make a payment, the other ha l f wil l pay no tax at all. For the paying properties, calculations were made assuming a very l o w fix payment o f 1 OOMTn per property.

35. These revenue projections o f IPRA are very conservative. No t on ly i s the expansion o f the base i s basically l imited to the properties o f brick and with piped water, but most importantly, the average payment value assumed i s quite small (950 MTn). Once legislation i s passed to reassess properties at a close to market values and the municipality has autonomy to adjust the rates, at least to keep up with inflation, the revenue potential o f IPRA will increase substantively.

TAE

36. The TAE projections assumed for economic activity tax a total increase in the base o f this fee from about 2,000 to 9,500 taxpayers. After 2009 the total number o f taxpayers kept at a constant number o f 9,500. Due to lack o f credible data, i t was assumed, on the basis o f Faber and Rodrigues’ (2006) study, that at least 10,000 properties in the city are subject to th is fee - which i s less than 5 percent o f the total number o f properties in the city. The projections assumed that 2/3 o f the “new” taxpayers wil l pay the lowest rate o f 2,000MTn and 1/3 the highest rate o f 9,000MTn.

Market Fees

37. The projection for the market fees assumed a fixed nominal increase o f 40 percent in the rates f rom the baseline year o f 2005 to the first year o f the program. From 2008 onward the same constant value o f 2008 was assumed. This increase o f 40% has been approved by the Municipal Assembly, and there i s a bel ief that this rate increase wil l be approved. This projection does not consider any increase in the tax base.

Parking fees and fees for the use o f public space

38. The current view o f the City’s Finance Department i s that responsibility for the collection o f these fees mostly depends on each specific department. Because o f this, no additional increase was assumed for any o f these fees aside f rom the 10 percent increase already considered in the projections without the program intervention.

111. costs

39. The cost projections involved two different types o f calculations. One i s the calculation o f the total cost o f the program by component, sub-component and activity, and the other calculations involve the administrative and collection costs o f taxation.

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Total cost ofprogram investment

B1. Revenues B2. Expenditures Total (Bl and B2)

40. The costs used in this analysis come from an internal exercise in which the City Council o f Maputo estimated the costs o f each component, subcomponent, and activity o f the program under the overall credit envelop. This financial analysis only considers the activities o f component B1 (revenues) and B2 (expenditures) that have associated costs and which will be incurred during the three years o f the duration o f the f i rst phase o f the program - excluding the costs incurred by the Project Preparation Facility. The total cost o f the component and subcomponents by year i s as follows:

2007 2008 2009 1st phase 1,912,300 1,082,300 731,600 3,726,200 1,088,720 644,360 308,800 2,041,880 3,001,020 1,726,660 1,040,400 5,768,080

I VEREACA-OES DISTRZTAIS I 0.25

41. The total estimated cost o f the program i s US$44.4 mil l ion o f which 68 percent (US$30 million) wil l be financed by IDA. The distribution o f the IDA financing by component does not form part o f this analysis, but it i s assumed that all the financing o f component B will come from IDA resources.

I t i s estimated that about 50 percent o f

Administrative and collection costs of taxation

42. The financial analysis also made a rough calculation o f the administrative and collection costs associated with each o f the six revenue source considered. Since the precise calculation o f such costs requires much more detailed information than i s readily available, such calculations derive from a number o f assumptions. The only available information to prepare these cost estimates came from the budgetary allocation by municipal department in 2005. With only this data available, the first step o f the exercise consisted in identifying the municipal departments in charge o f the administration o f each revenue source. After that, the analysis made a rough estimate o f the proportion o f the municipal department’s budget assigned to the administration and collection o f the taxes and fees. That was calculated according to a number o f simple parameters explained in the table below. As o f the budgetary allocations to which the factors were applied, the total budgetary allocation o f each department consists o f three items: personal expenses (mostly wages and other remunerations), goods and services, and capital expenses. The budgetary allocations to which the factors were applied excluded capital expenses, as it was considered that they do not directly incur any administrative or collections cost. Although it i s difficult to give precise estimates relaying on such general assumptions, it i s believed that the cost estimates are on the high end, as they represent about 40 percent o f the total current budget o f all the municipal departments that are involved in the administration o f these taxes and fees.

Table 2: Factors for calculating administrative and collection costs of taxes and fees

Revenue source I Mun ic ipa l Department I Factor I Explanation IPA 1 VEREACAO DE ECONOMIA I 0.10 I It i s estimated that no more than 10%

E FINANCAS o f the resources of th is department are applied to th is end. l l

IPRA

TAE

Market fee

Parking fee

Fee for the use of public space

VEREACAO DE ECONOMIA E FINANGAS

I

VEREACAO DE ECONOMIA E FINANCAS

VEREA CA-OES DISTRITAIS

VEREACA-0 PARA A BESTE CIMENTO, MERCADOS E FEIRAS

TRA NSPOR TES E VEREAC~O DE

COMUNICA GOES

VEREACAO DE DESENVOL VIMENTO DE INFRAESTR UTURAS (direcp7o Municipal de Obras e Publicidade)

0.30

0.05

0.25

0.50

0.10

0.10

the districts’ budget i s spent on the collection o f IPA (25%) and TAE (25%). The remaining 50% o f the districts’ budget goes to activities related to the management of public space. Factor based on the number o f people working in the IPrA department that is about 30% o f i t s total personnel. I t i s estimated that no more than 10% o f the resources o f th l s department are applied to th is end.

I t i s estimated that about 50 percent o f the districts’ budget i s spent on the collection o f I P A (25%) and TAE (25%). The remaining 50% o f the districts’ budget goes to activities related to the management o f public space. This i s an important function o f the department, so it i s assumed that accounts for half o f i t s budget. This department has very many activities in addition to the collection o f parking fees, so i t was calculated that only 10% goes to that end. This factor represents 30% o f the budget o f the Municipal Unit o f works and publicity, which in turn represents about 30% o f the total budget o f the Department. Thus, it was estimated that the collection o f these fees represents about 10 percent o f the total budget o f the Department.

IV. Financial analysis

43. This financial analysis consists o f three parts. Part one calculates the net revenues o f the projected taxes and fees, discounting i t s associated collection and administration costs; part two estimates the payback period for the investment; and part three calculates the internal rate o f return and net present value o f the investment in component B.

Net revenues

44. For the net revenue calculations, the analysis estimated the total administrative and collection cost per year for al l the taxes and fees considered in this analysis. The baseline year for these calculations was 2005. The analysis projected these figures for the three years o f the program assuming a net percent yearly increase starting in 2007. The net increase was calculated as the absolute difference between the regular cost increase “without” the program and the cost increases due to the program intervention. Two scenarios o f net increases were calculated, one for a 10 percent net increase and one for a 20 percent net increase. The projections o f these costs per source o f revenue are presented in appendix table A1 ,

45. To calculate the benefits o f the program, the analysis calculated the total amount o f net (additional) revenues by subtracting the “without-intervention” f iom the “intervention” revenue

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projections. These revenue projections come from the revenue sources that are expected to increase as a consequence o f the intervention. Note that a l l these net revenues come from activities related to component B1 that deals with revenues. The activities o f component B 2 that deal with expenditures are not expected to generate any direct revenue increase.

46. The financial analysis compares two scenarios o f the total costs with two scenarios o f the benefits or total expected revenues. Scenario 1 o f the total costs assumes a 10 percent net increase and scenario 2 a 20 percent net increase. On the benefit side, scenario 1 assumes that the expansion o f the IPRA base in the last two years o f the program will include ha l f o f the unregistered properties o f cement and with piped water, and scenario 2 considers that al l those types o f properties will be registered (see appendix table A2). Using these high and l o w cost and benefit scenarios (see appendix table A3), the analysis produced four combined scenarios, as presented in the table below:

47. According to this analysis the net revenue (benefit) o f the total investment i s positive under a l l scenarios. Only in the first year o f the program costs are higher than the expected benefits. By the third year, the program becomes financially sustainable and remains l ike that in the subsequent years. That i s in 2008 and 2009, as in the total f irst phase o f the program, net revenues are positive. I t i s calculated that the expected net revenue gain o f the program may vary f rom almost US$700,000 in the lowest case scenario, to US$2.2 mi l l ion in the highest case scenario presented above. I t i s important to recognize that the highest case scenario s t i l l remains a conservative estimate.

Payback period

48. For calculating the return on investment o f the program, the analysis calculated the total cost per year for al l the activities o f the municipal finance component for each o f the three years o f the program. For the revenue projections, the analysis estimated the total amount o f ’net (additional) revenues by subtracting the projections o f the “without-intervention” f rom the “with- intervention” projections. These revenue projections come form the revenue sources that are expected to increase as a consequence o f the intervention. Note that a l l these net revenues come from activities related to component B1 that deals with revenues. The activities o f component B2 are not expected to generate any direct revenue increase.

49. The financial analysis compares the total costs with the total expected revenues o f two scenarios. Scenario 1 assumes that that the expansion o f the IPRA base in the last two years o f the program will include ha l f o f the unregistered properties o f cement and with piped water, and scenario 2 considers that a l l those type o f properties will be registered. The result o f the analysis shows that in the first two years o f the program, costs go beyond the projected revenues. By the third year, the program becomes financially sustainable and remains l i ke that in the subsequent years, at least until 2015, the last year to which revenue projections were made.

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I Totalcost I 3,001,020 I 1,726,660 I 1,040,400 I 5,768,080 I

Accumulated costs

Accumulated revenues (Scenario 1) Accumulated revenues (Scenario 2)

Total revenue (Scenario2) I 778,814 I 1,549,793 I 2,566,419 1 4,895,025 Cost - Revenue (873,055) I (2,222,206) I (176,867) I 1,526,019 I

2007 2008 2009 2010 2012 2015 3,001,020 4,727,680 5,768,080

778,814 1,986,607 3,869,025 5,965,333 10,448,003 15,591,150

778,814 2,328,607 4,895,025 7,389,273 12,067,731 17,294,770

IRR NPV ($US)

50. According to the results presented in the previous table, in the first phase o f the program the additional revenues generated by the program will finance between 67 and 85 percent o f the total investment o f the municipal finance component. Because o f the init ial costs o f expanding the tax registries and installing more efficient tax systems are high, the investment cannot be fully recovered in the three years o f the program. However, once tax bases expand and tax systems improve the different revenue sources wil l report additional resources every year, then the investment becomes sustainable one year after the termination o f the first phase o f the program. According to the revenue projections presented in the fol lowing table, by 2010 the municipality will be generating more additional revenues than the total cost o f the investment. Also, note that a l l the revenue projections were calculated on very conservative assumptions. Basically, no changes in rates and in the value o f properties were assumed. Thus, if rates increase, even if only to keep up with inflation, or the taxable value o f properties i s adjusted to close to market values, then financial sustainability can be ensured during the first phase o f the program. The program i s an APL o f 8 years, but calculations have not been made for the full program given the lack o f detailed information o f investments for APL2.

