Documentof The WorldBank FOROFFICIALUSEONLY ReportNo: 36433-NG PROJECTAPPRAISALDOCUMENT ONA PROPOSEDCREDIT INTHEAMOUNT OF SDR 138.10 MILLION (US$200.00 MILLIONEQUIVALENT) TO THE FEDERALREPUBLICOFNIGERIA FORTHE LAGOSMETROPOLITANDEVELOPMENT AND GOVERNANCEPROJECT June 7,2006 Water andUrban2 CountryDepartment 12 Africa Region This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwisebe disclosedwithout World Bankauthorization. CURRENCY EQUIVALENTS (ExchangeRate EffectiveDecember 1,2005) CurrencyUnit=Naira Naira 130=US$] US$1.43 =SDR 1 FISCAL YEAR January 1-December 31 ABBREVIATIONS AND ACRONYMS ADR Alternate Dispute Resolution BIR Boardo f InternalRevenue CDA Community Development Association CEA Component Executing Agency CMC Citizen's MediationCenter cos Central Office o f Stitistics, Lagos CPI Consumer Price Index CPS Country Partnership Strategy CRD Directorate for Citizen's Rights cso Community Service Organization CTC Community Technical Committee DBO DesignBuildOperate DfID UKDepartmentfor InternationalDevelopment EBS-RCM Electronic Banking System of Revenue Collection and Monitoring ESIA Environmental and Social Impact Assessment FA FederationAccount FCT Federal Capital Territory FGN Federal Government o fNigeria FM Financial Management FMF Federal Ministryo f Finance FMR Financial Management Report GCP Lagos State Global Computerization Project GIS Global InformationSystems GISF Government Improvements Support Fund GTCC Governance Technical Coordination Committee ICB InternationalCompetitive Bidding ICT InformationCommunication IDA InternationalDevelopment Association IEC Information, Education andCommunications IFMIS IntegratedFinancial Management System IGR Internally Generated Revenue ISR Implementation Status Report LACA LocalAction Committee on AIDS LAMATA Lagos MetropolitanTransportation Authority LASEPA Lagos State Environment ProtectionAgency LASG Lagos State Government LASURA Lagos StateUrbanRenewalAuthority LASURB Lagos StateUrbanRenewalBoard LAWMA The Lagos Waste ManagementAuthority LG Local Government LMDGP Lagos MetropolitanDevelopment and Governance Project LSFAA Lagos State Financial Accountability Assessment LSPAR Lagos State Procurement AssessmentReview LSWC Lagos State Water Corporation L U C LandUse Charge LUTP Lagos UrbanTransport Project MDA Ministries Departments andAgencies MEPB MinistryofEconomic Planning andBudget MPP&UD MinistryofPhysicalPlanning andUrbanDevelopment M&E Monitoring and Evaluation MOE MinistryofEnvironment MOW Ministry ofWorks MTEF Medium-TermExpenditure Framework N A C A NationalAction Committee on AIDS N C B National Competitive Bidding NEEDS NationalEconomic, Empowerment andDevelopment Strategy O&M Operation and Maintenance OAGS Office o fthe State Accountant General ODS Office ofDrainage Services OPD Office o fPublic Defender OPEN Oversight o fPublic Expenditure underNEEDS PCU Project Coordination Unit PFD Project Finance Department PFM Public Finance Management PFMU State Project Financial Management Unit P I M Project ImplementationManual PSC Project Steering Committee PSP Private Sector Participation P U Project Unit RAP Resettlement Action Plan RPF Resettlement Policy Framework SACA State Action Committee on AIDS SBD Standard Bidding Document SCoA Standard Chart o fAccounts SEEDS State Economic Empowerment and Development Strategy SERAC Social andEconomic RightsAction Center SFAA State Financial Accountability Assessment SG State Government SHoA StateHouse o fAssembly SIL Sector Investment Loan SLGP State and Local Government Program SNUWSRP Second NationalUrban Water Sector ReformProject SoE Statement o fExpenses SPAR StateProcurement Assessment Report SSA Sub-Saharan Africa SWM Solid Waste Management TA Technical Assistance RIAP Revenue Improvement Action Plan VAT Value Added Tax Vice President: GobindT. Nankani CountryManagerDirector: Hafez Ghanem Sector Manager: Eustache Ouayoro Task Team Leader: Deepali Tewari NIGERIA Lagos MetropolitanDevelopmentandGovernanceProject CONTENTS Page A. STRATEGIC CONTEXT AND RATIONALE ....................................................................... 1 1. Country and sector issues......................................................................................................... 1 2. Rationale for Bank involvement .............................................................................................. 4 3. Higherlevelobjectives to which theproject contributes ......................................................... 4 B. PROJECTDESCRIPTION ...................................................................................................... 5 1. Lendinginstrument .................................................................................................................. 5 2. Project development objective andkey indicators ................................................................... 5 3. Project components .................................................................................................................. 5 4. Lessons learned andreflected inthe project design ................................................................. 7 5. Alternatives considered andreasonsfor rejection .................................................................... 7 C. IMPLEMENTATION ................................................................................................................ 8 1. Partnership arrangements......................................................................................................... 8 2. Institutional andimplementationarrangements....................................................................... 8 3. Monitoring andevaluation o foutcomes/results..................................................................... 10 4. Sustainability.......................................................................................................................... 10 5. Critical risks andpossible controversial aspects .................................................................... 10 6. Loadcredit conditions and covenants.................................................................................... 12 D .APPRAISAL SUMMARY ....................................................................................................... 12 1. Economic and financial analyses ........................................................................................... 12 2. Technical ................................................................................................................................ 13 3. Fiduciary ................................................................................................................................. 13 4. Social ...................................................................................................................................... 14 5. Environment ........................................................................................................................... 15 6. Safeguardpolicies .................................................................................................................. 16 7. PolicyExceptions andReadiness ........................................................................................... 16 Annex 1: Countryand Sectoror ProgramBackground .............................................................. 17 Annex 2: Major RelatedProjectsFinancedby theBankand/or other Agencies ...................... 26 Annex 3: ResultsFrameworkandMonitoring .............................................................................. 27 Annex 4: DetailedProjectDescription ........................................................................................... 32 Annex 5: Project Costs..................................................................................................................... 51 Annex 6: ImplementationArrangements ...................................................................................... 54 Annex 7: FinancialManagementandDisbursementArrangements .......................................... 58 Annex 8: ProcurementArrangements ........................................................................................... 67 Annex 9: FinancialandEconomicAnalysis ................................................................................... 74 Annex 10: SafeguardPolicyIssues ................................................................................................. 92 Annex 11:ProjectPreparationand Supervision ........................................................................... 94 Annex 12: SocialIssuesandStakeholderParticipation ............................................................... 96 Annex 13: Documentsin ProjectFile ........................................................................................... 103 Annex 14: Statementof LoansandCredits ................................................................................. 104 Annex 15: Country at a Glance ..................................................................................................... 106 Annex 16: Letter of Sector Policy ................................................................................................. 107 Annex 17: Conflict Resolution ...................................................................................................... 108 Annex 18: InformationEducationand Communications .......................................................... 112 MAP # IBRD 34469 NIGERIA LAGOS METROPOLITANDEVELOPMENT AND GOVERNANCE PROJECT PROJECTAPPRAISAL DOCUMENT AFRICA AFTU2 Date: June 7,2006 TeamLeader: DeepaliTewari CountryDirector: Hafez M.H.Ghanem Sectors: Generalwater, sanitationandflood SectorManagerDirector: EustacheOuayoro protectionsector (96%); Sub-national government administration(4%) Themes: Municipal governanceandinstitution building (P); Other urbandevelopment (P) Project ID: PO71340 Environmentalscreeningcategory: Partial Assessment Lending Instrument: Specific Investment Lending [ ]Loan [XI Credit [ ]Grant [ ]Guarantee [ ]Other: For Loans/Credits/Others: Total Bankfinancing (uS$m.): 200.00 ASSOCLATION Total: 91.88 113.81 205.69 Borrower: Federal Ministryof Finance Finance Headquarters, CentralArea Abuja Nigeria ResponsibleAgency: LagosState Government (LMDGP PCU) 347 B. OdusamiSt. off Wempco Rd. Ogba Lagos Nigeria Project implementationperiod: Start October 6,2006 End: March29,2013 Expected effectiveness date: October 6,2006 Expectedclosing date: September30,2013 Does the project depart from the CAS incontent or other significant respects? Re$ PAD A.3 [ ]Yes [XINO Does the project require any exceptions from Bankpolicies? Re$ PAD D.7 [ ]Yes [XINO 0 Have these been approved byBankmanagement? f Yes f x j ~ o Does the project include any critical risks rated"substantial" or "high"? Re$ PAD C.5 [XIYes [ ]No Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D.7 [XIYes [ ]No Project development objective Re$ PAD B.2, TechnicalAnnex 3 Theproject's objective is to increasesustainable accessto basic urbanservices through investments incritical infrastructure. Project description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 A: Infrastructure: US$ 165.35million A (i):Upgrading (US$40.154 million). This component willbuildthe capacity ofthe Lagos State UrbanRenewalAuthority (LASURA) to assess, develop, planandcoordinatethe execution of a city-wide upgrading program, through the execution ofthe upgrading subprojects innine o fthe largest slums identified in 1995: Agege, Ajegunle, Amukoko, Badia ,Iwaya, Makoko, Ilaje, Bariga, Ijeshatedohtire. A (ii): (US$61.38 million). The drainagecomponent will develop a long-term technical Drainage solution to flooding. A (iii): Waste (US63.81 million). Solidwaste activities willbeunbundledto segregate Solid collection, transfer, anddisposal activities, andinitiateprivate sector participationintransfer and disposal activities. B:PublicGovernanceandCapacityBuilding:US$ 5.97 million This component will support public finance andbudgetreforms, andthe institutionalizationof the use o finformation systems for policy making andperformance management. C: UrbanPolicy andProject Coordination: US$ 12.13 million This component will finance M&E, knowledge management and strengthening metropolitan policy dialogue, communications, andoperating costs. Which safeguard policies are triggered, ifany? Re$ PAD 0.6, TechnicalAnnex 10 Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP/GP 4.01) [XI [ ] Involuntary Resettlement (OPBP 4.12) [XI [I Significant, non-standard conditions, if any, for: Re$ PAD C.7 Boardpresentation: None. Loadcredit effectiveness: None. Covenants applicable to project implementation: None. A. STRATEGIC CONTEXTAND RATIONALE 1. Countryand sectorissues 1. Background. Nigeria, the most populous country, as well as the second largest economy in Sub-Saharan Africa (SSA), has an estimated population of 136.5 million people,' growing at an annual rate o f 3 percent. Until 2004, economic growth had been stunted and Nigeria's per capita GDP was an average of US$390 over the past three decades. An overwhelming share of government revenues, 76 percent, comes from oil. 95 percent of export earnings are also derived from oil. Substantial improvements in non-oil, non-government, private economy will be essential for Nigeria to realize its considerable potential for growth and poverty reduction. As outlined in Nigeria's National Economic, Empowerment and Development Strategy (NEEDS), the Federal Government o fNigeria (FGN) has initiatedsignificant economic and financial managementreforms that include improving the budgetary planningprocess; maintainingan oil-price based fiscal rule to bind Federal and State governments to base their budgets on "long run" rather than "current" oil prices; adopting a MediumTerm Expenditure Framework (MTEF); strengtheningthe budget office; ensuring better collaboration on the budget between the State Government's executive and the legislative branches; and makingpublic procurement transparent, efficient, open and competitive. 2. Organization of Government and revenue sharing. There are 36 States inthe Federation of Nigeria, a Federal Capital Territory, and 774 Local Governments. Most of the powers accorded to the States in the Constitution are exercised concurrently by the States with the FGN, and few powers are assigned exclusively to States. Local Government (LG) functions are specified in the constitution, but LGs are subject to varying degrees o f control and oversight by State Governments (SGs) depending on the enabling legislation passed by a particular State. Revenues from oil and VAT are sharedamongst the three tiers of government as follows: Federal Government: 35 percent; SGs: 50 percent; andLGs: 15 percent. 3. Urbanization characteristics in Nigeria. Nigeria's urbanization rate o f 5.5 percent per annum is one of the highest inthe world. It will cross the 50 percent urbanization mark by 2007, makingits urbanpopulation the largest of any low income country, except India. By 2020, 53.9 percent o f Nigeria's poor as definedby income poverty will be city dwellers. Unlike most African countries dominated by one or two large cities, Nigeria has a broadly dispersed network of cities, except for Lagos. 4. Lagos is a mega city of dominant economic importance notjustfor Nigeria, but West Africa as well. Lagos' population i s larger thanthat of 37 individual countries inAfrica. With an estimated population o f 11.14 million (World Urbanization Prospects, 2003) expected to grow to over 17 million by 2015, Lagos's population growth rate o f 4.8 percent per annum is a remarkably high growth rate for a mega city.2 It is the premier manufacturing and port city inWest Africa, has the largest concentration o f multinationals and financial institutions o f the country, and i s home to almost 60 percent ofNigeria's non-oil economy. ' 2005World DevelopmentIndicators,CD-Rom, World Bank. Over the sameperiodthe populationof Mumbai grew at 2.3 %per annum; Jakarta's populationgrew at 3.1 %; andTokyo's populationgrew at 0.3 %per annum. Shanghai's populationis actually projectedto decline over the sameperiod at -0.1 % (World UrbanizationProspects2003 Revision). 1 5, Investment needsfar exceed available resources in Lagos. Despite its dominant economic status in Nigeria's non-oil economy, Lagos i s a "poor city''. Its annual budget o f about US$650 million i s small relative to the resources necessary for adequate infrastructure and service delivery for its people. By contrast, Delhiwith a population of 13.8 million people has a budget o f US$2.6 billion; the Mumbai Municipal Corporation area with a population o f 11 million has an annual budget o f US$1.6 billion, and Jakarta with a population of 11 million, has a budget o f US$l.O billion, Furthermore, the poor coastal soil conditions inLagos renderinfrastructure more expensive, which inturn exacerbates the limitationsofits small b~dget.~ 6. Lagos ' urban productivity is compromised by insuficient influstructure, inadequate cost recovery and poor information systems for urban management. Service delivery from existing limited infrastructure stock is depleted due to negligible, systematic and routine maintenance over the past three decades. Under-investment in new municipal assets due to a lack o f resources has furtherexacerbatedservicedeliverydeficiencies to alargeandgrowingpopulation. Locallyrelevant data for planning, credible prioritization of investmentsandprograms, and monitoring the results of public expenditures does not exist. A breakdown in basic systems o f taxation and user charges during the military years has entrenched a culture of non-payment for services. Establishing basic systems for the collection of user charges and local taxation in Lagos will remain a substantial challenge to link cost recovery with sustainableservice delivery inthe years ahead. 7. Inequality in Lagos is growing, and livability is poor. Almost 70 percent of Lagos' population lives in slums4 in extremely poor environmental surroundings. Frequent knee-deep floods sweep raw sewage andrefuse inside denselypackedhomes where overcrowding i s the norm. While the average residential density for Lagos as a whole i s about 260 people per hectare, the populationdensity inslums is between 790 and 1240 people per hectare. Distortions inthe housing market inNigeria renders access to adequate and affordable housing limited, even for the middle class. Housing prices are high due to the non-availability o f long-term finance, high transaction costs for obtaining landtitles andor certificates o f occupancy, regulatory and planning controls for building and construction that constrain the efficient utilization o f land, as well as high inflation rates inthe Nigerian economy. The impact o f these distortions i s exacerbated in Lagos because of its small land mass in comparison to the land mass o f other States. Slums are therefore, a consequence of both market and government failure. To achieve any real improvement inthe lives of Lagos' poor, slum upgrading i s the only realistic option, coupled with policies to address the deeper problems that allow people little choice but to live insuch conditions. 8. Flooding affects livability beyond thepoor neighborhoods. Regularflooding o f large partsof the city, including at higher elevations, is the single most important infrastructure problem for Lagos,' as these floods cause enormous damage to property and infrastructure, exacerbates traffic congestion as roads get flooded, and is a public health hazard. 43 percent of households in metropolitan Lagos experienced flooding intheir streets last year, 16 percent experienced flooding inside their homes, and more than 33 percent o f the households undertook repairs to their property It is estimatedthat a functioning network of drains and roads is about US$260-270million in the immediate term, with medium term needs estimated to be about US$520 million. A fknctioning well managed drainage network is expected to require between US$80-90million over the next five years, while the road network will require over US$715 million over the next five years. For water supply, expansionaccordingto masterplans is expectedto cost US$2billion over 20 years. CommunityInfrastructureUpgradingProgram, SNC-Lavalin International, 1995 Apart from electricity. 2 due to damage from floods. Tackling the problems of floods has seemed an overwhelmingly complex task so far, partly because o f the resource needs, but also due to the poor institutional capacity to develop and apply modern planning tools for the management of a complex drainage system. Consequently, at present, there i s no technical basis to either develop a rational sequence of activities for the management ofthe drainage sector, or to guide institutionalreforms to enhance the efficiency of limited available expenditures.Ad hoc interventions have beenthe norm. 9. Institutional and financial issues. While affordable solutions to reduce flooding can be found, ensuringsustained benefits from investmentswill require substantial institutionalreform and coordination.6 A long-termdown-stream solution to the 118 kilometers o f primary and secondary drains must be developed and implemented by the Office o f Drainage Services (ODs), so that investments by other agencies yield sustained benefits. However, in the absence of adequate, predictable and reliable funds from general revenues for the systematic O&M o f the systemby the ODs, any reductioninflooding through capital investmentswill be hardto sustain. 10. Poor solid waste management compounds flooding. Benefits from improvements in the drainage system will also require concurrent improvements inthe solid waste management (SWM) system, as a substantial amount o f solid waste finds its way into the drains. It i s estimated that Lagos generates somewhere between 4,000 tons to 6,000 tons o f waste per day. Of this amount, it i s estimated that up to 90 percent i s collected from the neighborhoods but only 60 to 70 percent i s transported to the three official landfill sites. A little over 40 percent o f the collection is done bythe private operators appointed bythe MinistryofEnvironment (MoE), and about another40 percentby truck pushers or informal collectors employed by individual households (refer to paragraph 61 for details). 11. Publicfinance and cost Recovery: In2004, Lagos' internally generated revenue (IGR) was about 64 percent o f the total recurrent revenue; Federal transfers accounted for the balance. Consequently Lagos remains vulnerable to the fluctuations inoil prices. Giventhe on-going support of the International Development Association (IDA) for the road and water sectors7,recurrent cost implications of the additional proposed investments under this Project, especially for public goods, i s an issue that must be addressed. In most cities, property taxes are a substantial part o f general revenues*. InLagos, however, property tax rates have been historically very low'. Increasing the yield from this source of revenue, therefore, is critical for Lagos State Government (LASG) to sustain benefits from investments in drainage and solid waste. Results o f major reforms inproperty taxation duringthe first term o fthe current administration haveremained elusive, at least inpart due to its poor implementation and administration. Increasing yield from property related charges remains a criticalissue (see Annex 1paragraphs 65-67). Office of Drainage Services (ODS) underthe Ministryof Environment (MoE), the Public Works Bureauthat reportsthrough a Permanent Secretary to the MinistryofWorks (MOW),the newly created agencycalled the Drain Ducks that reports directly to the Commissioner for MOWwithfunds allocated through the Public Works Bureau, andwith the twenty LGs, sixteen ofwhich are withinthemetropolitanarea. 'Lagos UrbanTransportProject (US$lOO million) and SecondnationalWater Sector ReformProject (Lagos' allocationis US$116 million). InRiodeJanerio, for example, propertytaxes arethe secondlargestsource ofrevenue andconstitute 29 %ofIGR inUS cities, propertytaxes accountfor as much as 75% of IGR inthe Bombay Municipal Area, property taxes constitute 25% of IGR.InLagos, actualcollections from tenement rates in2000 were only US$2.3 million, or 1%o f InternallyGeneratedRevenues. In2000, actualcollectionfromtenement rates was 1 percentofIGRagainstthe potential of 13percent. InRio deJaneiro property taxes constitute 29 percent of IGR, 25 percent inMumbai, and as much as 70 percent incities inthe United States. 3 12. Substantial progress in hdamental areas essential for improving urban management and service delivery, however have been made. Apart from initial steps to improve the preparation of the budget, LASG has: (i) introduced an Electronic Banking System of revenue collection and monitoring (EBS-RCM); (ii) implementeda computerized integrated financial management system (IFMIS);and(iii) modernized the State's landregistryandrecord system. 13. LASG recognizes that infrastructure expansion is as necessary as makingavailable adequate resources for the maintenance of existing assets. Advancingthe governance reform agendainLagos for integrated metropolitan development i s essential for economic growth and sustainable service delivery for poverty reduction. With no municipal administration devoted to responding to the needs o f a city, Lagos, de facto a quasi city-state, is managed like a State through the State budget, civil service, and parastatal institutions. Policy and institutional reforms must therefore be implemented at the State level with appropriate accompanying measures at the LG level. This Project will provide support for on-going efforts o f LASG to improve governance and service delivery inorder to enhance the productivity o ffirms andhouseholds inthe metropolitanarea. 2. Rationale for IDA involvement 14. The Project rationale derives from IDA'Sexperience with integrated development in large cities in China, India, Indonesia, Brazil and Pakistan. Experience highlights that cities need a sustained flow o f services to contribute to growth, not just infrastructure stock. Service delivery requires substantial institutional reforms, including the facilitation of private sector participation. These reforms take time. The ability to support sizable investment over lengthy periods of time gives IDA the comparative advantage to both facilitate and sustain reform processes during the transition, thereby enhancing prospects for the effectiveness o f public expenditures. Another advantage i s IDA'Ssubstantial knowledge acquired over two decades of engagement with Lagos. Recommendations o f the Bank's 1982 Urban Sector Review were supported by US$304.2 million of infrastructure investments through three operations between 1985-1999. Since 2003, cross- sectoral analytic work and policy dialogue under the Lagos Strategy has further enhanced IDA'S knowledge to provide cohesive, multi-sectoral, and strategic support for integrated metropolitan development. This has also enabled IDA to facilitate dialogue with diverse stakeholders on key policy issues, including service delivery. The support under the Lagos Urban Transport Project (LUTP) and the Second National Urban Water Sector Reform Project (SNUWSRP) were deliberately conceived alongwith LMDGP, to upgrade Lagos across sub-sectors. 3. Higher level objectives to which the Project contributes 15. This Project is consistent with the objectives and approach o f the Country Partnership Strategy (CPS) that supports Nigeria's NEEDS. The CPS aims to achieve the following results: (i) improvedservice delivery for human development; (ii) improved environment and services for non- oil growth; and (iii)improved transparency and accountability for better governance, Lagos is one of the lead Statesof the CPS, andthe proposedProject supports results packages(i) and(iii). (i) packagefor improvedservice deliveryfor human development. The upgrading Results component will increase sustainable access to roads, drains, water, schools, and clinics for over 1 million slum dwellers in the nine selected slums. The drainage component will reduce flooding in 4 metropolitan Lagos, particularly in Mainland, and Ajeromi-Ifelodun LGs" where the two drainage systems selected for rehabilitation lie. The S W M component will contribute to reduced flooding in metropolitan Lagos, to more effective functioning and a reduced maintenance burden o f the road network, thereby contributingto productivity enhancement ofthe firms andhouseholds inLagos. (iii) packagefor improvedtransparency andaccountabilityfor better governance.The Results governance component will result inthe availability o f timely and reliable financial information to assist LASG in policy formulation and implementation; more effective expenditure control; improvedcashmanagement; improvedprogram execution, especially inthe priority sectors; results- based budgeting, targeting, expenditure and impact monitoring; and the establishment of feedback mechanisms to the public. B. PROJECTDESCRIPTION 1. Lendinginstrument The lendinginstrument is a sector investment loan(SIL). 2. Projectdevelopmentobjective andkey indicators 16. The Project's objective is to increase sustainable access to basic urban services through investments in critical infrastructure. Progresstowards achieving the objective o fthe Project will be measured through: (i) increase in the percentage o f population with access to safe water in the selected 9 slums; (ii) reduction inthe percentage o fhouseholdsreporting flooding inthe LGswhere the selected drainage basins lie; (iii) in the percentage o f generated garbage inLagos that increase arrives for disposal at landfills; and (iv) reduced deviation between actual expenditures and the approved budget. 3. Projectcomponents 17. The Project includes the following components: A: Infrastructure: US$165.35million B:Public Governanceand CapacityBuilding: US$5.97million C: UrbanPolicy andProject Coordination: US$12.13million A ProjectPreparation Advance ofUS$1.04 million was made available. Contingencies inthe Project are US$15.49 million. A. Infrastructure:US$165.35 million A (i)Upgrading (US$40.15 million). This sub-component will build the capacity of the Lagos State UrbanRenewal Authority (LASURA) to assess, develop, plan, and coordinate the execution of a city-wide upgrading rogram through the execution o f the subprojects in nine o f the largest slums identified in 1995, IPcovering 760 hectares and housing over 1.1 million people. Inaddition loIntheseLGs, estimatedto behometo 1.9 millionpeople, 29 percentofthe householdsreportedflooding insidetheir homeswithin the last year, while 59 percentreportedflooding inthe streets oftheirneighborhoods. Agege, Ajegunle, Amukoko, Badia, Iwaya, Makoko, Ilaje, Bariga, Ijeshatedontire 5 to Training (US$0.20 million) and Operating Costs (US$0.08 million), the Project will support: (i) technical assistance (TA) for LASURA to develop a city-wide upgrading program; (ii) to LGs strengthen maintenance o f tertiary infrastructure; (iii)TA for the Ministry of Physical Planningand Urban Development (MPP&UD) to develop slum prevention policies; (iv) delivery of an HIV/AIDS awareness campaign; (v) a Social Sustainability program to increase ownership of upgradinginvestments; and(vi) Conflict Resolution. A (ii)Drainage (US$61.38 million). This sub-component will develop a long-term technical solution to flooding. In addition to Training (US$0.20 million) and Operating Costs (US$0.04 million), this sub-component will support: (i) highest priority civil works investments the to mitigate flooding; (ii) establishment of an efficient GIS database management system using the satellite imagery with relevant GIS software; (iii)a rational reassessment o f drain designs to develop a prioritized construction program; (iv) a deferred maintenance program to clear the large volumes o f solid waste, silt, and vegetation which has built up over the years; (v) the development of a routine maintenance program to mitigate the extensive flooding that annually plagues the city; (vi) TA andtraining for the ODs; and(vii) Conflict Mitigation. A (iii) WasteManagement (US$63.81 million). SWM will be unbundledto segregate Solid collection, transfer, and disposal activities, and initiate private sector participation in transfer and disposal activities. The Project will finance: (i) works for the construction of 2 - 4 transfer civil stations, and the upgrading o f two landfill sites; (ii)communal depots; (iii) for the Lagos State TA Waste Management Authority (LAWMA) to develop appropriate solid waste collection routes, contract instruments for private sector collection, and contract instruments for the management and operations o f transfer stations and landfills, inaddition to design, build, operate (DBO) contracts for disposal and transfer to be financed by IDA; (iv) TA for Lagos State Environmental Protection Agency (LASEPA) and MoE to enable them to better discharge their functions; and (v) evaluations of the efficiency o fthe S W M systemthrice during implementation. B. PublicGovernanceandCapacityBuilding:US$5.97 million 18. This component will support the following: B(i)Public Finance Management Reforms (US$3.97 million). To support budget preparation and expenditure management reform, and expenditure tracking in specific sectors the Project will finance: (i) update o f the public finance legislation; (ii) an consolidation of the MTEF; (iii)improvebudget execution andtreasury management; (iv) consolidationofthe IFMIS for implementation by economic infrastructure and social service ministries. B(ii)Economic Intelligence and Service Delivery (US$l.70 million). The Project will support the Central Office o f Statistics, Lagos (COS) to (i) consolidate/institutionalize the initiative of surveys o f firms and households; and (ii) enhance economic performance and service delivery monitoring. B(iii) Leadership Enhancement Program (US$O.30 million). Leadership training program designed for mixed cohorts, including managers andpolitical appointees from the public sector, the business community and civil society. 6 C. Urban Policy and Project Coordination: US$12.13 million 19. Under this component the Project will finance: (i) knowledge management to strengthen metropolitan policy dialogue, including consultations around specific infrastructure, growth, and metropolitan development issues facing Lagos; (ii) communications to inform and educate all stakeholders about the potential benefits of LMDGP; (iii) conflict resolution; (iv) strengthening of the capacity o f Citizens' Mediation Centers (CMC) and the Office of the Public Defender (OPD); (v) systematic monitoring ofprocessesandintermediate results o f LMDGP; (vi) andoperating costs o fthe PCU. 4. Lessons learnedand reflectedinthe Project design 20. Knowledge gained from the "Lagos Strategy"12 definedreforms andinvestments includedin LMDGP.The Project's designalso integrateslessons from the WorldBank's Operations Evaluation Department's sector study "Improving the Lives of the Poor through Investment in Cities: An Update on the Performance of the Urban Portfolio" (2003): (i) Buildingonpastoperationsandscalingupurbanpovertyinterventions.Threelessonsfrom IDA-supportedprojects inLagos have informed the design o f LMDGP as follows: (a) community participation i s central to the design of the upgrading interventions proposed; (b) scaling up slum upgrading as a focused poverty intervention has been central to IDA'Sdialogue with LASG, and Project investments are within an overall city-wide upgrading program; (c) granting autonomy to the solid waste authority (LAWMA) i s a core element o f the sector policy adopted by LASGfor the sector. (ii) Unequivocal ownership of projects with implementation arrangements that enable coordination of metropolitan functions. Unequivocal ownership of LMDGP interventions developed through dialogue under the Lagos Strategy i s reinforced by the inclusive implementation arrangements o f the Project as it is overseen by a coalition o f public and private sector. The coordination of metropolitan functions is ensuredas the PCUreports directly to the Governor, as do the heads o f other utilities. (iii) M&E and reporting on results of poverty alleviation, especiallyfrom the city to the sectorhtrategic levels. A city-wide baseline o f non-income poverty was established during Project preparation by the COS under the Lagos Ministry o f Economic Planning and Budget (MEPB). This baseline, to be updated every two years, has provided a sound foundation to target interventions; provide measurable, location specific outcomes o f interventions that can be shared with citizens through feedback mechanisms; and will enable the tracking o f poverty alleviation outcomes over time. 5. Alternatives considered and reasons for rejection 21. Following LASG's request to IDA in 2000 for support inmultiple sectors including master planning, IDA attempted preparation of one large multi-sectoralProject to support transport, water, drainage, sewage, housing finance, slum upgrading and urban management. This was eventually In2003, IDA initiatedsupportto the LagosState Governmentinits ongoingeffortsto developaStrategyfor Economic DevelopmentandPovertyReduction,with aview to identifying comprehensive reformsandinvestmentsthatwould contributeto growthand employment creation. A multisectoralIDA teamhas since partneredwith acore group of leadersinLagosdrawnfrom the public sector, theprivate sector, andcivil society to share information and ideas. Duringthis time, IDA deliveredformal and informal diagnostics, policy advice, and sharedknowledgethrough participation inLagos' Annual EconomicSummits, aforum that drew diversestakeholderstogether to findjoint solutionsto the problems inLagos. 7 rejected, because o f the complexity of one large operation, and the transfer environmental risks from one component to the rest o f the Project. In 2001 a decision was taken to support Lagos through three manageable, separate, SILs (transport, water, and urban) interlinkedby cross cutting sector work to support growth andpovertyreduction. LUTP was approved inFY03, and support for water under SNLTWSRP in FY05. LMDGP includes the remaining elements, except sewage13and housing finance.14 A governance component was essential to include, in order to ensure sustainability o fproposed investments. C. IMPLEMENTATION 1. Partnershiparrangements 22. The partnership between DFID and IDA and other donors is crafted to ensure coherence in the efforts to support LASG's priorities: (i) Governance reforms: DFID will strengthen LASG's Board o f Internal Revenue(BIR), to ensure that the gains made so far on the revenue side, are not reversed. LMDGP support is focused on the budgeting and expenditure side; (ii) Information Technology for Citizen Access: The Directorate for Citizens' Rights (CRD) under the Ministry o f Justice" offers free access for human rights and consumer protection, access to public defenders, and free citizens' mediation (see Annex 17). The CRD will be the focal point for free and quick access to grievances; and (iii) Civil Society Dialogue: DFID i s facilitating constructive dialogue with CSOs to mitigateagainst the risk ofimplementationdelays for LMDGP. 2. Institutionalandimplementationarrangements 23. The Project will be implementedover a period o f seven years from October 2006 to March 2013. Reflecting the decentralized nature o f the Project, the implementation arrangements have been designed to offer a fine balance between effective overall supervision and monitoring o f activities at the Project level, as well reinforcing the management and institutional responsibilities o f individual Project components and subcomponents. Importantly, the overall arrangements have also beendesigned to facilitate inclusivegovernance. 24. Project Steering Committee (PSC). The Project i s overseen by a PSC chaired by the Governor o f Lagos State (or hisher representative). The PSC consists o f a balanced representation from the public and private sectors. Private sector membership currently includes the Managing Director and Chief Executive o f a leading manufacturing company, ManagingDirector o f a leading Pharmaceutical Company, Head o f the Social and Economic Rights Center (SERAC), and the Editor o f a leading national newspaper. Members from the public sector include Commissioners o f ministries associatedwith the Project, one LGchairman elected to represent the six LGsinvolvedin the slum upgrading component, CEOs o f public utilities, and a member o f the State House of Assembly (SHoA). The PSC will be responsible for ensuring timely implementationo f LMDGP by the Project Coordination Unit (PCU) and convene quarterlyto: (i) progress reports prepared review by the PCU, and clear the forwarding of these reports to IDA with comments; (ii) and review approve annual work programs and budgets; (iii) that agreed performance targets and time ensure l3LASG issued a legislationtransferringthe responsibilityfor sewage collection andtreatment to the LagosWater Supply Company (LSWC), andsewage was therefore excluded from LMDGP. l4Housingfinance was assessedto be too difficult at thistime as aresult ofthe landandfinancial sector policies that affectthe housingsector inNigeria. A pilot housingfinanceinterventionwas thereforenot includedinLMDGP. ''DFID, the OpenSocietyInitiative andthe Ford Foundationhave collaboratedto enhance access of Lagoscitizenstojustice. 8 lines for activities under the different components are met; and (iv) proactively address critical issuesthat couldhinderProject implementation. 25. The Project Coordination Unit (PCU). A PCU headed by a competitively recruited, qualified director from the private sector has beenestablished under the Office o f the Governor of Lagos State. Other full time staff include a procurement specialist, an engineer, an upgrading specialist, a communications specialist, an M&E specialist, and support staffproficient inthe use of information technology, drawn from LASG's civil service or the private sector as necessary. In addition, each Component Executing Agency (CEA) will designate a focal person to liaise systematically with the PCU. To ensure effective implementation o f LMDGP, the PCU will be responsible for: (i) technical management, includingpreparation o f engineering designs and overall environmental impact assessments and mitigation plans; (ii)procurement and financial management; (iii) monitoring, evaluation and reporting on progress; and (iv) coordination with CEAs. 26. TheLagos State Project Financial Management Unit (PFMU).The PFMUwill deploy a full Project financial management (FM) team to the LMDGP PCUto undertake the FMresponsibilities duringProject implementation. The head of this team will report primarilyto the LMDGP Project Director and will have the authority, as one o f the two PFMU signatories, to sign PCU approved payments. The Project Director will be the primary signatory o f Project accounts on the PCU side of the management team. These FM arrangements will be revisited six months into Project effectiveness to evaluate their performance and make necessary adjustments. Procurement will be managed by the PCU. To mitigate against the procurement risks identified in March 2005, the Recipient hadput inplace severalkeymeasuresby February2006: the PCUi s establishedunder the Governor's Office; a diverse PSC i s established to approve annual work and procurement plans; a competitively recruited Director from the private sector has assumedoffice, andi s authorized by the Governor to award and sign all contracts, and be responsible for contract management; all PCU staff have become familiar with IDA'Sprocurement procedures through learning by doing over the last year including the procurement officer who has prior experience with Bank-supported projects; andthe engineering firm to prepare the detailed engineering is required to provide continuous on- the-job training as well as professional procurement support to the PCU. These arrangements are detailed inthe Project Implementation Manual that is under review. Furthermore, the PCUwill be equipped with "Client Connection" accessibility, to allow for streamlined procurement and disbursement procedures, and PCU staff will be re-trained annually or as needed during implementation. 27. Component Executing Agencies (CEAs). CEAs will have the primary responsibility for the execution o f the components and sub-components falling within their respective mandates, includingcarrying out day-to-day activities inline with LASGpolicies andbroadannualwork plans and budgets reviewed by the PSC. All CEAs are existing agencies (such as LASURA for Urban Upgrading, LAWMA for solid waste management). Appropriate officers to be deployed from existing departments o f CEAs will be entrusted with the execution of Project activities. CEAs will besupportedthrough the provisionofTA, consultancy services andstafftraining, as necessary. 9 3. Monitoring and evaluation of outcomes/results 28. The Project will support the OS in MEPB to design and develop a Monitoring and Evaluation (M&E) system that will generate information on the metropolitan level outcomes of LMDGP as well as the performance of LASG's own programs. Selectedindicators for LMDGP are drawn from a survey o f 6,000 householdsinthe metropolitan area, completed by the OS inAugust 2005. This office will report on the selectedmetropolitan level indicators in 2007, 2009, and 2011. The PCU will also develop an M&E system to monitor and track progress on Project components andsub-components. 4. Sustainability 29. As a result of the dynamic leadership from the State Governor and key cabinet members, LASG has sustained an intense policy dialogue with IDA, and quick decisions on key issues have been taken during Project preparation.I6 Beyond this political commitment at the highest levels in Lagos, however, sustainability remains critically dependanton the availability o f adequateresources andtheir appropriate deployment for O&M ofmunicipalassets. 30. LASGhas reformedthe BIR to further enhance internalrevenue collection. Additional steps taken by LASG to ensure financial sustainability o f investments supported by the Project include: a trend of increasing actual recurrent expenditures, excludingpersonnel costs for drainage over 2003, 2004 and 200517 and LASG's commitment to sustain this level of recurrent spending in the sub- sector inthe mediumterm; the grantingo f full operational autonomy to LAWMAwithin the context of LASG's Environmental Policy (refer to Annex 1 paragraph 61-64); LASG's agreement to provide LAWMA with adequate subsidies to cover initial losses until the incentives being put in place lead to systematic improvements in solid waste collection and fill cost recovery for collection; strengtheningthe monitoring capacity o f the MOE; and ongoing reforms in the State's fiscal management system, partially supported under the Project, to improve efficiency o f budget allocations, expenditure monitoring and accountability. The communications and knowledge- sharing elements coupled with the inclusive Project implementation arrangements will strengthen demandfor sustainableresults. Risk Risk Mitigation Measure Risk rating Toproject developmentobjective Commitment to reformaffected by A participatoryapproach willbetaken throughoutthe Substantial 2007 elections and/or bureaucratic implementation o f the Project with all stakeholders, stakeholders favoring the status quo supportedby communications. of slow implementation. 10 neffective coordination of LMDGPoverseenby inclusive PSC withbalanced Moderate netropolitan finctions. representationofprivate andpublic sector. I'he PCUi s under the Governor's Office, where inter- ministerial coordinationmeetings are already systematic. hsufficient resources to finance DeepenLASG's on-going programto capitalize on Moderate innualmaintenance of the selected major recent improvements inIGRcollection with lrainage systems and the S W M additional support now coming from DFID. system. Riskresults mainly from htroduction of a multi-year budgetingina medium- qolatility o f oil revenues which term fiscal framework to better prioritize andplanfor iffects the transfers ofresourcesto expenditures, especially for the maintenance o f ;he State from the FA. infrastructure andthe delivery o fbasic urban services. Greater PSPinthe S W M sector, including more effective collectionzones andcontract instrumentsto increaseefficiency of SWM. I'o ComponentResults Zonflicts around the locations of LASGcommittedto follow the principles of the RPF Moderate infrastructure improvementsnot for LMDGP, for any infrastructure upgrading in the resolvedproactively, could affect the metropolitan area. timely and sequencedimplementation ESIAandRPFFrameworkhave beenpreparedby o f activities, even withrespect to LASG.A Conflict resolutionmechanismis improvements outside the Project established. Communitieshave been sensitized and area. mobilized to participate. A strong communications component i s an integral element of the Project. Private sector fails to assume design, To ensurethat the framework within which private Substantial build, and operate contracts for sector participationi s sought for the management and transfer stations and landfill site in operations of the landfill sites andtransfer stations, the solid waste sector. IDAwill facilitate inputsfromthe private sector on a draft framework paper, so that private sector concerns are addressedinthe framework and adequate comfort measuresfor PSP exist, prior to requestingbidsfor the DBO contracts. Public Finance managementreforms Intensive staff training andrecruitment o fyoung Low are delayed becauseof weak ICT graduates when necessary. Developmentand close capacity. monitoring o f time table for migration from manual or semi-manual public finance systems, to businesses processesbased on computerizedIFMIS. To Implementation Delegationof authority to the PCU Governor's commitment delegating the authority to Substantial for implementationi s not realized. award, sign andmanage contracts to the PCUthrough the Project Director was providedby LASG prior to Appraisal. The PCUoversight arrangements are inclusive. Insufficientknowledge and Providingprocurementsupport i s an explicittask to Moderate experience with IDA'Sprocurement be performedby engineering firms that support procedures causing substantial delays implementation, as i s the buildingofprocurement inProjectimplementation. capacity o f the PCU. Procurement training will be provided to key staff in 11 the respective CEAs. FMRisk Adequate FMarrangementsinplace, adequate Moderate supervisionby IDA FMSandexternal audit. Overall Risk rating Substantial 6. Loadcredit conditions and covenants 31. None. D. APPRAISAL SUMMARY 1. Economic and financialanalyses Economic analysis 32. The economic evaluation of the infrastructure component covers three sub-components that account for US$167.35 million or 92.22 percent o f the total base cost: (a) upgrading o f basic municipal infrastructure in nine selected settlements o f the 6 Local Governments (US$41.15 million, 24.59 percent); (b) solid waste management (US$63.82 million, 38.13 percent); (c) drainage upgrading o f trunk drainage in the metropolitan area (US$62.38 million, 37.27 percent). An economic analysis "with" and "without" Project was undertaken. The aggregate economic rate of return o f the infrastructure component i s 17 percent; and the net present value at 10 percent discount rate is N17.58 milliodper ha of investment. The main benefits o f the infrastructure component are: reduced flood damage-cleaning-up and roadmaintenance expenses; reduced income loss due to sickness and medical expenses; increased economic growth, and finally, reduced frequency o f de-silting of the drainage channels. The Governance component does not lend itself easily to traditional economic analysis essential to sustain benefits from infrastructure improvements through systematic and routine allocations and expenditures for operations and maintenance. Sensitivity analysis 33. Sensitivity analysis was undertakento evaluate the impact of changes in costs and benefits on NPV and ERR base case estimates. A combined increase o f 20 percent in total cost and a decrease o f 20 percent intotal benefits resulted inERR o f 10 percent and NPV o fN0.4 million per hectare indicating a robust outcome. The relative contribution o f each type of benefit to the overall component was also estimated. The results o f such analyses indicate that the ERR and NPV are impacted mainly by changes inthe business activities arising from improved physical environment of the Project. In the unlikely event that the private sector shows no investment response to the improvedphysical environment, the ERRwill only be 3 percent andNPV will beN11.9 million per hectare indicating that a pro-business environment alongside the investment would ensure the expectedeconomic benefit (see Annex 9 for Project Financial andEconomic Analysis). Affordability and fiscal sustainability 34. A financial analysis of LASG and LG budgets was undertaken based on historical revenue andexpenditure data, as well as data ontransfers to the State andLGsfrom the FederationAccount. In the medium term, the Project is expected to generate four types of incremental annual expenditure liabilities for the State, including: (i) costs o f serving the IDA credit, including a commitment charge o f US$1.5 million; (ii) additional costs related to improved maintenance of the 12 drainage system o f US$7.0 million; (iii) o f government co-financing o f specific agreedProject costs investments o f US$0.6 million; and (iv) additional costs o f supporting the S W M system through budget subsidies to LAWMA duringthe transition phaseto achieve full cost recovery for collection. The latter costs are estimated at US$12.0 million a year. Total incremental budget costs are conservatively estimated to reach about $21.0 million a year (Naira 2.75 billion) by the end of Project implementation. This amounts to about 3 percent o f LASG's total budget expenditures in 2005 and should be considered affordable, given recent strong growth instate revenues, which to a limited extent are a result of highoil prices and a consequent increase in federal transfers. Future budget sustainability is further strengthened by recent LASG efforts to strengthen the internal revenue administrationandthe considerableuntappedpotential for revenues from propertytaxes. 35. The current total costs of operating the S W M system in Lagos are estimated to be inthe range o fUS$28 million.'* S W M inNigeria is constitutionally a LGfunction. Giventhe dependence of Lagos LGs on federation transfers, and the significant operational and environmental benefits from a consolidated approach inthe metropolitan area, centralizing management to a metropolitan authority and financing the system centrally, with financing through the State withholding and pooling the federal transfers to LGs, i s the most efficient and sustainable way forward. In2004 the total transfers to LGs amountedto US$171.47 million," exceeding total costs o fwaste management by more than 6 times. Medium-termprojections suggest that future costs o f S W M inLagos could reach US$40 million a year. These incremental costs should be covered by gradual increases in collections o f user fees, as well as by transitional subsidies from the state budget, as the system transforms towards full cost recovery for collection. 2. Technical 36. Rational sequencing o f sectoral interventions to reduce routine flooding as well as the threat o f disease for the people of Lagos, particularly the poor, informs the technical rationale for the investments proposed under the Project. Governance related activities are included to ensure sustainable service delivery from existing andproposed municipal assets. For drainage, investments indeferred maintenance inconjunction with reconstruction of critical portions of the network will significantly reduce flooding. This will be followed by a routine and disciplined annual maintenance program contracted out to the private sector. Initiating private sector management o f transfer stations and the landfill site, thereby expanding PSP arrangements in SWM, is the new institutional innovation and justification for support for SWM. The use o f transfer stations will increase transport efficiency, and the upgrading o f dump sites to transfer stations will improve the environmental conditions. The design o f the upgrading intervention aims to refine the technical, financial, and institutional framework for a city-wide program that can be executed with none or minimal disruption; and enable selectivity o f lumpy investments to trigger incremental improvements inthe infrastructure stock o f LGs over time. 3. Fiduciary 37. Procurement. Inthe past, procurement capacity inthe public sector inthe country was weak as identified in the 2000 CPAR and 2004 Lagos SPAR. Since then, substantial progress has been made, both at the Federal and Lagos State level to improve the capacity. InLagos, an IDF Grant i s supporting implementation o f a three year procurement reform program in line with the Naira3.7 billion, usingexchange rate ofNaira 132.1to US$l.OO. Naira22.6 billion, usingexchangerateofNaira 131.8 to US$l.OO (December 2004). 13 recommendations o f the LSPAR. Untilthese reforms are inplace, the global risk o f doingbusiness both inNigeria and Lagos will remainhigh. Since IDA'Sassessment of Project level procurement risk as highinMarch2005, the Recipient has completed implementationo fkey measuresso that the Project levelrisk is now assessed as moderate. These include among others, establishment of a fully staffed PCUunder the Governor's Office; the establishmentof a PSC with highprofile civil society representation; a competitively recruited engineer from the private sector to head the PCUwith the delegated authority from the Governor to manage all procurement and sign contracts within five days o f clearance by IDA; full-time deployment from the parent ministry o f the Procurement Officer, who has experience with previous IDA projects; completion o f the PIM that includes a chapter on procurement as well as adaptation of the generic procurement manual for LMDGP; on- going computerization of store records; and substantial procurement knowledge acquired by PCU staff through learningby doing through execution of activities financed by the project preparation advance and the PHRD Grant. Additionally, the engineering firm that i s expected to be mobilized before Board presentation will provide continuous on-the-job training and procurement support to the PCU. To further reduce Project level procurement risk, the PCU will acquire contract management training and become proficient in the use o f a computerized contract management module. 38. Financial Management. Upon request from LASG, IDA completed an assessment o f financial accountability in 200420which stated that the main elements o f government FM systems are present in Lagos State and that the LASG has taken some steps to improve FM systems. It concluded, however, that the financial accountability system is weak and that there i s a risk that financial records do not present an accurate record o f transactions. Given such an environment, strong controls are necessary to prevent wrongfbl use o f public funds. The Federal Ministry of Finance and all the SGs in Nigeria agreed2' to establish a PFMU in the Offices o f each State's Accountant-General's Office, thereby centralizing maintenance of special accounts and other accounts for donor supported projects, while also providing substantial economies o f scale for multiple operations within one State. The Lagos PFMU will deploy a full Project FMteam to the PCU offices to undertake the FM responsibilities during Project implementation. The overall level of control risk from a FM perspective is considered moderate, as inherent risks are offset by the adoption o f robust FM arrangements satisfactory to IDA. Financial reporting includes monthly reports for the PCU, quarterly Financial Monitoring Reports (FMRs) and annual audited financial statements for the Project (details o fthese arrangements are includedinh e x 7). 4. Social 39. Deepeningpoverty and environmental degradation are the most significant social issues in Lagos. This Project aims to establish a road map for systematic investments in infrastructure and improve the absorptive capacity o f LASG for sound investments, particularly inthe poorest areas. It establishes a framework for targeted interventions for measurable results, and institutionalizes the broad city-wide consultative processes that LASG initiated in2000. The mainsocial development outcomes of this Project will be strategic investments in the poorest areas, transparency in neighborhood investments; empowerment o f the poorest through intensive community development inleadershipandopencommunications; andastrategy for scalingupsuchinitiativesinLagos. 2oLagos State Financial Accountability Assessment (SFAA), March 2004. 2`Past FMarrangements that resulted inthe proliferation o f special accounts, stretched limited resources, and the inefficiency and ineffective control systems did not counter the highinherent risk o fmisuse ofpublic funds. 14 40. LMDGP will support revival of metropolitan level consultative mechanisms which bring together LGs, L A S G agencies, traditional leaders, CDAs, academics, andurbanpractitioners around urbanissues. The design anddecision-makingprocessfor boththese mechanisms will be integrated into the communications and feedback mechanisms. The intensive consultation andparticipation for the upgrading component will be reinforced by the use o f neighborhood-level monitoring, competitive community incentives to add benefits to infrastructure investments, newsletters for slum-dwellers, as well as community report cards andother bottom-up communication strategies. 41. Investments were determined by slum dwellers and CSOs. Implementation will include direct measuresto increase the voice andparticipation of community members. LASURAwill scale up this strategy across the city's poorest areas. NGOs in Lagos are preparingbudget-tracking proposals and community report cards. Working with strong neighborhood associations and CSOs, the Project will experiment with a slum dwellers "development marketplace" (refer to Annex 4 paragraph 86 (vi) for details). 42. A system for quantitative monitoringofservice deliveryresults hasbeenestablishedandwill be strengthened during implementation; a social development team combining LASURA and LG slumworkers with TA will implement andmonitor thevarious social sustainability initiatives. 5. Environment 43. The environmental category of this Project is B and it will not f h d activities that would affect the environment adversely. Infrastructure investments and institutional reforms are expected to significantly improve environmental conditions by reducing the incidence o f flooding, both in metropolitan Lagos, as well as in the selected nine slums. An Environmental and Social Impact Assessment (ESIA) disclosed in-country on June 20, 2005, as well as in the Bank's Infoshop has: (i)established a mechanism to determine and estimate the future potential environmental and social impacts of the activities to be undertaken under the Project; (ii) defined mitigation measures; and (iii)established institutional arrangements for monitoring. The ESIA covers upgrading o f tertiary infrastructure in the nine slums; improvements in existing drains and SWM, including dumpsite monitoringwells for groundwater and landfill gases. Specific EIAs will be undertaken concurrently with engineering studies that will identifyactivities relatedto the infrastructure drainage andwill be disclosed to the public six months before start o f physical civil works. While not anticipating involuntaryresettlement under the upgrading component, drainage activities may require relocation. A Resettlement Policy Framework (RPF) has been agreed upon with the Recipient, and disclosed in-country and in the Bank's Infoshop on June 20, 2005. Furthermore, LASG has agreed to harmonize its own resettlement policies with those o f IDA, and apply them for all o f Lagos. Key stakeholders are LASG's MEPB, MoE, MpP&UD, LASURA, Ministryo f Justice, MoF, LAWMA and LASEPA. Key non-governmental stakeholders are residents o f Lagos. Project impacts on the environment will be monitored during implementation using indicators that reflect the objectives andresults of the Project. Responsibility for the implementationo fthe Environmental Management Planresides with the PCU. 15 6. Safeguard policies Safeguard PoliciesTriggered by the Project Yes No Environmental Assessment (OPBP/GP 4.01) [XI [I NaturalHabitats (OPBP 4.04) PestManagement(Q&@) Cultural Property (OPN 11.03, beingrevisedas OP 4.11) Involuntary Resettlement(OPBP 4.12) IndigenousPeoples(OD 4.20, beingrevisedas OP 4.10) Forests(OPBP 4.36) Safety ofDams (OPBP 4.37) Projects inDisputedAreas (OPBP/GP 7.60)* Projects on InternationalWaterways(OP/BP/GP 7.50) 7. Policy Exceptions andReadiness 44. The Projectrequires no exceptionsfrom Bankpolicies, andmeetsthe Regional criteria for readinessfor implementation. 'Bysupportingtheproposedproject,the Bank does not intend toprejudice thejnal determination of theparties' claims on the disputed areas 16 Annex 1: Country and Sector or ProgramBackground NIGERIA:Lagos Metropolitan Development andGovernance Project 45. Geography andpopulation. Nigeriahas a landarea of 924,000 sq. km.With anestimated populationo f 136.5 million, growing at arate of 3 percent annuallJ2, it i s the most populous country inSub SaharanAfrica, andthe largest inWest Africa. 46. Economic conditions. With a GDP o f about US$58.3 billion (2003), the second largest economy in Sub-Saharan Africa, Nigeria i s the world's sixth largest exporter of oil. With earnings from oil constituting 75 percent o f government revenues, 95 percent o f export earnings, and 30 percent of GDP, Nigeria has beenunable to escape the damaging macroeconomic effects o f its oil resources. As a result, economic growth has been stunted, averaging about 1.6 percent during the 1980s and 199Os, and2.3 percent over three decades until2004. Some o fthe key factors responsible for the poor growth performance of the last decades, are: weak public finance management (PFM) systems; lack o f a sustainable fiscal framework to manage the volatility of oil revenues; inadequate budget formulation; poor expenditure prioritization; an absence of accountability mechanisms for public fimds within the budget execution process; poor expenditure control; and inadequate financing o f core public services. Mucho fNigeria's considerable economic base currently lies idle, capacity utilization inindustryi s around 50 percent. 47. Recent developments. Over the last three years, the Federal Government of Nigeria (FGN) has begun to undertake significant economic and financial management (FM) reforms geared to reducing poverty as outlined inthe country's National Economic, Empowerment and Development Strategy (NEEDS). The NEEDS places an emphasis on changing the way the Government works through improved efficiency, transparency, and strengthened anti-corruption activities. The key elements of the strategy include improvingthe budgetaryplanningprocess, maintainingan oil-price based fiscal rule, adopting a Medium Term Expenditure Framework (MTEF), making public procurement transparent, efficient, open and competitive, strengthening the budget office, and ensuringbetter collaboration between the executive andthe legislature on the budget. 48. Substantial challenges remain. Unless there is significant improvement in non-oil non- government private economy, a huge section o f the population will continue to be deprived of economic opportunities. Nigeria has considerable potential to become a vibrant economy and an important growthpole for sub-SaharanAfrica. 49. Overview of the organization of Government. Nigeria is a federation o f 36 States, a Federal CapitalTerritory (FCT) and 774 Local Government (LG) areas. Most o f the powers accordedto the States inthe Constitution are exercised concurrently with the Federal Government, and few powers are assigned exclusively to States. While LG functions are specified in the Constitution, they can exercise their authority only in accordance with enabling legislation passed by their res ective States. LGs are, therefore, subject to varying degrees of oversight and control inthe States! State 222005 World DevelopmentIndicators,CD-Rom, World Bank. 23The fimctions of LGs includethe constructionandmaintenanceof local roads, sewage facilities, markets, motor parks, local revenuecollection, andregistrationof births/marriage/death. LGsare also mandatedto participatewiththe state governmentsinthe provision ofprimary, adult andvocational education, the development of agricultureandnaturalresourcesother thanexploitationof minerals, the provisionandmaintenanceof primary healthcare andothers as maybeappropriatedbythe State. 17 Governors are directly elected for four year terms, while LG chairmen and council members are elected for three year terms. 50. Revenue sharing. Under the current revenue sharing formula, equality o f States, internal revenue generation, land mass, type of terrain and population density are the criteria established in Nigeria's Constitution for the distribution of the "Federation Account" (FA); however, the debate over the allocation of federal revenues to create a new framework for revenue sharingis underway inNigeria.24Ineffectivearrangementsfor inter-governmental collaboration havebeen, andcontinue to be a major short-coming ofNigeria's federal system. 51. Urbanization characteristics in Nigeria. Nigeria's urbanization rate o f 5.5 percent per annum25is one o f highest inthe world, andit will cross the 50 percent urbanization markby 2007. Its urbanpopulation i s the largest o f any low income country, except India. UrbanizationinNigeria has not been accompanied by economic growth, and this i s consistent with the phenomenon of "urbanization without growth inAfrica" as urbanization inusually accompanied by growth.26There has been highlyvolatile growth inthe economy over the last three decades o fjust over 3 percent per annum on average till 2004. With a GDP of US$58.3 billion in 2003,27growth has been barely enough to keep up with the growth inpopulation. Per capita income has actually declined, from about US$780 in 1980 to US$390 in2004. By 2020, 53.9 percent o f Nigeria's poor, as defined by income poverty, will be living in urban areas. This figure, however, does not capture non-income dimension of poverty in the urban context. Poor environmental conditions in high density settlements deprived of basic municipal services canbe a serious public healthrisk with substantial social and economic ramifications. About 19 Nigeriancities have populations exceeding 1million, andabout 40 cities have apopulation ofabout 0.5 million. Major cities are growingat ratesbetween 10-15 percent, and medium size cities are growing at 7 percent to 10 percent per annum. Unlike most African countries dominated by one or two large cities, Nigeria therefore has a broadly dispersednetwork of cities, except for Lagos. 52. Lagos is a mega city of dominant economic importance notjust for Nigeria but WestAfrica as well. Lagos, a coastal city-state andthe former capital o fNigeria, has an estimatedpopulationof 11.14 million, expected to be over 17 million by 2015.28 Other estimates2' place Lagos' current population at about 15 million, and project it to reach 25 million by 2015. Although its annual populationgrowth rate o f around 6 percent per year over the last decade appears to be declining, its average growth rate over 2000-2015 o f 4.8 percent, i s much higher than the average growth rates for other megacities.30 24At present48.5% ofthe FA is allocatedto the federal government, 24.0% to the States, 20.0% to the LGs, and7.5%for "special projects." Value addedtax, notmentionedinthe Constitution,is collectedbythe FederalGovernmentanddistributedas follows: SGs 50%; LGs 30%; andFederalGovernment 20%. EachState hasa State Joint LGAccount into which all allocationfromthe FAto LGsis paid. The amount inthis account is distributedamongLGs ina Stateas prescribedbythe SHoA. ''2005 World Development Indicators,CD-Rom, World Bank. 26"Cities inTransition: A StrategicView ofUrbanandLocal GovernmentIssues", World Bank, 2000. 27At currentprices, World Bank GroupStrategy, Report# 32412-NG, June 2,2005 28World UrbanizationProspects, 2003 revision. 29UnitedNationsestimates indicatethat by 2000 the totalfor Lagosagglomerationhadreached 13.4millionpeople, andisprojected to reachover 20 millionby 2010 makingit the world's third largest city (Mega Cities, The EuropeanSpaceAgency's Contributionto aBetterUnderstandingof Global Challenge, Editedby LotharBeckel, 2001). 30Over the sameperiod, the populationof Mumbaigrew at 2.3% per annum; Jakarta's population grew at 3.1%; andTokyo's populationgrew at 0.3 %per annum. Shanghai's populationis actuallyprojectedto decline over the same periodat-0.1% (World UrbanizationProspects2003 Revision). 18 53. With a population larger than that of thirty-seven individual African countries3', Lagos is home to more than 10percent o fNigeria's urbanpopulation. It is the premier manufacturing city in West Africa, and the country's principal non-petroleum port, handling some 15.4 million tons annually, or about 52 percent of the national total, excluding petroleum exports. It has the largest concentration o f multinational companies, is home to 250 o fNigeria's financial institutions, andhas about 60 percent o fNigeria's non-oil economy located there. 54. Lagos ' investment needs far exceed available resources. Despite its dominant status in Nigeria's non-oil economy, Lagos i s a "poor Over the last five years, Lagos' internally generated revenues (IGR) have grown by 21.7 percent per annum in real terms, indicating the significance and strength of the revenue mobilizationefforts o f the current administration. In2004, the IGR accounted for 64 percent o f total recurrent revenue while Federal transfers accounted for the balance of 36 percent. Despite these efforts, however, Lagos' annual budget of about US$650 million i s small relative to its needs. By contrast, Delhi with a population o f 13.8 million people has a budget o f US$2.6 billion; the Mumbai Municipal Corporation area with a population o f 11 million has an annual budget o f US$1.6 billion, and Jakarta with a populationo f 11million, has a budget of US$l.O billion. Furthermore, the poor coastal soil conditions in Lagos render infrastructure more expensive, which inturnexacerbatesthe limitationso f its small budget. 55. Lagos ' urban productivity is compromised by insuficient infrastructure, poor information systems, and inadequate cost recovery for Operations and Maintenance (OM). Cumulative infrastructure deficiencies from nearly three decades o f neglect due to a lack o f maintenance of existinginfrastructure, coupledwith under-investmentinnew municipal assets, has resulted inlarge service delivery deficiencies for the people o f Lagos. This has led to constrained productivity o f firms and households, growing inequality, and poor livability. Available investment resources are inadequate to deliver services to a large and growing population. It is estimated that about US$260 million i s needed in the immediate term for roads and drains, and about US$520 million over the mediumterm. A fimctioning well managed drainage network is expected to require about US$80 million over the next five years. Expansion o fwater supply according to master plans i s expectedto cost US$2 billion over 20 years. The road network will require over US$715 million over the next five years. 56. Reliable locally relevant data for informed planning and decision-making to credibly prioritize and target expenditures from limited resources does not exist. There i s little capacity to collect relevant information and analytic methods to identify, evaluate and prioritize policy, and develop programs for improved service delivery. Consequently, public investmentsare not subject to rigorous social and economic analysis. The provision o f services cannot be linked closer to cost recovery through taxes, user charges or other levies without information systems. This makes it difficult to reverse the culture o f non-payment for government services that has become entrenched in Lagos (and Nigeria), following years of failed promises during the military years, and the breakdown in basic systems for taxation and user charges due to corruption and patronage. Institutions have become weak, and the technical and management skills inthe public sector have 3'The 17 countriesthat havepopulationslargerthanLagos State are Algeria, Egypt, Morocco, Angola, CongoDem., Ethiopia, Kenya, Madagascar,Mozambique, SouthAfrica, Sudan, Tanzania, Uganda, Zimbabwe, Cameroon, Cote d'Ivoire, and Ghana. 32"Poor" as definedby the State Governmentbudget beingsmall, evenwhen comparedto cities of comparablesize indeveloping countries. 19 been eroded. The institutional and organizational environment is renderedmore complex than other metropolitan areas of comparable size, as Lagos is managedlike a State, and the government of the metropolis i s not organized along service delivery lines, as are other large metropolitancities. 57. Livability is poor and there is growing inequality in Lagos. While the average residential density for Lagos is about 260 people per hectare, the population density in poor urban neighborhoods i s between 790 people per hectare to 1240 people per hectare. It i s estimated that almost 70 percent of Lagos' population lives in slums characterized by extremely poor environmental conditions, including knee deep flooding inside homes that lasts four to five hours, sweeping raw sewage and refuse inside. Despite this, the population growth rate in slums was 8.9 percent per annum between 1995-2002. There is therefore severe overcrowding in the slum areas, while under-utilized land continues to be the norm inthe rest of Lagos. Highhousing prices have resulted in the exclusion of even the middle class from access to adequate and affordable housing. House prices in Nigeria, and consequently in Lagos, are inflated due to severe distortions in the housing market caused by the non-availability of long-term finance, high transaction costs for obtaining landtitles andor certificates o f occupancy, regulatory andplanningcontrols that constrain the efficient utilization of land, andhighinflation rates inNigeria's economy. Slums inLagos are a stark manifestation of the consequences o f both market and government failure, particularly with respect to affordable landand shelter. Given the size of the populationin slums, slum upgrading i s the only realistic option for improving the lives of the poor, coupled with policies for preventing the development o f slums in the future. A realistic city-wide upgrading program for existing slums would require a 15 to 20 year time horizon, and could absorb US$l85 million by 2020. However, an upgrading program alone could not guarantee the benefits from investments inupgrading, unless the flooding problems in Lagos are tackled. For city-wide upgrading, a methodical sequence of upgrading investments inslums will need to be developed inconjunction with a longterm technical solution to flooding. 