Total Costs +25% Benefits- 25% Costs + Benefits 42% 29% 25% 16%

4,054,524 2,855,399 1,841,768 642,642

Table 5: Pavback Deriod (%US)

Internal Rate of Return and Net Present Value

51. Based on the program costs and revenue projections, the analysis calculated an IRR and NPV for the investment in component B. Using the revenue projections o f the conservative scenario 1 (see above) and the total costs for the component result in an IRR o f 42 percent and a NPV o f US$4 mil l ion. The discount rate used was 12 percent. Sensitivity analysis was performed both on a 25 percent cost increase and a 25 percent benefit reduction (see table 6). Combining these cost increases and benefit reductions the investment in component B has an IRR o f 16 percent and a NPV o f US$600,000. All these calculations support the financial viabil ity o f the investment in component B.

Table 6: IRR and NPV

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V: Appendix

Benefits-Scenario B1 (half no. properties) IPR4 IPA TAE Market fees

Figures are in $US.

2007 2008 2009 1' Phase 227,390 473,261 709,518 1,410,169 127,885 210,674 291,741 630,301 86,832 233,948 642,725 963,505

336,706 289,910 238,435 865,051

Costs-Scenario C1 (10%) Costs-Scenario C 2 (20%) Benefits-Scenario B1 (half no. properties) Benefits-Scenario B 2 (total no. properties)

Fees for use of public space Total I 778,814 I 1,549,793 I 2,566,419 I 4,895,025

Figures are in $US.

2007 2008 2009 1' Phase 798,916 878,808 966,689 2,644,413 871,545 1,045,854 1,255,025 3,172,424 778,814 1,207,793 1,882,419 3,869,025 778,814 1,549,793 2,566,419 4,895,025

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Annex 10: Safeguard Policy Issues Mozambique

ProMaputo: The Maputo Municipal Development Program

10.1 Executive Summary - Environmental and Social Management Framework (ESMF)

1. Maputo City Council i s preparing a program - the Maputo Municipal Development Program (ProMaputo) - to support improvements in institutional and organizational development, financial management and implement certain priorities in the area o f service delivery in the municipality.

2. The program i s envisaged to cover 10 years with an 8 year APL from IDA to support i t in two phases. Phase 1 (3 years) will focus o n institutional and financial restructuring as well as l o w cost, quick-win infrastructure and service delivery improvements. Phase 2 (5 years) wil l consolidate the achievements o f Phase 1 and i s likely to finance larger scale infrastructure and service delivery improvements in relation to roads, markets, water supply, sanitation, solid waste management, gardens, public transport, traffic l ights and public lighting.

3. The program has been classified by Wor ld Bank as a Category B project based o n the types o f projects it comprises.

4. The objective o f the present ProMaputo’s ESMF i s to define a process that will ensure that a l l infrastructure activities included in the program are implemented in a way that safeguards both the biophysical and social environment. A Resettlement Policy Framework (RPF) has also been prepared under separate terms o f reference, and will be implemented in conjunction with this ESMF.

5. This ESMF i s an update o f an earlier Environmental and Social Management Framework carried out in the context o f the Municipal Development Program during the year 2000 which included Maputo and seven other municipalities (as per the Terms o f Reference). This update takes into consideration a l l relevant Mozambican legislation as we l l as Wor ld Bank safeguard policies. This updated ESMF has been prepared by a Borrower Consultant and reviewed and approved by the Wor ld Bank’s Safeguard Specialist who i s a member o f the project team and who advises on al l safeguard related matters. Both the ESMF and the RPF were disclosed in country and at the Wor ld Bank’s InfoShop prior to Appraisal o f the Project. The purpose o f the Environmental and Social Management Framework (ESMF) i s to provide a strategic guide for the integration o f environmental and social considerations in the planning and implementation o f the ProMaputo activities.

6. The development objective o f Phase 1 o f ProMaputo i s to “Strengthen the Maputo City Council’s institutional and financial capacity to support achievement o f long term service delivery goals and improve solid waste management”. The Program recognizes that Maputo City i s starting from a position o f extremely l imited resources, human and financial, a very weak institutional context where most systems (financial, strategic, urban planning, property registry, information technology, etc.) are lacking and where there was almost no basic equipment for the functioning o f the city council i tself (faxes, internet) for the delivery o f services to the citizens,

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7. The first phase focuses mostly on the restructuring o f the CMM, with approximately US$14.5 mi l l ion for institutional development and financial reforms, and US$26 mi l l ion for some quick win investments in visible infrastructure rehabilitation and service delivery. These investments wi l l deliver tangible results that will help maintain polit ical credibility to continue the reforms. They wil l also demonstrate that with increased resources and capacity, the city can deliver more services, therefore encouraging citizens to pay taxes and fees to initiate a virtuous cycle. Phase I will also evaluate and possibly scale up pi lo t exercises in slum upgrading and public private partnerships that were financed by Cities Alliance and PPIAF (respectively).

8. By the end o f Phase 11, significant improvements in service delivery wil l be visible in areas that citizens themselves have identified, such as: solid waste management, street lighting, road rehabilitation and drainage and cemeteries. The bulk o f these investments will take place in the poorer urban districts that are mostly informal and have slum characteristics, with a slightly different focus per district based on the report card priorities identified in each and the poverty assessment done for the program. Maputo i s the gateway for investors and tourists into Mozambique, as such, some o f the key investments wil l also target the “Cement City” to remove bottlenecks to productive investments and to increase the city’s competitiveness for foreign and local investors.

9. Progress towards the CMM’s goals wil l be measured annually through indicators detailed in the results framework and a more comprehensive matrix for the C M M to monitor itself. The Program’s design emphasizes monitoring as an integral function o f the responsibility o f the l ine management, with overall responsibility resting with the Mayor supported by the Office o f Strategic Planning and Institutional Development (GDEI). The governance structures that the mayor has established, such as the mayor’s Consultative Council o f high level local business and community leaders as we l l as the annual Citizens Report Card, will provide additional mechanisms for monitoring progress.

10. Most importantly, the conditions for initiating Phase I1 will be concrete measurable indicators that demonstrate whether the institutional and fiscal hndamentals are in place, and whether they are leading to some (realistic) improvements in service delivery in prioritized areas such as solid waste management. In year three o f Phase I, specific outcome indicator figures for Phase I1 wil l be determined based on the achievements under Phase I and updated performance targets informed by data provided from the 2007 Census.

11. According to Mozambican Environmental Law, the Wor ld Bank’s safeguard pol icy OP4.0 1 and Mozambique’s Environmental Impact Assessment Guidelines, ProMaputo would fal l under the l i s t o f projects for which environmental impact assessment i s mandatory, prior to implementation. The basis i s that the proposed program constitutes several components o f activities, which would generate environmental impacts albeit insignificant and which effect needs to be mitigated.

12. The proposed ProMaputo activities have been categorized as By according to the Environmental Assessment Operational Policy; and therefore, the need to carry out the ESMF. Since the infrastructure investments and their potential negative localized impacts will on ly be firmed up at appraisal, the ESMF has been prepared to ensure appropriate mitigation o f potential negative environmental and social impacts. Although the program activities wil l vary in size, location, scope and the approach in implementation, most o f these activities will involve c iv i l works which might have generic environmental impacts.

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13. As designs for identified investments are finalized, the complete proposal shall be screened on i t s environmental and social merits including the environmental category o f the investment. For category B investment proposals requiring an EA, the proposal shall include the EA report and proof o f i t s approval by MICOA and the Wor ld Bank Safeguard Specialist o f the project team. For category B proposals that do not require the preparation o f a separate EA, the completed environmental and social checklist will be attached to the investment proposal.

14. The ESMF has been prepared as a guide for the init ial screening o f the proposed activities o f both Phases I and 2, and for negative environmental and social impacts, which would require attention prior to investment implementation. The ESMF outlines a number o f strategies in undertaking the exercise.

These include:

e

e

e

e

an outline o f a comprehensive checklist for the potential environmental and social impacts and their sources; systematic procedures for participatory screening processes for investment sites and program activities for environmental and social considerations; a step-by-step procedure for forecasting the main potential environmental and social impacts o f the planned investments; a typical environmental management plan for addressing negative externalities in the course o f investment implementation and operations within environs;

an outline o f recommended capacity-building measures for environmental planning management and monitoring o f the program activities.

e a monitoring system for implementation o f mitigation measures; and e

15. The framework also suggests that for successful implementation o f this ESMF, involvement and participation o f local communities i s paramount.

Specifically the framework recommends:

e

e

e e

e

using the screening process o f both the ESMF and RPF prior to any infrastructure investment o f ProMaputo; environmental and social awareness and education for the key stakeholders and affected communities; training the local community structures to implement the screening process o f the ESMF; regularly updating this ESMF to respond to changing local conditions particularly during Phase I1 when there will be much more activities that may impact on the environment ; building capacities for developing appropriate information management systems to support the environmental and social management process; providing the necessary resources and equipment for the Local Government Authority (LGA) to be able to produce the necessary documentation and forms for the implementation o f the ESMF; and empowering the relevant environmental officers particularly M I C O A Staff to adequately administer and monitor the implementation o f the ESMF.

0

16. The Capacity Building required for environmental management i s part o f the bigger capacity building framework, which will be funded by the program. As indicated below, a budget wil l be set aside to honor the Memorandum o f Understanding (MOU) signed between

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M I C O A and the Municipality o f Maputo to ensure their participation in the implementation o f the ESMF and to also ensure that the required institutional and human resources capacities are built for sustainable environmental management o f the City o f Maputo.