58. Flooding affects livability beyond the poor neighborhoods. Flooding in all o f Lagos i s a major issue, becausethe existing drainagenetwork i s neither functional, nor complete. 43 percent of the households in Lagos experienced flooding in their streets over the last year, and 16 percent reported flooding inside their homes - more than 33 percent of the households undertook repairs from damage causedby floods. Insome years the flooding conditions have become extreme andlife threatening, The combination o f heavy rainfall, constrictions within the drainage systems andhigh tides duringheavy rains, have made drainage problems appear intractable and overwhelmingfor the government, more so inan environment of severely constrained financing. 59. Mitigationof flooding due to hightides through the construction o f a very extensive seawall andpumpingregimeis not a financially feasible option. The impact ofconstrictions inthe drainage systems can be mitigated through a rational reassessment o f the drain designs and by undertaking prioritized construction programs. These constrictions are largely due to inadequate original designs, particularly culvert cross sectional areas, improperly executed construction, infkequent and inadequate maintenance routines, and inadequate solid waste management which results in illegal dumping of waste in drains. Partly as a consequence of this, and partly due to the lack of coordination amongst the various agencies that invest in drainage, maintenance o f the drainage system has evolved into an approach o f emergency responses to critical situations duringperiods of 20 heavy rains. This approach has helped alleviate the "hotspots" within the city, but has diminished the potential benefits from investments indrainage over the past thirty years. 60. Sustaining the benefits from a routine maintenance program once the outstandingbacklog of maintenance i s addressed through a "deferred maintenance program", will require institutional coordination in the planning and management o f the network between the following agencies that make investments inthe sector: Office o f Drainage Services (ODs), reporting through a Permanent Secretary to the Ministry o f Environment (MoE); the Public Works Bureau that reports through a Permanent Secretary to the Ministry o f Works (MOW);the newly created agency called the Drain Ducks that reports directly to the Commissioner for Works with funds allocated through the Public Works Bureau; and the twenty LGs, sixteen o f which are within the metropolitan area. There are 118 kilometers o f primary and secondary drains that are the responsibility o f the ODs, and additional hundreds of kilometers o f tertiary drains associated with the road network that are the responsibility o f the MOW. Sustaining benefits o f investments in the drainage system will require the availability o f adequate, predictable and reliable funds from general revenues, both for investment purposes as well as for the operation andmaintenance (O&M) o f the drainage facilities, 61. Flooding is compounded by inadequate solid waste management. Improvements in the drainage system will also require concurrent improvements inthe solid waste management (SWM) system, as a substantial amount o f solid waste has found its way into the drainage system. It is estimated that Lagos generates between 4,000 tons to 6,000 tons per day. 42 percent is collected by the private operators appointed by the MoE, and 39 percent by truck pushers or informal collectors employed by individual households. 11 percent is dumped in unauthorized areas, 4.2 percent disposed within neighborhoods, 1percent in government bins, and 2.1 percent dispose in "other" ways.33Although Local Governments (LGs) in Nigeria have the constitutional mandate for solid waste inNigeria, LGs inLagos have delegated their responsibility to a metropolitan entity to realize economies of scale in the sector since 1991. The Lagos Waste Management Authority (LAWMA) has, since then, the statutory mandate for metropolitan collection, transfer, treatment and disposal o f solid waste, as well as the responsibility for related cost recovery. Although intended to operate as an independent parastatal, LAWMA has never been able to discharge its role, or develop cost ... recovery mechanisms due to: Lack of recognition o f its autonomy as illustrated by the abolition o f its Governing Council at which time LAWMA started reporting to the MoE. Unfunded mandates which required LAWMA to render services to LGs without providing means for receipts o f adequate andtimely compensation. LAWMA's failure to charge appropriate tariffs to industrial and commercial customers. 62. To address the short-comings o f the past and establish clear and accountable institutional arrangements in the S W M sector, LASG has: (i) updated LAWMA's Edict to reflect current State policies; (ii)will establish LAWMA's Board to reflect city-wide membership and ownership, including LGs, civil society, and private sector (as stipulated in the Edict); (iii)formalized arrangements with LGs with regard to centralized deduction at the State level from the transfers LGsreceive from the FA, for M S W services that LGswill contract out to LAWMA inlinewith the LG's Constitutional mandate for MSW -this deduction will go directly into a dedicated account for 33HouseholdSurvey, Office of Statistics, MEPB, 2005. 21 LAWMA; and (iv) developed a performance contract between LASG and LAWMA, spelling out objectives, roles, responsibilities and finding within the framework o fmulti-year work programs. 63. The Government has experimented with different options for collection o f waste, including the involvement o f private sector operators since 1977. A recent development was the MoE signing memorandums of understanding with private operatdrs for collection, and the appointment o f a private firm for computerized billing and collection o f fees, and also to develop a computerized system for tracking waste receipts at disposal sites and transfer stations. While the main areas o f the city appear clean, financial sustainability o f the system is o f concern, as the system is supported by annual State subventions o fUS$15.6 million. 64. Average S W M services in Lagos today cost about US$6 per capita per year, and the recurrent costs of the system are about US$3 per capita per year. Over the next 20 years, even with more environmentally safe disposal and with the rationalization o f collection costs through transfer stations, costs are estimated to increase to approximately US$9 per capita per year total, and about US$6 per capita per year in recurrent costs, mainly due to the need to develop a new disposal site much further out o f metropolitan Lagos. To address the service level needs projected for 10 years from now, total costs are expected to reach about US$lOO million annually. Inprinciple, collection services in the solid waste sub-sector can be profitable through user fees, but transfer and disposal often require financial support from the government. 65. Cost recovery and sustuinubility. Both capital needs as well as the concomitant recurrent cost needs to sustain services from investments in Lagos are high. Inthe economic infrastructure sectors, IDA is already supporting LASG in the roadtransport and water sectors. Recurrent cost implications o f these ongoing and proposed large investments on the budget o f the State and LGs, especially for those investments that are public goods, and for which cost recovery through user charges is not an option, i s a significant issue. Hard choices will be necessary, on boththe revenue and expenditure side. Most well-managed cities do not have the resources for capital works after asset O&M expenditures. Credit-worthy cities resort to borrowing from domestic or foreign lenders while others have to rely on donor aid, which is difficult to get for cities unwilling to undertake tough reforms. InLagos, establishing basic systems for the collection o f user charges and local taxation is a substantial challenge that will need to be addressed to link cost recovery to sustainable service delivery in the years to come. Aggressive efforts to sustain services from investments that are public goods will require allocations from general revenues for the recurrent costs o f O&M to sustain benefits o f capital investments. In most well managed cities, property taxes constitute a substantial share o f the IGR. This i s not the case in Lagos. In2000, for example, actual collections from tenement rates was only 1 percent o f IGR (US$2.3 million), against the potential from this source at that time, of 13 percent (US$30.0 potential). InRio de Janeiro, for example, property taxes are the second largest source o f revenue and constitute 29 percent o f IGR; 25 percent o f the revenues of the Mumbai Municipal Corporation are derived from property taxes; in U S cities, property taxes account for as muchas 75 percent o f internally generated revenues. 66. Attempt to reform property taxation in Lagos. In 1997, Lagos collected less than 5 percent of billable land related revenues, LGs less than 25 percent. By 2000 the LGs were collecting less than 8 percent, with much lost through "leakage" due to poor financial controls. To increase its IGR, simplify the existing complex regime o f taxes and levies related to land and building that 22 essentially constitute property taxes, and move the process o f this taxation outside the influence of Government personnel, LASG passed the Land Use Charge (LUC) Law in 2001. The LUC Law (#11) consolidated all property and landbasedrates andchargespayable under the LandRatesLaw, the NeighborhoodImprovement Charge Law, and the Tenement Rates Law34inLagos, into a Land Based Charge, called property Land Use Charge (LUC). The State promised LGs that they would receive from the L U C five times the tenementrates collectedbythe LGs in 1999, i.e. Naira 1billion against the collectionofNaira 0.2 billion. 67. LUC collections, however, did not materialize. The introduction o f the LUC led to protracted negotiations with commercial property owners inthe Organized Private Sector (OPS), as it started out being levied largely on commercial properties, and was not, at the time of its introduction, applicable to all properties in all LGs o f Lagos. Only 4 percent o f the ratable properties, or 10,000 o f the 250,000 ratable properties were covered by the LUC. The resulting impasse between LASG and the OPS led to LASG agreeing that the LUC would not be reviewed for 7 years, i.e. till 2008. The properties that are not covered under the LUC have tenement rates leviedby their respective LGs. It seems that the demarcation ofproperties falling under LUC is not very clear: although LASGsends a list o f properties on which LUC has been collected, there i s no formal split of the State's valuation roll which defines the properties for LUC and tenement rates respectively. This has undermined the tenement rate system in Lagos. In the meantime, LASG's Valuation Office has brought all valuation rolls up-to-date. LGs could levy rates inconsonancewith the rates being applied under the LUC - 0.375 Naira for commercial properties and 0.125 Naira for other properties, The introduction of the LUC, and the process o f its implementation, has reduced the potentialyield from this revenue source for bothLGs andLASG. 68. State and Local Governance. The sections above highlight the tremendous challenges that LASG faces in terms of the provision of adequate infrastructure and service delivery. The Government recognizes that while increasing the volume o f spending for new investments, maintenance, and operating costs is necessary, this must be accompanied by substantive policy and institutional reforms in the management o f the State economy, from planning and budgeting, to execution, monitoring and ex-post evaluation of development activities. More generally, advancing the governance reform agenda in Lagos i s critical for the provision o f basic services to the population. 69. Nigeria's 1999 Constitution gave increased responsibilities to sub-national governments in the delivery o f economic and social services. However, because o f areas o f concurrent responsibilities, there continues to be confbsion and often intense debate over which tier of government, Federal or State, i s best placed to deal with various areas o f policy, and what implications resolution o fthis would have on resource sharing. Additionally, while the functions of the LGs are indicated in the Fourth Schedule o f the Constitution, LGs can exercise their responsibilities only in accordance with enabling legislation passed by the States. This built-in State oversight and control over LGshas also generateddifferent interpretations o f the Constitution regardingthe number, organization and functioning of LGs inthe States, including inLagos where it was felt that the high density of an urban population would justify a larger number of administrative districts thanthe twenty LGs listedinthe Constitution. 34States inNigeria are entitled to GroundRents or Neighborhood Improvement Charges. LGs are entitled to collect Tenement Rates. 23 70. Directly related to the reading of the Constitution, there i s the issue o f resource allocation from the FA, the pool into which oil and all VAT revenues are paidprior to distributionto the three tiers o f government. Under the current formula, the Federal Government receives 54.68 percent, State governments 24.70 percent, and LGs 20.62 percent o f distributable proceeds. Inaddition, oil producing States receive an additional "derivation" allocation. Due to this automatic passageof oil revenues to States, fluctuations in international oil prices have resulted in large swings in State finances, leadingto irregular volumes of spendingfor infrastructure maintenance and social services over the years. Despite LASG's stronger capacity to generate IGR compared to other states of Nigeria, Lagos has to rely on transfers from the FA, and remains vulnerable to oil revenue fluctuations (refer Annex 9). 71. An important governance feature specific to Lagos is that it is a quasi city-state because of its limited land area and urbanization characteristics. Unlike most large metropolitan cities around the world, Lagos does not benefit from a municipal administration entirely devoted to responding to the needs o f a city. It is managedbythe State administration through the State budget andthe State civil service and parastatals. As a consequence, policy and institutional reforms necessary to improve the provision of economic infrastructure and social serviceshave to be implemented at the State government levelwith appropriate accompanying measures inLGs. 72. Untilrecently, public finance managementinLagos, as inother statesofNigeria, haslargely followed the traditional model of incremental annual budgeting, driven by stated needs o f MDAs, regardless o f credible revenue potential. As a result, budgets have remained unrealistic with large discrepanciesbetween budgeted amounts andperformance on both the revenue and the expenditure sides. The cash budget has tended to supplant the statutory approved appropriated budget. In addition, manual or semi-automated operating systems have caused weak expenditure controls, and delays inthe production of annual accounts and statutory audit reports. 73. Ina number of States, this situation has started to change since Nigeriareturned to civilian andmultiparty rule in 1999. InLagos, three major reforms have beenundertaken: (i) Electronic the Banking System of Revenue Collection and Monitoring (EBS-RCM); (ii) introduction of a the computerized integrated financial management system (IFMIS) which has enabled the clearing o f backlog in the production o f State accounts, the elimination o f fictitious names from payroll, and timely budget preparation since 2003; (iii) the modernization o f the landregistry and record and system, a key element both for proper land management as well as for Wher improvements in revenue mobilization from landrelated taxes. Inaddition, initial steps have been taken to improve the preparation o f the budget, including a clearer budget calendar, the sensitization of staff in the central and sector ministries to the principles o f medium term expenditure framework (MTEF) which Lagos has decided to apply to budgeting. The Bank's dialogue with Lagos on Public Finance Management (PFM) issues was intensified in the context o f the preparation and discussion o f the State Financial Accountability Assessment (SFAA) and the State Procurement Assessment Report (SPAR) in2003/2004. 74. Inspite of the above, much remains to be done to ensure that the management of financial resources meets the requirements of fiscal stability, proper planning and resource allocation according to credibly articulated development priorities, and effective actual spending. The legacy of incremental dual budgeting driven by the level o f resources from the FA on the one hand and 24 constrained by a large wage bill on the other, is still affecting PFMinLagos adversely. Inaddition, revenue uncertainty resulting from fluctuations in transfers from the FA, tend to consolidate the practice o f "cash budgeting" with a non-transparent re-making o f a legally approved budget. The implications are particularly severe for the maintenance and development o f economic and social infrastructure. 75. Inadditionto supporting PFMreforms atthe State levelandinselectedLGs, theProjectwill help reinforce the capacity o f LASGinpolicy analysis and service delivery monitoring, inorder to enhance the productivity of firms andhouseholds inthe metropolitanarea. 25 Annex 2: Major RelatedProjectsFinancedby the Bankand/or other Agencies NIGERIA: LagosMetropolitanDevelopmentandGovernanceProject Sustainability ID Impact Uncertain Modest Likely Modest 2431) Public Sector Management Unsatisfactory Likely Negligible Adjustment InfrastructureDevelopment Unsatisfactory Unlikely Modest FundProject (Ln.2925) Lagos Drainage and Sanitation Satisfactory Unlikely Modest Project (Cr. 2517) Oyo StateUrbanProject (Ln. Unsatisfactory Unlikely Modest 2719; Cr. 3238) Latest Supervision (ISR) Ratings OngoingProjects Outcome Sustainability IDImpact Implementation Development Progress (IP) Objective (DO) Lagos Urban Transport Project Moderately Moderately Likely (Cr. 3720) Satisfactorv Satisfactorv SecondNational UrbanWater Satisfactory Satisfactory Likely Sector Reform Project (Cr. 4086) Community-BasedUrban Moderately Unsatisfactory Unlikely Development Project (Cr. Unsatisfactory 26 Annex 3: ResultsFrameworkandMonitoring NIGERIA: LagosMetropolitanDevelopmentandGovernanceProject ResultsFramework PDO OutcomeIndicators Use ofOutcomeInformation To increase sustainable access to 1. Increase inthe percentage of 1. To draw lessonsto improve basic services through investments population with access to safe institutional performance in incriticalurbaninfrastructure. water inselected slums. delivering services. 2. Reduction inthe percentage o f households reporting flooding 2. LASGuses informationto inthe LGswhere the selected report back to citizens on drainage basins lie. government performance. 3. Increase inthe percentage o f generatedgarbage inLagos that arrives for disposal at the landfills. 4. Percentageo fhouseholds with tarred roads infront o f their house inthe 9 selected slums. IntermediateResults ResultsIndicatorsfor Each Use ofResultsMonitoring Oneper Component Component PartA: INFRASTRUCTURE ComponentOne: Upgrading ComponentOne: ComponentOne: infrastructure in 9 slums Assess andplan for a city-wide 1.1. The number o fkilometers o f Households reporting access to upgrading program for slums in new roads paved inthe 9 slums. tarred roads in9 slums. Lagos. 1.2. The number o fnew boreholes in Households reporting access to the 9 selected slums. water boreholes. Component Two:Drainage ComponentTwo : ComponentTwo: 2.1. Kilometers o f drains cleaned in % Households reporting reduced Evaluate effectiveness o f drain Eastern Lagos. flooding o f streets inthe rehabilitation program at EOP. metropolitan area35. 2.2. Kilometers o f drains %Households reporting in-house rehabilitated andreconstructed inthe flooding inAjeromi Ifelodun and two selected drainage channels. Mainland L G s ~ ~ . ComponentThree:Solid Waste ComponentThree: ComponentThree: 3.1 Collection: Percentage increase Increase inamount o f refuse Evaluate the efficiency o f the refuse ingarbagecollectedbyPSP deposited inthe land fill sites37. collection system. operators managedby LAWMA. 3.2. Transfer Stations: Percentage o f garbage piles inmetropolitan Lagos, removed. 3.3. Landfill:Percentage of solid waste disposed inmanagedlandfills. 3543% of the householdsinthe metropolitanareareportedflooding oftheir streets in2005. 3625% and 33% ofthehouseholdsin Ajeromi Ifelodun andMainland LGsreportedflooding insidetheir homes in2005. 37Wastebroughtto disposal sites inLagos estimatedto be2500tons per day in2006 (IDA'SAppraisalestimates) 27 PublicGovernance& Capacity ComponentFour Component Four Component Four 4.1. M&E: Strengthened Collection o f information, analysis, Regularpublicationand performance monitoring systemin andreporting on outcomes o fkey dissemination o fdata and LASG. LASGprograms. performance monitoring results and their use inpolicy formulation. 4.2. Public Finance Management Percentageo fbudget allocations to Annual report upon approval o fthe Reforms Ministries o f Works, Environment, budgetby SHoA. Health, Education, Physical Planning. 4.3. Increased credibility of the %o fdeviation o factual revenue and Annual report upontransmissiono f budget spending from approvedbudget State annual accounts to the Auditor aggregatefigures. General. %deviation o factual spendingfrom approved budget allocations in infrastructure sectors. 4.4. Introductiono f multi-year Establishment ofmedium-term Semi-annual reports byMEPB perspective infiscal planning, fiscal plan andinstitutionalization o f widely circulated withinthe LAS expenditure policy andbudgeting. multi-yearbudgeting as akey administration. element o f LASG's MTEF, and preparation o fmedium-term expenditure programs inselected MDAs. 4.5. Deployment and effective Rolling out the system to the Semi-annual reports by MEPB utilization o fthe computerized selected MDAs, andestablishment widely within LASG's IFMIS. o f a full disaster recovery center. administration. 28 P a .L b cC .L aC E c(1 g LL 6 o\ cc e2 eE: e0c 3 ac 2$I I I2 II s 2 0 el el 0m 3 0W s g 0 0 0 0 0 d E m 3 7 P 3 m 0 Y Annex 4: Detailed Project Description NIGERIA: Lagos Metropolitan DevelopmentandGovernance Project 76. The Project's objective i s to increase sustainable access to basic urbanservices through investments incritical infrastructure. The Project includes the following three components: A: Infrastructure: US$165.35 million A (i): Upgrading A (ii): Solid Waste A (iii): Drainage B: Public Governance: US$5.97million B fi): Public FinanceManagement Reform (US$3.97 million) B (ii): Economic Intelligence and ServiceDelivery Monitoring (US$l.70 million) B (iii): Leadership Enhancement (US$O.03 million) C: Urban Policy and Project Coordination: US$12.13 million A Project PreparationAdvance ofUS$1.04 millionwas made available. Contingencies inthe Project are US$15.49 million. A: Infrastructure: US$l65.35 million 77. The objective ofthe support for infkastructureis to increase sustainableaccess to basic servicesthrough investments incritical basic infrastructure. This will be achieved through investments under three subcomponents: (i) urbanupgrading; (ii) drainage; and (iii) wastemanagement. solid A 1: Upgrading: US$40.15 million 78. Background. In 1983, with support from UNDP, Lagos identified 42 un-serviced or under-serviced settlements for upgrading covering about 1,622 hectares. Using some 36 indicators reflecting access to basic economic and social infrastructure services, the study ranked them in order of priority areas for intervention. A reassessment in 1995 under the IDA-supportedLagos Sanitation and Drainage Project (LSDP, CR2517) noted enormous growth in these areas since 1984 - annual population growth rates were estimated to be about 7.5 percent. The 1995 study modified the ranking criteria and methodology used in the earlier study, re-ranked the 42 blighted areas by adding a weighting factor for area andpopulation, andrecommendeda four year annual upgrading program for nine slums, with a pilot demonstration intervention inabout 25 hectares46o f Badia. 46 The Badia area was selected by the consultants as a "demonstration project", and a pilot was designed to provide water, sealedroads, secondarydrains, toilet blockscomplete with tiled showers, ahealth clinic, aprimary school, street lighting and solid waste disposal facilities. Implementationwas completed in 1999. An evaluation completed in 2002/03 highlightsthat roadsanddrainsprovidedby the projecthave beenvery beneficial for the communities, as have been the school and clinic. Other investments, however, for example those made in toilet blocks, street lighting and solid waste disposal facilities, which absorbed23% of the resources, have not been so beneficial. These investments were planned to satisfy needs of the communities as perceived by planners, but had not been demanded by the community. 32 79. Piloting and lessons learned. The LSDP supported the upgrading program for Badia to demonstrate the feasibility o f undertaking basic infrastructure interventions designed to allow greater coverage with limited resources. The pilot intervention demonstrated to the leadership in Lagos that significant improvements in people's lives are possible with small per capita investments, if done correctly. Subsequently in 2002, with support from the Norwegian Government, the Lagos Urban Renewal Authority (LASURA) undertook an impact evaluation study o f the intervention in Badia to draw lessons for future interventions inupgrading. The key lessonslearnedwere: (i)Designingdemandresponsiveupgradingproposalsshouldbea keyobjectivefor upgrading. Communicating and ensuring a common understanding o f "demand responsive" design among state agencies, LGs and consultants i s essential. Without this, decision-makers usually prepare and implement proposals based on perceived needs, undermining the likelihood of using limited and ever shrinking public resources inthe most effective and sustainablemanner. (ii)Institutingaworkculturethat systematically aimstodevelopdemandresponsive approachesto public investments inupgrading may require an incentive andreward mechanism built into the program's design. If the human resource needs for designing demand-responsive upgrading proposals is underestimated and inadequately funded, upgrading objectives are not likelyto bemet. (iii)Project teams that prepareupgrading proposals for the blightedareas will be ineffective in facilitating sustainable investments in the absence o f appropriate power-sharing in the decision-making process from the LGs and community representatives designatedby the community. (iv) Since the design, implementation and management of an upgrading program requires a different skillmix thanthat neededina traditionalpublic works executing agency, LASURA will need to enhance its capacityfor multi-disciplinary work by buildingteamwork and capacity among Local Government Authority Community Development Officers and a group o f LASURA staff inthe "External Intervention" Department who have participated in the consultant studies that defined this component. Technical assistance will be brought aboard to increase the cohesion, training and effectiveness o fthis team. (v) Given the different hierarchies of agencies and actors that will be involved in upgrading, an organizational and behavioral culture must be instituted that fosters open, transparent and fearless communication, intensively sharing information among themselves and, above all, with the communities beingaffected. (vi) Effective supervision to ensure the technical quality o f works is incompliance with technical specifications is criticalto enable investments to yieldbenefits. 80. The evaluation of the demonstration Project seems to have been instrumental in making the leadership aware of the significant potential for poverty reduction and environmental improvements that exists with upgrading. The State's request to IDA for support to develop a city-wide program for upgrading i s the result o f this demonstration andthe thinkingthat followed. 33 81. Characteristics of the selected slums. Nine o f the largest of the 42 identifiedslums have been selected for support under LMDGP. With Norwegian support, LASURA undertook a quantitative assessment o f socio-economic characteristics o f the slums, and o f community priorities. A sample survey o f 1,164 households in these nine areas highlighted the following key socio-economic andphysical characteristics, and identified community priorities for upgrading: i)Thetotalpopulationoftheninesettlementswasestimatedtohavegrownbysome65 percent over the seven year period between 1995-2002, at an average annual rate of almost 8 percent.47 ii)Of a total estimatedpopulation of 945,000 in2002, there were some 158,000 households, giving an average household size of six persons. O f these households, 65 percent were tenants; 82 percent share bathroom facilities; 65 percent share cooking facilities. The average dwellingsize was a single room. iii)Theaveragemonthlyexpenditureofthehouseholdsintheseslumswas16,092Naira (US$123) while the self-reported average household income was 22,164 Naira (US$170), just under US$1 per day per person. Almost 20 percent of a household's monthly expenditure was on transport. Housing represented 6 percent o f expenditures, education 12percent, health 6 percent, food 52 percent, and energy 6.5 percent. The resources spent on each o f these items seemed consistent across slums, though spending on education showed significant variation. iv) A simultaneous assessment of existing community expenditure andthe willingness to pay for services indicates that communities spent a considerable share o f their income on basic services, andwould be willing to pay for improved services, providing a good basis for designing service provision and cost recovery programs. This includes water, solid waste removal, neighborhood security andupgrades ineducation. v) Only 32 percent ofthe householdswere servedbytarredroads. vi) Fifty-seven percent ofhouseholds experienced flooding intheir streets andcourtyards during the rainy season, while some 32 percent experienced flooding inside their house. Of the latter, about 36 percent experienced ankle-deep flooding, 52 percent experience knee-deep water, and 13 percent say the floods get waist-deep. Flood waters are a black mix ofrun-off, overflowing sewagefrom backed-up drains, and swampwater. vii) Sixty-five percent ofhouseholds were dependent on water vendors for their supplies, while 25 percent were dependent on boreholes. 5 percent had access to a public standpipe, 4 percent to a standpipe in the yard, and only 1percent had a direct house connection. viii) Fifty percent o f households had access to pit latrines only, while 36 percent were dependent onpour flush toilets. Only 7 percent had access to a WC connected to a septic tank, andanother 6 percent hadno toilet facilities. ix) Sixty-eight percent of households were dependent on a private truck pusher for disposal services, while 19 percent dumped their garbage inthe street and 18 dumped it 47March2004 Staffestimatesbasedon LASURA studyby StovelandConsultants,2002. 34 insome open area. Only 1percent had access to a community binor a binoutside their house. x) An average of 84 percent of households had electricity services in their house, but only 5 percent indicatedthat the servicewas reliable. xi) Drainage, by far, was thehighestpriority for most communities, followedbyroads. 82. Consultative Planning Process. AAer the surveys, with additional support from the Norwegian Government, LASURA undertook preparation for upgrading the nine surveyed slums. Applying the lessons from Badia, and with a view to building the capacity o f State and LG agency staff in consultative planning, an intense participatory process to identify community needs and priorities was undertaken. To elicit demand from communities, a lanning figure o f US$30,000 per hectare, derived from upgrading experience inNigeria8 and elsewhere, was used to enable communities to choose which 3 investments would be included in subprojects for their area. Communities were also confronted with capital cost contributions and O&M implications for different infrastructure and service levels, presentedto them graphically through pictures andbase maps. This iterative process was hrther informed by a quantitative assessment of priorities, which also established a baseline for monitoring impacts. LG engineers and planners then turned the community's list of demands into coherent plans. These plans were shared with the State, LGs, and the communities to ensure that a clear and shared understanding exists amongst all the stakeholders on the following: (i)what budget portion for on-site improvements will finance different sectors o f investment; (ii) the expectedlevel of service from each sector; (iii) recovery levels andmechanisms; (iv) cost how the process of implementation will bemanaged; and (v) the roles andresponsibilities ofthe actors involved. 83. A total of 83 stakeholder consultative meetings, 19community levelmeetings, 16 working sessions with LGs, and two urban forums in addition to meetings with senior State officials were heldbefore the subproject proposals were finalized. These proposals reflect a compromise between community preferences, feasible options in terms of availability o f land and financial constraints, and, importantly, the adoption o f standards that exist in areas contiguous to the slum area, i.e. the LG standards. Multisectoral investmentpackagesinclude: streets, footpaths, foot bridgesandwalkways; water supply; drainage; schools; health centers; public sanitation facilities; market stalls; electricity transformers; street lighting; community centers; postal stations; fish smoking facilities; a floating jetty with petrol station for fishingboats; andbox culverts. 84. The subprojects for each slum will be reconfirmed prior to preparation of final engineeringandbid documents. Giventhe need for proper engineering and the variation 48 Nigeriahas a longhistoryof implementingurban upgradingprojects. The Bauchi State UrbanProject(1978-1983) financed investments in roads, water, drainage, street lighting in neighborhoods, incremental housing improvements and solid waste management in two cities of the State. The Community ImprovementProgramunder the Oyo State Urban Project (1992-1996) financed roads, drains, solid waste management, school and health center buildings, and rehabilitated existing water lines. The Federal Ministry of Works and Housinghas undertakenthe implementationof pilot urban upgradingprojects in fourteen States, investing in the improvements of roads, drains, water supply and market improvement. 35 insoil conditions, andthe fact that the unit costs ofupgrading inBadiawas US$44,500 per hectare, a maximumplanning ceiling of this figure i s appropriate, except when soil conditions demand more for some construction. Infrastructure will be developed to appropriate standards within budget limits for the 760 hectares that the nine slums cover, to allow greater coverage with limited resources. A higher budget envelope than the planning figure, will enable adequate engineering and construction using high quality materials, thereby off-setting maintenance cost. Such an approach will enable sound estimation o f a city wide upgrading program, so that larger public sector investments are able to leverage incremental improvements over time. 85. Mechanisms to create social sustainability will be a vital aspect of the program, to ensure local ownership, take advantage o f the high energy in community associations, and build commitment to long-term conservation of constructed facilities so that the investments do not need to be repeated every few years and LASURA can go on to the upgrading o f the rest o f the city's slums. A seven-part social sustainability programwill support but also test what citizens can do to keep the government's investments through the Project operating properly and yielding benefits to the people they are intended to serve. Social sustainability will be built by (a) continuing the intensive program of consultations with broad public opinion in the nine slums; (b) publishing a Project newsletter that provides thorough Project communication from and to all parties; (c) enabling the communities to continue the process, begun duringpreparation, of selecting, reconfirming, and monitoring the within-slum investment programs, and providing labor for them; (d) adding voluntary contributions o f sub-project activities around the investments, by community "add-ons" including school materials, health programs, maintenance services, road furniture, and other elements; (e) competing through such add-ons for "bonus" subprojects based on the volume and quality o f their own "add-ons; (0generating "community report cards" ratingservice improvements inyears 4 and7 of the Project on a baseline survey in year 1; and (g) winning small grants for small community-oriented projects through an upgrading version o f what the World Bank does through "development marketplaces." 86. Objectives. Following up on initiatives already taken by LASURA, support for upgrading will buildLASURA'scapacity to develop, plan, and coordinate the execution of a city-wide upgrading program and ensure its sustainability. This component will finance the following: (i) US$37.67 million - Upgrading civil works (OS$34.245 million), design and supervision consultancy (US$3.425million): Upgrading o f nine selected slums that cover 760 hectares, are home to over 1.1million people, and come under the administrative boundaries o f 6 LGs. Infrastructure investments proposed by the community are as follows: Rehabilitation o f roads within existing right o f way: 44.8 km; 67 water boreholes; 11.4 km extension o f water distribution lines; rehabilitation o f 13 and construction o f 5 schools; rehabilitation of 4 and construction of 6 health centers; 54.4 km. o f street lighting; 13 public sanitation facilities with baths; upgrading o f 4 markets; and 13 electric transformers. For the communities on the lagoon, the Project will finance fish smoking facilities; walk bridge and walkways; fish storage cold rooms; jetty with petrol station; and fire 36 engine (on boat); and dredgingo f blocked drainage systems coordinated with the Office o fDrainage Services andthe drainage component. (ii) US$0.30 million - Support to 6 LGs: Assistance to LGs to adequately plan, execute andmonitor maintenance o f the settlements, prior to and after upgrading. This includes support to LG community development officers to liaise with the affected communities, CDAs, traditional leaders, and community based organizations. (iii) US$0.30 million - Technical assistance to LASURA including M&E to enable assessmento fupgrading needs and the financial and institutionalviability o f city- wide upgrading, using the updated satellite imagery being acquired; and to undertake monitoringand evaluation ofprocesses duringimplementation. (iv) US$O.O5million HIVAIDS awareness campaign will be delivered by the LGs on and around Project sites, coordinated and monitored by the PCU. The PCU will facilitate support from the State Action Committee on AIDS (SACA), and the Local Action Committee for Aids (LACA). (v) US$0.30 million - Technical Assistance to MPP&UD to undertake an urban design study on land, development density, growth and undertake land market analysis, to develop a strategy to accommodate population and firm growth, and policies for the prevention o f future slums. The study, closely coordinated with the planning study to be undertaken under the Lagos Urban Transport Project (LUTP), will undertake an in-depthassessment of the impacts of current landuse planningpractices, on moderate and low income groups. It will analyze indepth, the economic, environmental and social effects with respect to productivity and expansion o f firms, housing, transport, and infrastructure investment back-log. It will develop a medium term strategy to address deficiencies related to urban development, and identify stakeholder groups for specific measuresand activities, to addressthe challenges o f landmanagement facing Lagos, particularly given the finding from the two studies recently completed by MEPB: 80 percent of the businesses would wish to expand within Lagos, with only 11percent willing to relocate from Lagos; and 81 percent o f the households determined to stay where they are, even ifrents increase. (vi) US$1.25 million - Social Sustainability Program to increase ownership o f facilities constructed under the upgrading program, to manage the community processes described above, and to provide funds for six "extra" subprojects to be built in the nine slums as competitively earned awards for strong community programs of adding on soft additions (outreach, equipment, safety and health programs, management committee training, etc.) to the construction programs. It also includes support to LGs to provide small grants for the "development marketplace" program, to help monitor Project progress, to generate materials for Project newsletters, andto replicate actions withinother slums inthe same LGs. (vii) US$0.20 million - Training for Urban Upgrading: This will be used to complement the capacity building efforts being undertaken with technical assistance above. Appropriate training courses inNigeria and outside o f Nigeria 37 will be consideredinorder to better preparethe keytechnical andmanagerial staff of LASURA to hlfillthe objective oftheir Office. (viii) US$O.084million -Operating Costs A2: Drainage (US$61.38 million) 87. Background. At least three drainage master plans have been prepared over the past 30 years, that of 1974 covering the easternportion o f mainland Lagos, that o f 1988 covering Lagos Island, and that of 1999 covering the western parts o f Lagos mainland. Many of the recommendations of the 1974 and 1988 reports have been implemented through major civil works contracts over the years, thereby reducingthe effects o f heavy rains. 88. The total length of primary and secondary drainage channels on the Lagos mainland i s 118 kilometers, much o f which has been channeled over the past 30 years. The western side o f Lagos mainland i s where a lot o f new development is taking place, most o f the proposals for new construction of drainage infrastructure pertainto this area. These areas are typically reclaimed swamp and marsh areas and present major technical problems for providing good drainage o f the areas. The majority o f the population o f Lagos lives within the boundaries o f the 6 drainage basins within the Eastern sections o f the mainland. The primary areas o f flooding problems, affecting the most people, are in the Eastern sections o f the mainland as well. Floodingi s a persistent and costly problem in Lagos, and hndamental to improving environmental degradation and poor living conditions, particularly in the poor communities in low lying areas. Improved drainage services will benefit the bulk o f the population, primarily in old Lagos, estimated to be about 8 million. 89. Objectives. The Project will support the design and engineering o f a comprehensive program which would provide for the rehabilitation, reconstruction, new construction, and routine maintenance for the city-wide drainage network; develop a long-term technical solution to flooding; finance the highest priority civil works investments to mitigate flooding; and technical assistance to strengthen the ODS to sustainthe investments indrainage infrastructure. To achievethe above objectives, this component will finance the following activities: (9 US$3.0 million - First Year's Rehabilitation Program. During the first year of the Project, while the engineering designs are being developed, the cleaning and rehabilitation o f 25km to 30km of drainage channels directly impacting (downstream) some of the nine slum areas slated for upgradingwill be contracted out. Rehabilitation i s defined as restoring the originally designed cross sectional area and vertical alignment (slope) with the possibility o f improving the channel lining. (ii) US$20.0million-Deferred MaintenanceProgram. Thefirstyear's investment program will also include the commencement o f "deferred maintenance" contracts to clear the entire drainage network. Over the past few decades, inadequatemaintenance financing has been allocated to the Drainage Department 38 (now ODs) resultingin a huge backlog o f solids that now needs to be removed from the drainage network. Regardless o f how well functioning the original network may have been, this accumulation o f solids now decreases the hydraulic characteristics of the network exacerbating the flooding occurrences inparticular areas of the city. For these investments in the deferred maintenance clearing program to be justifiable and economically prudent, Lagos State must guarantee that annual budgets for the ODS will be consistently budgetedand allocated such that all drains in Lagos can be cleared at least once every 3 years. If this budgetary principle i s not strictly adhered to, the accumulations will build up again necessitating additional financially lumpy deferred maintenance budgets every 5-7 years. Incidences of flooding will continue to increase year by year if the annual maintenanceprogram i s not followed. (iii)US$30.0 million - Two Basins Comprehensive Rehabilitation/Reconstruction. The longer term solutions to the severe drainage problems will beginwith a fuller understanding and analysis of the hydraulics o f each o f the drainage basins which would then lead to the design of improvements in the drainage networks. This manner of analysis and design, followed by implementation of work would subsequently lead to a reduced incidence o f flooding in the areas where investments are made. At least two o f the six drainage basins on the eastern side of Lagos mainland will be analyzed in this detailed manner, mapped (using satellite imagery and GIS software), and hydraulically modeled to reveal the major constricting structures or channel characteristics which are impeding the peak drainage performance o f the network. In many cases, culverts have been constructed across drainage channels which have not been properly sized to accommodate the assumed storm events. The major investments in the rehabilitation and reconstruction o f the 2-3 basin networks will derive their rationale from this hydraulic modeling, and design revision will be made using the same software. Once 2-3 basins are successfully reconstructed at the key points inthe systems, the remaining basins can then be addressedwith additional financing. (iv) US$5.94million - Consultancy Services. Consultants will be hiredby LASG to (a) facilitate the design and supervision o f all civil works contracts under this component, (b) set up the GIS andhydraulic modeling/design o f the two drainage basins of focus, and (c) provide technical assistancewithin the Office of Drainage Services to build the technical and professional capacity within the Office for proactive mitigationagainst the risks o f flooding inthe future. (v) US$0.20 million - Demarcation (& Communication). As the longer term rehabilitation and reconstruction programmoves forward, there will be a need for communities to understand that for the sake o f the public good, some houses andor businesses would need to be relocated. This will be communicated through the LGs and the community leadership with clear and transparent demarcations o f the alignments o f the drainage works in question. All resettlement will be done in keeping with the approved resettlement policy framework. 39 (vi) US$0.20 million - Training. This will be used to complement the capacity buildingefforts to beundertakenwith technical assistancedescribed in(iv) above. Appropriate training courses inNigeria and outside of Nigeria will be considered in order to better prepare the key technical and managerial staff of the ODS to fulfillthe objective ofthat Office. (vii) US$O.O4 million - HIV/AIDS awareness campaign. ODS will execute an appropriate AIDS Information, Education and Communications Campaign along the drainage channels where construction i s to take place. The campaign will be conducted within the framework of activities determinedby the National Action Committee on AIDS (NACA) andthe StateAction Committee onAIDS (SACA). (viii) US$O.04 million - Operating Costs A 3: Solid WasteManagement (US$63.81million) 90. Background. The 1991 Edict related to solid waste management in Lagos provided for the establishment o f the Lagos State Waste Management Authority (LAWMA). Delegated by LGs to manage solid waste in LG areas, LAWMA was assigned the responsibility for all solid waste, including from industrial and commercial establishments. Over the years, there have been many ad-hoc interventions by the State Government, including limitedinvolvement o f the private sector inthe collection o f solid waste. Consequently, operational inefficiencies and a lack o f financial resources have reducedthe operational effectiveness o fthe service delivery. 91. As of May 2005, LASG appointed a new managementteam for LAWMA with a mandate to bringabout thorough improvements insector management and the delivery of solid waste services to the citizens o f Lagos. The overallgoal of solidwaste management inLagos is to improveuponthe deficiencies of the past andto collect, sort, anddispose of solid waste generated by all population groups, commercial, and industrial establishments in an environmentally and socially satisfactory manner using the most economically sustainable means available. The private sector has begun playing an increasingly significant role in the sector and LASG envisages an even greater role for the private sector to more effectively address the huge requirements o f the sector. Over the past 18 months LASG has given contracts to private firms to collect solid waste within a good portion of the city and along its major highways, and improvements in collection are visible. 92. Currently, Lagos generates between 4,000 tons to 6,000 tons o f waste per day. Forty-two percent o f the households have their garbage collected by the private operators appointed by the Government, and 39 percent by truck pushers or informal collectors, 11 percent dump their garbage in unauthorized areas, 4 percent dump it within their compound, 1 percent deposit it in garbage bins provided by the Government, and 3% report using "other" means.49About half the garbage collected in Lagos, arrives at the three official dumpsites. There are therefore huge piles o f solid waste building up within 492005 HouseholdSurveybythe Office o f Statistics,MEPB. 40 the city limits as can easily be seen when driving through the city. These piles are located where the proposed transfer stations will be designed andlocated. 93. Objective. LASG unbundled the sector by enabling private sector participation (PSP) in solid waste collection, to improve collection. The Project supports LASG to extend the PSP efforts to the transfer and disposal of solid waste, by tendering a design, build, and operate contract for the transfer anddisposalofthe solidwaste. The Project will support the following activities: US$4.0 million - Transfer Stations Construction (2 nos.). Currently there are no formal engineered transfer stations in the city, but rather transfer points (see the map in Annex 15). These transfer points are large mountains o f burning/ shouldering garbage which can be up to 10-15 meters high. This accumulated waste will be transported to the disposal sites as one o f the first efforts under this subcomponent. Adequately engineeredand constructed transfer stations will then be built on two of these sites. These two transfer stations will be managed and operated by'LAWMA directly. These will complement the other 2 transfer stations being constructed under the design, build, operate and transfer (DBOT) contract -see below. US$4.0 million - Upgrading of One Landfill. There are presently three landfills beingusedby Lagos. Two of these three sites will be upgraded ina manner that enables recycling of materials by both the formal and informal sectors - many low income people depend on the incomes they currently derive from the recycling o f materials under difficult and dangerous working conditions. This investment will complement the upgrading o f the largest landfill (Olushosun) under the DBOT contract. Upgrading o f these two sites to landfills will enable LAWMA to utilize these sites for an additional 10 years, giving it more time to develop longer-term disposal plans. The third site that i s currently beingusedas a landfillmaybe convertedto atransfer station. US$2.0 million - Clearance of the Backlog of Refuse Heaps in Lagos. What are now termed "transfer points" inLagos have turned into storage points resultingin large mountains o frefuse accumulating at some of these sites. These pose serious public health problems to the surrounding communities. This will be the first activity undertakenunder this component. US$l.25 million - Communal Transfer Depots. LAWMA has inplace, aprogram for constructing small transfer depots inslum areas where solid waste collectionis done by cart pushers or other local collection initiatives, and brought to a neighborhood or community transfer point. LAWMA is responsible for managing transfer o f this solid waste to the closest landfill. The Project will support the construction oftwenty five communal depots. US$42.0million - Design, Build, Operate, Contract. This is the foundation o fthis component, private sector S W M firms will bid on the design, construction, and operation of2 critical transfer stations and the Olushosun landfillfor aperiod O f4 years. 41 US$6.0million - Carbon Finance Works at Landfills. Inconjunction with the conventional upgrading of the landfills, the Project will support the capture of methane emitted by landfills, to be utilized as a source o f usable energy. The investments will include a landfill gas collection system with vertical wells, flaring equipment andelectricity generators. The majority ofthe collected gas will be combusted by the gas engine, whereas the remaining landfill gas will be combusted in the back-up flaring, where no energy recovery takes place, The producedelectricity will be sold to industryinthe vicinity o fthe landfill.The sold electricity will substitute electricity from fossil fie1 and thereby produce emissions reduction (ER). The produced electricity will displace electricity from local diesel generators and/or electricity from the public power grid. The stream o f income to LAWMA from carbon credits for a reduction o f green house gases, will contribute to financial sustainability ofthe sector. US$2.0 million - Rehabilitation of existing LAWMA SWM Vehicles. Inorder for LAWMA to operate inthe transitional phase o f the Project, i.e. before the design, build, and operate contract commences, there will be a need for LAWMA to operate with existing equipment. Much o f this equipment needs to be repaired. The Project will provide support during the transition, including leasing arrangementsfor equipment. US$1.47 million - Consultancy Services. The Project will support the consultancy costs of engineering design and supervision services to ensure adequate design and supervision, as well as the cost o f Technical assistance to LAWMA. US$0.20million - Training. The Project will support capacity buildingactivities for LAWMA, LASEPA, andMoE. US$0.42 million - Operating Costsfor the SWM Component. Operating costs for LAWMA. Public Governanceand CapacityBuilding: US$5.97million Under Part B of the Project, IDA will support key public finance management reforms, and the strengthening of state statistical systems. A Governance Technical Coordination Committee (GTCC), chaired by a Permanent Secretary level official o f the MEPB, has been established to facilitate the coordination o f activities under this component. B (i) Public Finance Management Reforms (US$3.97 million) 95. The Project will help the LASGcarry forward public finance management reforms infour areas including: (a): Updating Public FinanceLegislation (b): Consolidating the MTEFApproach (c): Improving Budget Execution and Treasury Management (d): Consolidating the IFMIS 42 (a) UpdatingPublicFinance Legislation (US$O.075 million) 96. Objectives. This sub-component will help (i) that public finance reforms ensure are built on solid regulatory foundations by supporting the State inupdating their organic public finance laws and financial regulations; (ii) enable a more predictable budget preparation and execution process, and higher standards of transparency and fiscal reporting; and (iii)provide an opportunity for L S to re-examine the roles and responsibilities of both line and central management agencies, the accountability o f vote holders, rules on debt and the creation of special hds, and the treasury functions of the Accountant-General. Activities will include: (i) Completing the review o f existing finance management legislations and regulations in light of the principles o f modem public financial management, and the expected roles, responsibilities, powers, functions and penalties of organizations andindividuals. (ii)Preparingmodernfinancemanagementlegislationsandregulations, including the drafting of an organic finance law and financial instructions. For consistency and cost effectiveness reasons, the development o f the modem financial legislation in LS will proceed in coordination with the work underway at the federal level andinseveral other states. Inparticular, the draft organic finance law will be designedto makeroom for any implications o f the Fiscal Responsibility Act to be adopted at the federal level that the state will deem warranted. (iii)Printingandwidedisseminationofthenewfinancelawsandregulations. (iv) Organizing a series of sensitization seminars on public finance reforms, both inside andoutside the public sector. (v) Preparing handbooks and training managers and staff on the new laws and regulations. This sub-component will be implemented under the technical coordination o f the MinistryofFinance. 97. Expected results/performance indicators. No later than two years following Project effectiveness, the LASG and the State House of Assembly (SHoA) will have enacted a new organic finance law. The law will cover budgeting, financial management, and control, to create a modem statutory framework which provides for accuracy, comprehensiveness, transparency, and accountability in the management o f public finances. A major effort to train staff and disseminate the new laws andregulations will have been made within and outside the public sector, and staff trained. Dissemination activities will include a minimumo f (i) two seminars for members o f the SHoA; (ii) four seminars for the business community; (iii) seminars for representatives o f civil two society organizations (CSOs); and (iv) three seminars for Local Government officials. 43 (b) Consolidating the Medium-Term Expenditure Framework Approach (US$O.47 million) 98. Objectives. The objectives of this sub-component are to (i)strengthen State Government capacity to make and implement budgets which are fiscally sustainable, adequately b d priority programs and eliminate wasteful spending, and (ii) increase LASG's ability to contribute to Nigeria's fiscal and monetary policy objectives. Inthis connection, when enacted, the fiscal responsibility law under preparation will require higher standards of fiscal management and transparency at the federal level. This, in turn, will mandate a corresponding improvement inbudget management capacity by the states. The Project will help LASG develop and institutionalize multi-year budgeting as a key element o f its budget cycle. This will include: Institutinga multi-year MTEF as the basis for annual budget preparation and execution, providing a three year perspective for aggregate revenue and expenditure, bothrecurrent andcapital. State fiscal objectives couldinclude (a) targets for the current account and overall fiscal balance; (b) debt to revenue ratio and sustainable debt service to revenue ratio; and (c) consistency of the budgetand financial managementpractices with the requirements of any fiscal responsibility law passed at the national and state levels. The first year o f the MTEF will present the elements of the annual budget to be adopted by the SHoA, and the MTEF will be published as part o f each year's budget documentation. It will provide indicative sectoral ceilings for the outer years to facilitate strategic planning inthe ministries. Efforts will be made to better integrate the preparation of the two parts o f the budget, recurrent and capital, and improve the capacity of Ministries Departments and Agencies (MDAs) to prepare sound sector strategies and development programs, and appropriately appraisedprojects. (ii)Requiringeight selectedpilot MDAsresponsible for economic andsocial infrastructure and services to produce medium term expenditure programs revised annually, formally adopted by the State Executive Council and presented to the SHoA (MOE, MpP&UD, MOW, Ministry of Transport, Ministry of Health, Ministry of Education, Ministry of Science and Technology, andthe Lands Bureau). (iii)Buildingthe necessarycapacity for MTEFvia thetrainingofanadequate group o f budget and finance staff from the central ministries and the line MDAs, and acquisition of necessary tools and techniques to enable the formulation o f improved policies, identification o f priorities, the setting o f fiscal objectives, and the development of revenue projections and costs estimates in a medium-term fiscal horizon. This includes the preparation of mediumterm expenditureprograms for selectedministries. (iv) Developing adequate annual call circulars, which indicate state priorities and annual expenditure ceilings for each ministry over the duration o f the MTEF, 44 and thereby encourage a process of budget restructuring as between the wage billandnon-wage O&M, andbetweencurrent andcapital spending. (v) Revisingabudgetpreparationcalendarto allow adequatetime for consultation on budget priorities and preparation and scrutiny of spending proposals in the context o f a three-year fiscal policyhorizon. (vi) Strengthening internal processesand the capacity of staff for the analysis and screening o f capital expenditure proposals. (vii) Organizingtraining for central ministries and managers and staff o f MDAs in budget preparation and execution, and sensitization seminars for members of the SHoA. 99. To facilitate the effective implementation o f this sub-component, LASG will benefit from the services of foreign andor local consultants who will provide the necessary guidance and training to the relevant teams inthe central and sector ministries. This component will be implementedunder the technical coordination o fthe MEPB. 100. Expected resultsberjormance indicators. (i) improved fiscal policy formulation andimplementation byinstitutingamediumterm budgetframework as partofthe regular economic management process; (ii) budget allocations that reflect the stated policy state priorities; (iii)robust medium term expenditure programs for selected ministries; (iv) better budget execution through more predictable cash releases, leading to more effective service delivery; and (v) improved state debt profile. Budgetsbasedon multi-yearMTEF will be presentedto the SHoA startingwith the 2008 budget. (4 ImprovingBudget Execution and Treasury Management: (US$O.075 million) 101. Objectives. This sub-component seeks to (i) a system of accounting that provide reflects accurately and in accordance with recognized accounting standards, the flow o f transactions and the year-end stock o f financial resources o f the State Government in a timely manner and serves as a key instrument inthe formulation and implementation of State Government policies; and (ii) reinstate effective expenditure controlby overhauling existing processes such as commitment controls andpayment authorizatiodapproval; and (iii) thecashmanagementsystemandprocedures. improve Activities will include: (i)Implant of a modern accounting and financial reporting system based on the StandardChart ofAccounts (SCoA) beingdeveloped for all the States by anational technical committee including representatives o f the states andthe FGN. The SCoA will be properly coded, and conceived with the capacity to reflect hctions, agencies, programs, anditems o f expenditure. (ii)Reviewofcurrentarrangements(intheoryandinpractice)andtheestablishmentof appropriate mechanisms andprocedures for effective expenditure control, including the preparation o f new operating manuals as needed. This will involve key aspects o f expenditure control: checking for budget appropriations; prior commitments; 45 verification for receipt o f goods and services; and improvement o f reporting formats. At the same time, in line with the principle of budget execution under a MTEF, an effort will be made to introduce budget execution procedures and processes which give more responsibilities to the pilot MDAs responsible for economic infrastructure and social services. (iii)Increaseinfiscaltransparency,including(i) improved reporting by MDAs to the MF and the MEBP on budget execution; (ii) publication by the MF/MBP o f aggregate budget implementation reports on a quarterly basis; and (iii) improved financial reporting on the transactions of the State Government as a whole, basedon formats for quarterly progress reporting and annual performance reporting in line with the requirements of the Federation Account Allocation Committee. The computerized financial information system described below i s designed to facilitate the preparation o f these reports. (iv) Improve cash management through (i)strengthening revenue and expenditure forecasting; (ii) implementation o f a cash management system based on quarterly cash plans, with monthly spending programs, that identifies and matches the flows of revenues with those of disbursements and provides explicit contingency plans; and (iii)a substantial reduction in a number of state bank accounts; and (iv) execution of appropriate training for central ministries and MDAs managers and staffon accounting standards,budgetexecution, andreporting. 102. To facilitate the effective implementation o f this sub-component, the LASGwill benefit from the services o f foreign and/or local consultants who will provide the necessary guidance and training to the relevant teams inthe central and sector ministries. This sub-component will be implemented under the technical coordination of the Office of the Accountant General (OAGS). 103. Expected results/performance indicators. An important result will be the availability o f timely and reliable financial information to assist the State Government in developing and implementing policy, assist the MDAs in the management of their portfolios, and support for the State Assembly in exercising its oversight responsibility. Other results will include more effective expenditure control, improved cash management, smoother execution o f Project and programs, especially in the priority infrastructure and social sectors, and reduced deviation between budgeted and executed levels o f expenditures. (d) Consolidating the Integrated Financial Management Information System: (US$3.35 million) 104. Objective. The objective o f this sub-component i s to support the deployment and effective utilization o f the IFMISwith the view to (i) the implementationo f the facilitate MTEF and the expenditure management and treasury reforms indicated in the components described above; and (ii) strengthen the capacity o f selectedMDAs to utilize modern work methods and business processing systems to enhance their efficiency in service delivery. By focusing on making the IFMIS hlly operational, the scope o f the 46 component is limitedto a subset of the wider program to be carried out under the next phase o fthe State Government's Global ComputerizationProject (GCP). Underthe leadership ofthe OAGS, the Project will supportthe following activities: A comprehensive reviewofthe implementation to dateto provide detailed advice on the completionofthe consolidation phaseofthe IFMIS. Final fimctional testing by the OAGS to ensure the full integration o f all the modules requiredto support financial management andreporting. Full implementation of the Consolidated Fund, the OAGS, Budget Office, Debt Management Office andMoF on the IFMIS. Establishment ofthe system control and administration functions inthe OAGS. Development o f a roll-out plan to all MDAs and establishment o f the implementation team inthe OAGS. Establishment ofbackup andrecovery systems. Short term advisors and consultants will provide technical support for the implementation of this sub-component and for formal independent review o f its achievements. 106. Expected results/performance indicators. A main outcome o f this component will be to provide LASG with an information system and technology infrastructure that supports the achievement o f its economic and financial policy objectives effectively, while meeting the requirement o f modem and transparent business processes in the management of public financial resources. Results to be monitored will include the completion o f the automation o f government financial systems, adoption o f best practice standards, efficient processing of transactions, improved control, and timely production of accurate state annual accounts and financialreporting. B(ii) Economic Intelligence and ServiceDelivery Monitoring (US$l.70 million) 107. Objective. Capitalizing on initiatives taken by the LASG over the last years, the Project will help institutionalize the monitoring o f economic performance and service deliveryinLASG. The PCUwill facilitate systematic dissemination o f the results to the public, to createdemandfor better service delivery. (a) Consolidating the$rms and household surveys initiative (US$l.10million) 108. The COS completed two sets of surveys in2005, fiom which baseline indicators are drawn at the metropolitan level: (i)a survey o f 4,000 businesses covering all sizes of firms and spectrums o f the economy; and (ii)a survey o f 6,000 households in the metropolitan area of Lagos, establishing a baseline for service delivery. The Project will support the COS in MEPB to (i) a monitoring and evaluation system that will design captureperformance o fLASG's programs, and (ii) implementationo fthis system. initiate To report on the selected service delivery indicators, the COS will update the information 47 necessary through additional household surveys in 2007, 2009, and 2011. This would allow tracking of changes in core public service delivery, including in sectors such as drainage andwaste managementthat are gettingdirect support underthe Project. The COS will undertake the following activities: (i)Surveyoffirms (US$0.25million): (i) Dissemination of the 2005 survey results o f economic activity inLagos, and (ii) arepeat ofthe survey in2008. (ii)Household survey (US$O.70million): (i) Dissemination of the 2005 household survey findings; (ii) desegregation o f findings by LG and the development o f poverty maps by LG; (iii) repeato fthe surveys in2007,2009, and2011. (iii)Designing the monitoring system (US$O.I5 million): (i) Developing a system of monitoring indicators for economic performance and service delivery; (ii) Adopting a new reporting format for MDAs on their performance; (iii) Publishing a state performance report to reflect progress towards the objectives o f the Lagos State Economic Empowerment andDevelopment Strategy (SEEDS). 109. Expected results/performance indicators. These two sets o f data collection, analysis and dissemination are expected to result in the development and periodic updating o f poverty maps usingnon-income measures o f poverty (lack o f access to basic economic infrastructure services such as water, electricity, sanitation, and access to health and education), and provide more robust analysis for policy making at State and LG levels. They will also help both levels o f government develop prioritizedlocationspecific interventions, and to monitor the impact o f their programs and expenditures. It i s expected that the first state performance report would be produced by 2008 and would contribute to the updateandrevisions o fLagos SEEDS andother strategic documents. (b) Enhancing economicperformance and service delivery monitoring (US$O. 60 million) 110. TheProject will support new initiativesof the LASGinits effort to better monitor economic performance andpublic service delivery including: (i)management, Computation ofa State GDP (US$0.20 million). To improve economic and budget LASG plans to pilot computation o f state level GDP as an integrated measure o f economic performance. This i s viewed as a comprehensive program, which aims at simultaneous improvement in quality o f various household and business surveys, upgrading in the quality o f information on public sector performance, and their integration. To that end, the COS will work in close coordination with the Federal Office of Statistics. (ii)Public expenditure tracking and impact analysis in selected sectors, such as education and health (US$0.20 million). The Project will help LASG to pilot expenditure tracking surveys in order to identify potential leakage of public fimds and respectively to inform management decisions on better budget targeting, reporting and accountability. This will be done incoordination with the MEPB and the MoF. 48 (iii)Improvedpublicaccesstoinformation onstate'sperformanceandservicedelivery (US$0.20 million). The Project will support LASG's efforts to strengthen its capacity for dissemination of results that are monitored. The Government is committed to expanding coverage o f the state web portal, and provide for a regular and timely web posting of key performance information, including the results of budget execution, results of various private and public sector surveys, and other relevant monitoringexercises. 111. The effectiveimplementationofthis sub-componentwill benefit from the services of foreign and local consultants who will provide the necessary guidance and lessons on best international practice in performance monitoring. The above activities will be coordinated with related federal initiatives to improve monitoring, such as Oversight of Public Expenditure underNEEDS (OPEN). 112. Performance indicators. The performance indicators for this sub-component will include (i)computation andpublicationo f the State's GDP; (ii) a tracking survey piloting in one of social sectors and subsequent incorporation of such surveys in the regular budget cycle; (iii) posting ofbudget execution and survey data with LASG's web regular portal, and (iv) expanded coverage o f the state portal, including information on government policy andperformance inkey social and infrastructure sectors. B (iii) Leadership EnhancementProgram: (US$0.30million) 113. The Project will finance leadership training programs designed for mixed cohorts, including managers and political appointees from the public sector, the business community, andthe civil society. C: Urban Policy andProject Coordination: US$12.13million This component will support the following activities: (i) Urban Policy (US$0.25 million). To support city-wide consultative forums around specific metropolitan growth and poverty related issues, the Project will support workshops focused on specific issues in consultation with the PSC and with prior clearance from IDA. Activities under this subcomponent could include research; symposiums; workshops; the sponsoring of, and participationin, learning events; hosting of technical specialists around specific issues; and participation and consultation needs that may arise duringimplementation. (ii) Communications (US$3.0 million). The objective o f the communications component i s to build stakeholder ownership of the Project, encourageparticipation and cooperation, and facilitate the building o f trust amongst stakeholders in the capacity o f the Project to positively impact their lives. Through informing and educating all stakeholders about the Project, its components, implementation processes and potential benefits to the residents o f Lagos, the component aims to promote good urban governance, accountability and transparency practices inLASGoperations, and motivate the replication and scaling up of activities in other areas o f the State. To achieve these objectives, the communications strategy will be refined and implemented by the PCU in partnership with the information and communications departments of the LASG. It is 49 designed to primarily address the Information, Education and Communications (IEC) needs o f LASG during preparation and implementation phases o f the Project. On a secondary level, the strategy also aims to address the internal needs o f LASG as it progresses its institutionalization of good governance and accountability in urban management (Annex 8). (iii) Conflict Resolution (USU.0 million). This component will support the timely preparation and execution of resettlement and rehabilitation action plans, and mitigation incompliance withtheResettlementPolicyFramework (RPF). (iv) Strengthening Citizens 'Mediation Centers (CMCs) and the Ofice of the Public Defender (OPD) (USU.50 million). Since the Project will utilize the services o f CMCs and may be the services of the OPD to support communities around Project areas, this component will support strengthening the capacity o f CMCs and OPD including the following: (a) capacity building for mediators and staff including development and facilitation o f training programs on, among other things, mediation, conflict resolution andresettlement issues; (b) carrying out public awarenessactivities for poor communities to informthemabout the services andavailability o f CMCs andthe OPD; (c) provisiono f office support including acquisition of books, materials, vehicles, office supplies and equipment; and (d) the rehabilitation o f office space, and the provision o f maintenance costs andoffice rent. (v) Monitoring & Evaluation TA (US$0.40million). The PCUwill be responsible for developing M&E systems ensuring that the Project results monitoring indicators are integrated into the monitoring and evaluation systems. The PCU will facilitate the production o f annualhemi-annual reports on activities under the LMDGP, which will provide the basis for the supervision review meetings. The report will consolidate the linkages between the financial reports, procurement reports, activity updates, outputs, and results. IDA will finance the services o f a locally recruited M&E Specialist for which a budgetprovisionof 36 person-months hasbeenmadeinthe Project. (vi) Operating Costs (US8I.68 million). This component will support the establishment and operation o f the PCU, including competitively recruiting a Project Director from the private sector, consultants for the duration o fthe Project, strengthening the PCU's capacity through the provision o f expertise in procurement, financial management, monitoring and evaluation as necessary, as well as inthe development and implementation of the IEC campaign. 