17. As a reference material, the framework will be usefu l to several stakeholders who will be involved in planning, implementation and monitoring o f the proposed program. Some o f the key users o f this framework are:

funding agencieddonors for the proposed Municipal Development Program; Municipal Environmental Management Officers and Committees; Sector Environmental management Coordinators; participating agencies in the implementation o f ProMaputo; politicians and local traditional leaders; senior central government officials responsible for pol icy making and investment planning; central government officials responsible for environmental planning and management; NGOs and the private sector involved in the implementation o f the Program; planners and engineers for preparation o f plans and designs o f the investments; engineers and contractors to be involved in implementation o f the investments.

18. Annual reviews should be undertaken after implementation o f the recommended actions o f the ESMF report and at the closing o f each year o f the Program. It i s expected that each review would require 3 -4 weeks o f field work (interviews, examination o f investment proposals), and that the review report would be completed within 2 weeks o f completing the fieldwork. The reviews will have to include a costing.

10.2 Executive Summary - Resettlement Policy Framework

19. The Municipal Council o f Maputo with financing f rom an Adaptable Program Loan (APL) comprising a two-phase IDA Credit, has prepared its ProMaputo development program. It aims to support implementation o f the Municipal Council’s 10 year widely inclusive and ambitious proposal to improve municipal governance through restructuring and improving accountability, improve municipal planning capacity, services and infrastructure. The IDA credit will be used to provide funds in two phases: the first for three years o f priority urban development planning and capacity development with a few investments in rapid impact infrastructure and service improvements, and the second for f ive years which will consolidate the init ial capacity development, emphasizing deconcentration o f services, improved governance, and scaling up infrastructure investments.

20. Municipal citizens are to play an important role in developing municipal plans for land- use, urbanization, and service and infrastructure management. The Council has already started to involve i t s citizens in an iterative process used to develop a more open governance style, beginning with consultations during the Mayor’s election process and then refined through a process o f diagnostic analysis o f the Council and i t s governance relationships. The Program focuses init ially on developing a communication strategy that will prepare the mechanisms for a wide and productive f l ow o f information between the Municipal Council and the urban citizens, particularly those with less resources living in peri-urban areas. Using this and a more flexible and better structured management system, in the longer te rm citizens will become directly

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involved in partnerships, monitoring and ensuring the sustainable management o f urban services, responsive governance, and the upgrading o f living conditions and public facilities.

2 1. M a i n Program activities include an institutional and organizational development component aiming at rationalizing the municipality’s internal processes for service delivery, improving the performance o f the municipality’s functional units and improving governance. A component o n revenue and expenditure reforms aims to improve municipal financial performance, increase income and budget management. A third component wil l support urban planning and targeted investments to improve and rehabilitate critical urban services. This wil l be carried out in two main ways: by improving the planning and management o f urban space and by strengthening service delivery in priority sectors.

22. K e y issues relating to community well-being implied in the design, development and implementation o f ProMaputo include: a) clarification o f the role o f municipal authorities in relation to the central and provincial governments that also have jurisdiction extension over Maputo; b) the emphasis on development o f a systematic communication strategy to secure effective stakeholder participation in developing and implementing the Program, greater participation in sub-municipal governance, and broad-based buy-in by municipal stakeholders to help sustain polit ical commitment; c) institutionalizing participatory spatial planning linking governance reform with the gradual deconcentration o f selected services to the districts; d) decentralization o f some very basic functions to the Municipal Districts.

23. This Resettlement Policy Framework covers the first and second phases o f ProMaputo. In Phase I only the development o f a cemetery could cause displacement o f people from their homes and livelihood sources. Phase I1 will focus on broader improvements o f living conditions and use o f urban space and services. This may cause larger scale displacement and land use rights may have to be acquired for larger scale construction works and possibly for displaced people’s resettlement. Presently the location, nature and scope o f displacement are not yet known.

24. When, the details o f involuntary resettlement and acquisition o f land use rights are not fully known, a Resettlement Policy Framework (RPF) that establishes the pol icy principles for the development o f specific Resettlement Action Plans (RAPS) i s developed for public information and discussion. As, subsequent to the RPF, outlines o f different initiatives are known in sufficient detail, when deemed relevant, a RAP will be developed for each one based on the framework agreed upon in this RPF.

25. Resettlement covers physical displacement and economic displacement. Thus the need for resettlement and compensation refers to the impact o f the development causing the loss of, or loss o f access to, any assets growing on or permanently affixed to the land, such as shelters, businesses, buildings and crops and also to the impact causing loss o f or access to an economic resource base or local communities’ means o f livelihood. Losses may be total or partial. According to Wor ld Bank policy the absence o f legal title to use and benefit from the land does not limit r igh ts to compensation. The Bank also emphasises that land-based resettlement strategies should be used for displaced people whose livelihoods are land-based. In the case o f Mozambique this must be interpreted as access to land for use for l ivelihood support, thus if sufficient alternative land i s not available, other options built around opportunities for employment or self-employment should be provided in addition to cash compensation for assets lost.

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26. Encroachment on project sites during prolonged planning processes i s becoming common in Maputo. Houses, businesses and other structures - some temporary others permanent, as we l l cultivation in open areas are common. People displaced by ProMaputo developments should be assisted to improve or restore their livelihoods in a manner that maintains the sustainability o f their interaction with the economic resources available to them.

Mitigation actions

27. A preliminary review carried out for the preparation o f this Resettlement Pol icy Framework has identified that in Phase I potential displacement i s only possible at a l ow level at a cemetery development site but may occur on a very minor scale at other sites.

28. The costs o f resettlement can add significant amounts to investment budgets and wherever possible resettlement should be avoided. Where it i s not possible to choose another location alignment o f boundaries for an investment, activities should be defined so that the least amount o f people i s affected without affecting the viabil ity o f the investment.

29. ProMaputo includes inputs to the design o f zoning and detailed land-use plans, the implementation o f which will define community use and access to economic resources in different areas. Urban land-use changes may cause loss o f property and the need for local residents to relocate to other areas. I t may marginalise some o f the weaker members o f households affected by these changes who are unable to take up the alternatives offered easily. Planning together with local people should identify vulnerable people and address their needs as early as possible in the investment preparation process. If plans to improve low-income areas o f the city can incorporate the resettlement that may be necessary into the direct benefits o f the Program, resettlement solutions may include voluntary relocation as part o f a location’s social uplift program.

30. When an activity that causes displacement i s identified, alternative designs must be prepared to minimize the impact wherever possible. If activities carried out by a program unavoidably cause displacement or require the acquisition o f land use rights the C M M should conduct a concise Land Acquisition Assessment (LAA) as a screening mechanism to identify i f resettlement planning wil l be required. Although this Wor ld Bank requirement i s not legally applicable in Mozambique since land cannot be acquired, the screening process i s a useful mechanism for an investment program where the enforcement o f Municipal land use r ights i s l ikely to cause displacement o f local people, and it i s an obligatory Wor ld Bank requirement. Thus where encroachment over the past few years means that physical andor economic displacement will occur, an adapted simple LAA can be incorporated into the screening process to be used for these investments. If this screening device detects the l ikelihood o f displacement then it must be submitted to the Wor ld Bank for identification o f what type o f resettlement planning wil l be necessary. This RPF and Wor ld Bank policy OP 4.12 wil l be used to guide the development o f an action plan.

31. Under Mozambican law al l projects must be screened using a standard checklist to identify whether an environmental assessment (EA) i s necessary. Should screening identify the displacement o f any people, this fact will necessitate an EA. A simple EA or more complex Environmental Impact Assessment (EIA) may be undertaken depending o n the nature and size o f the potential environmental and social impacts. In al l cases a scoping phase to define the terms o f reference for the EIA will identify the scale o f displacement l ikely to be caused by an investment project and general potential impacts o f this. The EIA will present details o f l ike ly

98

socio-economic impacts on people o f investment project development and any associated facilities required for construction or operation. I t wil l also identify probable induced impacts, including l ikelihood o f in-migration to the investment project area.

32. The EIA itself will include a social impact assessment (SIA) that will identify and quantify impacts and the numbers o f people affected or displaced by the investment project. A socio-economic baseline survey should include a census o f a l l displaced people and provide the basis for estimation o f impacts o n the population. EIAs require extensive and reported public consultation during preparation. Mit igating action plans are also required to be prepared as part o f the EIA.

33. E W S I A mitigation plans should outline the procedures used to minimize the negative impacts o n the community as a whole or o n part o f i t or o n single households. Where these require resettlement, according to Wor ld Bank requirements, these procedures wil l be defined in detail in a Resettlement Action Plan (RAP).

34. once a concession has been demarcated, i t should be subject to a Land Acquisition Assessment.

If in Phase I1 concessions involving land use rights acquisition are awarded for example,

35. An abbreviated RAP i s used if the scale o f resettlement i s low. I t describes the activity and actions to minimise resettlement; i t provides an officially certified survey o f displaced persons, an asset inventory and valuation and, if appropriate, a socio-economic survey. I t describes in detail the compensation and other resettlement assistance including entitlement to participation in alternative livelihoods development activities to be provided. I t also describes the results o f consultations with displaced people about acceptable alternatives. I t must identify institutional responsibility for implementation and procedures for grievance redress, as we l l as arrangements for implementation and monitoring. An implementation schedule and detailed budget are required.

36. In cases where an activity wil l cause involuntary resettlement o r negative impacts on people’s livelihoods o f a significant scale, the C M M will prepare a full RAP for that particular activity. The scope and level o f detail o f a RAP will vary with the magnitude and complexity o f the resettlement involved. The organization and minimum o f information required for a RAP should conform to requirements in the Wor ld Bank’s policies on Involuntary Resettlement O P B P 4.1 22 and this Framework.

Institutional organization

screening 37. Screening o f an investment project that may require resettlement planning i s initiated by the municipal department or other agency responsible for proposing the project. In Phase I this may include the Cemetery Management Department o f the Municipal Council (CMM), the Transport Department, and the Solid Waste Management Department. In Phase I1 there will be broader involvement o f the Municipal Markets and Fairs Department and Urban Planning Department as projects developed by them trigger resettlement activities. Two simple checklists must be completed, one for the Wor ld Bank and another for the Ministry for Coordination o f Environmental Action. Once completed the Environmental Management Department o f the CMM will ensure that if any displacement i s registered, the checklists are submitted to the Wor ld Bank and M I C O A respectively.