50 Annex 5: Project Costs NIGERIA:LagosMetropolitan Developmentand GovernanceProject A. INFRASTRUCTURE I Urban UDslrading 40,154,000 10,589,000 29,565,000 CivilWorks 34,245,000 6,849,000 27,396,000 FAgege 2,430,000 486,000 1,944,000 bAjegunle 9,360,000 1,872,000 7,488,000 bAmukoko 1,845,000 369,000 1,476,000 bBadia 5,940,000 1,188,000 4,752,000 blwaya 3,105,000 621,000 2,484,000 WMakoko 3,240,000 648,000 2,592,000 bllaje 2,610,000 522,000 2,088,000 bBariga 2,880,000 576,000 2,304,000 bljeshatedo/ ltire 2,835,000 567,000 2,268,000 ConsultancyServices Design& Supervision - 4,075,000 3,100,000 975,000 bHIVAwareness Campaign 50,000 0 50,000 bDesign&Supervision 3,425,000 2,740,000 685,000 .Technical Assistance to LASURA 300,000 180,000 120,000 .Technical Assistance to MPP&UD 300,000 180,000 120,000 Social SustainabilityProgram 1,250,000 520,000 730,000 bTA to LASURA: Coordinationof OutreachTeam and M&E 350,000 210,000 140,000 b BonusUpgradingProjects(6)inYear4andYear 7 400,000 160,000 240,000 b DevelopmentMarketplaceAwards 300,000 150,000 150,000 b CommunityReportCards,TransparencyPromotion 200,000 0 200,000 Supportto Six Local Governments 300,000 60,000 240,000 Trainingfor Urban Upgrading 200,000 60,000 140,000 OperatingCosts for Upgrading 84,000 0 84,000 63,817,000 48,790,000 15,027,000 Civil Works 11,250,000 6,850,000 4,400,000 .Transfer Stations (2 nos) 4,000,000 2,400,000 1,600,000 .Upgrading of Landfill (1 nos) 4,000,000 2,400,000 1,600,000 .Clearance of Backlog of Refuse Heaps in Lagos 2,000,000 1,800,000 200,000 .Communal Depots (25 nos) 1,250,000 250,000 1,000,000 Design, Build,Operate Contractfor 2 TS + 1 Landfill 42,000,000 33,600,000 8,400,000 Carbon FinanceWorks at Landfills 6,000,000 5,400,000 600,000 Rehabilitationof SWM Vehicles & Critical New Vehicles 2,000,000 1,400,000 600,000 InstitutionalSupport Goods - 850,000 340,000 510,000 .LAWMA 500,000 200,000 300,000 bLASEPA 150,000 60,000 90,000 bMoE 200,000 80,000 120,000 ConsultancyServices 1,475,000 1,140,000 335,000 bHIVAwarenessCampaign 50,000 0 50,000 51 bDesign&Supervision 225,000 ,Technical Assistance to LAWMA `300;OOO 240,000 60,000 Training for SWM 200,000 60,000 140,000 Operating Costs for SWM 42,000 0 42,000 Drainage 61,382,000 47,580,000 13,802,000 Civil Works 53,000,000 41,800,000 I1,200,000 bFirstYear`s InvestmentProgram 3,000,000 1,800,000 1,200,000 bDeferredMaintenanceProgram 20,000,000 16,000,000 4,000,000 .Two Basins Rehabilitation/ Reconstruction 30,000,000 24,000,000 6,000,000 MechanicalEquipmentfor SWAT DrainageResponse 2,000,000 1,000,000 1,000,000 ConsultancyServices 5,940,000 4,720,000 1,220,000 bHIVAwareness Campaign 40,000 0 40,000 bModelingand Designofdrainagenetwork 300,000 240,000 60,000 bDesign&Supervision 5,300,000 4,240,000 1,060,000 .Technical Assistance for Officeof DrainageServices 300,000 240,000 60,000 Demarcation(aCommunications) 200,000 0 200,000 Training 200,000 60,000 140,000 Operating Costs for Drainage 42,000 0 42,000 COMPONENTS ` I * - > F a ~ I r i Public Finance MananementReforms 3,976,000 2,200,300 1,775,700 bUpdatingPublicFinanceLegislation 75,000 25,000 50,000 .Consolidating MTEFApproach 476,000 142,800 333,200 bImprovingBudgetExecutionandTreasury Management 75,000 22,500 52,500 .Consolidating the IFMlS 3,350,ooa 2,010,000 1,340,000 EconomicIntelligenceand ServiceDelivervMonitoring I,700,ooa 680,000 1,020,000 bFirmand HouseholdSurveys i,ioo,ooa 440,000 660,000 bEconomicPerformanceandServiceDeliveryMonitoring 600,ooa 240,ooa 360,000 Leadership EnhancementProgram 300,ooa I50,000 150,000 OperatingCostsfor Public Governanceand Capacity Building($90,000 for three sub-componentsin three accountsembeddedin figuresabove) 400,ooa 240,ooa 160,000 Urban PolicvDialogue 250,000 50,000 200,000 52 ."- -_--- -- Support to Conflict MediationCenters ~ ~ 1,500,000 53 Annex 6: ImplementationArrangements NIGERIA: LagosMetropolitanDevelopmentand GovernanceProject 114. Implementationperiod. The Project will be executed over aperiod o f sevenyears, from October 6,2006 to March29,2013. 115. Project Coordination and Implementation Arrangements. The Project coordination and implementationarrangements have been designedto: (i) StrengthenthecoalitionthatLASGhasdevelopedwiththeprivatesector andNGOsinrecent years, inthe formulationandimplementation ofdevelopment policies. (ii) Facilitatetheeffectivecoordinationofmetropolitanfunctionsandservice provider agencies from the public andthe private sectors. (iii) EmpowertheexistingMDAsfortheexecutionoftheProjectasopposed to creating parallel structures outside o f current government structures and provide methodological support, operational assistance, and staff skills development as necessary. (iv) Provide the appropriate balance between ensuring, on the one hand, effective Project implementation, coordination and monitoring o f Project activities; and on the other, management responsibility in the execution of the various sectoral activities with the respective executing MDAs. 116. The Project coordination arrangements will operate at three levels: a Project Steering Committee (PSC), aPCU andComponent ExecutingAgencies (CEAs). 117. Project Steering Committee (PSC). The Project will be overseen by a PSC chaired by the Governor o f Lagos (or hisher representative) in hisher capacity as the Chief Executive o f Lagos. The PSC will consist o f a balanced representation from the public and private sectors. Private sector members thus far include the Managing Director and Chief Executive o f a leading multinationalcompany, the ManagingDirector of a leading Pharmaceutical company, Head o f the Social and Economic Rights Action Center (SERAC), and the editor of a leading national newspaper. Members from the public sector include Commissioners o f principal ministries associated with the Project, one LG chairman elected to represent the six LGs involved in the slum upgrading component, and CEOs o f public utilities, and a member o f the SHoA. The PSC will be responsible for ensuring timely implementation o f LMDGP by the PCU and the CEAs. The PSC will convene quarterly to: (i) progress reports preparedby the PCU, and review clear the forwarding o f these reports to IDA with comments; (ii) annual work approve programs, budgets, and procurement plans; (iii) ex-post assess performance o f the PCU through review o f activity reports; (iv) proactively address critical issues that could hinder the implementation of the Project; (v) shield the PCU from undue political interference to ensure that the PCU i s empowered to perform; and (vi) support the PCU management in ensuring staff performance. The Director o f the PCU, described below, will act as the secretaryto the PSC. 54 118. The Project Coordination Unit. A PCU headed by a competitively recruited, qualified director from the private sector has been established under the Office o f the Executive Governor of Lagos. Other full time staff include a procurement specialist, an engineer, an upgrading specialist, a communications specialist, a M&E specialist, mapped focal staff for environmental and legal issues, and support staff with proficiency inIT, drawn from LASG's civil service or the privatesector as necessary. Ensuringthe effective implementation of the Project guided by the PSC, the PCU will be responsible for the overall Project, and serve as a resource and support unit for Component Execution Agencies (CEAs). The PCU will guide, support, and coordinate the activities to be carried out by the various CEAs under the different MDAs. Specific Project implementation tasks to be centralized in the PCU include work program development, procurement processing, budgeting and processing o f disbursements, facilitating urban policy consultations, communications, conflict resolution and reporting on Project activities. 119. The PCU will be responsible for: (i) technical management, including overall preparation o f engineeringdesigns and environmental impact assessments and mitigation plans; (ii) procurement and financial management; (ii)monitoring, evaluation and reportingonprogress; and (iii) coordination with CEAs. 120. LASG will make available suitable office facilities, office equipment and stationary for the proper functioning o f the PCU for the entire duration o f the Project. TheProject will assistwith fundingofthe operating costs ofProject implementation. 121. Component Executing Agencies (CEAs). The CEAs will have the primary responsibility for the execution o f the Project components and sub-components falling withintheir respective institutionalmandates, includingcarryingout day-to-day activities in line with LASG policies and works plans approved by the PSC. All the CEAs are existing agencies: LASURA (Urban Upgrading) in partnerships with LG Units (community development officer and engineer), LAWMA (Solid Waste Management), Office o f Drainage Services (Drainage), MEPB, MoF, Accountant General's Office (Public Governance and Capacity Building). Each CEA will identify a focal interlocutor o f its agency for the PCU, who will work closely with the PCU throughout the implementation period, attending meetings at the PCU as and when needed, and being responsible for (i) preparation o f work programs, procurement plans, budgets, and the submission of such programs and plans o f their components to the PCU for integration with the overall Project implementation plans; (ii)preparation and submission of quarterly progress reports to the PCU in a format agreed with the Project Director for their component; and (iii) more generally, ensuring the effective implementation o f the activities assignedto eachCEA, incollaboration with other relevant officers inthe LASG public sector. The CEAs will not have to create new structures for the implementation o f the Project but entrust that responsibility to existing departments and divisions according to their roles and functions within the organizational structure o f the CEA. The strengtheningofthe institutionalcapacity o f the CEAs will be supported inthe context o f Project execution through the provision of technical assistance, consultancy services and stafftraining, as necessary. 55 122. Special Implementation arrangements. The Project provides for special implementationarrangementsfor the UrbanUpgrading component and activities under the Public Governance and Capacity Buildingcomponents. a) Urban Upgrading and Local Government administration. Six LGs are home to the nine slums selected for upgrading. Each LG will designate an Engineer and a Community Development Officer to be the core technical interlocutors for the implementation of the upgrading programs to be executed by LASURA. LASURA will work with the core technical interlocutors and liaise with community development associations and traditional leadership. The objective will be to facilitate the full ownership of work programs and investments by the community . b) Coordination of Public Governance and Capacity Building activities. To ensure proper coordination o f public governance reforms targeted by the Project, the MEPB will have the overall responsibility o f executing the Governance component, and chair a Governance Technical Coordination Committee (GTCC) where all agencies involved in the implementation o f the component will be represented. To facilitate the work o f the GTCC andthe day-to-day monitoringof Project activities, an official of the rank of a Permanent Secretary inMEPB will be designated as the Coordinator for the Governance component. He/she will be assistedby a full time economistloperations officer and support staffas needed. 123. Financing. The total Project cost i s US$200.00 million o fwhich IDAwill finance 100 percent o f all costs, except local goods, o f which LASGwill pay 5 percent and IDA 95 percent. LASG's contributionrepresents 0.125 percent o f the total Project cost. These counterpart funds will be paid once a year to cover LASG contributions for a period o f twelve months. IDA credit proceeds will be on-lent by the Federal Government of Nigeriato the Lagos State Government under a Subsidiary Credit Agreement betweenthe two tiers o f government, with terms and conditions acceptableto IDA. 124. Monitoring and Evaluation. M&E procedures and reports are described in SectionC.2, Implementation, Monitoring andEvaluationo f Outcomeshtesults. 125. Project Implementation Manual (PIM). A detailed PIM has been prepared by LASG, and it will be finalizedby June 30, 2006. It will be updated from time to time in agreementwith IDAto guide execution o f eachcomponent andthe implementation o fthe Project as a whole. The PIM has set forth all operational and procedural steps regarding reviews and approvals o f specific activities, flow o f information, detailed description of the functions of Project management and implementing bodies, procurement and FM arrangements, reporting requirements, andprocedures for amendment to the PIM. 126. Procurement Arrangements. All goods, works and services financed under the Credit would be procured in accordance with appropriate IDA procurement Guidelines. IDA'SStandard Bidding Document for Goods and Works, and Standard Request for Proposals for Consultants as well as standard evaluation forms will be used throughout Project implementation. Although the staff member from LASG assigned to the PCU as 56 the Procurement Officer for LMDGPhas prior experience with procurement under IDA- supported projects, the Project will engage an engineering consultant firm with an experienced team member as a Procurement Specialist. The engineering consultant firm i s required to provide continuous procurement training to all staff o f the PCU, and support all procurement activities under LMDGP. The PCU will be equipped with the "Client Connection" soflware and accessibility, to allow for streamlined procurement and disbursement procedures. 127. Financial Management (FM) Arrangements. FM services for LMDGP will be provided by the PFMU established under the Accountant General's Office inMinistry of Finance. The Lagos PFMU will deploy a hll Project FM team to the PCU offices to undertake the FMresponsibilities requiredduringimplementation o f the Project, interms of an agreed Memorandum o f Financial Management Services (to be agreed before Project effectiveness) and further supported by a FM procedure manual, which will specify in sufficient detail the operational procedures, controls and sanctions to ensure effective and efficient FM for LMDGP. The Head of the deployed Project FMteam will report primarilyto the LMDGPProject Director andwill be authorized to countersign (as one of two PFMU signatories) with the Project Director, approved payments. The FM staffing requirement will be revisited as the need arises. The PFMUperformance will be reviewed after six months o f Project effectiveness. 128. Engineering Design Services and execution of Works. The detailed engineering designs for works will be carried out by private consultants based on detailed terms o f reference, and works will be contracted out, based on detailed technical specifications, to private contractors. 57 Annex 7: FinancialManagementandDisbursementArrangements NIGERIA:LagosMetropolitanDevelopmentandGovernanceProject Summary of the Financial Management Assessment 129. Objective of the FM System. The Financial Management System (FMS) will support the PCU in deploying Project resources to produce required outputs, with due attention to economy, efficiency and effectiveness. It must be capable o f producing timely, understandable, relevant and reliable financial information to enable the implementing units to plan, coordinate, monitor and appraise the Project's overall progress towards achieving its objectives, while ensuringthat b d s provided will be used for their intended purposes. 130. Financial Management Arrangements. A Project Steering Committee (PSC) will be responsible for ensuring timely implementation o f LMDGP by the PCU, established under the Office of the Executive Governor o f Lagos State. The PCUwill be responsible for: (i)overall technical management, including preparation of engineering designs and environmental impact assessments and mitigation plans; (ii) procurement and financial management (FM); (iii)communications, monitoring, evaluation and reporting on progress; and (iv) coordination with component executing agencies (CEAs). 131. Lagos State Government Project Financial Management Unit (Lagos PFMU). The Lagos PFMUwill provide FMsupport services for the PCUinaccordance with the terms of an agreed Memorandum o f Financial Management Services to be entered into between Lagos PFMU and the PCU in form and substance satisfactory to IDA. This Memorandum will be supported by a Financial Management Procedure Manual which will specify in sufficient detail the operational procedures, controls and sanctions to ensure effective and efficient FMfor LMDGP. 132. Key accountabilities o f the Lagos PFMU are to ensure effective and efficient control systems (including internal auditing) for Project funds, budgeting, cash management, accounting, financial reporting and arranging external auditing as required by IDA. The PFMUwill deploy a full Project FMteam to the PCU offices to undertake related FM responsibilities required during Project implementation. They will support day-to-day financial operations as described in a FM procedure manual for the PCU in terms of budgeting, cash management, procurement, commitments, expenditures, and other transaction processing. The FMteam will carry out these responsibilities under the day-to-day supervision o f the Head the PCU. The FM team will additionally continue to report on human resources and professional matters to the Head o f the Lagos PFMU. The FMteam will provide financial reportingto the Headofthe PCUandthe Headof the Lagos PFMU. Financial reporting includes monthly reports for the PCU, quarterly Financial Monitoring Reports (FMRs) and annual financial statements for the Project. Internal audit services will also be provided by the Internal Audit Unit (IAU) of the Lagos PFMU. The IAUwill carry out a systematic review, appraisal and reportingo f the adequacy o f the systems o f managerial, financial, operational and budgetary control and their reliability in practice. All financial personnel will be sufficiently trained in Bank 58 procedures, computer applications and financial management skills. The performance o f the PFMUon ProjectFMwill be assessed after six months ofProject effectiveness. Risk Analysis 133. Inherent Risks. Recent diagnostic studies, including the Lagos State Financial Accountability Assessment (SFAA, March 2004), stated that the main elements o f government FM systems are present in Lagos State, as LASG has already taken significant steps to improve its FM systems. A computer based FM system has been procured and is being installed to improve the State's budgeting, accounting, and financial reporting arrangements. Procedures have been developed and implemented to improve the effectiveness of tax revenue collection and monitoring, and these efforts have begun to show marked results. Additional qualified FM staff have been recruited. Furthermore, accounts that were inarrears for several years under the Militaryhave been brought up to date. The SFAA noted however, that some critical aspects of FM such as weak financial accountability systems andthe risk that financial records do not present an accurate record of transactions still need to be addressed. Given such an environment, strong controls are necessary to prevent wrongful use o f public funds. Past FM arrangements that resulted in the proliferation o f designated accounts, stretched limited resources, inefficiency and ineffective control systems didnot counter the identifiedhigh inherent risk to public funds. After due consultations between the Bank and the Federal MinistryofFinance onthe onehand, andthe FederalMinistryofFinanceandthe SGs on the other, the Federal Ministry of Finance directed each State to establish a PFMUinthe Office of its Accountant-General. The PFMUs support centralized maintenance o f a designated account and other requiredbank accounts for every IDA-assisted Project, and provide FM services (cash management, fund requisitions, payment processing, accounting, internal control and audit and financial reporting) to each Project implementation unit, on the basis o f a Memorandum o fUnderstanding. This arrangement can be regarded as a form of country FM system in use. Inthe case of LMDGP, the Lagos PFMU will provide the required FM support services under the arrangements outlinedabove. 134. Control Risks. The overall control risk flom a FM perspective i s considered moderate; the high inherent risk i s offset by (a) the fact that the Lagos PFMU has a number of professionally qualified Project accountants and internal auditors who are trained in IDA procedures and have a good appreciation o f the use o f computers; (b) a more robust internal control system made possible by the PFMU arrangement, which allows for segregation of functions; and (c) sound financial procedures and systems in which the PFMUstaffhave beentrained. Financial Management Systems 135. Financial Procedures Manual (FPM). A generic FPMhas been preparedby IDA for Project FM units in Nigeria. This includes institutional arrangements; a general format o f chart o f accounts; adoption o f basic accounting procedures; planning and budgeting, including cash-flow management; procurement procedures for goods, works and services; disbursements; banking activities; staff, wages and salaries; fixed assets register; financial reporting, auditing; legal covenants and records management. This 59 FPM has recently being revised and updated by the Federal Ministry o f Finance. Amendments to this manual bythe Lagos PFMUto support issues specific to the Project, such as delegations, commitment control andauthorization procedures, chart o f accounts, FMR and formats for the Annual Financial Statements,will becompletedbyBoarddate. The FPM will form part of the Memorandum of Financial Management Services andbe agreedwith the PCU. Funds Flow andBanking Arrangements 136. The overall Project finding will be from the IDA Credit and government counterpart funding. IDA will disburse the Credit through a Designated Account, which will bemanagedbythe PFMU. 137. To facilitate disbursements for eligible expenditures for goods and services, the flow-of-fhds mechanism is designed on the following principles: (a) the PFMUcontrols, accounts and reports for all Project finds, as part of its FM services to the PCU; (b) bottlenecks in the use and transfer of finds are governed through an agreed Memorandum of Financial Management Services, supported by an adequate FPM; and (c) implementationtransparencyand accountability. 138. The following bank accounts willbe openedandmaintainedbythe PFMU: i)A Designated Account in US Dollars to which the initial deposit and replenishments from IDA will be remitted. The PFMU in consultation with the PCU will open a Designated Account (DA) in a commercial bank, acceptable to the Bank, to cover part o f IDA'Sshare o f eligible expenditures to be managed and administered by the PFMU. The total authorized allocation o f the Designated Account will beUS$15 million. ii)ACurrent(US$ Interest)AccountinabanktowhichinterestsontheDesignated Account will be credited. iii)ACurrent(Draw-down) AccountinNairainabanktowhichdraw-downsfrom the Designated Account will be credited once or twice per month in respect o f incurred eligible expenditures. Following the immediate payments in respect o f those eligible expenditures, the balance on this account shouldbe zero. iv) A Current (Project) Account inNaira ina bank to which Counterpart Fundswill be deposited. v) A Current (Naira Interest) Account in Naira in a bank to which interest on Counterpart Fundswill be credited. vi) Where needed, CEAs will maintain a Naira bank account that will cover the budgetedoperating costs for not more than a quarter related to their components. This will be run on an imprest (petty cash) basis requiring reporting o f actual expendituresto the PCUandPFMUprior to replenishment. 60 139. Detailed banking arrangements, including control procedures over all bank transactions (e.g. check signatories, transfers, etc.) will be documented by the PFMUin the FPM. All bank accounts will be reconciled with bank statements on a monthly basis by the PFMU. The bank reconciliation statements will be reviewed by designated officials, and identified differences will be expeditiously investigated. 140. LMDGP will also have an IDA Ledger Loan Account (based inWashington) in U S DollarslNairdSDR to keep track of draw-downs from the IDA credit. The account will show (a) deposits made into a bank by IDA, (b) drawn-downs by the Project, (c) direct payments by IDA, and (d) opening and closing balances. IDA will provide details of direct payments to the PFMU, to enable accuraterecording and reportingof all Project expensesto the PCU, PSC, FMFandIDA. Funds Flow Government Budget Project (Naira) Counterpart Funds NairaDraw m DownAccount Accounts DisbursementArrangements 141. By effectiveness, the Project will use the transaction-based disbursement procedures (as described in the World Bank Disbursement Handbook), i.e. direct payment, reimbursement, and special commitments. 142. The PFMUwill maintain a cumulative recordof draw-downs from the Credit that will be reconciled monthly with the DisbursementSummary provided by the Bank and the IDA Ledger Loan Account. The PFMU will be responsible for preparing and submitting Withdrawal Applications to IDA to replenish the Designated Account. The Withdrawal Applications will be supported by a bank statement and a reconciliation of the Designated Account, and other appropriate supporting documents for expenditures as may be required, until such time as the Recipient may choose to convert to report-based disbursements.Detaileddisbursement procedureswill bedocumentedinthe FPM. 143. To the extent possible, all o f IDA'Sshare of expenditures should be paid through the Designated Account and all disbursements will be channeled through the Designated Account. 61 144. When Projectimplementation begins, the quarterlyFMRsproducedbythe Project will be reviewed. Where the reports are adequateandproducedon a timely basis, andthe Recipient requests conversionto report-baseddisbursements,areviewwill be undertaken by the Task Team Leader (TTL) to determine if the Project is eligible. The adoption of report-based disbursements by the Project will enable it to move away from time- consuming voucher-by-voucher (transaction-based) disbursement methods to quarterly disbursements to the Project's Designated Account, based on FMRs. The format o f the quarterly FMR was discussed during negotiations and will be attached to the disbursement letter. Minimum Value of Applications 145. The minimum value of applications for reimbursement, direct payment and special commitment i s 20 percent of the balance inthe DesignatedAccount at the time o f application. Reporting on Use of Loan Proceeds 146. The supporting documentation for reporting eligible expenditures paid from the Designated Account and for reimbursements should be a summary report o f the Statement o f Expenditures (SOE), together with records evidencing eligible expenditures for payments against contracts valued at U S $ l million for works, US$500,000 for goods, US$200,000 for consulting firms, US$lOO,OOO for individual consultants, and a list o f payments against contracts that are subject to the IDA'Sprior review. All supporting documentation for SOEs will be retained at the PFMU and the PCU, and must be made available for review byperiodic IDA review missions and external auditors. 147. The supporting documentation for requests for direct payment should be records evidencing eligible expenditures (copies o freceipts, supplier's invoices, etc.). Counterpart Funding 148. The Government must make all necessary arrangements to ensure the timely mobilizationo fthe counterpart funds neededfor Project implementation. Disbursements by categovy 149. The table below sets out the expenditure categories to be financed out of the Credit proceeds. The allocations for each expenditure category are inTable 7.1 below: 62 and 95% of local expenditures (2) Works 72,160,000 100% (3) Consultants' Services 13,930,000 100% (4) Training 1,020,000 100% (5) Operating Costs 1,530,000 100% (6) Resettlement Payments 2,770,000 100% (7) RehndofProjectPreparation 730,000 Amount payable pursuantto Advance Section 2.07 of the General Conditions (8) Unallocated 10,660,000 TOTAL AMOUNT 138,100,000 Planning and Budgeting 150. Cash budget preparation will reflect financial projections or forecasts for the life o f the Project (analyzed by year) and will be prepared on an annual basis. On an annual basis, PFMU incollaboration with the PCUwill prepare the cash budget for the coming period based on the work program. The cash budget should include figures for the year, analyzed by quarter. The cash budget for each quarter will reflect the detailed specifications for Project activities, schedules (including procurement plan), and expenditure on Project activities scheduled respectively for the quarter. (Guidance on the preparation o f budgets i s available in IDA'Spublication titled "Financial Monitoring Reports: Guidelines to Borrowers"). The annual cash budget will be sent to the Task Team Leader at least two months before the beginningo f the Project fiscal year. Detailed procedures for planning andbudgetingwill be documented inthe FPM. Fixed Assets and ContractsRegisters 151. A Fixed Assets Register will be prepared, regularly updated and checked by the PFMU. A Contracts Register will also be maintained in respect o f all contracts with consultants and suppliers. Additionally, quarterly Contract Status Reports will be prepared. Control procedures over fixed assets and contracts with consultants and supplierdvendors for the Statewill be documented inthe FPM. 63 I nformation systems 152. The FGN's MoF has engaged a consultant to develop and implement a computerized financial management system for FM, and to train staff in the use of the system. The system has been developed and installed in the Lagos PFMU, and relevant staff has been trained in its use. Additional staff posted to the PFMU to manage this Project will also betrainedinthe use o fthe system. Reporting and Monitoring 153. Monthly, quarterly and annual reports will be prepared to allow monitoring o f Project implementation. The reports will be submittedto the PCU, PSC, FMFandIDA. 154. On a monthly basis, the PFMU will prepare and submit the following reports to the aforementioned: 0 A bankReconciliationStatementfor eachbankaccount; 0 Monthly Statement o f Cash Position for Project funds from all sources, taking into consideration significant reconciling items; 0 A monthly Statement of Expenditure (SOE) classified by Project components, disbursement categories, andcomparison withbudgets, or a variance analysis; and 0 Statement o f Sources and Uses o f Funds (by Credit Category/Activity showing IDA andCounterpart Fundsseparately); 155. The following financial monitoring reports will be prepared by the PFMU in collaboration with the PCU on a quarterly basis, and submitted to IDA, PSC and the FMF: 0 FinancialReports which include a Statement showing for the period andcumulatively (Project life and year to date) inflows by sources and outflows by main expenditure classifications; beginning and ending cash balances of the Project; and supporting schedules comparing actual and planned expenditures. The reports will also include cash forecast for the next two quarters. 0 Physical progress reports, which include narrative information and output indicators (agreed during Project preparation) linking financial information with physical progress, andhighlight issues that require attention. 0 Procurement reports, which provide informationon the procurement o f goods, works, andrelated services, and the selection of consultants, and on compliance with agreed procurement methods. The reports will compare procurement performance against the plan agreed at negotiations or subsequentlyupdated, and highlight key procurement issuessuch as staffing andbuildingthe capacity o f the Recipient's staff. 0 SOE Withdrawal Schedule listing individual withdrawal applications relating to disbursementsby SOEmethod, byreference number, date andamount. 156. The annual Project financial statements submitted to IDA, PSC, andthe FMFwill include the following: 0 A Statement of Sources andUses of Funds (by Credit Categoryhy Activity showing IDA andCounterpart Fundsseparately); 64 0 Statement of CashPosition for Project Funds from all sources; 0 Statements reconciling the balances on the various bank accounts (including IDA Designated Account) to the bank balances shown on the Statement of Sources and Uses o f fkds; 0 SOE Withdrawal Schedules listing individual withdrawal applications relating to disbursements bythe SOEMethod, byreferencenumber, date andamount; 0 Notes to the Financial Statements. 157. Indicative formats for the reports are outlined in the IDA publication Financial Monitoring Reports: Guidelinesto Borrowers-Quarterly FMRs. Accounting Policies and Procedures 158. IDA and Counterpart Fundswill be accounted for by the Project on a cashbasis. This will be augmented with appropriate records and procedures to track commitments and to safeguard assets. Also, accounting records will be maintained in dual currencies (i.e. Naira andU S dollars). 159. The Chart o f Accounts will facilitate the preparation of relevant monthly, quarterly and annual financial Statements, includinginformationon the following: 0 Total Project expenditures; 0 Total financial contribution; 0 Total expenditure on eachProject component/activity; and 0 Analysis o f that total expenditure into civil works, various categories o f goods, training, consultants andother procurement and disbursementcategories. 160. Annual financial Statements will be prepared in accordance with International Accounting Standards. Audit Arrangements 161. Internal Audit. Project activities, records and accounts will be reviewed and subjected to internal audit by appropriately qualified internal auditors in the PFMU, headed by a coordinator who is a professionally qualified internal auditor. Regular internal audit reports will be submitted to the Head o f the PCU, Head o f the PFMU, the PSC, IDA andthe StateAccountant General. 162. External Audit. Audited Project Financial Statements for the Project will be submitted to IDA within six months after year-end. Under the PFMU arrangement, qualified external auditors have been appointed based on Terms o f Reference acceptable to IDA to perform audits of all IDA supported Projects inthe State. The contract o f this auditor hasbeen extendedto cover the LMDGP Project. 163. Besides expressing an opinion on the Project Financial Statements in accordance with International Standards of Auditing, the auditors will be required to comment on whether counterpart funds have been provided regularly and used inaccordance with the financing agreement. 65 164. Inaddition to the audit report, the external auditors will be expected to prepare Management Letters givingobservations andcomments, andprovidingrecommendations for improvements inaccounting records, systems, controls and compliance with financial covenants inthe IDA agreement. 165. The following activities have beencompleted bythe PCUPFMU: 0 The generic FPMhasbeen amendedby the PFMUto support issues specific to the Project, such as delegations, commitment control and authorization procedures, chart of accounts, FMR andformats for the Annual Financial Statements, and amendmentswill be completedbyBoarddate. 0 DesignatedAccount andDraw DownAccount Bank accountshavebeen opened andIDAhasbeenadvised ofauthorizedbankandhasreceived signatories /specimen signatures. 0 Relevant Project staffhave beentrained inIDAFM, procurement and disbursementprocedures. Supervision Plan 166. Supervision activities will include a review o f quarterly FMRs; review of annual audited financial statements and Management Letters as well as timely follow-up of issues arising during implementation; annual SOE reviews; participation in Project supervision missions as appropriate; and updating the FM rating in the Implementation Status Report (ISR). First FM supervision mission will be undertaken no later than six months following Project effectiveness. 66 Annex 8: ProcurementArrangements NIGERIA: LagosMetropolitanDevelopmentand GovernanceProject A. General 167. Procurement for the proposed Project would be carried out inaccordance with the World Bank's "Guidelines: Procurement Under IBRD Loans and IDA Credits" dated May 2004; and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers" dated May 2004, and the provisions stipulated inthe Legal Agreement. The various items under different expenditure categories are described ingeneral below. For each contract to be financed by the Credit, the different procurement methods for the selection o f consultants, the need for pre-qualification, estimated costs, prior review requirements, as well as the time fiame are agreed between the Recipient and IDA, are stated in the Procurement Plan that was finalized and agreed during Negotiations. The Procurement Plan will be updated at least annually, or as required, to reflect the actual Project implementation needs andimprovements ininstitutionalcapacity. 168. Theprocurement proceduresandthe Bank's StandardBiddingDocuments (SBDs) to be usedfor eachprocurement method, as well as model contracts for works and goods procured, are presented inthe Lagos MetropolitanDevelopment and Governance Project Implementation Manual (PIM). The PIM, which includes a chapter on procurement, has been prepared and is under review by the Recipient and IDA, and will be finalized by June 30,2006. 169. Procurement of Works. Works procured under this Project would include: cleaning o f existing trunk drainage channels to enhance their carrying capacity, reconstruction of select trunk drains, construction o f street foot paths, foot bridges and walkways, water supply, schools, health centers, public postal stations, fish smoking facilities, community centers, box culverts etc. Procurement will be carried out usingthe Bank's Standard Bidding Documents (SBD) for all International Competitive Bidding (ICB) contracts. For Solid Waste Management Contracts, the Bank's Standard Design Builtand Operate(DBO) document will beused. Theprocurement processtherefore will start with the prequalification of Bidders inaccordancewith the provisions o f paragraphs 2.9 and 2.10 of the Guidelines.Minor civil works estimated to cost less thanUS$50,000 equivalent per contract, which are labor intensive, spread over time, and which do not lend themselves to grouping and therefore are unlikely to attract foreign bidders. Such works may be procured under shopping procedures as detailed in paragraph 3.5 of the "Guidelines: Procurement under IBRD Loans and IDA Credits" May, 2004 and June 9, 2000 Memorandum "Guidance on Shopping" issuedbythe Bank. 0 Over the first eighteen months o f Project implementation, the estimated cost for procurement usingshopping i s US$50,000. 