*Also see Annex 10.1. 99

RAP development

38. Responsibility for ensuring the production o f a RAP lies with the Environmental Management Department delegated by the Office for Institutional and Strategic Development (GDEI). A consultant may be contracted to carry out socio-economic studies, an S I A and the RAP. The consultant would be responsible for stakeholder consultation, facilitating and supervising compensation negotiations and agreements and producing the draft RAP document. The Phase I consultants would also be involved in developing capacity o f municipal personnel responsible for resettlement in the Environmental Management Department.

Resettlement implementation 39. Responsibility for resettlement implementation lies with the GDEI, which wil l task the Environmental Management Department to organize technical support from the various municipal departments for site demarcation and acquisition o f use r igh ts for land for resettlement if necessary. The Environmental Management Department may on behalf o f the GDEI contract additional assistance to facilitate resettlement such as contractors for house design and/or construction, consultants to oversee the process and facilitators o f the consultation, compensation negotiation and resettlement processes with the displaced people.

40. I t may be u s e h l to convene a small advisory group o f resettlement specialists who can be called upon to assist the GDEI and the municipal technical departments in monitoring and preventing negative outcomes during resettlement implementation.

41. The Environmental Management Department (DGA) i s expected to be created and i t s capacity built during Phase I. It i s recommended that capacity i s also developed in the Environmental Management Department to supervise and manage the social inputs to the resettlement process during Phase I o f the Program. Until capacity i s developed in the Environmental Management Department to manage the social aspects o f resettlement, the RAP consultants in Phase I and the resettlement advisory group may help provide inputs and special guidance in these aspects to the Department.

42. A specific person in the Environmental Management Department should be designated by the Program Authority and attributed no less than 75 percent o f h isher time to organizing and directly supervising resettlement implementation at project sites, and be provided with field facilitators. If this i s not possible, other facilitators active in the city should be contracted to carry out the social and organizational aspects o f resettlement. The participation o f the same facilitators in the consultation process required to prepare the RAP would be advantageous.

43. At community level a resettlement committee should be established to represent the interests o f those who wil l be displaced. The local Resettlement Committee (RC) will be identified by the local Neighborhood (bairro) Collective and include a sub-group o f i t s members as we l l as other trusted local influence leaders and representatives o f the displaced people. I t will be a key forum for linking community issues, including resettlement and grievances w i th the social facilitator, the Municipal District, the Department for Environmental Management and ultimately the Municipal Assembly or Law Courts.

44. For the implementation of a RAP, an ad hoc Working Group o f the Municipal District (DM) Consultative Committee (CC) should be set up with community and local leader membership (drawn f rom the local resettlement committee) f rom an affected area in the DM

100

territory. RCs and CC Resettlement Working Groups should be trained in social and management issues and supported by social facilitators where possible. At DM level, the DM Administrator wil l be responsible for leading the district CC Resettlement Working Group, a group o f stakeholders concerned with ProMaputo activities in the DM. The district CC Resettlement Working Group wil l coordinate, monitor and supervise community consultation and participation in RAP implementation at district level. The Working Group should coordinate i t s activities with the CMM’s Environmental Management Department, and must ensure a copy o f a l l information collected locally i s deposited at the referred to department and the Communication Office. Intra- and interdepartmental coordination wil l be overseen by the GDEI. The GDEI wil l also be responsible for ensuring compliance concerning public consultation and disclosure.

Public consultation and grievances

45. A local communication strategy stressing awareness-raising activities about the program and resettlement procedures and entitlements should be carried out throughout preparation and implementation o f resettlement in order to promote dialogue and to reduce misunderstandings and grievances. Communities will be involved in awareness-raising and training concerning their r i g h t s and obligations; how to obtain legal advice and representation, and how to seek redress against what they regard as unfair practices. Training for technical personnel f rom the CMM, the district CC Resettlement Working Group members and local leaders in conflict management can assist in minimizing the negative impact o f conflicts.

46. The Resettlement Policy Framework and RAP preparation processes are participatory. V i a consultation during the socio-economic studies and impact assessments, potential conflicts and communication channels for grievances should be identified. The consultation process must involve a l l potentially displaced people. During and after resettlement, individual and group consultation should be continued by social facilitators to verify progress in people taking up new livelihoods activities and in restoring their lives to the levels they were prior to resettlement.

47. Displaced people’s and host community grievances concerning proposed or actual resettlement arrangements can init ial ly be presented for local redress to the Quarter Chief, a local influence leader or the local Resettlement Committee. Fail ing resolution at community level, issues may be presented to the district CC Resettlement Working Group for resolution or transmission via the Environmental Management Department to the Program Authority or it may be formally taken to the Municipal Assembly to investigate and coordinate appropriate solutions.

48. Grievances may also be taken to the social facilitator working with the affected community. This channel may assist in local resolution or provide a rapid channel for t imely resolution involving the CMM’s Environmental Management Department.

49. Unresolved issues, dissatisfaction with solutions or if a community i s in conflict with a private-sector contractor, may require formal recourse to the Municipal Assembly v ia the customary presentation and hearing o f a municipal citizen’s petition. Fai l ing resolution there, i t wil l be taken to the Ministry or agency with titular responsibility for the investment. Provisions to appeal concerning sectoral grievances to higher levels o f government such as National Directors and Ministers exist in most legislation. Should any party be dissatisfied, the grieved party may take the complaint to court where i t wil l be dealt w i th under Mozambican’s law.

101

50. The costs o f resettlement including compensation and mitigating activities in Phase I are approximately US$14,000. This figure was revised during project appraisal. Phase I1 costs will be estimated at the end o f Phase I.

51. Community consultation and participation in the RAP planning process wil l identify progress and impact indicators. These will be used to formulate the RAP, and subsequently for monitoring and external audits during the implementation o f the RAP. Communities will also participate in external evaluation o f outcomes o f resettlement.

52. The activities implied in any written agreements between the CMM and community representatives wil l be jo in t ly monitored and where possible community organizations wil l be responsible for ensuring the compliance o f community members. The GDEI will be responsible for ensuring the adequate design, development and oversight o f general resettlement monitoring and evaluation systems.

102

Annex 11: Project Processing Mozambique

ProMaputo: The Maputo Municipal Development Program

Program Identification PCN Management review Preuaration mission

IDA Credit Preparation Timetable e November 2005 + January 2006 + Februarv2006

Quality at Entry Review Pre-appraisal mission Decision Meeting Appraisal Negotiations Board Approval

d June 2006 + August2006 * November 2006 e November 2006 e December 2006 e January 2007

Credit signing Credit effectiveness and first allocation to the Special Account Program launching and starting execution

Roberto Santoro

e February2007 e February2007

* March2007

Rafael Saute Serigne Omar Fye Diep Nguyen Van-Houtte Anne Louise Grinsted

103

2491 87 Communications Specialist EXT 98790 Sr. Environmental Spec. AFTS 1 18281 6 M&E Specialist AFTQK 309657 Junior Professional Officer A F c 0 2

Quality Assurance Team: Catherine Farvacque, Mats Andersson, Roberto Chavez, Guenter Heidenhof, Julio Carrilho (University o f Eduardo Mondlane, Mozambique), Nick Devas (University o f Birmingham, UK), Cecile Ramsay

Bank funds expended to date on project preparation:

1. Bank Resources 2. TrustFunds

Estimated Approval and Supervision Costs:

Estimated annual supervision cost:

US$115,000 (variable) US$175,000

US$95,000

M i d Term Review

The C M M will carry out a Mid Term Review jointly with IDA and the G O M (if the latter deems necessary) before 1 March 2009. The M T R will assess overall progress made during implementation o f the first phase and the results o f the monitoring and evaluation activities. Within thirty days o f this review, the C M M w i l l start to implement its recommendations as agreed with IDA.

104

Annex 12: Documents in the Project File Mozambique

ProMaputo: The Maputo Municipal Development Program

Project Documents

Project Concept Note Project Concept Note- Review Meeting minutes Project Concept Note Data Sheet-PCN Identification Mission, Aide Memoire, h e x e s and Management Letter Preparation Mission, Aide Memoire, Annexes and Management Letter Pre-appraisal Mission, Aide Memoire, Annexes and Management Letter Project Appraisal Document Project Appraisal Document Data Sheet-Technical Decision Meeting minutes Concept Review Package for Mozambique-ISDS Project Information Document- PID Integrated Safeguard Data Sheet-ISDS Minutes o f Negotiations

Quality Assurance

Quality Enhancement Review Minutes, June 2006

Background Studies

CESO, Analysis of Current Human Resources of Maputo City Council, 2005 Deloitte & Touche, Studies on Maputo City Council Revenues, 2005 Metier Consultoria & Desenvolvimento, City of Maputo, Municipal Scorecard on Urban Services, 2006. Faber, Robbert and Manuel Lourenqo Rodrigues, Study to determine the revenuepotential of the Municipality of Maputo, 2006 Noronha, Joao, Study on Revenues from Markets and Fairs, 2006 Brandberg, Bjom, Sanitation and Hygiene Study, 2005 SAL & Caldeira Pty (ltd), PPIAF Public Private Partnerships Framework Study, 2006 UEM Faculty o f Architecture, Cities Alliance Phase I Report, 2006 Consortium Usec, Ibam, Multiservicos, Functional Analysis of CMM, 2006 Cruz, Catarina, Enlargement of the Cadastral Base of IPRA Contributors, 2006 Borges, A1 fredo, Study on Information Technology System for reform of Municipal Finances, 2006 Dray, Madalena, Environment and Social Management Framework for ProMaputo, 2006 Thompson, Gaye, Resettlement Policy Framework for ProMaputo, 2006 Metier Consultoria & Desenvolvimento,City of Maputo, Basic Poverty Assessment, 2006. Buendia, Miguel, City of Maputo Anti-Corruption Strategy, 2006

105

Annex 13: Statement o f Loans and Credits Mozambique

ProMaputo: The Maputo Municipal Development Program

~ _ _ _ _ ~ ~ _ _ _ _

Ongmal Amount in US% Millions

Difference between expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Ong. Frm. Rev’d

PO93165 2006 MZ-Market Led Smallholder Dev (FY06) 0.00 20.00 PO71465 PO87347 PO86169 PO82618 PO69183

PO01 807 PO72080 PO78053 PO69824 PO01806 PO73479 PO0 I785 PO01808 PO70305

PO42039 PO35919 P 0 5 2 2 4 0

PO01799

2006 2006 2006 2005 2004

2004 2003 2003 2002 2002 2002 2002 2001 2000

2000 2000 1999 1999

TFCA & Tounsm Dev (FY06) M Z Tech & Voc Edu & Training (FY06) MZ-Financial Sector TA Project MZ-Beira Railway S I L (FYO5) MZ - Energy Reform and Access SiL (FY04) MZ-Decentr Planning &Fin SIL (FY04) Pub Sec Reform (FY03) MZ-HIV/AIDS Response SIL (FY03) MZ Higher Education S I M (FY02) MZ-Municipal Dev SIL (FY02) MZ-Corn Sec Reform MZ-Roads & Bndges M M P (FY02) Mineral NRMCP (FYO1) MZ-Coastal & Manne Biodiv Mgmt (FYOO) MZ-Railway & Port Restr (FYOO) GEF Coastal & Manne SIL (FYOO) Natl Water 2 (FY99) MZ-Am Sec Per, (FY99)

0.00 20.00 0.00 30.00 0.00 10.50 0.00 110.00 0.00 40.26

0.00 0.00 0.00 0.00 0.00 0.00 0.00 60.00 0.00 33.60 0.00 14.90 0.00 162.00 0.00 18.00 0.00 5.60

0.00 100.00 0.00 0.00 0.00 75.00 0.00 30.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 3.09

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 4.1 1 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

20.75 28.66 29.62 9.82

91.16 42.91

28.32 24.62 39.27 26.37 10.83 7.80

43.52 1.57 1 .oo

25.36 1.39

42.58 2.64

0.7 1 -0.63 1.74

-0.10 -1.76 24.57

8.23 21.53 0.83

10.27 14.42 4.37

17.98 -0.36 0.51

20.46 4.10

21.64 2.25

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 5.96 0.00

-1 1.28 0.00

-0.86

11.98 3.15 3.27 2.08 - . . .

Total: 0.00 729.86 0.00 7.20 0.00 478.19 150.76 14.30

106

MOZAMBIQUE STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions of U S Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2004

1997 2001 2000 1997 2000 2001 2004

ENH GTFP BDC

MOZAL MOZAL SEF Ausmoz SEF CPZ SEF Cab0 Caju SEF Grand Pnx

SEF Merec

0.00 0.1 1 29.70 10.12 0.72 1 .oo 0.58 0.33 1.02

18.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

58.50 0.00 0.00

0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.1 1

29.70 10.12 0.72 1 .oo 0.51 0.33 1.02

13.37 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

58.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

Total portfolio: 43.58 18.50 58.50 0.00 43.51 13.37 58.50 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00

107

Annex 14: Country at a Glance Mozambique

ProMaputo: The Maputo Municipal Development Program

POVERTY and SOCIAL Mozambique

2005 Population, mid-year (millions) 8.8

3 0 GNI(Atlasmethod, US$ billions) 6.1

Average annual growth, 1999-05

GNI per capita (Atlas method, US$)

Population (W 2.0 Labor force (W 17

M o s t recent est lmate ( la tes t year available, 1999-05)

Poverty (% o f population belo w national poverty line) Urban population (%of totalpopulation) 38 Life expectancyat birth (years) 42 Infant mortality(per IOOOlive births) 0 4 Child malnutrition (%of children under 5) 24 Access to an improvedwater source (%ofpopulation) 43 Literacy (%ofpopularion age E+) Gro ss primary enrollment (%of school-age population) 95

Male 0 4 Female 86

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1985 1995

GDP (US$ billions) 4.5 2.2 Gross capital formation/GDP 3.5 30.5 Exports of goods and services/GDP 2.9 15.8 Gross domestic savlngs/GDP -5.1 5.0 Gross national savings/GDP -5.0 4.8

Current account balancelGDP -9.9 -30.1 Interest payments/GDP 0.5 3.3 Total debt/GDP 64.4 332.0 Total debt service/exports 34.5 34.8 Present value of debt/GDP Present value of debt/exports

1985-95 1995-05 2004 (average annualgro Mh) GDP 3.8 8.4 7.5 GDP percapita 19 6.1 5.4 Exports ofgoods and services 9.0 8.0 8.9

Sub- Saharan Low.

Afr lca income

741 745 552

2.3 2.3

37 46 DO 29 56

93 99 87

2004

5.9 22.6 30.9

8.5

-14.1 0.5

78.7 4.4 8 . 8

43.0

14.3

2,353 580

1364

19 2.3

31 59 80 39 75 62 0 4 nl 99

2005

6.6 20.4 32.6 0.7 4.4

-15.9

2005 2005.09

7.7 7.3 5.7 5.8 8.3 0.8

Develo Dment diamond'

Life expectancy

T Gross

priman capita enrollmenl

1.

Access to improvedwater source

-Mozambique Lowincome group

Economic rat ios '

Trade

T

Capital savings

1

Indebtedness

-Mozambique Lo winco me uro u~

STRUCTURE o f the ECONOMY

(%of GDP) Agriculture industry

Manufacturing SeNlCeS

Household final consumption expenditure General gov't final consumption expenditure imports of goods and services

(average annual grovdh) Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation Imports of goods and services

Manufacturing

1985

47.5 0.2

39.3

92.2 Q.9 115

I995

38.9 8.4 8.1

47.7

85.2 9.8

410

1985-95 1995.05

2.7 5.2 -12 8.7

.. 7 . 5 4.4 8.9

17 4.4 4.7 P.1 8.7 0 . 8 2.5 9,8

2004 2005

23.3 22.3 29.2 29,8 14.8 14.2

47.5 47.9

75.3 79.1 0.4 0 .3

39.2 42.3

2004 2005

8.3 18 5.1 9.9

0.2 0 .7 8.9 0 .0

0.9 0 . 8 5.0 8.0 -lH 0.7 4.1 7.3

Growth o f capl ta l and GDP (%)

loo T I O

50

-50 I Growth o f exports and impor ts (%)

75 T

Note: 2005 data are preliminaryestimates. This tablewas produced from the Development Economics LDB database. 'The diamonds showfourkey indicators in thecountry(in bold) compared with its income-groupaverage. if dataare missing, thediamond will

108

Mozambiaue

PRICES and GOVERNMENT FINANCE

Domestic prices (96 change) Consumer pnces Implicit GDP deflator

Government finance (96 of GDP, includes cumnt grants) Current revenue Current budget balance Overall sumlus/deficit

TRADE

(US$ millions) Total exports (fob)

Cashew nuts, raw cashew and cashew oil prawn Manufactures

Total impolts (cif) Food Fuel and energy Capital g o d s

Export pnce index (2000=100) Import pnce index (2000=100) Terms of trade (2000=100)

BALANCE of PAYMENTS

(US$ millions) Exports of goods and services Imports of n o d s and services Resource balance

Net income Net current transfers

Current account balance

Financing items (net) Changes in net reserves

Memo: Reserves including gold (US$ miilions) Conversion rate (DEC, iccal/US$)

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

IBRD IDA

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Pnvate creditors Foreign direct investment (net inflows) Portfolio equity (net inflows)

World Bank program Commitments Disbursements Pnncipal repayments Net flows Interest payments Net transfers

1985

33.1

10.3 -6.6

-10.3

1985

77 12 33

424

124 113 110

1985

143 461

-339

-102

440

420 21

46 43.2

1985

2,671 0 5

63 0 0

174 317 54 0 0

46 5 0 5 0 5

1995

54.4 50.3

15.5 4.9

-9.5

1995

174 13 73 5

727 44 66

166

117 123 96

1995

407 699

4 9 2

-185

-677

736 -60

195 9203.4

1995

7,456 0

690

162 0 6

770 172 24 45 0

99 160

0 160

6 154

2004

12.7 9.0

15.5 1.3

-9.1

2004

1,504 29 93 19

2,035 164 290 703

129 125 104

2004

1,626 2,320 -492

-340 0

-832

1,044 -212

1,159

2005

6.4

17.3 3.5

-5.6

2005

1,745 23 72 22

2.467 162 34 1 872

152 134 113

2005

2,164 2,805 -642

-417 0

-1,056

1,003 55

1,103 22.561.3 23,061.0

2004 2005

4,651 0 0

1,475 1,575

83 1 1

15 27

615 290 -23 245

0

105 190 227

4 14 166 213

12 14 174 199

inflation (%) 20 7 ::p 5

O W O i 02 03 04 M

I -GDPdeflator -CPI I

I Export and import levels (US$ mill.)

W W 0 1 0 2 W M

rn Exports rn imports

Current account balance to GDP (‘h) I 0

-10

-20

-30

40

:ompositlon of 2004 debt (US$ mlil.)

G 345

. - IBRD E -Bilateral

IC - IMF G - Short-tern B - IDA D - Other multilateral F - Private

Note: This table was produced from the Development Economics LDB database. 6/13/06

109

Annex 15: Letter o f Sector Policy (LSP) Mozambique

ProMaputo: The Maputo Municipal Development Program

Oflcio nO.3301 MPD 1 OM/ 2006

Subject: Mozambique- ProMaputo - the Maputo Municipal Development Program

Dear Mr. Michael,

1. I refer to the Maputo Municipal Development Program (ProMaputo or the Program). I am writing, on behalf of the Republic of Mozambique to request from the International Development Association (IDA), a credit in a form of an Adaptable Program Loan (APL) of two phase. We hereby request 30 million equivalent for the first phase (2007-2009) and with the exact amount for second phase to be determined based on IDA envelop for the country.

2. Background

2.1,

2.2,

2.3.

With the approval of the Law 2/97 the Government of Mozambique (the Government) created t h e legal framework for the establishment of autonomous local governments. This law allowed the creation of 33 Municipalities wi th a degree of administrative and financial autonomy. The Government also gave to Maputo municipality through Law 8/97 a special organizational and functional structure, and defined the statutes for the elected mayors and members of the municipal assemblies in the Law 9/97.

After two municipal elections and eight years of experience, the Government continues committed to the strengthening of local governments through the development of capacity building programs, institutional development actions and intergovernmental relations, and investments in the local infra- structure.

Mozambique, l i ke most African countries, i s undergoing rapid urbanization. The urban population represents about 30% of the national total and is growing at about 5% per year. By 2020 more than half of Mozambicans wil l live in urban areas. By 2010, the urban population of the City of Maputo (the City or Maputo) i s expected to increase from 1.3 mil l ion to 2.4 million, three times the size of the second largest city Beira. Recent studies show that over half t h e urban population can be considered poor using consumption-based indicators. While urban poverty i s slightly less (51.5%) than in rural areas (55.3%) t h e difference i s startlingly small and poverty has also notably fallen more rapidly in rural than urban areas. In Maputo, the single largest population center, there has been no decrease in poverty since 1997 despite overall economic growth.