0 Over the seven year life of the Project, the estimated cost o f shopping i s not expectedto exceedUS$300,000 (0.15 percent o f overall Project costs) 0 Over the first eighteen months o f Project implementation Civil Works procurement packages are estimated to cost US$27.34 million. Duringthis period, 67 US$26.64 million (or 97.4 percent) o f these Civil Works packages will be procuredthrough ICBproceduresandsubject to prior review bythe Bank. 170. Procurement of Goods. Goods procured under this Project would include vehicles, computers and accessories, software, communication and office equipment, transformers, generators, etc. Goods procurement will be done using the Bank's SBD for all ICB and National SBD designed on the basis o f Bank StandardBiddingDocuments. Procurement for readily available off-the-shelf goods that cannot be grouped, or standard specification commodities for individual contracts o f less than US$50,000 equivalent, may be procured under shopping procedures as detailed in paragraph 3.5 of the "Guidelines: Procurement under IBRD Loans and IDA Credits" May, 2004, and the Guidance on Shopping Memorandum" issuedby IDA, June 9,2000. 0 During the first eighteen months of Project implementation, of the US$5.89 million worth o f estimated Goods procurement packages, US$5.OS million (or 86.2 percent o f the estimated value o f Goods) is to be procured using ICB procedures, with the remainder to be procured usingNCB procedures acceptable to IDA. 171. Selection of Consultants. Consultancy services which include Technical Assistance (TA) for preparation of the drainage management plan, engineering designs, supervision o f works, planning and feasibility studies, interlined studies for economic intelligence, baseline studies for quantitative monitoring, external audits etc, will be selected using Request for Expressions o f Interest, short-lists and the Bank's Standard Requests for Proposal, where requiredbythe Bank's Guidelines. 172. Short-lists o f consultants for services estimated to cost less than US$200,000 equivalent per contract, may be composed entirely o f national consultants in accordance with the provisions of paragraphs 2.7 through 2.8 o f the Consultant Guidelines. Specialized studies, data collection and M&E related to monitoring socioeconomic impacts at local or metropolitan levels, may be undertaken by research institutes or universities that have unique qualifications for specialized consulting assignments with specific knowledge o f Lagos or the slums o f Lagos. 0 During the first eighteen months of Project implementation, of an estimated US$6.05 million to be spent on TA and consultancies, US$5.35 million (or 89 percent of the estimated consultancy expenditures) will be procured using QCBS procedures andbe subject to IDA'Sprior review. 0 Duringthe first eighteen months of Project implementation, US$0.38 million (or 6.2 percent of the consultancy expenditures) will be spent using IC, and the remainder US$0.28 million usingthe CQ method o f selection. Thus, over 90 percent of the procurement packageswill be subject to IDA'Sprior review. 173. Operating Costs. The operating costs shall include: contractual staff salaries; travel expenditures and other travel-related allowances with prior clearance from IDA; equipment rental and maintenance; vehicle operation, maintenance and repair; office rental and maintenance; materials and supplies; utilities and communication expenses; 68 and bank charges. Where grouping of items or long-term contracts for maintenance are possible, this will be so carried out inline with the procurement procedures inthe Project ImplementationManual. 0 During the life time of the Project, Operating Costs are estimated to be US$1.94 million, or 1.05 percent o f total baseline cost o f the Project. As long as these contracts exceedthe prior reviewthreshold, contractswill beprior reviewed. B. Assessmentofthe agency's capacityto implementprocurement 174. Procurement risks at the Country level. For project inNigeria in general, the key issues and risks concerning procurement during implementation of projects include: (i) a lack o f appropriate regulation (bidding documents, Standard Evaluation formats, etc.); (ii)lack ofPIMincludingProcurement andFinancialManagementManuals; (iii) a frequent change of staff mid-stream; (iv) lack o f adequate record keeping; (v) lack o f procurement planning; (vi) inadequatecontract management systems and techniques that are common in the public sector; and (vii) frequent and undue political interference in procurement decisions. 175. Procurement risks at the Lagos State level. For Lagos State, IDA completed the State Procurement Assessment Report two years ago. Implementation o f the reforms identified in the assessment i s being supported by an IDF Grant since December 2005. The grant is managed by the Permanent Secretary in the Office o f the Executive Governor. Reforms will be monitoredusing the key monitoring indicators developed by the OECDDAC and the World Bank Working Group for the AFR Observatory for progress of procurement. These reforms that will take time to implement and change "global" procurementpractices at the State level, are: 0 Development of aProcurement Law for Lagos State. 0 Reorganization o f Lagos State's public procurement fhction, including the replacement o f the State Tender Board with newly organized Ministerial, Departmental andParastatalTender Boards. 0 Development of aprofessional cadre o fprocurement specialists. 0 State-wide awareness campaigns at the Local Government and State levels to develop consensus around the content o f the new procurement procedures. 0 Establishment o f a complaint's mechanism. 176. Procurement risk at the Project level as of March 2005. At the Project level, a formal procurement assessment for the capacity o f the LMDGP Project Coordination Unit (PCU) was undertaken during IDA'SFebruary-March 2005 pre-appraisal mission. The PCU at that time was just being established, and reporting lines of the PCU were blurred between sectoral ministries and the Office of the Governor. A Project Steering Committee (PSC) had not been formally established. At that time, the Procurement risk assessment for LMDGPwas rated high. 177. Procurement risk at the Project level as of February 2006. Since then and almost a year later, a review o f the earlier procurement assessment was undertaken during the Appraisal of LMDGP in February 2006. This was done by the Country Office Procurement Specialist inaccordance with Procurement Services Policy Group (OPCPR) 69 guidelines dated August 11, 1998. The assessment reviewedthe organizational structure for implementing the Project, institutional arrangements,andthe capacity o f the Project's procurement staff. It highlightedthat several keymeasureshad already beenput inplace bythe Recipient. e The PCU is firmly established under the Office of the Executive Governor, demonstrating commitment to this Project at the highest level in the State. This has clarified reporting lines for the PCU. Since the Governor is elected by direct vote, he i s de-facto like the mayor of a large city and accountable to the citizens. Ifthere is commitment at the highestlevels for this Project, the risk ofpolitical interference that could delay delivery of results, i s much reduced with the PCU located under the Office ofthe Governor. e A PSC hadbeenestablished, andprovides for highprofileprivate sector andcivil society oversight of this Project. It includes an editor o f a leading national newspaper, highly prominent private sector leaders, and a local NGO well known for its advocacy for humanrights andsocialjustice. e A competitivelyrecruited engineer from the private sectorhas assumedhis duties as the Project Director of the PCU, and the Governor has given the Director the authorization to sign all contractswithin five days o f clearanceby IDA. e The Procurement Officer nominated to the PCU, with experience in previous Bank operations, has been deployed full-time to the PCU from his parent ministry.The Officerhasbecomefamiliar withthe newprocurement guidelines. e All professional staff of the PCU have gained substantial familiarity with Bank procurement procedures over the last year, through a process o f "learning by doing". e The PCU prepared a procurement plan for the first eighteen months of Project implementation and this was found acceptableby IDA during Negotiations. It is attachedas Appendix 1to this Annex. e Recruitment o f an engineering firm with a procurement specialist i s underway, andwill becompletedbythe PCUbyJune 15,2006. This consulting firm's terms of reference include the provision o f continuous on-the job training and procurement support to the PCU. The firm i s expected to be mobilizedbefore this Project is presentedto the Bank's Board. e The Recipient has completed the Project ImplementationManual which includes a chapter on Procurement, andi s currently under review byboththe Recipient and IDA.Thiswill befinalizedbyJune 30,2006. e The generic Procurement manual for projects in Nigeria shared with the PCU a year ago, has been adapted for LMDGP and was reviewed and found acceptable byIDA. e Procurement training for all PCU staff and the focal staff member from the Solid Waste Authority for this Project, i s being financed fiom the Project Preparation Advance. Trainingis to take place betweenJune 5-16,2006 at the Lagos Business School. e An electronic filing system for project records and computerization of store records andother assets is underway. 70 178. As highlighted in the preceding paragraph, the LASG has put in place key measures inthe last twelve months. Consequently the project procurement risk has now been assessed as moderate, although the global risk o f doing business in Nigeria and Lagos remains high. 179. Beyond the measures already taken, the PCU will acquire contract management training and procure the necessary tools, including appropriate software modules, to enhance the contract management capacity for project management. The PCU will be equippedwith "Client Connection" accessibility on or before June 30, 2006, to allow for streamlined procurement anddisbursementprocedures. C. ProcurementPlan 180. The Recipient has developed a procurement plan for Project implementation which provides the basis for procurement methods. This plan was agreed upon between the Recipient and IDA duringNegotiations. This planwill be available inthe Project's database and at the Bank's external website" upon approval o f the project by the Bank's Board. This plan will be updated in agreement with IDA annually, or as required, to reflect the actual Project implementation needs andchanges ininstitutionalcapacity. 181. Publication of Results and Debriefing: On-line publication o f contract awards (DG Market, UN Development Business, and/or Client Connection) is required for all ICB, NCB, Direct Contracting and the Selection o f Consultants for contracts exceeding a value of US$0.20 million. A list o f pre-qualified bidders shall be published where prequalification has taken place. With regard to ICB, and large-value consulting contracts, the Recipient shall publishcontract awards as soon as IDA has issued its `no objection'. With regard to Direct Contracting and NCB, publication o f contract awards could be inaggregateon a quarterly basis inlocalnewspapers. 182. All consultants competing for an assignment involving the submission of separate technical and financial proposals, irrespective o f the assignment's estimated contract value, will be informed o f the result o f the technical evaluation (number o f points that each firm received), before opening o f the financial proposals. The PCU will offer debriefings to unsuccessful bidders and consultants inthe event that the individual firms request such a debriefing. D. FrequencyofProcurementSupervision 183. Inaddition to a largepercentageof the IDA prior review contracts, basedon the capacity assessment o f the PCU, two supervision missions will be conducted to carry out a post-review o f procurement. In the first 18 months o f Project implementation, an Independent Procurement Review will be conducted. Findings and recommendations from the reviewwill be sharedand discussedwith the Project Steering Committee (PSC), Project Coordinating Unit (PCU) and the Component ExecutingAgencies with a view to Soh~://web.worldb~k.or~SITE/EXTE~~~RO~CTS~ROC~MENT/O,,pagePK:S427 1-theSitePK: 84266 ,oo.html 71 speedy implementation o f recommended action plans that will be monitored closely by IDA. E. Detailsofthe ProcurementArrangementsInvolvingInternationalCompetition 184. The details o f Project activities for the first 18 months o f implementation are as listed in the procurement plan attached as Appendix I.The plan was discussed and agreed upon with IDA duringnegotiations. Expenditure ContractValue Procurement Contracts subjectto Category Threshold Method priorreview (US$ thousands) 1.Works 1,000 or more ICB All Below 1,000 NCB None Below 100 Shopping None 2. Goods 500 or more ICB All Below 500 NCB None Below 50 Shopping none 3. Services Finns 200 or more QCBS All Less than 200 CQ, Other None Individuals 100or more IC All Less than 100 IC None 72 Appendix 1to Annex 8: ProcurementPlan NIGERIA:LagosMetropolitan Development and GovernanceProject Goods: Procurement Packageswith Methods andTime Schedule 1 1 2 I 2a 3 1 4 1 5 1 6 1 7 1 8 9 1 Operational Vehicles 1 2,023,000 ICB No Yes Prior Oct-06 Feb-07 2 Plants 1 1,200,000 ICB No Yes Prior Dec-06 Apr-07 I I I I I I 3 Computers& 1,160,000 ICB No Yes Prior Oct-06 Feb-07 Accessories I I 1 I I I I 320,800 I NCB I No I NIA I Post Oct-06 I Dec-06 1 1 5 Ofice Furniture 100,000 NCB No N/A Post Oct-06 Dec-06 D%aMining) 9 Utiliv Sewers& Storage area Network I I I I I I TOTAL GOODS 5,892,800 One of the NCB packages(E priorreviewedby-IDA6 set a qualityexamplefor other NCBpackagesto follow ding Documents and EvaluationReport), preferablythe largest package, will be 73 Works:Procurement Packageswith Methods and Time Schedule 2 Constructionof Boreholes construction/ Rehabilitationof Schools and Clinics Constructionof CommunalWaste Depots Clearing ofWaste Backlog inthe Metro$lis(series) Constructionof Waste Transfer Stations(2Nos) Upgradingof Landfills(2 Nos) Deferred Maintenanceof DrainageChannelsin Easternand Western Sections Reconstructionof DrainageChannels Constructionof Fish Smoking Facility TOTAL WORKS -.,-.-,--- I The NCB Package w r b e procuredwith the helpofclose implementationsupport by IDA 74 Consultants with Selection Methods andTime Schedule 1 2 3 4 Ref. No. Descriptionof Assignment Estimated SelectionI cost (US$ equivalent) 1 IntegratedSupervisionofCivil 650.000 QCBS Prior Oct-06 Dec-08 Works InvestmentinDrainage, SolidWaste Managementand SlumUpgrading HydraulicModelingand 2,500,000 QCBS Prior Oct-06 Ju-08 drainagestudiesonthe selecteddrainagebasinsand technicalAssistance to ODS CarbonFinance Strategiesand 350,000 QCBS Prior Oct-06 Sep-07 implementationofActionplan (Consultancy Services) UrbanUpgrading:Engineering 950.000 QCBS Prior Jan-07 Sep-09 Detaildesignandsupervision ofCivilWorks inthe Slum Areas II I II I Drainage: EngineeringDesign 500,000 QCBS Prior Jan-07 MU-09 andsupervisionofCivil works inrespectofdefemd maintenanceofdrainage I I channels ConsultancvServices for 400,000 QCBS Prior Jan-07 Jun-0; MTEF (International) ConsultancyServices for 35,000 IC Post Mar-07 sep-0; MTEF (Local) 8 ComprehensiveReviewof 50,000 IC Post Sep-06 Mar-0: IFMISimplementationto date (International) 9 Information,Communication 80,000 CQ Post Sep-06 N0v-01 andEducationStrategiesand Implementation(Consultancy Services) 10 ConsultancyServices for RPF 80,000 CQ Post Jan-07 Mu-O~ implementation 11 Consultantto LASURAto 45,000 IC Post NOV-06 May4 updatestatistics oninvestment 12 LandAcquisitionand 45,000 IC ResettlementImulementation (ConsultancyServices) 13 ConsultancvServices for 30,000 IC DevelopmentofPoverty Maps by LG 14 UpdatingPublicFinance 30,000 IC NOV-06 May-0 Legislation 15 ImprovingBudgetExecution 40,000 IC Dec-0 andTreasury management (Foreign) 75 16 ImprovingBudgetExecution 20,000 IC Post Mar-07 Au~-07 andTreasurymanagement (Local) 17 Public ExpenditureTracking 80,000 IC Post Aug-07 Feb-08 (International) 18 ComputationofState GDP 120,000 CQ Post Aug-07 Feb-08 (International) TOTAL CONSULTANCY 6,005,000 76 Annex 9: FinancialandEconomicAnalysis NIGERIA: LagosMetropolitanDevelopmentandGovernanceProject A. FinancialAnalysis 185, To validate that investments proposed under the Lagos MetropolitanDevelopment and Governance Project (LMDGP) are sustainable and financially viable, an analysis of recent budget trends and medium term fiscal projections was undertaken. This included integration o f incremental costs to the budget o f LASG associated with the Project, reviewedagainst broadtrends inresourceavailability as well as Lagos' debt burden. 186. Availability of Financial Data: The historicaldata on revenue and expenditure for Lagos State Government (LASG) for 2001-04 was extracted from LASG budgets and additional submissions from the Lagos State Accountant General's Office and Debt Management Office. The trends in local government expenditures were analyzed based on the consolidated data on transfers from the Federation Account to LGs inLagos. The Federal transfers constitute about 90 percent o f total local government revenues in Nigeria. The budget data for 2004 were used as a basis for projections. 187. Use o f Data: The data were usedas the basis for developing projections for 2006- 2010. The basic objective o f this exercise is to assess that the Project i s affordable by LASGand the LGs. The data has been analyzed to determine the rates of growth inthe principal elements o frevenueand expenditure inreal terms, using the CPI deflator. SG andLG Finance in Nigeria 188. Transfers from the Federal Government. Revenue and tax powers in Nigeria are highly centralized, with major taxes being collected by the Federal Government and shared amongst the three government tiers. 189. The most important taxes collected by Federal Government include company income, petroleum profits and value added taxes (VAT), import and excise duties, revenues from crude oil sales, royalties and tax on petroleum products. All these revenues, except VAT, are paid into the Federation Account for distribution based on a stable and transparent formula. In addition, there are special sharing arrangements for VAT, also formula-based. 190. The current vertical allocation o f the Federation Account (FA) proceeds is: (i) Federal government 52.7 percent, (ii) Governments 26.7 percent, and (iii) State Local governments 20.6 percent. The formula for horizontal allocation mainly relies on measures of state equity, population, and geographical mass. Although local revenue effort i s supposed to be included, it is not featured inpractice. The formula reflects, only to a limitedextent, the differentiation inthe costs o f service delivery across the country. 191. The primary revenue source for the FA is oil and gas extraction. Excessive dependence ofNigerianfiscal system on oil revenues represents the key fiscal risk for the 77 national economy, as well as for individual states. However, within the Nigerian Federation, Lagos i s the least exposedto this risk dueto the highdegree o f diversification o f the State's economy. In 2004, transfers from the FA amounted to only 32 percent o f total state budget revenues, while Internally Generated Revenues (IGR) made up 45 percent, andV A T 15percent of the t ~ t a l . ~ ' 192. Internally Generated Revenues. The most important source of internal revenue in Lagos is the personal income tax levied on individual residents in the state. The tax i s collected from individuals employed inthe formal sector through withholding at source, and through direct assessment o f other taxpayers. The other sources o f revenues include fines and fees, licenses, earnings and sales o f assets, interest and dividends. 193. Internal revenues of LGs are insignificant, and LGs are heavily dependent on transfers from both the FA and the State. This heavy dependence on transfers acts as a disincentive for LGs to expand their own tax base. States and LGs are responsible for their tax collection and monitoring, while the tax setting is determined at the Federal level. 194. InNovember, 2003, LASGincreasedthe number of LGs from 20 to 57. The FG didnot acceptthis decision andas aresult, itdeferredthe releaseofFederationAccount's finds to all LGsbasedinLagos state. This createdmajor cashflow problems for LGsand adversely affected their ability to provide basic services to residents. However, by late 2005 the conflict was resolved andregular (monthly) disbursement o f federal transfers to LGswas resumed. 195. Land Use Charge and Tenement Rates. Tenement rates or property tax has the greatest potential for revenue generation at the LG level, but actual collection has been very low so far. The LandUse Charge Law (Law No. 11) was passedin2001 by LASG to consolidate all property and land based taxes and charges payable under various legislations into a LandBased Charge, called Property LandUse Charge (LUC). Theplan was to centralize administration o f the charges at the state level, significantly improve their administration, and introduce sharing arrangements with LGs with respect to utilizationofLUC proceeds. 196. This strategy has so far been only partially implemented. LUC is leviedonly on a limited number of commercial properties in Lagos State. The properties that are not covered under the LUC are still taxed with tenement rates by respective LGs. It seems the demarcation o f properties falling under the LUC charge or tenement rate remains ambiguous. Moreover, the lack o f transparency o f collection and distribution o f LUC has underminedthe tenementrate system. 197. However, the LASG Valuation Office has made a substantial effort to bring all valuation rolls up-to-date, which should help LGs increase their revenue from tenement rates. At the same time, as a part o f its revenue mobilization strategy, the LASG is committed to re-launch its original planto improve LUC collection, as the potentialyield Remainingrevenueitems includedgrantsand miscellaneousrevenues. 78 from this source could be substantial inthe medium-term. Better administration o f land use charges, therefore, remains critical for increased revenues, and essential to sustain service delivery from the drainage and solid waste sectors. Analysis of theLASGbudgetperformance and budgetprojections 198. LASG's budgetperformance improved considerably in2003-2005. Total revenues grew at an average real rate o f more than 10 percent over this period, reflecting inpart, high international oil prices and increased federal transfers, but more importantly, substantial increase in IGR as total IGR collections in real terms more than doubled between 2002 and 2005. On the expenditure side, LASGdemonstratedfiscal restraint and didnot incur any new significant At the sametime, there hasbeen a considerable increaseinexpendituresfor public investments, from Naira 6 billion (US$49.0 million) in 2002, to about Naira 20 billion (US$l50.0 million) in2005. 199. The overall state debt burden is considered to be sustainable inthe mediumterm. By the end o f 2004, the overall debt burden of LASGhas been rather significant, but it did decline drastically since then, primarily due to the debt reliefNigeria received from the Paris Club. At the end o f 2004, the maincontractual debts of LASGincluded (i) debts to IBRD/IDA o f about US120 million, (ii) debts to the Paris Club of about US$145 milliod3, and (iii) domestic bonds with total expected repayments (including interest) equal to Naira 22.4 billion (US$170 million).54 Thus total debts amounted to about US$435 millionor 81percent oftotalbudgetrevenues. 200. The Paris Club debts will be fblly removed from the books by mid 2006 as a result of the comprehensive debt reduction agreement signed by the Nigerian Government. This debt reduction will be funded from the windfall oil revenues accumulated in2004-05 andwill not affect the current or fbture cash flow of LASG. The remaining annual debt service payments on outstanding IDMIBRD loans are currently within the US$20 million range. In 2005, the total state spending on debt service (including domestic bond repayment) amounted to about Naira 9.5 billion (US$70.0 million) or 11percent of total State Government expenditures. This ratio i s expected to decline below 7.5 percent by 2009. By the end o f 2006 the outstanding debt-to-revenue ratio i s expected to decline to below 29 percent. In addition to the debt relief, the improvement in debt profile was driven by (i) ongoing scheduled repayment o f both domestic andIDA debts, and(ii) improvedrevenue performance as mentioned above. 201. Inthe mediumterm, the following factors are expected to M e r enhance fiscal sustainability of LASG: 0 Improved macroeconomic management o f the Nigerian economy and consequently better prospects for stronger economic growth. Average growth rates are expected to stay at 5-6 percent over the medium term. This reflects 52Excepttwo new IDA creditsas describedbelow. 53Excluding arrears which are estimatedat aboutUS150million. 54The bondswere issuedin 2002 to consolidate variousgovernment domesticdebts outstandingat that time. The bond inrepaidby2009 inmonthly installments.The averageannualpaymentamountsto about US42million. 79 expectations at this time that world market prices for oil remain high. More importantly, however, it reflects stronger confidence in the Nigerian economy, deriving from the ongoing macroeconomic and structural reforms. Due to its strategic role inthe national economy, LASG is expectedto be a key beneficiary of growth ofthe overall economy. 0 Further real appreciation of the national currency, which would reduce relative costs ofIDAborrowing, denominated inforeign currency. 0 Tax administration and fiscal managementreforms initiatedby LASG, which are aimed at the expansion o f the local tax base and improved efficiency in expenditure management. The current level of state and local tax burdenis quite modest andprovides considerableroom for improvedtax collection. 202. Keyrisks to fiscal sustainability arethe following: 0 A potential drop in world oil prices would reduce LASG's capacity to finance critical investments. This risk i s largely mitigatedby the Nigerian Government's strategy o f makingreserve provisions and accumulating considerable savings that would be distributed amongst all tiers of government in the event o f a fall inoil prices. e Existence o f substantial state budget arrears, including pension arrears, which remainhiddengovernment liabilities. 0 Insufficient fiscal transparency, including poor public access to budget information, which undermines public control over efficient management o f state finance. 203. The main assumptions used for developing fiscal projections, largely conservative, were as follows: 0 Real economic growth will increase by 5 percent a year, while federal government transfers and VAT revenues will grow at the rate which is equal to the growthrate inthe economy. 0 IGR will grow fbrther by 15 percent in real terms in 2006 as a result of the ongoing reorganization o fBIR andwill continue to grow at 6-7 percent a year, i.e. at a rate higherthan economic growth. 0 Within this revenue envelop, payroll costs are expected to grow somewhat below the growth rate, while overheads, and especially capital spending, will grow at a rate which i s higher than the growth rate. Total debt service costs on external credits would remainlow (below 0.5 percent o f total expenditures), reflecting the impact of the Paris Club agreement, and a highly concessional nature of the new IDAborrowing. New IDA Credits 204. In2004-05 LASGsigned two new credit agreementswith IDA aimed to support government efforts to upgrade metropolitan infrastructure: (i) Lagos Urban Transport (US$lOO million), and (ii) SecondNational UrbanWater Sector Reform Project (Lagos's share is US$116 million). Jointly with the LMDGP, these credits will provide the state 80 with more than US400 million over 2005-2012 on highly concessional terms. It is estimated that average annual disbursements under these new loans will be close to US$60 million, which by the end o f 2010 would bring the total amount o f foreign debt disbursed to about US340 million. However, given projected revenue trends and full repayment o f domestic bondby that time, the overall debt-to-revenue ratio should remain below 30 percent, i.e. below the threshold of 40 percent proposed in the Fiscal Responsibility Bill. Nonetheless, LASG should avoid any new additional significant borrowing, even at concessional terms, at least until the effects o f these latest major investment credits are fully realized through improved private sector performance. In other words, new borrowing should be delayed until additional public and private investments would be able to generate a substantially higher level o f IGR to create additional fiscal space for stateborrowing. Impact of the Project on StateBudget 205. Over the medium term, the Project is expected to generate four types of incremental annual expenditure liabilities for LASG, including: (i) costs o f servicing the IDA credit, including the commitment charge of about US$1.5 million; (ii)additional costs related to improved maintenance o f drainage system of US$7 million; (iii) costs of government co-financing o f specific agreed Project investments o f US$0.6 million; and (iv) additional costs of supporting the solid waste management (SWM) system, through budget subsidiesto LAWMA, duringthe transition phaseto achieve full cost recovery for MSW collection. The latter costs are conservatively estimated at US$12million ayear. 206. Total incremental budget costs are conservatively estimated to reach about U S 2 1 million a year (Naira 2.75 billion) by the endo f Project implementation. This amounts to about 3 percent o f LASG's total budget expenditures in2005, and should be considered affordable against the background o f recent strong growth instate revenues (average real growth in2004-05 exceeded 10 percent per annum), drivenonly partlyby highoil prices and respective increases in federal transfers. Future budget sustainability i s further strengthened by recent government efforts to both strengthen the internal revenue administration, as well as maximize the potential for additional revenues from land and property related taxes. 207. The current total costs o f operating the SWM system inLagos are estimated inthe range o fNaira 3.7 billion a year (US28 million). S W M inNigeria, is constitutionally a local government responsibility. InLagos, giventhe dependence o f LGs on FA transfers, as well as the metropolitan character o f the mega-city, the most efficient way to manage waste i s through centralization: (i)centralized management o f the collection, particularly disposal, to maximize the economies o f scale so that collection can become not just self financing but generate profits for the transfer and disposal end o f SWM; and (ii) centralized financing o f the system at the State level, with FA transfers to LGs withheld by the State for direct payment for S W M services to a centralized entity. In2004, the total FA transfers to LGs amounted to Naira 22.6 billion (about US$173 million), which exceeded total costs o f waste management by more than 6 times. Medium term projections suggest that future costs o f S W M inLagos couldreach U S 4 0 milliona year. These incremental costs should be covered by gradual increases in the collection o f user 81 fees, as well as by budget subsidieswhich would be reduced intime as new institutional arrangements leadto highcost recovery inthe sector thanis the case today. 208. Overall, the analysis suggests that the Project i s affordable for LASG, based on the key assumptions used in financial projections. LASG is capable of remaining in balance throughout the projection period. At the same time, to minimize Project risks, LASG has to (i)move aggressively with the BIR reforms; (ii)keep its payroll expenditure under control; (iii) make additional efforts to advance reforms inthe areas o f budget management modernization, transparency and accountability; and (iv) take steps to resolve issues around the LandUse Charge in consultation with the organized private sector and LGs. LASG should refrain from new significant additional borrowing until it sees a strong expansion inprivate sector activities inIGRcollections. 2003 2004 2005 2006 2007 2008 2009 2010 Domesticbond, Nr bn 26.6 22.4 16.4 21.o 11 6.4 2.5 0 0 Foreign debts total, Nr bn 47.0 35.3 36.9 27.0 33.7 42.6 50.8 TOTAL state debt, Nr bn 73.6 57.7 53.3 32.0 33.4 36.2 42.6 50.8 as % of budgetrevenuer 140.9 81.5 57.9 28.5 26.2 25.4 26.9 29.0 growth rate 1.04 1.08 1.18 1.19 Foreigntotal, US$ 365.3 264.9 278 158 200 244 304 363 IDA+IBRD 136.5 119.9 103 88 75 64 54 43 ParisClub,w/o arr 228.8 145 145 0 0 0 0 0 new IDAdisbursements 30 70 125 180 250 320 Total Gov Revenues 52,257 70,822 92,149 112,164 127,407 142,593 158,086 175,267 Ex rate 128.7 133.4 132.9 133 135 138 140 140 Table 9.2. AdditionalProjectCosts 2006 2007 2008 2009 2010 2011 2012 2013 Commitment charges 0.95 0.8 0.6 0.4 0.2 0.05 0 0 Interest payments 0.075 0.3 0.6 0.9 1.2 1.425 1.5 1.5 Total debt service, mn $ 1.025 I.I 1.2 1.3 1.4 1.475 1.5 1.5 Extra spending on drainage 7 7 7 7 7 7 7 7 Extra spending on waste managm 12 12 12 12 12 12 12 12 Co-financing 0.635 0.635 0.635 0.635 0.635 0.635 0.635 0.635 Grand Total --extra costs, US$ 20.66 20.735 20.835 20.935 21.035 21.11 21.135 21.135 Total Nr mn 2,685.8 2,695.6 2,708.6 2,721.6 2,734.6 2,744.3 2,747.6 2,747.6 Memo: Disbursement,mn $ 10 30 40 40 40 30 10 82 Table 9.3. Budget projections, 2006-2010, MillionNaira 2001 2002 2003 2004 2005 2008 2007 2008 2009 2010 1.Total Revenue 39,821 41,831 52,257 70,822 92,149 112,184 127,407 142,593 158,086 175,287 real growth 0.92 1.10 1.18 1.08 1.08 1.06 1.06 1.06 1.06 InternallyGenerated Rev. 18,134 18,294 26,298 32,095 50,000 64,975 74,390 83,584 93,030 103,542 real growth I.oo 1.26 1.06 1.30 1.15 1.07 1.06 1.06 1.06 Miscellaneousrevenues 1,075 2,478 1,235 1,897 2,000 Grants 2,571 748 4 3,854 1,000 FederalGovt.Transfem 13,991 13,757 16,060 22,639 28,000 31,143 34,989 38,943 42,934 47,335 real growth 0.86 1.02 1.22 0.96 1.06 1.05 1.05 1.05 1.05 VAT allocation 6,050 8,554 8,880 10,337 13,149 16,047 18,028 20,066 22,122 24,390 real growth 0.95 1.16 1.04 1.06 1.08 1.05 1.05 1.05 1.05 2. Total Expenditures 44,131 59,405 51,126 63,645 86,202 100,266 123,212 140,173 155,847 173,332 real growth 1.18 0.75 1.08 1.13 1.09 1.08 1.07 1.06 1.06 Total Recurrent Expenditure 40,213 53,333 42,608 48,719 68,500 80,885 93,339 105,974 117,784 130,968 real growth 0.70 0.99 1.14 1.08 1.08 1.07 1.06 1.06 PayrollCost 9,000 12,914 13,262 16,040 20,000 24,408 27,684 30.812 33,646 36,742 realgrowth 0.90 1.05 1.04 1.08 1.06 1.05 1.04 1.04 1 1,155 2,062 960 1,290 E E d C o s t 26,508 34,990 24,481 27,217 43,000 52.477 61,204 70,067 77,984 86,796 realgrowth 0.61 0.97 1.32 1.08 1.09 1.08 1.06 1.06 Subventionsand miscspending 1,405 960 1,279 I DebtServiceExternal 3,550 1,962 2,945 2,893 3,500 4,000 4,451 5,096 6,153 7,430 real growth 1.32 0.85 1.01 1.01 1.04 1.08 1.15 1.15 CapitalExpenditure 3,918 8,072 8,518 14,928 19,702 25,381 29,873 34,198 38,063 42,364 real growth 1.36 1.23 1.52 1.10 1.14 1.10 1.08 1.06 1.06 Deficit -4,310 -17,574 1,131 7,177 5,948 5,899 4,195 2,420 II 2,240 1,935 Financing 7,261 13,042 -3,525 -4,270 -6,025 -5,320 -4,615 -3,912 -2,470 Newborrowing,domestic 7,261 13,930 0 0 DomesticDebt repavment,Bonds 888 3,525 4,270 6,025 5,320 4,615 3,912 2,470 Source: IDA'Sestimates based onthe data from LASG. I B. EconomicAnalysiss5 209. The project has the following components: Infrastructure: US$l65.35 million 0 Upgrading(US$40.15 million, 24.2%) 0 Solid Waste (US$63.82 million, 38.5%). Drainage (US$61.38 million, 37.1%) Public Governance and Capacity Building: US$5.97million B (i): Public Finance Management Reform (US$3.97million) B (ii): Economic Intelligence and ServiceDelivery Monitoring (US$l.70million) B (iii): Leadership Enhancement (US$O.03 million) C: UrbanPolicy and Project Coordination: US$12.13million Upgrading(US$40.15 million) 210. This section deals with the economic appraisal of the upgrading sub-component of the infrastructure component. The upgrading o f high density urban settlements lacking in basic infrastructure (adequately paved roads, potable water, drainage, and street lighting) and social services (schools, clinics, community 55 All Naira amounts inthe Economic Analysis sectionofthe PAD are from surveys done by LASURAwith technical support from Stoveland Consult in2002. 83 buildingsand facilities), are generally occupiedby lower income groups. The identification andprioritization o f community investment interventions was undertaken in 9 o f the largest slums out o f 42 that had been identified in 1995.These 9 slums lie in6 LGsof Lagos State, andhave an estimated total population of about 1.1 million. They occupy about 765 hectares, 60% of which is prone to flooding. Per hectare planned investment i s aroundUS$53,790 plus contingencies. 211. It is premised that establishingpartnerships between LASG, LGs, and beneficiaries of upgrading in would enhance the cost-effectiveness o f the planned investments, as the interaction will lead to geographically targeted public expenditures that are responsive to needs, priorities and demands o f the communities. The significant on-site investments will improve the physical environment and the quality of life within the settlements, and would also result in increasing economic activities leading to economic growth inthe upgraded areas, higher labor productivity and enhancedwelfare o f the people. The secondary benefits o f improved property tax base will have potential to generate more public resources for better financing of operations and maintenance, thereby increasing the potential for sustainability o f the infrastructureand the benefits derived from it. 212. Systematic analyses of the slums in Lagos dates back to a 1984 UNDP study. Employing some 36 indicators, which mainly reflected access to basic infrastructural and social services, the UNstudy identified forty two (42) settlements and ranked them in descending order of priority, "1" being the most severely deprived area. The analysis of the 42 areas was updated in 1995 in a study for the Lagos State Urban Renewal Board (LASURB) by SNC Lavalin, known as the Lavalin Report.56 This report confirmed the existence o f the 42 settlements and described their physical, environmental and socio-economic characteristics. The report also sought to again rank the areas in terms of priority, this time using revised criteria which also took account o f settlement area (size) and population. Out o f these 42 slums, 9 slums that together accounted for almost half the total area identified for upgrading, were selected for inclusion under this Project. Summary data on the nine settlements arepresentedinTable 9.4 below. Table9.4: Basicattributesof selectedareas Rank 56 Lagos State RenewalBoard, Community Infrastructure UpgradingProgram,September 1995, SNC Lavalin InternationalINC, in associationwith SNC LavalinNigeria Ltd. This studywas fundedunderthe Bank Assisted LagosDrainageand SanitationProject (CR25 17). 