110

2.4.

2.5.

2.6.

2.7.

2.8.

2.9.

The City m u s t urgently establish a sound organizational and financial base in order to reverse the decline in service provision and infrastructure, otherwise crime and the cost of l iv ing and doing business in Maputo will worsen. This will n o t only increase poverty and marginalization but further inhibit the growth o f smaller and medium sized businesses in particular, that are cri t ical t o income generation and poverty reduction in the country as a whole.

Mozambique's Poverty Reduction Program (PARPA 11) i s an important inst rument for the strengthening of local governments, in part icular municipalit ies and it commits the Government to implement the following actions: a) to approve and implement a Strategy for decentralization; b) to strengthen the financial management systems at local level; c) to f inish the diagnosis study on new municipalities; d) t o strengthen existing municipalit ies and to create new ones; 4. to approve and implement the Policy and strategy for Municipal and Urban Development.

Furthermore, PARPA I1 i s looking t o implement the anti-corruption law, to strengthen munic ipa l assemblies, and to strengthen internal control systems.

The previous Program for Municipal Development (PDM) supported eight municipalit ies and allowed Maputo Municipal i ty t o further develop the vision and the long-term development program for Maputo. The Government i s committed to support Maputo Municipal Counci l to implement the necessary reforms at the inst i tut ional and financial level and to steadily improve the provision o f munic ipa l services.

As part o f this commitment, the Government i s revising the laws 2/97, 8/97, 9 / 9 7 and 11 /97 and the 'Cbdigo Tributdrio Autarquico", in order to ensure and to increase fiscal autonomy, capacity to collect munic ipa l revenues and to strengthen munic ipa l governance.

As part o f the revision of the local government package, the Government i s also reviewing the specificities of municipalit ies in respect t o human resources management with the view to increase capacity to attract and retain qualif ied staff.

2.10. The Government i s aware that decentralization will be a gradual process but it will ensure support to municipalities, such as Maputo, that are moving at a faster rate than others.

2.11. Maputo Munic ipa l Counci l i s aware of i t s role as an example and will share i t s experience with others.

2.12. The Government is also committed to guarantee that decentralization i s based in efficiency, capacity, participation, transparency and accountabil ity and it w i l l support the efforts of Maputo Munic ipa l Counci l in developing the capacities t o better manage munic ipa l resources and to develop a participatory governance framework.

2.13. The Government, under the Policy/Strategy for Decentralization, i s committed to review the specificities of municipal i t ies in relation to services, f i r n r t i n n o a n d r C c n i i r r P o

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3. Related policies and regulation8

3.1, In addition to the decentrazation policy outlined above, t h e Government will, in the near future, start a number of initiatives to improve the capacity and autonomy of municipalities. Below are listed some of those initiatives:

(a) Revision of the policy on licensing of economic activities at municipal evel, and leaving the responsibility to the municipalities of licensing and controlling i ts implementation;

(b) Revision of policies in commercial trading to promote the role of municipalities in ensuring the creation of formal channels and reduction of informal trading with positive equity effects;

(c) Revision of policy and regulatory framework that will give autonomy to municipalities to promote markets and fairs at municipal level, giving adequate coverage to the needs of the citizens;

(d) Support municipalities to develop policies addressing issues related to maintenance and construction of municipal infra-structure in particular for Maputo; and

(e) Development of regulation on land use planning by the Council of Ministers passing t h e “Lei de Ordenamento do Tenitbrio” (the Land Use Planning Law) related to management of urban land in order to improve land management by municipalities.

4.The Maputo Municipal Development Program (ProMaputo or the Program)

4 .1

4.2

4.3

4.4

The Maputo City Council has recognized the crisis facing Maputo and has conducted a series of workshops and consultations wi th various stakeholders to develop the vision, mission and development program for t h e City. These included the private sector, civil society, national government and members of the Municipal Assembly (legislature) and City Council (Executive). Findings from the Municipal Citizen’s Report Card and various studies on the state of the city were the inputs to these forums.

As a result of these inputs, the City has developed and widely disseminated i t s vision for Maputo as well as the Maputo City Council mission statement. The vision for Maputo i s a “prosperous, attractive, clean, secure and united city.”

The mission statement of the Council i s T o lead the process of raising the quality of life of municipal citizens; creating an environment conducive for investment and job creation through improved delivery of services; and mobilization of citizens and coordinated action between diverse actors.”

In order to achieve i ts mission and to fulfill the vision of Maputo, the Program is structured in three components:

a) Component A: Institutional and Organizational Development aims at: rationalizing the municipality’s internal processes for service delivery; improving t h e performance of the municipality’s

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4.

4.6

4.7

functional units; and improving governance, by institutional restructuring, decentralization and human resources management;.

b) Component B: Municipal Finance will deal with both revenue and expenditure reforms. The area of revenues consists o f a number of activities to improve local revenue generation, such as: improvements in the collection of local taxes and fees, and strengthening the municipal capacity to attract community contributions, grants, credits and other external revenues. The area of expenditure focuses o n improving the planning, execution, and accountability of municipal resources.

c) Component C: Senice Delivery Improvements wi l l support urban planning and target investments to improve and rehabilitate critical urban services. It will do so in two main ways: by improving t h e planning and management of urban space and by strengthening service delivery in priority sectors.

The first phase of the Program will focus in strengthening the institutional and financial capacity of CMM, wi th some investment in quick-win actions at the service level and covering priority services to guarantee positive impact on the lives of i t s citizens.

The interventions will be done in a balanced way that will guarantee better tax- based revenues and the fulfillment of the needs of t h e poorest in the city.

The Government supports t h e Program and i s aware that for i ts successful implementation changes wi l l have to occur in relation to:

a. improvement of coordination between City Council and deconcentrated state governance bodies that operate in the City;

b. strengthening City Council role in defining and monitoring public service policies and management within the City boundaries (transport, water supply, drainage, roads and electricity);

c. strengthening the formula for transfers to municipalities in line with good practice internationally, based on predictability and timeliness of transfers;

d. improvement o f financial autonomy and revision of the Lei de Financas Autarquicas (Lei 11/97) and C6digo TributArio Autarquico in order to increase revenue autonomy;

e. support the City Council in i t s efforts to mobilize financial resources for larger investments in the City;

f. adaptation and introduction of e-SISTAFE in Maputo Ci ty Council to improve financial management and accountability, while recognizing that municipalities as autonomous bodies wi l l need substantially different functionalities; and

g. development o f a Municipal policy and overarching legal framework that enables public-private partnerships,

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5. Concluding remarks:

5.1 The Government i s committed to continue to support the strengthening of

municipal governance, in particular that of Maputo, as it i s a good basis for

fur ther development of existing municipalities and others to be created.

5.2 O n behalf of the Government of the Republic of Mozambique, I wish to thank

IDA and t h e [co-financing] donors for t h e assistance rendered in t h e preparation

of t h e Program. I trust that this request for assistance wi l l receive your

favorable support.

Maputo, 24 November, 2006 I

To:

Mr. Michael Baxter

Contry Director for Angola, Malawi,

Mozambique, Zambia and Zimbabwe

Maputo

AV. Ahmad sehu mud no. a1 - 4*.Andar 4. Pomtd 4087, Tal.: 11492268 Fa~.:21496463 -Maputo

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Annex 16: Anti-corruption Strategy Mozambique

ProMaputo: The Maputo Municipal Development Program

1, Maputo Ci ty Council (CMM) i s currently reorganizing and developing its institutions with a view to transforming the municipal administration to be able to improve service delivery and improve living conditions in Maputo. ProMaputo has been designed to this effect. A part o f these efforts is to tackle corruption and the Council has prepared and presented its first Anti- corruption Strategy, which has been approved by the Council. This strategy is therefore seen as an essential instrument o f ProMaputo to increase the transparency and effectiveness o f the C M M and it should be seen as part o f the national effort to improve public administration in Mozambique.

2. The strategy has been developed with participation from within the C M M . I t also draws on the National Anti-Corruption Survey for external perception, as corruption in Maputo Ci ty was directly surveyed. The strategy contains a frank analysis o f the causes o f corrupt practices and makes recommendations to prevent, detect and punish corruption.

3. The corrupt practices identified cover both small and large scale corruption and involve both lower levels o f c iv i l servants as wel l as higher level officials. The range o f corrupt practices includes bribes, blackmail, nepotism, falsification o f documents and abuse o f power and position. Corrupt practices cited in the strategy include fees (market and service delivery fees) not reaching the municipal treasury, nepotism in land titling, clandestine or illegal works involving c iv i l servants, payments o f bribes by citizens for services by c iv i l servants, and major corruption schemes planned and executed. Most o f the corrupt practices detected take place within the department o f urban construction (DCU).

4. under the following areas:

The analysis o f corruption includes a l i s t o f causes o f corruption, which can be grouped

e e e e

e

Lack o f information, transparency and communication External political and economic pressure L o w levels o f leadership and managerial capacities L o w institutional and organizational capacity o f CMM, including ill-defined procedures and weak internal controls L o w level o f staff motivation (low salaries, lack o f promotion and professional perspectives)

5. processes for C M M . These can be grouped into six broad themes:

The diagnosis leads to 26 concrete recommendations linked to both internal and external

1. Management capacity and leadership. 2. Systems and mechanisms to be put in place including mechanisms for detection o f

corruption; systems for control and inspection; management mechanisms; responsibility and accountability mechanisms; integrated financial management systems and instruments for monitoring and evaluation systems.

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3.

4.

5. 6.

Organizational and institutional development o f C M M including simplification o f work processes; implementation o f information systems; establishment o f sectoral action plans; simplification o f paper trails; definition o f roles and responsibilities o f staff at al l levels; and improving work methodologies to increase motivation. Improvements in human resource management including capacity building and training; systems for human resource management; culture change programs; improved system o f evaluation o f staff and promotion and professional development and improved renumeration. Punishment o f al l acts o f corruption. Systems o f external information and communication to build accountability towards the public, educate the citizens o f their r ights and responsibilities, and publishing o f messages o f anti-corruption in places (markets, secretariats) where extortion takes place.

6. The strategy builds on the mission, vision and values o f C M M as well as the general objectives o f ProMaputo. Many o f the recommendations are already included as activities in ProMaputo with associated key performance indicators. These include: annual citizen report cards conducted and disseminated; publication o f the budget and municipal audits; reduction in the time taken to process certain municipal services to citizens (e.g. construction licenses); holding open presidency (public report back) meetings; decentralization o f certain basic functions to urban districts; a communications and awareness program for citizens on municipal service standards; establishment and regular meetings o f mayor’s consultative council o f stakeholders f rom private sector, national government and c iv i l society, among others.

7. In conjunction with the strategy an operational strategy for C M M as a whole and an action plan for fighting corruption in the D C U have been elaborated to facilitate implementation o f the anti-corruption strategy.

8. The operational plan o f the strategy contains a detailed activity plan, a matrix o f responsibilities for overseeing implementation and a provisional budget. I ts implementation is based o n four pillars o f intervention - Organization, Leadership, Institutional Development and Communication & Education. It highlights important aspects related to formalization o f procedures; differentiation between functions o f management, finance and execution; rigor and discipline relating to norms and punishment, competencies o f staff and education o f the r ights o f the citizens.

9. The action plan for D C U is a critical step towards reducing corruption, as the D C U is the department with a high level o f corruption as identified by citizens and C M M staff alike. This action plan is primarily focused on the organization o f the D C U as it i s expected that this wil l have the most impact in terms o f prevention and control. Activities include optimization o f processes and procedures to minimize the potential for corruption, publication o f procedures and rules and internal audits. A reduction in the time to issue licenses is also a KPI for the program as a whole.

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Annex 17: HIV/AIDS Work Plan Mozambique

ProMaputo: The Maputo Municipal Development Program

1. The Maputo Ci ty Council (CMM), l i ke most government institutions in Mozambique, faces many challenges in the fight against the H IV /A IDS pandemic whose consequences have an impact on the ability o f C M M to deliver adequate services to i t s residents. H N / A I D S prevalence in Mozambique i s estimated at 16.2 percent (2004) with a varied territorial distribution. In the North (Niassa, Nampula and Cab0 Delgado) prevalence i s 9.3 percent, while in the Center (Sofala, Manica, Tete and Zambezia) i t i s estimated at 20.4 percent. As for the South (Maputo City, Maputo Province, Gaza and Inhambane) prevalence i s 18.1 percent. Maputo Ci ty has a prevalence o f 20.7 percent. Propagation o f the pandemic i s increasing with its negative effects at the social and economic levels directly affecting the City’s limited human resources. This rapid increase in prevalence i s also challenging the current infrastructure which i s unable to cope with the effects o f the pandemic, namely with limited capacity to ensure adequate burial arrangements.

2. Maputo Ci ty Council is currently reorganizing and developing i t s institutions with a view to transforming the municipal administration to be able to improve service delivery and improve living conditions in Maputo. As a measure to mitigate the r isks from the City’s l imited human resources and the increased burden o f the pandemic, C M M has developed a H IV /A IDS strategy that includes a three year implementation plan to be f inded by the National AIDS Council. The strategy was initiated through a consultative process that involved al l departments o f CMM, and builds upon the National HIV/AIDS pol icy o f the Government o f Mozambique. Throughout program preparation and pre-appraisal, World Bank HIV/AIDS specialist and consultants were able to discuss and comments on the strategy. This strategy i s therefore seen as an essential instrument o f ProMaputo.

3. The strategy highlights three major areas o f intervention, namely prevention, mitigation and information gathering, and targets staff o f the C M M and their families. I t includes a three- year work plan and a budget with priority activities to be implemented in year one o f the program during which time C M M will design and implement i t s own internal C M M policy for HIV/AIDS in the workplace. The workplace pol icy will indicate how, and to what extent, the municipality will implement the national pol icy under their specific conditions. The work plan also provides key results indicators for each activity.

4. To support C M M in the implementation o f this strategy and in line with the institutional restructuring, C M M will appoint a full time H IV /A IDS Coordinator whose major role is to strengthen CMM’s Human Resources department in mainstreaming HIV/AIDS at the workplace. The strategy also highlights a strengthened role o f the HIV/AIDS Focal Points at C M M . Likewise, C M M negotiated with CNCS for finding to recruit a HIV/AIDS specialist in the department o f Human Resources to support the C M M HIV IA IDS team for the first two years.

5. The CNCS was provided with a copy o f the revised three year work plan and budget for firther review and wil l provide additional comments to C M M in order to ensure a smooth and rapid processing o f the application from C M M . The CNCS has agreed to work closely with the C M M to finalize and approve the request. I t was agreed that C M M will prepare a procurement plan for the HIV/AIDS component after appraisal.

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6. The Operations Manual for ProMaputo will be reviewed to ensure that the institutional responsibilities o f the various staff within the two departments that are in charge o f the H IV /A IDS activities, namely the DirecqZo Municipal de Recursos Humanos (Human Resources) and the DirecqZo Municipal de Sazide e Salubridade (Health and Sanitation), are harmonized and their roles clearly defined to ensure a smooth start-up and implementation o f the program.

7. Technical Assistance, i s attached.

The budget summary o f the three year work plan, o f a total o f US$360,000, including

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Main Objective

Reduce the Nr. of new infections and improve the quality of life of PVHS

Maputo Municipal Council Summary of Three Year HIV/AIDS Workplan

Areas of Intervention

Prevention

7 Mitigation

r" Research I 3.1

Specific Objectives

Increase the level of awareness of TSlHlVlAlDS and the existing leaislatian . - . -. - _. - . . Increase the adherence to GATV and of voluntary testing Increase tax on distribution of preservatives Increase the % of the population with treatment of ITS Reduce the infection vulnerability rate of women because of their socio-cultural and economic condition

Create a program for nutritional and social support for workers, their spouses and children who are infected or under treatment Increase the number of patients being treated with anti-retroviral Reduce workers' discriminationlstigma and their families Obtain information relevant to the Program

Estimated Cost US$

6,000 8,500

14,540 31,480 -I-- - 2009

15,000

5,660

5,500

5,500

6,000

12,040

4,500

5,000

36,300

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Annex 18: Poverty Assessment and Report Card Mozambique

ProMaputo: The Maputo Municipal Development Program

1. The rapid growth o f Maputo’s population over the past three decades has brought about some enormous challenges for the city administration. Most notably, there has been a very rapid increase in the demand for basic services and a severe overloading o f the existing public infrastructure. The difficulties o f ensuring adequate provision o f basic services have been exacerbated by the fact that the population growth has come about mainly v ia the in-migration o f rural poor, meaning that the wealth base for raising city revenues is very limited. Informal settlements, slums and precarious settlements comprise a significant proportion o f the metropolitan area.

2. I t i s evident that ci ty residents at large suffer severe deficiencies in service provision, including exceptionally deteriorated roads and walkways; inadequate and intermittent supplies o f potable water; poor drainage; severely inadequate domestic sanitation and waste disposal; poor personal security; and widespread erosion o f the natural habitat. While the c i ty administration actively wants to redress these service deficiencies, i t has lacked the basic data and information about service coverage and quality necessary to inform planning. I t has also lacked information on the relative provision and quality o f services across the seven municipal districts whose residents clearly fal l into different income and poverty brackets.

3. To improve the information base for municipal planning two data and information gathering activities have recently been supported. One i s a Consultative Citizens’ Report Card Survey which provides statistically representative information on service coverage by municipal district. I t also provides information on residents’ perceptions o f service quality and prioritization o f services by municipal district, and on residents’ perceptions o f the c i ty administration’s performance. The second is a preliminary Poverty Mapping exercise which uses multiple data sources to build a picture o f relative poverty and inequality in service delivery across the municipal districts. Together, these two information sources provide useful data to inform city planning processes. A more in depth and statistically robust poverty analysis wil l be done later in the program, once the census data for 2007 become available.

3. The Consultative Citizens’ Report Card Survey (CCRC) gathered new data from a statistically representative sample o f residents in seven municipal districts (the island o f Inhaca which is the responsibility o f the city administration and Catembe were included) on a broader range o f services, many o f which are the responsibility o f the city administration, but some o f which are the jo int responsibility o f the city and other public institutions (such as education, health, water and public lighting). The findings from the CCRC’s quantitative survey were complemented by qualitative information gathered from multiple focus groups held in each municipal district. The findings o f the CCRC and the Poverty Mapping exercise are very consistent.

4. The CCRC provides a revealing, and detailed, picture o f conditions and public services in Maputo: i t has a young population (some 31 percent o f residents are aged 26-35 years) which averages around 9 years o f education and which i s largely (48 percent) unemployed or engaged in small-scale self-employment. Over 30 percent o f Maputo’s population has a monthly household income o f US$20-60.

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5. The CCRC concurs with the general findings o f the Poverty Mapping exercise regarding service coverage (which i s found to be generally low), but provides more detailed data on the extent o f coverage and a starker picture o f relative inequalities. The overall picture o f conditions in Maputo i s not a positive one. Some 62 percent o f residents l ive in temporaryhnstable housing; some 58 percent o f residents are without access to a sanitary wastewater system, 42 percent o f residents lack access to piped potable water inside or outside their dwellings; 85 percent o f residents live in areas where there i s no rainwater drainage system; and 74 percent o f residents do not benefit from regular waste collection services.

6. A major challenge for the c i ty administration i s clearly the expanded coverage o f reliable basic services. This challenge, however, i s complicated by an even more immediate need, which i s to reduce the very significant inequities existing in service provision. Access to potable water illustrates the degree o f this challenge: while some 58 percent o f residents in Maputo at large have access to water (inside/outside their homes), in districts 2 and 3 around ha l f have access to piped water compared with less than 5 percent o f residents in district 7.

7. The Poverty Mapping exercise confirms the picture derived from the CCRC: service provision is generally low, and there are very sizeable inequalities between the municipal districts, both in terms o f poverty incidence and service coverage. Whi le the incidence o f poverty in Maputo i s generally high - more than hal f o f its residents l ive below the poverty l ine o f US$l.50 per day - poverty levels range from a l o w o f 23 percent in one DM to a high o f 79 percent in another. Substantial inequalities also exist in consumption distribution within al l districts, but particularly in district 1, with both the poverty gap measure and the severity index very high. The more rural districts o f Catembe and Inhaca are outliers with very elevated levels o f poverty. The incidence o f unemployment closely mirrors differences in poverty by district. Coverage o f basic health and education services also mirror poverty differences across municipal districts.