84 Density j Percent ! (persons/ j Populatio I Percent ....... h%! ii......... .......... n !j I--'Area ' ! ................ ....... 1i ! 1.1 . ............ 1.OSS..".........."i.-................7s/, I 8% 1242 i l - . ~ ".... I 100% 1100% Source: Stoveland2002 and Lavalin 1995. 213. Assessment of the Scale of UpgradingNeeds in Lagos. LASG officials estimate that some 70 percent of the urban population, and a similarly high percentage of the urban poor, live in areas which lack basic services, As a result o f poor environmental conditions water born disease such as malaria, hepatitis and intestinal diseases are rife. While reliable statistics do not exist, it i s generally believed that these areas are growing very fast as a result of inmigration as well as natural increase inpopulation. Significant sections of these low income areas are severely deprived. Many are subject to severe flooding during the rainy season, flooding inwhich sewage, drainage and surface water enters many houses, sometimes up to waist high. 214. Selection of Slums. In2002 the Bank supported Lagos State Urban Renewal Board (LASURB) in undertaking a review o f the Lavalin Report. This review was conducted with the help o f Norwegian consultants: Messrs Stoveland C~nsult.~'TheStoveland report^,'^ together with the earlier work undertaken by Lavalin, provide thefoundation for current initiatives. Based on criteria provided by IDA, each State identified settlements or communitieswithin the city which lack (i) basic essential municipal services so that the communities live in risky and environmentally degraded conditions, and (ii)communities with population density o f not less than 200 people per hectare. These criteria ensured that the settlements selectedwould be poor, andthat a large number o fpeople would benefit from on-site project investments. 215, Water and electricity. Infrastructure constraints for residents inLagos exist inthe form o f inadequate access to piped water supply and electricity. As a result, households spend more on buying water from the vendors and spending on generators. For instance, with respect to access to water supply, the survey in2002 shows that 64% o f the surveyed households buy water from vendors, 25% get water from boreholes, 5% from standpipes. Among the households that use vendors, 59% get water from private neighborhood tap, 35% from mobile vendors and rest from vendor for Lagos State Water Corporation (LSWC) standpipe or others. Only 15 households in the entire sample o f over 1000 households have private house connections. Average monthly expenditures on water were about 1000 Naira (US$7.80), and given that the supply is dominated by vendors and from boreholes, about 75% report satisfaction with respect to reliability and quality. Only 0.7% o f the households are equipped with electricity but 83% o f the respondents are satisfied with their electricity supply. About 97% o f the households use kerosene for cooking and spend N616 per month. 216. Sanitation. With respect to humanwaste/excreta disposal, 46% use pit latrines, 37% pour-flush, and 6.5% have no toilet facility. A significant number of households in Badia (19%) and Bariga (26%) do not have any kindo f toilet facility. In77% o f the cases, the toilet i s inthe compound. 9.6 households share one toilet, and average monthly expenditure on sanitation i s about 114 Naira (US$0.88) but households in Ilaje (N 268) and Bariga (N 178) pay much higher. Half of the surveyed households pay to use the toilet. However, there is extensive defecation in open spaces, and half the people who use toilets express satisfaction with sanitation while 90% prefer a toilet inside the compound. With respect to solid waste ''Lagos State Government,LagosMetropolitan DevelopmentProject, May 2002 StovelandConsult, Kristiansand, Noway (Outputs, 1-3). There are severaldocumentsdone underthis study. 85 disposal, bout 84% dispose of their solid waste by dumping ground inthe neighborhood and 16% use truck pushers/private refuse collectors. 80% of the surveyed respondents are satisfied with their solid waste disposal. 217. Flooding. More thanhalf of the households experience flooding outside their homes, while a fifth o f the people suffer flooding inside their homes with refuse and raw sewage being swept in. Floods are on an average knee deep both inside and outside the house, last over five hours, cause immense economic hardship and are a severe healthhazard. 218. Household expenditure. The average monthly expenditure of the households i s 16,092 Naira while the self-reported average household income i s Naira 22,164, so there i s a potential for monthly savings. Almost 20 percent o f a household's monthly expenditure is on transport. Housing represents 6 percent o f expenditures, education 12percent, health 6 percent, food 52 percent, and energy 6.5 percent. The resources spent on each o f these items appear consistent across slums though spending on education shows significant variation. Mean expenditure of flood relatedrepair i s Naira 8,500. Table 9.5: SDendingon consumDtionitems (Share of total exDenditure) 219. More than 85 percent of all slumhouseholds have TV and more than 90 percent of slumrespondents inAjedunle andIjeshatedohaveTV. Motorbike, telephone andAC are mostexclusive assetitems. 220. An overwhelming majority, 95 percent on the households inthe nine slums pay for some services, primarily for water and schools. Only 27 percent pay for drainage and 3 percent for roads. However, 77 percent o f the interviewed residents are willing to pay for improved storm water drainage with the average amount o f 89 Nairaper month. 221, Prioritization of Community Demands. Socio-economic surveys conducted by Stoveland Consult identified communitypriorities (as opposed to individual household priorities) as perceived by households. Itis evidentthat drainage is the most importantpriority -itisrankedfirst inAjegunle, Ilaje, Agege, andItire followed by roads which ranks secondinthree slums. Economic EvaluationMethodology 222. International experience with slum upgrading shows that every US$1 invested by the public sector in slums leverages US$7 of private inve~tment,'~indicating that one of the main benefits arising from slum upgrading i s from enhancedprivate sector economic activity due to an improvedphysical environment. The post-construction evaluation of the demonstration upgrading intervention in Badia in 25 hectares under a 59"Infrastructure Provisionfor the UrbanPoor: Assessing the Needs and Identifyingthe Alternatives", Christopher Banes, John Kalbermatten, andPietNanhan, TWU-OR 8, General Operational Review, InformalMay 1996. 86 previous IDA supported project, has also affirmed that slum upgrading program in water supply, roads, drainage, sanitation, solid waste, street lighting, schools and clinics inLagos, would leverage similar private sector investment response as in other regions of the world, but, under certain conditions: community participation to ensure community priority, local and state government partnership, attention to quality in implementation. 223. The experience from Badia provides additional local parameters against which to test the economic evaluation of LMDGP. The intervention in Badia was undertaken between May 1997 and May 1999. Its evaluation was done in 2001 and summarized in a report6' The report provided the shortcomings and strengths o f the approach used in designing and implementing such project in Lagos. Further, as part o f the economic appraisal of LMDGP, the Badia demonstration project was again reviewed in 2005 during pre- Appraisal o f LMDGP. This review confirmed that the main benefit of investments in slum upgrading is its impact on economic growth due to the favorable environment created which stimulates private sector activity. In Badia, a total o f 61 business activities were started by the private sector in those areas where public investment had improved the physical environment. The present economic evaluation assumes that lessonslearnt duringthe Pilot phase are applied inthe design and implementation o f this component. Investmentcost 224. The proposed investment cost o f urban upgrading i s on the average US$53,790 per hectare. It is constrained by availability of funds, partly to elicit economic demand for proposed investments during the design stage, and partly to select lumpy investments under this Project to encourage incremental upgrading by public and private entities. The expectation is that the investments will bring about improvements inthe lives of about 1,400 people improve conditions for about 280 households per hectare o f slumarea upgraded. Mainbenefitof slumupgrading 225. The mainbenefits of the Upgrading sub-components of the LMDP are: (i) Reduced flood damage-cleaning-up and road maintenance expenses. (ii) Reduced income loss due to sickness andmedical expenses (iii) Increasedeconomicgrowth 226. Reducedflood damage-cleaning-up and road maintenance expenses.The analysis indicates that both direct and indirect damage takes place to private houses, household goods and public infrastructure arising from storm water flooding and tidal floods from the nearby lagoon. Assessment o f damages due to this routine flooding was based on sample of households identified inthe Stoveland reports as affected either by storm rain flooding or by tidal water flowing into the canal upstream. Based on historical data, about 60 percent o f the households in the slums experienced flooding. It is estimated that on an average a household livinginflooded areas have cleaningup expense andrepairs ranging fromN2,000 to N18,OOO per household per year. Inthe upgradingarea the lower of the two cleaning up costs is assumed for estimatingthe benefit at 60 percent of the households. 227. The lack of drainage also adversely impacted the road network. The Public Works Department had estimated that under the climatic conditions o f Lagos, up to 10 percent o f the road asset i s lost per year due the inadequate drainage. With drainage, current average estimated maintenance costs are 3.7 percent of plannedroad investment. 228. Medical expenses and income losses. A major expected benefit of the LMDGP is the reduction in the incidence of sickness due to a decrease inthe prevalence o f disease. Increased incidence o f water born diseases are associated with poor storm water drains, environmental air pollution due to uncollected waste and dust, water and sanitation services and a lack o f hygiene. Reduction in the prevalence o f these diseases 6oStoveland2002. 87 would result inlosses o f fewer working and school days due to sickness, and may result inlower household medical expenses. 229. In 1997, when the Badia demonstration project was initiated in Apapa LG, there was no health centre. The upgrading provided two health centers; a third privately owned health center now exists. The Oljowon PHC61is one of the three inthe area. Itprovides services to about 100 children per day onTuesdays and Thursdays for Naira 20 per visit. About 30 to 40 outpatients receive treatment every day also for Naira 20 per visit. There are two to three babies delivered every week for which fees charged are Naira 500 per delivery. These costs do not include the cost o f medicines. The clinic has 18 staff, 7 nurses, 8 health aides and 3 community health officers. According to the clinic records, the major sources o f sickness are due to water born disease and the general condition of the environment. Since the improvement o f water supply and improvement in the environment, the frequency of incidents of water borne disease has significantly decreasedinBadia. The average total cost annual household medical expensesbefore the interventionwould be Naira 1000. It i s estimated that an improved environment could save households 25 percent of the total cost i.e. savingo f Naira 250 per household after upgrading. 230. Income losses due to sicknesses are also significant. On the average, at least 4 working days are lost per year per capita due to sicknesses. An average household size o f 5 people, would lose 20 days ina year. Assuming that only 25 percent of the days lost are due to waterborne diseases (excluding malaria), with an average household income o f Naira l6,000/month/household, the total income lost per household per year (300 days) will beNaira2800 per year. About 50 percent will be saved do to an improved environment. 231. Increased Economic Growth. The improved amenities due to upgrading create a favorable business environment. Duringpre-Appraisal of the Project, six years since the demonstration project was completed, the field review revealed significant business start up after upgrading. The improved paved roads and drainage has made the area attractive - over 61 new businesses consisting o f retails, photo shops, welders, food program, furniture shops, tailors, nursery, rental properties, public facilities, flour mills, salon and restaurants along these roads have come up. These enterprises are assumedto provideNaira260 per day over 300 days a week inwages andprofits. 232. Results of Economic Analysis of the Urban Upgrading. The economic rate of return o f infrastructure investments under the urbanupgrading sub component i s 21 percent; and the net present value at 10 percent discount rate i s Naira4.5 millionper hectare. 233. Sensitivity Analysis of the Urban Upgrading. Sensitivity analysis was undertaken to evaluate the impact o f changes in costs and benefits on NPV and ERR base case estimates. A combined increase o f 20 percent intotal costs and a decrease of 20 percent intotal benefits resulted inERR o f 7 percent and NPV o f (Naira 0.1.6 million). Also the relative contribution of each type o f benefits to the overall component was estimated. The results of such analyses indicate that the ERR and NPV are impacted mainly by changes in the business activities arising fiom improved physical environment o f the project, indicating that along side the investment, apro-business environment would ensure the expected economic benefit. Drainage and Solid Wastesub-components (US$126.2 million) 234. In addition to the sizable population living in slums, the people of Lagos suffer from major infrastructure problems which significantly affect the economic efficiency o f the urban economy, as well as the social well-being of its people. In particular, the drainage system i s inadequate and very badly 6'A visit to the clinichighlighteda substantial negligenceofthe buildingsince itwas constructed. These includenon-workingfans, toilets, etc. Under LMDGP every contractor shouldberequiredto visitthe Badiapilotprojectto ensure that qualityofworks is improved. 88 maintained, leading to widespread flooding inthe rainy season, deterioration of urban roads and unsanitary conditions in many low income areas almost all year round. Solid waste disposal and environmental management is most inadequate. 235. The main road systems are highly congested and poorly maintained. The result o f all these constraints i s that businesses costs have been estimated to be some 30 percent higher than they need be because o f inadequate infrastructure and public services. LMDGP also attempts to reduce the cost of doing business through public sector investment indrainage and solid waste management system. 236. Drainage sub-component (US$62.38m). Regular flooding of large parts o f the city, including at higher elevations, i s the single most important infrastructure recurrent problem for the city, as the flooding causes enormous damage to property and infrastructure. US$20.0 million o f the total investment for sub- component i s allocated inthe first year for dredging o f 118 km of length o f the channel in Lagos. The 773 hecatares under Ajeromi Ifelodum and Mainland LGs, are home to a total estimated population of 0.66 million. In these LGs, rehabilitation and reconstruction o f about 16.06km drainage works are planned at a cost US$32.3 million. With improved drainage, about 137 km of Federal and State road network, with replacement value o f over US$70 million, would have expected life of 20 years with regular resurfacing every seven years and annual maintenance. However, under rainfall conditions of Lagos, coupled with poor drainage, the economic life of the road asset would significantly shorten. With the implementation of the planned investments, incidence of flooding inside houses and flooding on streets will be substantially reducedinthe selected LGsresulting inreduced clean-up expenses o f households and businessesaffectedby flooding. The incidence o f siclcness due to poor environmental condition will be reduced. The improved environment i s likely to contribute to higherproductivity, economic growth and propertyvalue. 237. Solid Waste sub-component (US$63.82m). Currently, Lagos generates between 4,000 tons to 6,000 tons of waste per day. Forty-two percent o f the households have their garbage collected by the private operators appointed by the Government, and 39 percent by truck pushers or informal collectors, 11percent dump their garbage inunauthorized areas, 4 percent dump it within their compound, 1percent deposit it in garbage bins provided by the Government, and 3 percent report using "other" mead2. About half the garbage collected in Lagos, arrives at the three official dumpsites. There are therefore huge piles of solid waste buildingup within the city limits as can easily be seen when drivingthrough the city. These piles are located where the proposed transfer stations will be designed and located. Thus, an inadequate solid waste management (SWM) system contributes to frequent flooding and frequent dredging. The improvements in S W M system would leadto effective drainage system operation. Economic Evaluation Methodology 238. Engineering investigations o f the drainage and solid waste sub-components will be start before the Project is presented to the Board. In the absence o f the detailed information that the engineering studies would provide, the economic rate o f return and net present value estimates for the drainage and solid waste subcomponents are based on average investment cost per hectare and expected average benefits per hectare. The approach i s therefore similar inthat it i s based on per hectare investment. However, the benefits of the investments in solid waste are taken into account. Both the solid waste disposal and drainage improvements are expected to have direct benefits for the population living inthe two LGs where the drainage systems for reconstruction are located - Ajeromi Ifelodum and Mainland. Coupled with the cleaning o f the entire drainage system inthe easternpart of Lagos, there will be system wide impact for the rest o f the population inthe metropolitan area. However, it is the former andnot the latter benefits that are taken into account in estimating the benefit o f the project, indicating the resulting economic rate o f return i s likely to underestimate the benefitof the investment. `*2005 HouseholdSurveyby the CentralOffice of Statistics, Lagos, MEPB. 89 Investment cost 239. Since only two of the six drainage systems in eastern Lagos are included for reconstruction under LMDGPdue to a lack ofresourcesinthe Project, the averageresource allocation is US$163,260 per hectare. The estimated population density i s about 1,400 people per hectare or about 280 households per hectare. MainBenefits 240. The main benefits of the Drainage and Solid Waste Subcomponents o f the LMDGP can be summarized as follows: (i) Reducedcleaning up and damagerepair costs as well as areducedroad maintenance expenses. (ii) Reducedincome losses for households due to sickness andmedical expenses (iii) Increasedeconomicgrowth,and (iv) Reducedfrequency o f de-silting o f the drainage channels. 241. Other benefits such as savings in travel time due to reduced impact o f storm water flooding o f the road network, and savings in vehicle operating costs due to use of longer alternative routes during flooding are not included. This indicates that the estimated economic rate o f return for the drainage and solid waste subcomponents i s likely to be more conservative. 242. Reducedjlood damage, and a reduction in expenditures on maintenance. An estimated 137 km o f Federal and State road network with replacement cost of some US$70 million road asset is exposed to regular flood damage in the two selected LGs. 55 percent of the households inAjeromi IfeldomLG and 64 percent o f the households inMainlandLGreported flooding inthe streets inthe past year. As noted above, the Public Work Department had estimated that under the climatic conditions o f Lagos, up to 10 percent of the road asset is lost per year due to lack o f adequate drainage. Without proper drainage, current life expectancy of 20 years i s significantly shortened. Where there i s proper drainage, average maintenance cost estimate i s 3.7 percent of plannedroad investment andresurfacing cost is about 10 percent o f the investment cost. 243. Reduced clean-up expenditure burden on households. Based on the recent household survey data collected by MEPB's COS in 2005, 25 percent o f the households in Ajeromi IfeldomLG and 33 percent o f the households inMainland LG experienced incidents of flooding inside their homes. It i s estimated that on an average a household living in flooded areas incur expense for cleaning and repairs ranging from Naira 2,000 to Naira 18,000 per household per year, or an average o f Naira 8500 per household per year. The average cleaning up cost usedinthe ERRand NPV estimates is N5,100. 244. Medical expenses and income losses. A major benefit o f the LMDGPi s expectedto be a reduction in the incidence of sickness due to a decrease inthe prevalence o f disease. Reduction inthe prevalence of these diseases would result in losses of fewer working and school days due to sickness, and may result in lower householdmedical expenses. Although a review o f expenditures o f the households indicates a higher amount of expenditure, Naira 6,565 to Naira 14,000 per year per household on health, for this analysis only a saving of Naira250 per householdper year i s assumedas inthe case o f the urbanupgrading subcomponent. 245. Income losses due to sicknesses. Income losses for households due to sickness are also significant, On the average at least 4 days are lost per year per capita due to sicknesses. An average household with 5 members would lose 20 days ina year. Assuming due to waterborne diseases (excluding malaria) to account for only 25 percent of the days lost, with average householdincome o f Naira 16,000/monthihouseho1dytotal income lost per household per year (300 days) will be Naira 2800 per year. About 50 percent o f these expenditures will be saved do to an improved environment. 90 246. Economic Growth. The improved amenities and environment due to trunk infrastructure improvements in drainage and solid waste management, are expected to create a favorable business environment. At pre-Appraisal a fieldreview of the developments inBadia was undertaken. As notedearlier, six years after the demonstration upgradingproject was completed, the review revealed significant business start up (2.2 economic establishments per hectare). It is estimated that each enterprise established in response to improved physical environment as a result o f public investment in infrastructure will generate about Naira260 per day inwages and profits. 247. De-silting of the drainage channels. The lack o f solid waste management system also adversely impacted the drainage operations requiring frequent de-silting. The average cost of de-silting every three years o f the order Naira 1.35 millionper km. Resultsof economic analysis of solidwaste and drainage sub-components 248. The economic rate of returno f infrastructure component i s 16percent; andthe netpresent value at 10 percent discount rate i s Naira 12.8 millionper hectare. Sensitivityanalysis 249. Sensitivity analysis was undertaken to evaluate the impact of changes in costs and benefits on NPV andERRbasecase estimates. A combined increaseof20 percent intotal cost anda decrease of20 percent in total benefits resulted in ERR of 10 percent and NPV o f NO.l million per hectare indicating a robust outcome. Also the relative contribution of eachtype o f benefits to the overall component was estimated. The results o f such analyses indicate that the ERR and NPV are impacted mainly by changes in the business activities arising fiom improved physical environment of the project, indicating that along side the investment a pro-business environment would ensurethe expected economic benefit. 91 Annex 10: Safeguard Policy Issues NIGERIA:LagosMetropolitan DevelopmentandGovernanceProject PotentialLong Term Impacts 250. This Project falls into Environmental Category B. No adverse long-term impacts are anticipated and none were identifiedin the Environmental and Social Impact Assessment (ESIA) report. Project Location and Salient Physical Characteristics Relevant to the Safeguard Analysis 251, The activities under infrastructure investments for upgrading 9 slums will entail civil works in upgrading sub-projects in: Agege, Ajegunle, Amukoko, Badia ,Iwaya, Makoko, Ilaje, Bariga, Ijeshatedo/Itire. 252. The rehabilitationworks inthese slum areas will be inthe following sectors: water supply, roads, footpaths, drainage, power reticulation, private and public sanitation facilities, solid waste management, markets, street lighting, recreational facilities, schools, clinics, community facilities, etc. The final agreement with the communities on the investmentpackages for the nine upgrading areas and their designs would be completed within the first 9 months o f Project implementation, with construction to begin inmonth 15 of the Project. All of the slum upgrading civil works will have an Environmental and Social Impact Assessment (ESIA) integrated into the engineering design scope o fwork. 253. As for solid waste, detailed engineering designs for two to three transfer stations and upgrading o f the existing landfill sites will be contracted out to consultants. ESIA's for these civil works elementswill be a specific component o fthe consultants' scope o fwork. 254. Concerning drainage, a comprehensive hydraulic model (sitting on top o f the drainage GIS layer) will be developed before any serious rehabilitation works are designed for network improvements in two of the six drainage systems in the eastern part o f Lagos. For the first year program, an initial cleaning and drainage channel reshaping, to original design cross sections and vertical slopes o f drains will be contracted out as civil works. These were the primary focus o f the Project specific ESIA carried out for the LMDGP. 255. The ESIA report adopted for this Project contains an Analysis o f Alternatives " "section, and concludes that the Project as presently designed adequately addresses its development objectives, without creating irreversible adverse impacts on the bio-physical and social environment. 256. The report further maintains that the 'do nothing' scenario implies that the current state of drainage deterioration will continue to such a deplorable condition that it would become unsafe for the general public. It will also result inhigher incidence o f outbreak o f diseases, leading to high mortality rates. Residents o f these low-income slum areas that are deprived o f basic services will also be denied reliable facilities. Therefore, the 'do nothing' alternative would worsen the present situation inthe proposed interventionsites and exacerbatepoverty. 92 Measures taken by the Recipient to address safeguardissues: 257. DuringProject preparation, an Environmental and Social Impact Assessment (ESIA) and a Resettlement Policy Framework (FWF) were prepared by LASG. 258. The main features o f the ESIA are: (i) outline o f the potential environmental and social an impacts o f the Project (particularly the drainage component and the civil works associated with the nine slum upgrading areas); (ii)the mitigation measures required; (iii)the management responsibilities, for both implementation and monitoring; and (iv) the cost associated with its implementation. Institutional strengthening will be provided to component executing agencies and participating government agencies to build capacity for identification, monitoring, and managing social and environmental impacts associated with LMDGP. 259. The PCUwill be responsible for the implementation o f the ESIA and FWF recommendations at the SG and LG levels. In addition, the PCU will be responsible for the implementation of the EMP and the environmental monitoring plan. Consultants will be engaged to prepare resettlement action plans as and when necessary. 260. An environment officer from LASEPA has been mapped to the PCU. This officer will be given adequate and specialized training under the Project, and will be complemented with short- term national environmental and social safeguards consultants as andwhen the need arises. 93 Annex 11:Project Preparation and Supervision NIGERIA:LagosMetropolitanDevelopmentand GovernanceProject Planned Actual PCNreview July 31,2002 August 28,2002 Initial PID to InfoShop N/A* InitialISDS to InfoShop N/A* Appraisal January 16,2006 January24,2006 Negotiations January 30,2006 February25,2006 BoardRVP approval July 6,2006 Planned date o f effectiveness October 7, 2006 Planned date o fmid-termreview January 11,2010 Plannedclosing date September 30,2013 *Preparationwas put on holdafter concept stage (2002-2005). Key institutions responsiblefor preparation of the project: LASGMinistryof Economic Planning andBudget (MEPB) LASGMinistry o fFinance (MoF) LASGMinistryo fPhysical Planning (Lagos State UrbanRenewal Authority) LASGMinistryo fEnvironment (Office ofDrainage Services) Lagos State Waste Management Authority (LAWMA). Bank staff and consultants who worked on the Project included: Name Title Unit Task Team Deepali Tewari Task Team Leader AFTU2 Manga Kuoh Co-Task Team Leader (Governance) AFTPR Joseph Gadek Sr. Sanitary Engineer AFTU2 Lev Freinkman Sr. Country Economist AFTP3 KirtanC. Sahoo Environmental Specialist (Carbon Finance) ENVCF Hisham Abdo Kahin Counsel LEGAF Chau-Ching Shen Sr. Finance Officer LOAG2 SandraCointreau Solid Waste ManagementAdvisor TUDUR Afi-ka Olojoba Sr. Environmental Specialist AFTS3 Chudi Okafor Sr. Social Development Specialist AFTS3 Bay0 Awosemusi Sr. Procurement Specialist AFTPC MaryAsanato Procurement Specialist AFTPC Gert van der Linde Lead Financial Management Specialist AFTFM Adenike Oyeyiola Sr. Financial Management Specialist AFTFM DanAronson Consultant (Social Scientist) AFTU2 Chii Akporji Communications Officer, Cities Alliance TUDCA Sudeshna Banerjee Young Professional AFTUl EphremAsebe Consultant, Economist AFTU2 KimPimenta InformationAnalyst ISGCR Virginie Bocard InformationAnalyst ISGCR MayaEl-Azzazi Program Assistant AFTU2 94 Mary Zackius-Shittu TeamAssistant AFc12 Modupe Olorunfemi Team Assistant AFc12 Peer Reviewers Robert Buckley Advisor, UrbanHousing TUDUR Lance Morrell Lead Operations Officer AFTUl Bank funds expended to date onProjectpreparation: 1. Bankresources: Prior FiscalYears: US$420,104; Current FiscalYear US$418,997.78 2. Trust funds: US$82,000 (TF040164) 3. Total: $921,101.78 EstimatedApproval and Supervision costs: 1, Remainingcoststo approval: 0 2. Estimated annual supervision cost: US$250,000 95 Annex 12: Social Issues and Stakeholder Participation NIGERIA:Lagos Metropolitan Development and Governance Project Introduction 261. The social developmental challenges that face Lagos State include both inequality and deprivation. Rapid urban migration, pervasive government mismanagement stemming from the national level, and the aging of Lagos urban infrastructure have led to a legacy o f mismanagement and the degradation of housing stock, institutions and social capital. The slums are mostly in the oldest settled areas of mainlandLagos, and especially in marshy areas and areas near the lagoons, They are crowded one and two-story warrens o f virtually unregulatedhousing on ad hoc streets and alleys, More than 75 percent o f the people live in one room households, with a density of 4.6 persons per room. Eight to ten families live in one house structure, sharing common cooking and sanitation facilities, with about 40 people competing for the use of one unimproved latrine in the mornings before school or work. More than half the workers work in construction, skilled crafts, factories, fishing or trading, with petty trading being the most dominant form o f self-employment. Most are renters, with home ownership being high only among the fishing communities along the lagoon, where wooden houses are built on stilts andthere are no toilet facilities. Diarrhea, hepatitis, typhoid, cholera and malaria are the most common diseases, and 66 percent o f the diseases affecting children under the age o f five are related to poor water quality and lack o f access to sanitation. Poorly constructed, clogged drains mean that more than half the households experience flooding outside their homes during the rainy season, while about one fifth suffers flooding inside their homes with refuse and raw sewage being swept in. Floods are on an average knee deep both inside and outside the house, last over five hours, cause immense economic hardship, and are a severe health hazard. 262. Dismal statistics represent the outcomes o f social, economic and institutional processes. The long preparation process for this Project has enabled the gathering o f extensive knowledge o f these processes, and the mechanisms through which they impinge upon households and communities, informed the design and operational relevance in the Project. Participatory and consultative mechanisms have involved representatives from public, private, non-governmental, co-operative and community actors, includingrepresentatives from groups living in slums. The Project has also applied the lessons from the earlier Bank assisted Lagos Sanitation and Drainage Project, which carried out a pilot urban upgrading program in the blighted Badia community by building on the capacity o f State and LG agency staff in consultative planning, through an intense participatory process to identify community needs and priorities. This annex outlines how the community needs have been assessed and sets out the Project responses to the issues facing urban upgrading. Social Aspects and Effective Demand Driven Responses 263. Surveys and workshops conducted during Project preparation addressed the following social factors: demographic characteristics o f the slum population, poverty and gender issues, educational levels andpatterns o f employment, income levels and distribution, housing conditions and levels of access to social services and infrastructure, and affordability and willingness to pay for services. The upgrading subprojectswere developed inresponse to the expressed demand o f the beneficiaries in the following nine slums: Agege, Ajegunle, Amukoko, Badia, Iwaya, Makoko, Ilaje, Bariga, 96 IjeshatedoAtire. These slums were selected because a 1995 comprehensive study of living conditions in Lagos identified them as the largest slum areas. The nine cover an area o f 760 hectares and have a current population estimated at over 1.1million people. The nine communities expressed needs and priorities that have been packaged into multi-sectoral investment programs: streets, footpaths, foot bridges and walkways; water supply; drainage; schools; health centers; public sanitation facilities; market stalls; electricity transformers; street lighting; community centers; postal stations; fish smoking facilities; floating jetty with petrol station; and box culverts. As designed, the upgrading packages have largely avoided the need for any involuntary resettlement, because most of the investment is inrehabilitation, and unoccupied community sites have been identified for nearly all the new construction. A Resettlement Policy Framework has beenpreparedto provide the basis for resettlement inthis as inthe other Project components, should any need for displacement beunavoidable. BenefitsandBeneficiaries 264. It is estimated that more than 1.1 million people live in the nine Project areas which will benefit from improvedwater supply; improved solid waste management; better sewerage facilities; improved drainage; and improved health and living conditions. The slum upgrading will also substantially improve the public health condition and lives o f women and children, who constitute the majority beneficiary population. It is to be emphasized that the slum areas included in the Project are not Local Government Areas (LGAs), because Lagos LGAs typically have varied neighborhoods in terms of socio-economic status, age o f infrastructure, and vulnerability to flooding and other nuisances. The slum areas chosen are those parts o f LGAs which have the most physical challenges. BeneficiaryParticipationinPreparation 265. IndesigningthisProject, astakeholderparticipationapproachfor selecting subprojectsinthe slums was applied. Discussions were held with local government and state officials to ascertain existingproblems, constraints, and local development priorities. Surveys of households identified both physical conditions o f dwellings and the socio-economic circumstances o f the households within them. Focus of group discussions with the private sector, officials of the drainage department, and community leaders and extensive consultations with NGOs aggregated the priorities ofbeneficiaries, and communities' capacity and willingness to pay for services, which was a critical input inthe designmethodology and a likely implementationchallenge. Three consultative workshops were also held with civil society organizations, organized around sector themes (environment and physical planning, accountability and governance, and micro-enterprise development) to develop recommendations for the design o f a participation plan; review the investment proposals; and indicate the need for associated policy reform measures. These consultations were specially designed to assess the situation o f the urbanpoor in slum areas. The findings assisted the Project teams to know how the affected communities fit into the larger citywide situation o f poverty. The findings also suggested the ability o f individuals in these communities to mobilize non-monetary assets such as social capital, protect existing assets and build on those assets for their well being. Research and community development staff who participated inthese surveys and consultations have been retained inplace by the LGA service and byLASURAto bringtheir experienceto the implementationphaseo fthe Project. 