8. The CCRC also provides information on the relative priori ty residents in the different municipal districts place o n the different public services (see graphic below). Residents at large place a high priority o n services which will improve personal security, including policing, improvements in roads and sidewalks and public lighting. However, residents in the poorest districts give higher priori ty to access to potable water and roads relative to the other districts which give higher priority to public cleanliness and solid waste collection.

9. The challenges facing the ci ty administration are clearly enormous, with basic service coverage being l ow and inequities in coverage very large. However, the CCRC reveals that residents’ perceptions o f ci ty administration reflect an upward trend in service provision and quality. Maintaining this positive perception and strengthening effective communication channels with citizens will be important to the city administration as i t works to expand service coverage.

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+

a - - I

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Annex 19: Capacity Building Strategy Mozambique

ProMaputo: The Maputo Municipal Development Program

1. ProMaputo explicitly recognizes that the C M M i s not presently capable o f meeting i t s legislated responsibilities for governance and service delivery to the people and businesses o f Maputo City. These same capacity constraints limit the ability o f the CMM’s own personnel to implement ProMaputo during the three years o f Phase I.

2. In response to these limitations, the first phase o f the APL i s largely dedicated to capacity development through inter-related processes o f restructuring, reform, systems development, and training. Restructuring entails a comprehensive overhaul o f the CMM’s organization design including the revision o f departmental responsibilities, workflows, staffing tables, and individual j ob descriptions. Restructuring also entails workforce strengthening and redeployment to better match individual skills with the demands o f redefined functional roles, where necessary including workforce rationalization and staff recruitment. Reform and systems development entail the redefinition o f procedures and workflows, often based on increased use o f information technology, f i rst for internal administrative processes and subsequently for external processes which provide services to municipal citizens and f i rms. Training involves the increase o f individual staff knowledge and sk i l ls to better match workplace demands; both through on-the- j ob learning from externally contracted technical assistance personnel and through short-courses and vocational courses.

3. Because the processes o f restructuring, reform and systems development wil l demand both technical and managerial capacities wel l beyond those currently available within the CMM, a significant amount o f externally contracted technical assistance wil l be required during the three years o f ProMaputo’s f i rst phase. During the formulation process, needs assessments have been conducted for each o f the priority functional areas in which the program will intervene and requirements for technical assistance identified.

4. To guide and manage technical assistance and capacity development processes, the CMM’s Office o f Strategic and Institutional Development (GDEI) will oversee program implementation with a focus on ensuring the sustainability o f Program-supported systems and methods. An internal Strategic Coordination Team comprised o f Councilors and senior municipal staff will oversee this process, supported by long-term advisors for strategic development, change management and capacity building. The GDEI wil l also monitor long-term consultancies and technical advisors working in specific directorates in order to ensure that capacity-building is an integral part o f their work and that adequate attention and resources are dedicated to ensuring sustainability after consultants withdraw.

5. Required technical assistance i s o f several types. Lump-sum consultancies wil l “contract- in” specialized technical services and deliver analytical products such as a plan or procedural manual. Systems acquisition consultancies in areas such as financial management, personnel administration and municipal geographic information wil l provide a package o f technical services including technology, start-up operational support, and staff training for system operation and maintenance. Process consultancies wil l work with C M M personnel for finite periods in order to assist in the planning and implementation o f organizational change processes.

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6. In addition, because o f the l imited number and capacity o f the CMM’s existing qualified management and senior technical staff, several long-term technical advisors wil l be required during the Program’s f i rs t phase. In some cases, local advisors will be contracted to assist the Council in supervising and gaining maximum benefit from technical services consultancies, for example in the development o f several sector master plans. In others, the complex demands o f multi-year systems development and change processes in such crucial areas as strategic planning, organizational restructuring, municipal finance (both revenue enhancement and expenditure management) and procurement will require senior technical advisors for periods longer than one year. In general, these advisors are expected to be phased out during year three o f the first phase.

7. In order to avoid trapping the C M M in permanent dependence on external technical assistance, the development o f a sustainability strategy has been an integral part o f the response to the Council’s short term technical assistance needs during Phase I implementation. In the first instance, qualified personnel will be recruited and improvement o f the CMM’s remuneration system will allow the payment o f reasonably competitive salaries for qualified technical personnel, based on local market standards, i s the foundation for developing sustainable internal capacities. Unless the municipality can attract and retain qualified Mozambicans it wil l not be able to escape the present capacity trap: thus the link between revenue enhancement and improved staff incentives, increasingly including a performance-based component, i s indispensable to sustainable improvements to organizational effectiveness. Furthermore, the Phase I technical assistance plan involves twinning locally recruited technical specialists, permanent staff whenever possible and local consultants as a second-best option, with each long- term technical advisor in order to reduce the need for internationally recruited long-term advisors as quickly as possible. Increasingly over the three years, the focus o f technical assistance wil l shift toward locally contracted specialists and the occasional purchase o f short-term, product- based consultancies for specific technical inputs to planning and service delivery processes.

8. Finally, staff training is a critical element o f the C M M capacity development strategy. During formulation, a Municipal Training Policy has been drafted which outlines the CMM’s approach to staff development. Based on this Policy, a Training Strategy has been developed through an assessment o f training needs, a prioritization o f specific f inct ions and associated skills required to meet ProMaputo’s Phase I objectives, and an analysis o f options for improving staff capacities to meet these needs. Because ProMaputo wil l finance a number o f long-term advisors in critical areas, the TORS for these advisors have been designed to include skill transfer to municipal staff as a key output, both through o n the job training and through occasional specialized and job-relevant short courses led by these advisors.

9. In addition, the formulation and implementation o f annual training plans will be financed by ProMaputo. The municipality will rely as much as possible o n the existing training capacity which exists within Maputo, both through the variety o f specialized public sector training institutes and centers associated with central ministries and through the several universities and technical-vocational institutes which operate in or near the city. Human resources development will increasingly be institutionalized as a permanent feature o f municipal operations, so that staff skill improvement i s considered not merely a feature o f externally financed projects but rather an integral part o f the CMM’s annual plans and budgets.

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Montes NamuleMontes Namule(2,419 m)(2,419 m)

Mo

za

mb

iq

ue

Pl a

i n

M o z a m b i q u e

P l a t e a u

MAPUTOMAPUTO

G A Z AG A Z A

S O F A L AS O F A L A

T E T ET E T E

Z A M BZ A M B É Z I AZ I A

N A M P U L AN A M P U L A

C A B OC A B OD E L G A D OD E L G A D O

N I A S S AN I A S S A

Limpopo

INHAMBANEINHAMBANE

MANICAMANICA

GuijaGuija

MassingirMassingir

ChicualacualaChicualacuala

MapaiMapai

MoambaMoamba

EspungaberaEspungabera

ChiguboChigubo

MachaílaMachaíla

PandaPanda

GorogosaGorogosa

SenaSena

ChangaraChangara

CatandicaCatandica

InhamingaInhaminga

MontepuezMontepuez

MuedaMueda

MarrupaMarrupa

CaturCatur

MetangulaMetangula

Alto MolócueAlto Molócue

RibáuRibáuè

GuruGurué

CuambaCuamba

NamacurraNamacurra

MocubaMocuba

MoatizeMoatize

SongoSongoZumboZumbo

FíngoFíngoè

FurancungoFurancungo

MualadziMualadzi

MilangeMilange

LichingaLichinga

ChimoioChimoio

TeteTete

NampulaNampula

ChibitoChibito

Monte Binga Monte Binga (2,438 m) (2,438 m)

To To Lusaka Lusaka

To To Petauke Petauke

To To Lilongwe Lilongwe

To To Mangoche Mangoche

To To Mtwara Mtwara

To To Zomba Zomba

To To Blantyre Blantyre

To To Chipata Chipata

To To Mutoko Mutoko

To To Harare Harare

To To Masvingo Masvingo

To To Masvingo Masvingo

To To Rutenga Rutenga

To To Messina Messina

To To Nelspruit Nelspruit

To To Mbabane Mbabane

S O U T H S O U T H A F R I C A A F R I C A

SWAZILAND SWAZILAND

Z I M B A B W E Z I M B A B W E

Z A M B I A Z A M B I A

T A N Z A N I A T A N Z A N I A

MALAWI MALAWI

Lake Lake Malawi Malawi

Zitundo

Manhica

Guija

Massingir

Chicualacuala

Mapai

Moamba

Nova Mambone

Espungabera

Inhassôro

Vilanculos

Chigubo

Machaíla

Inharrime

Panda

Chibito

Gorogosa

Sena

Changara

Catandica

Inhaminga

Pebane

Angoche

Nacala

Montepuez

Mueda Mocimboa da Praia

Marrupa

Catur

Metangula

Alto Molócue

Ribáuè

Gurué

Cuamba

Namacurra

Mocuba

Moatize

Songo Zumbo

Fíngoè

Furancungo

Mualadzi

Milange

Moçambique

Lichinga

Pemba

Xai-Xai

Matela

Beira

Chimoio

Quelimane

Tete

Nampula

Inhambane

MAPUTO

S O U T H A F R I C A

SWAZILAND

Z I M B A B W E

Z A M B I A

T A N Z A N I A

MALAWI

MAPUTO

G A Z A

S O F A L A

T E T E

Z A M B É Z I A

N A M P U L A

C A B OD E L G A D O

N I A S S A

INHAMBANE

MANICAINDIAN OCEAN

Lago deCahora Bassa

LakeMalawi

Lugenda

Messalo

Lúrio

Ligonha

Licungo

Zambeze

Buzi

Save

Changane

Zambeze

Limpopo

To Lusaka

To Petauke

To Lilongwe

To Mangoche

To Mtwara

To Zomba

To Blantyre

To Chipata

To Mutoko

To Harare

To Masvingo

To Masvingo

To Rutenga

To Messina

To Nelspruit

To Mbabane

Mo

za

mb

iq

ue

Pl a

i n

M o z a m b i q u e

P l a t e a u

Monte Binga(2,436 m)

Montes Namule(2,419 m)

30° E 35° E

30° E 35° E 40° E

25° S

20° S

15° S

10° S

25S

20° S

15° S

10° S

MOZAMBIQUE

0 50 100 150

0 50 100 150 Miles

200 Kilometers

IBRD 33451R1

NOVEMBER 2006

MOZAMBIQUE SELECTED CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.