97 266. To elicit economic demand from communities, a planningfigure of US$30,000 per hectare, derived from upgrading experience inNigeria and elsewhere, was used to enable communities to make choices o f what investments would be included in a program for their area, within a budget envelope. Communitieswere also confronted with capital cost contributions and O&M implications for different infrastructure and service levels presented to them graphically through pictures and base maps. This iterative process was further informed by a quantitative assessment o f priorities, which also established a base line for monitoring impacts. LG engineers and planners then turned the community's list of demands into coherent plans. No less than 83 stakeholder consultative meetings, 19 community level meetings, 16 working sessions with LGs, and 2 urban forums in addition to meetings with senior State officials were held before the subproject proposals were finalized. These proposals reflect a compromise between community preferences, feasible options interms of availability of land, technical requirements and financial constraints, and, notably, the adoption of standards that exist inareas contiguous to the slum area, i.e. the LG standards. BeneficiaryParticipationinImplementation 267. The Project includes provisions for the continued participation o f beneficiaries and community groups inimplementation. Iti s generally recognized that such grassroots participationi s vital to the sustainability of the investment. There will be a series o f consultative workshops with organized private sector, staff, and civil society as well as participation from LGs, state agencies, traditional leaders, CDAs, academics, and urban practitioners to hrther define the roles and fhctional mechanisms for participation for a muchneededbroad debate on policy issues that affect all stakeholders in the metropolitan area. Such forums are targeted to policy and academic audiences and are positive steps in the State Government's effort to engage citizens in developmental dialogue. A diagnosis of civic engagement inLagos was completed by IDA during the Lagos Strategy process, and this will inform the deepening o f both these mechanisms, as appropriate. Startingwith a strong "community focus," and a strategy of bottom up planningwith hllparticipationofallstakeholdersatcommunitylevel, theProjectthenmovedupwardtoreview collaboration at local and State Government levels. The services developed are what people want and which they are willing to pay for; and the primary approach used in the upgrading include providing basic infrastructure and facilities without demolishing existing settlements or relocating the people. The Project also ensured that the gender issues are incorporated in the planning and implementation, and that women are involved in decision making so that their interests and that of their childrenwouldbeguaranteed intheimplementationofthe Project. 268. The roles andresponsibilities of all stakeholders within the Project are clearly defined. Each community i s expected to play a central role in making the services sustainable. The Project will utilize existing structures within the community to handle some aspects o f the Project such as consensusbuilding, andmaintenance. CoordinationofInputs 269. The Community Technical Committee (CTC), made up of community leaders, women, youth, traditional rulers, Community Development Association, NGOs and a representative o f the private sector will be the focal point o f contact between the community and the Project. The main focus will be ensuringthat the community i s kept well abreast o f all Project related informationina 98 timely manner, to enable the Project to achieve its objectives. The CTC is specifically expectedto carry out the following: Carry out information, education and communication activities with the Local Government Project Unit. Ensure that adequate information is disseminated to communities affected by the Project, includingthe specifications andbudgetsfor each subproject. Attend `Procurement Committee' meetingsthat discuss projects from their area and inform the community accordingly. Ensurethat the PUfollows through agreementson `procurement matters. Report on the progressand stateo f completion of contracts. Mobilize the community prior to the implementation o f subproject preparation, ensuring the participationofwomen andmarginalized groups inthe community. Facilitate community public meetings, through a simple democratic process with a view o f sharing all Project related information and reporting on progress, and eliciting any community concerns with any aspect of the Project for prompt communication to the PSC, PCUandIDA. Be available to meet with members at all times to hear andresolve any issues that may arise duringpreparation and implementation, including expediting meetingswith other members of the PU, ifnecessary. Linkto the conflict resolution mechanism inthe Ministryof Justice ifdisputes or complaints cannot be resolved within the community or with Project authorities. Ensure that all quarterly PUreports are sharedwith the community inan agreed uponpublic place, for example, inthe local school, or LGoffice. Inform the rest o f the community about the date, time and venue o f the opening o f financial bids after technical evaluations are over, so that interested members of community can be present. Challengesand Opportunities 270. A growing body of evidence is showing the linkages between empowerment and improved Project performance, better governance, and growth that is more pro-poor. Empowering poor women and men requires the removal o f formal and informal institutional barriers that limit their choices and prevent them from taking action to improve their well being. Since social, cultural, political, and economic conditions vary, and institutions are context-specific, reform strategies must vary withthe context. The design ofempowerment strategies inthe social mobilizationprocess for the LMDGP will therefore focus on four key elements inorder to change the nature o f relationships andlinkages of poor people andtheir organizations. These four elements are: Access to Information. Informationi s power. Informed citizens are better equipped to take advantage of opportunity, access services, exercise their rights, and hold state and non-state actors accountable. Critical areas where information is most important include information about rules and rights regarding basic services, financial services and markets. As part o f its systematic communication strategy, the PCUwill prepare on a monthly basis, a simple and comprehensible monthly newsletter which will be distributed electronically to a list o f 99 NGOs, and translated inYoruba or another local language for distributionto the CDAs, and for postingbythe Project Unitsinapublic place inthe LGoffices. 0Inclusion/Participation. Inclusion of poor people and other excluded groups in decision makingis critical to ensure that limitedresources buildon local knowledge and priorities, andbuildcommitment to change. However, sustaining inclusionandinformedparticipation requires changing the rules so as to create space for people to debate issues andparticipation inlocal priority setting, budget formation, and delivery ofbasic services. Public access to information on contracts and schedules will change prior practices, and the community spirit, mobilization, andwatchfblmonitoringby CDAs and CTCs will mark anew openness to popular consultation for infrastructure operations inNigeria. 0 Accountability. Accountability refers to the ability to call state officials, public employees or private actors makingthem accountable for their policies, actions, and use o f finds. States, Local Governments and Communities must have horizontal or internal accountability mechanisms, andmust also be accountableto their citizens and clients for their performance. Therefore, monitoring performance o f the social development outcomes o f this Project will beundertakenbyanindependentconsultant. 0 Local Organizational Capacity.Local organizational capacity refers to the ability o f people to work together, to organize themselves, and to mobilize resources to solve problems o f common interest. Organized communities are more likely to have their voices heard and their demands met. In order to undertake these roles, CTC would undertake capacity building training in the following areas: computer training, workshops and seminars on planning, andmonitoring andevaluation etc. 0 Mechanisms to Create Social Sustainability. Sustainability will be a vital aspect o f the program to ensure local ownership, take advantage o f the high energy in community associations, and build commitment to long-term conservation o f constructed facilities so that the investments do not need to be repeated every few years and LASURA can go on to the upgrading o f the rest o f the city's slums. A seven-part social sustainability programwill support but also test what citizens can do to keep the government's investments throughthe Project operating properly and yielding benefits to the people they are intended to serve. Social sustainability will be built by (a) continuing the intensive program of consultations with broadpublic opinion inthe nine slums; (b)publishinga Project newsletter that provides thorough Project communication from and to all parties; (c) enabling the communities to continue the process, begun during preparation, o f selecting, reconfirming, and monitoring the within-slum investment programs, and providing labor for them; (d) adding voluntary contributions o f sub-project activities around the investments, by community "add-ons" including school materials, health programs, maintenance services, road hrniture, and other elements; (e) competing through such add-ons for "bonus" subprojects based on the volume and quality of their own "add-ons; (f) generating "community report cards" rating service improvements inyears 4 and 7 o fthe Project on a baseline survey inyear 1; and (g) winning small grants for small community-oriented projects through an upgrading version o f what the World Bank does through "development marketplaces." 100 HIV/AIDSOutreachProgram 271, The upgradingprogram includes support for anHIV/AIDS education and outreach program. These activities will be coordinated and monitored by the PCU with the assistance o f the State Action Committee on AIDS (SACA); the LACA representatives in the LGAs and community leaders in slum sites. The outreach program will be designed to address the needs o f the local population in the Project area, Project and support staff, and personnel from construction and maintenance contractors. Environment, Health and Safety Measures 272. All contracts for drainage, road rehabilitation and maintenance works would be required to address environmental, health and safety issues such as providing for the proper management and disposal o f waste materials, oil, lubricants and fuel, and adoption and use o f proper health and safety measures for construction workers. It will also include information on the need for staff to participate inthe Project sponsoredHIV/AIDS awarenessprogram. Materials Available to the PCU 273. A handbook or toolkit for upgrading inLagos was developed by the Development Control Department o f the Lagos State Urban and Regional Planning Board with help from the Norwegian Government to address implementation challenges. The toolkit systematically explains the methodology for the preparation o f local area plans. It i s a tool for local government planners and community development officers, and provides guidance for enlisting the participation of communities in demand led upgrading. The toolkit will be shared with the State, LGs, and the communities to ensure that there i s a clear and shared understandingamongst all the stakeholderson how the process o f implementation will be managed, and the roles and responsibilities o f the actors involved. 274. A number of studies, some ofwhich are supported by the Bank, informedthe preparation of the Project. These reports or case studies are available inelectronic form as referencematerials. It i s also expected that capacity building and trainings materials would be complemented by field experience. LessonsLearnedfrom UpgradingProjects 275. Specific lessons learnedabout upgrading projects from around the world andreflected inthis Project include the following: (i) Mechanisms for coordination between various stakeholders are a prerequisite for effective implementation. (ii) ownershipbythebeneficiary communityisanessentialprerequisitethatcanbe Project achieved only by effective community empowerment politically (through participatory decision-making), economically (through communities playing a role in O&M on infrastructure), and socially (through community meetings with government by trained facilitators from the community). 101 (iii) Schemes based on community participation take time, and the timing of community participationindecision-making is critical for effectiveness (i.e. at which stage communities participate andto what degree). (iv) Arrangements to support marginallydestitute groupsneedto beidentifiedto avoidflight from the community and squatting elsewhere. (v) Schemes where "network" infrastructure is provided in difficult conditions require careful planningandmanagement. (vi) Experienced civil works contractors and experienced supervision consultants with local knowledge should be engaged; lowest cost options for upgrading infrastructure should be sought to allow greater coveragewith limitedresources. (vii) Attention mustbe givento the subsequent operation andmaintenance arrangements for upgraded infrastructure by the responsible agencies; robust mechanisms for monitoring progress and measuring impact should be established starting with greater efforts to determine baseline data. If services provided are affordable, communities appreciate the implications o f choice o f service, and will contribute or 'tax' members to pay for improvements ifnecessary, inorder to meet their own needs. Conclusions 276. IDA'S policy dialogue and support in Lagos is focused on the development and implementation o f a cohesive strategy to achieve three inter-linked objectives: reduce poverty, induce local economic growth, and improve urban management. Specific activities undertaken to achieve these objectives, will be linked by the underlying principles o f improving governance, buildingtransparency and accountability, andenhancingperformance. The LMDGP focus on urban upgrading and urbanmanagement will test, refine, and establish a mechanism for upgrading, This will support appropriate, affordable, demand-driveninvestments inbasic municipal infrastructure, so that Lagos can realisticallyprovide essential services inall its slums inthe near andmiddle term hture. 102 Annex 13: Documents in Project File NIGERIA:LagosMetropolitanDevelopmentandGovernanceProject 1. Review o f State andLGFinances 2. Report o f State andLGrelations inLagos 3. Civic Engagement inLagos 4. Survey Instruments for FirmSurveys 5. Findings from FirmLevel Surveys (Preliminary Report, AFTU2) 6. The Performance o fNigerianFirmsinLagos 7. Survey Instrument for the metropolitan Household Survey for the State-wide M&Esystem 8. Summary Service DeliveryCharts (Maps) for all social andeconomic infrastructure sectors byLGpreparedbythe Central Office of Statistics, Lagos Upgrading 9. Evaluation of Badia 10.3 LASURAReports (Planning Report on 9 slums; Upgrading Tool-Kit; UpgradingProgram Development) doneby Stoveland. 11,Survey instrument for the baselinestudyin9 slums. 12. Consolidated MissionReport onUpgrading 13. Sector PolicyNote on Upgrading Drainage 14. Sector PolicyNote on Drainage 15. Baseline indicators o f flooding for eachLG area inLagos Solid Waste 16. Baseline indicators on solidwaste management for eachLGareainLagos 17. Sector Policy Note 18.Revised LAWMALaw (Final Draft May 31,2006) 19. Service Agreement betweenLAWMA andLGs (Final Draft May 31,2006) 20. Performance Contract between LASGandLAWMA (Final Draft May 31,2006) 21. Carbon Finance Project Document 103 Annex 14: Statementof LoansandCredits NIGERIA: LagosMetropolitanDevelopmentandGovernanceProject Difference between expectedandactual Original Amount inUS$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd PO88150 2005 Economic Reformand GovernanceProject 0.00 139.99 0.00 0.00 0.00 142.36 0.00 0.00 PO86716 2005 SustainableMngt. Mineral Resources 0.00 120.00 0.00 0.00 0.00 122.09 0.00 0.00 PO71075 2004 NG-Urb Water Sector Reform 1 SIL 0.00 120.00 0.00 0.00 0.00 123.13 8.22 0.00 (FY04) PO71817 2004 NG: Local Empowerment& Env.Mgt Proj. 0.00 0.00 0.00 8.00 0.00 7.75 1.90 0.25 PO83082 2004 NG-MSME 0.00 32.00 0.00 0.00 0.00 34.22 3.05 0.00 PO63622 2004 NG:Fadama I1 0.00 100.00 0.00 0.00 0.00 96.53 6.76 0.00 PO69892 2004 NG Local Empowerment& Envir.Mgmt. 0.00 70.00 0.00 0.00 0.00 78.08 4.48 -0.30 PO71494 2003 UniversalBasic Ed. 0.00 101.00 0.00 0.00 0.00 113.72 73.34 0.00 PO80295 2003 Polio Eradication 0.00 28.70 0.00 0.00 0.00 1.33 10.71 0.00 PO74963 2003 NG LagosUrbanTransportProject 0.00 100.00 0.00 0.00 0.00 101.03 24.32 18.11 PO70290 2002 2nd HealthSystems Dev. 0.00 127.01 0.00 0.00 0.00 136.07 55.60 5.40 PO72018 2002 NGTransmission DevelopmentProject 0.00 100.00 0.00 0.00 0.00 95.46 65.92 44.61 PO70291 2002 HIV/AIDS Prog. Dev. 0.00 90.30 0.00 0.00 0.00 88.73 38.52 -4.71 PO69901 2002 CommunityBasedUrbanDevelopment 0.00 110.00 0.00 0.00 0.00 128.80 58.19 33.15 PO70293 2001 PRIVATIZATION SUPPORTPROJECT 0.00 114.29 0.00 0.00 0.00 108.09 53.89 0.00 PO69086 2001 Corn.-based PovertyReductionSIL 0.00 60.00 0.00 0.00 0.00 39.57 13.32 7.82 PO65301 2000 ECON.MGMT.CAP.BLDG. 0.00 20.00 0.00 0.00 0.00 5.96 -2.59 0.00 Total: 0.00 1,433.29 0.00 8.00 0.00 1,422.92 415.63 104.33 NIGERIA STATEMENTOF IFC's HeldandDisbursedPortfolio InMillionsofUSDollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1998 AEF Ansbby 0.10 0.00 0.00 0.00 0.10 0.00 0.00 0.00 1999 AEF GlobalFabri 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00 1999 AEF Hercules 1.30 0.00 0.00 0.00 1.30 0.00 0.00 0.00 1999 AEF Hygeia 0.00 0.19 0.00 0.00 0.00 0.19 0.00 0.00 2000 AEF Oha Motors 0.84 0.00 0.00 0.00 0.84 0.00 0.00 0.00 1997 AEF Radmed 0.04 0.00 0.00 0.00 0.04 0.00 0.00 0.00 2000 AEF SafetyCenter 0.50 0.06 0.00 0.00 0.50 0.06 0.00 0.00 1997 AEF Telipoint 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.00 1995 AEF Vinfesen 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 1994 Abuja Intl 1.75 0.71 0.00 0.00 1.75 0.71 0.00 0.00 2003 Adamac 25.00 0.00 0.00 15.00 11.56 0.00 0.00 6.94 104 2000 CAPEFUND 0.00 7.50 0.00 0.00 0.00 7.09 0.00 0.00 2000 Citibank (Nig) 6.44 0.00 0.00 0.00 6.44 0.00 0.00 0.00 2001 DeltaContractor 15.00 0.00 0.00 0.00 0.20 0.00 0.00 0.00 2000 DiamondBank 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 2000 FSB 8.40 0.00 10.50 0.00 8.40 0.00 6.00 0.00 1992 FSDH 0.00 0.86 0.00 0.00 0.00 0.86 0.00 0.00 2000/04 GTB 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 2000 IBTC 20.00 0.00 0.00 0.00 20.00 0.00 0.00 0.00 1981/88 Ikeja Hotel 0.00 0.25 0.00 0.00 0.00 0.25 0.00 0.00 2002 NTEF 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2001 UBA 0.00 0.00 10.00 0.00 0.00 0.00 0.00 0.00 2004 UPDC Hotels Ltd 11.oo 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Totalportfolio: 141.77 9.57 20.50 15.00 82.53 9.16 6.00 6.94 ApprovalsPendingCommitment FY Approval Company Loan EsuitY Quasi Partic. 2005 Accion Nigeria 0.00 0.00 0.00 0.00 2005 Zenith Bank 0.03 0.01 0.00 0.00 Totalpendingcommitment: 0.03 0.01 0.00 0.00 105 Annex 15: Country at a Glance NIGERIA:LagosMetropolitan Development andGovernanceProject Sub- Sehafan LOW- Nigeria Africa income 1396 719 2,338 400 600 510 Lifeerpectancy 55.9 432 2,164 T 2.4 2.2 1.8 2.6 1.o 2.1 GNI Grcrss per PtiMrY mpih enrollment 47 37 31 45 46 58 L 96 101 79 29 44 60 58 75 67 65 61 119 6 w 132 102 101 107 88 &% 1994 2003 Mo4 23.7 58.3 72.1 19.6 23.6 22.3 41 8 49.7 54.6 20.6 32.4 39.7 11.6 21.5 27.3 Currenta m n t balancelWP 3.6 -6.8 -2.4 4.8 Intererst paynenWDP 4.4 4.5 0.7 TOMdebtlGDP 63.1 1398 60.0 Tml debtseluioekqofts 32.7 19.5 5.7 PreseNtvalueaf deWGDP 58.1 I P m tvalueof debUexW f17.1 Indebt l - 148494 1994-04 2003 2004 20041-08 GDP 5.0 3.4 10.7 6.0 6.5 -Nigeria GDPpescapita 2.0 0.8 8 0 3.5 4.2 Llwvincolnegrorry, Expdsof goodsandservices 3 9 1.6 31.9 3.1 8.1 1984 1994 2004 f?% of GDP) Gmwth#fc;zpitalandGDP(UI) Agriculture 378 28.6 26.4 16.6 Industry 27.6 50.2 49.4 56.9 do Manufacturhg 7 8; 4.9 4.0 .. 20 344 212 24.2 26.5 709 65.1 43.9 38.1 ~eneral goVrrnconsumptronexpen&.ire collswmptimexpendltwe 17.6 143 23.7 22.2 lnlpwtsofgads andsewices 130 408 41.2 37.2 -F -GDP 198694 199404 2503 m4 IGrowthof exports andimpork 1%) I 4.5 4.3 6.5 6.5 3.6 2.2 22.4 4.6 4.7 2.9 6.2 7.4 3.8 6.9 6.9 4 . 7 -6.9 37.5 3.2 4.0 15.Y 14.9 3.3 13.4 12.6 -7.0 10.6 -3.2 8.8 11.6 2.3 106 Annex 16: Letter of Sector Policy NIGERIA:LagosMetropolitan Developmentand GovernanceProject ' . ... fanuan/ 12, 2006 The Country t)irectrx, The World Bdiik, Abuja Offire, Nigeria. - LAGOS STATE SECTOR POLICY NOTES ON LAGOS MIE~KEQP-OLIJAA OEVELOPMENT~- AND GOVERNANCE PROJECFJLMDCP) The LMDGP Pre-Appraisal Missions stating the timetable for project processing and conditions for appraisal gives rnc hop? and assurance of a fulfillrd task. It is pertinent t o iliention that one of the cardinal provisions of the Nigeria Constitution OC 1999 is that the sewrity and the welfare of the peopir hha!I be Ihe primary purpose of Government. M y Ccweriwlent uiiderstands the relevant provisions of the couiitry's Const4ru:mn imposing upon US dn obligation to enact and t-nt0rr.e ttppropriate legisldtion aimed at rendering the environnrent more conducive io ths protection of human dignity and the strengthenrng of the c*apaicity, rhyrecially those of vulnerable groups. Thrcwgh the sector policy notes, designed to ameliorate poveny and suffering among tlte less privileged, my administration has 'leitionstrattx$ different ways to address peculiar social problems and social exclusiotis 3 s amplified in the slum areas. The sector policies for the three mdin compunents to wit; Slum Upgriiding, Drainage and Solid Waste Managernenr dre presevted in respective notes. !must strcss dt !!lis juncture the need to respond r'rare effectluely tu t!ie nerds of these communities. Ih;. rt'qmrlst! isJ I O ~ r-rniy a:,J matter ut 107 urgency, but also as a matter of sustained and unshakabis commitment rbrroughthe yean ahead. I have no doubt in my mind that this project will recard ~esoundiirg SUCCESS and that the envisaged wcces of this inKerventianwill serve as a standard for replication in the other slum area5 I make this cornmilwent with a deterrniiiatiorj to capturn the uniqw opprtunitk this partnership offers, to ~rnptwe. quality of the lives thc ulour getspk, and liberate them frromthe devastatingeffec& of powr~y. 108 Annex 17: Conflict Resolution NIGERIA:Lagos MetropolitanDevelopmentand GovernanceProject Background 277, Withthe transitionto civilianrule in 1999, a significant reformwas undertakenbythe Lagos State Government transforming the de facto ministry o f "law and order" to a ministry o f "justice". Reinforced by a resolve for the transformation of officers as government legal advisors to legal counselors o f the people, LASGaimed to provide an effective system o f legal services for the very poor. It established a cost effective alternate dispute resolutionforum for citizens coupled with the need to decongest courts makingthem accessible, simple, effective, fair and fast. Lagos established a Directorate for Citizen's Rights (CRD), the first o f its kindinNigeria. Conceived as a department to collaborate with civil society, the private bar and other interested parties, it implements policies designed to provide greater access to justice for the financially and otherwise disadvantaged and vulnerable groups of society. 278. The CRD now plays an active role as a service provider to the electorate in several critical areas o f the administration of justice. Two philosophical tenets underpin the creation o f this Directorate: (i) as the government provides for or subsidizes education or health, it should just similarly subsidize access to justice for those who cannot afford it; and (ii) state must the collaborate and network with non-governmental agencies concerned with humanrights and access to justice issues for the very poor. This approach i s intended to produce a critical mass o f those services sufficient to make animpact onthe existing situation. 279. The CRD already has a vast network of relationships through its Consumer ProtectionUnit, HumanRightsViolationUnit,Publication Unit Citizens' Mediation Centre andOffice ofthe Public Defender. Its network also includes NGOs, Community Development Associations, the private sector, market associations, landlord and tenant associations, the legal community and government agencies and the Nigerian Police. Relationships with these various stakeholders are assiduously maintained. 280. The CRD has five sub-units: (i) Office o f Public Defender; (ii) Human Rights The The Protection Unit; (iii) Consumer Protection Unit; (iv) The Justice Now publication unit, a The publicationdesigned to educate the public on the justice system administration andtheir rights; and (iv) the Citizen's MediationCentre (CMC). 281. Since its establishment in 1999, over the last five years, the alternative dispute resolution mechanism has had remarkable success. The CMC has mediated 32,000 disputes within and between communities, inter-ethnic disputes, government/private citizen disputes, commercial disputes, family disputes, individual disputes, land disputes, landlord and tenant disputes, and institutional disputes. N o formal process would have been able to achieve such a high degree of success. The protocols are less stringent, the process more fluid allowing for self-representation, use of native dialects, and most importantly, the outcome is usually a win-win one, basedon mutuality and consensus. With thirty six trained and certified mediators located in six offices in Lagos, the CMC has built public trust with its free services and impartial management o f disputes. Its greatest attractions for the public are its impartiality and speed o f resolution, even in disputes involving individualsandthe government. 109 282. Activities o f the Directorate of Citizen's Rights in Lagos, particularly the CMC, have become o f great interest to Attorney Generals o f other States inNigeria who agreed at their 58th professional body meetinginOctober 2003 to establish similar Directorates intheir States. Resolutionof Conflictand ComplaintsConcerningLDMGP 283. Implementationof LMDGP will pose significant social challenges, particularly with respect to managing the conflicts that are likely to arise due to the communities, institutions, businesses and individual members of the public who might be affected by the Project, despite the Project being predicated on the fundamental principle of eliminating or at least minimizing involuntary resettlement or dislocation. While the encroachment into the six drainage basins over the years has not impeded the natural drainage, what i s o f concern is the number o f people who would likely experience flooding in the one in ten year flood levels. Enforcement measures to prevent future squatting indrainage basinswould need to be established, along with educatingpeople on the likely consequenceso fbeing flooded insidetheir homes. 284. For the first year of works in drainage, investments have been explicitly selected to avoid resettlement, while the entire upgrading intervention was designed to avoid resettlement in consultation with beneficiary communities. For subsequent years o f drainage works supported by the Project, minimizing the right o f way requirement for cleaning o f channels will be an explicit factor in the technology choices for routine maintenance. Nevertheless, it would be unrealistic to presume, from the nature of development in drainage channels, both legal and illegal, that there would not be some relocation that could raise anxiety levels amongst citizens, and create tensions that could ultimately lead to conflict. There would be temporary relocation insome cases, and it i s possible that some upgrading o f the drainage network would require permanent relocation, thus leading to issues o f compensation and resettlement. The efficient management o f such potential conflict i s paramount to the success o f the Project, and ultimately to resolving the long term flooding problems that plague the citizens o f Lagos. Strong information management and dissemination on a continuous and inclusive basis, and Alternative Dispute Resolution (ADR) structures would substantially reduce most o f the tensions, anxieties, and resistance usually associatedwith a Project on this scale. 285. The measures set forth in the Resettlement Policy Framework and the individual Resettlement Action Plan for the various affected areas are developed to mitigate against any negative impacts on people and livelihoods, and to appropriately compensate affected people. People who feel they are affected by the Project and are unsatisfied with the compensation process or have complaints against Project activities, will have full access to the Citizen's MediationCenters (CMCs) under the Lagos State Ministryo f Justice. CMCs will appoint a focal-point for this Project to develop their responsecapacity and serve as a long-term liaison. 286. Upon receiving a complaint o f an individual or group o f individuals, the CMCs will immediatelyissue an invitation letter to the respective agency throughthe CMC's focal-point to the PCU, who, along with the respective agency, will review the complaint and determine eligibility based on the RPF and RAP principles and action plans, and start the mitigation andor compensation process if a favorable outcome i s reached. Ifnot, then the respective agency would send its representative to the CMC to appear before a mediator and go through the mediation 110 process and settle the issue amicably. For these purposes, each executing agency will appoint a focal point for responding to the respective agency in the CMCs hearings. The PCU and implementing agencies have all provided their commitment to fully respond to and honor the CMC process and adhere to the recommendationo fthe mediators. 287. Ifthe mediation process fails, then the affected individual or group o f individual may exercise their rights o f pursuing remedies through the court system. The Office o f Public Defender (OPD) will provide the required legal services to the affected people including free legal representation. 111 Annex 18: InformationEducationandCommunications NIGERIA: LagosMetropolitanDevelopmentandGovernanceProject Introduction: 288. Progress towards achievement of Project objectives will be greatly facilitated by the development and implementation of a IEC strategy, with the objective o f motivating stakeholders in Lagos to contribute towards the broader development goals of LASG - improving livability in Lagos. The IEC will therefore focus on the broader development agenda o f the State Government, as well as the specific components and sub-components o f LMDGP. Objectivesof I nformation Education and Communications(IEC)Strategy: 289. The IEC strategy aims to: Inform and educate all stakeholders on the LMDGP, its components and subcomponents, the implementation processes involved in each case, impacts on the lives o f the citizens of Lagos state, and implications for economic growth and poverty alleviation for the State in the mediumto longterm; w Buildstakeholder buy-inandownership ofthe Project, andtrust inits capacity to positively impact citizens' lives; Encourage active participation of stakeholdersinProject implementation; Promote good urban governance, accountability and transparency o f practices in local governments andinLASG; w Promote stronger public/private sectorpartnerships; w Promote a stakeholders culture o f sustainability andmaintenance; Motivate a scaling-up o f activities intargetedslums as well as inslums throughout the State. Implementation Processes 290. A vigorous mix of hard and soft IEC tools and products will be developed and deployed to facilitate achievement o f expectedoutcomes o f the Project and its components at different stages o f implementation. The IEC campaign will be coordinated by the PCU, in partnership with the Component Executing Agencies and other relevant stakeholders as necessary, and with input from the World Bank whenever required. Given the importance o f this h c t i o n to public awareness, ownership and implementation o f the Project, an IEC focal-point will be established within the PCU, reporting directly to the Project Director. This focal-point can be an IEC Consultant who will work primarily with a small team o f communications specialists with requisite skill sets from the CEAs - LASURA, LAWMA, ODs, MEPB, with support from LG Chairman and community development officers to facilitate implementation o fthe strategy. Audience, Key Messages, and Tools 291. The proposed products, tools and activities to be deployed inthe course of the campaign are itemized in the working matrixes developed for each Project component, and are included in the Project Implementation Manual. Major tools for the global campaign and constants for the life of the Project include: (i) website; (ii) Project Newsletter; (iii) sheets; (iv) Brochures (updated and Fact revised as needed); (v) Community communications infrastructure such as town hallmeetings, Obas and Baale's palaces, town criers, community newsletters, etc.; (v) Radio/TV Airtime - on Radio Lagos, Lagos TV, EKO FM, etc.; (vi) Motorized public service announcement facilities; and (vii) Stakeholder Consultations, workshops, seminars, conferences, etc. 112 To ensurebroad access and dissemination, these activities will be inEnglish, Yoruba, andPidgin. ImplementationSchedule 292. The strategy will be executedover the sevenyear duration of the Project. Itwill commence with a rigorous launch program aimed at positioning LMDGP and its major components at the center o f State and local government news. This will be simultaneous with a series o f IEC campaigns customized to the particular needs o fthe Project. Monitoring and ResultsMeasurement 293. Monitoring mechanismswill be included inthe IEC campaign to determine awarenesslevels o f the Project by stakeholders, and progress towards sustainable behavioral change. Success indicators will be drawn from periodic baseline surveys o f stakeholders and feedback from printed material, re-print demand and frequency, community report cards, TViRadio ratings, and general performance evaluation reports. Risks and ChallengestoIEC Campaign 294. Perceivedrisks andchallengesto aresults-drivenIEC component include: m The multi-sectoral nature of the Project, with its components and sub-components and ramifications for a variety o f stakeholders. The integration o f a corporate LMDGP IEC strategy with a specific component and sub-component strategy will be a challenge. . The diversity of target audience groups with varying needs and expectations, economically, ethnically, linguistically, or politically. Implementation arrangements for the IEC campaign, involving representatives o f four component execution agencies, LG officials, community development associations, organized private sector, in addition to the PCU and the State House o f Assembly, all with differentskill levels, communications cultures andapproaches, willbe a challenge. Political: unforeseen fallout o f the upcoming gubernatorial and presidential elections in 2007. IECfor Infrastructure Components 295. Urban Upgrading. The communities have already identified and agreed on the urban upgrading works to be undertaken. The IEC campaign will essentially encompass an awareness and sensitization program for the communities to be impacted by the civil upgrading works, encouraging their participation (for example, through ensuringdrawing manual labor fiom the pool of skill sets inthe community or monitoringimplementation o fworks). The campaign will penetrate all strata o f the slum community including schools, where competitions for the best comic book designs o f selected activities will be undertaken to create a sense o f responsibility for works maintenance in youths. Editorial focus for the print and web publications will be on the slum residents themselves, celebrating best practices, and serving as platforms for capturing their thoughts andconcerns regarding the activities andthe impact on their lives. 296. Drainage. The initial segment of the IEC campaign will involve information and sensitization o f Lagos state residents on the drainage problems which have plagued the State for several years, along with causes, effects and efforts underway for a long-term, sustainable solution to the problem. This will essentially be executed statewide usingall mass informationmedia outlets 113 including Radio Lagos and Lagos TV. The informatiodenlightenment campaign will also breakdown the technical details of the ongoing efforts at mitigating the drainage problems such as the engineering designs and modelingprocesses for two o f the six drainage basins, andthe deferred maintenance program, to engender a highdegree of understandingand appreciation of the technical inputs,The campaign will also target one expectedarea of resistanceto the Project -the owners of homes o fbusinessesthat will have to beresettled as aresult o fthe construction works -to enlighten them to the social safety nets available to them as a result of the demarcations and construction, in addition to other programs available to help mitigate their plight. Traditional and community leaders, inaddition to other relevant channelswill play significant roles inthis respect. 297. Solid Wuste:The IEC will inform and educate on the basics o f solid waste management, on the construction o f transfer stations, and the potential long-term socio-economic impact on the communities and Lagos State as a whole; landfill upgrading, the anticipated benefits from carbon finance, and the need to cooperate with the State to generate revenue through taxes and fees to sustain the services after the Project closes. Target audiences include Lagos State residents, the organized private sector; the informal sector, particularly the manual waste collectors whose livelihoodsneed to be guaranteed by the Project; and officials and staff o f LAWMA, LASEPA, and MoEwho will undergo capacity enhancementtraining. 114 MAP SECTION 0° 10° M A L I NIGERIA N I G E R METROPOLITAN DEVELOPMENT AND GOVERNANCE PROJECT C H A D BURKINA FASO INFRASTRUCTURE COMPONENT: LOCAL DISTRIBUTOR ROADS N I G E R I A UPGRADING SLUMS MAIN ROADS 10° BENIN 10° Niger TRANSFER STATION LOCAL GOVERNMENT BOUNDARIES Abuja Benue DRAINAGE CHANNELS LAGOS METROPOLITAN AREA BOUNDARY TOGO Area of G H A N A main map LAND FILL CENTRAL AFRICAN OTHER PLANNED LANDFILLS REPUBLIC C A M E R O O N (NOT IN PROJECT) SLUMS (NOT IN PROJECT) EQUATORIAL Gulf of Guinea GUINEA SÃO TOMÉ 0° & PRÍNCIPE 10° GABON CONGO 310' 320' OkunRiv Iju IJAIYE- IJAIYE- re IFAKO IFAKO 640' 640' Abule Egba Abule Egba Oba Ogunji Oba Ogunji Landfill Landfill TLSTLS Ogba West Orile Agege Agidingbi IKOROD IKORODU Agege Agege AGEGE AGEGE Mile 12 Ikorodu Alausa Market Area Ipaja Village IKEJA IKEJA Oregun ALIMOSHO ALIMOSHO Ipodo Ikeja MURTALA MUHAMMED Olusosun AIRPORT KOSHOFE KOSHOFE OlushosunOlushosun LandfillLandfill Shogunle Ogudu Onigbongbo Village Osodi Market Ejigbo Area OSHODI- OSHODI- Egbe ISOLO ISOLO Oworonsoki Bolorunpelu MariniMarini Bariga Bariga Oshodi TLS Oshodi TLS SHOMOLUSHOMOLU Ilaje Ilaje Abule Ijesha Solous Solous Landfill Landfill MUSHIN MUSHIN Somolu Mushin Idiaraba LAGOS LAGOON Taba TLS aba TLS IwayaIwaya Lawanson Ijeshatedo/ Ijeshatedo/ OJOOJO Ikate Itire Itire Iwaya / Makoko Channel Iwaya Makoko Channel Aiyetoro 630' MakokoMakoko SURULERESURULERE LAGOS LAGO Alli Oromoko MAINLAND MAINLAND Ishasi TLS Ishasi TLS Olaleye- AMUWO-ODOFIN AMUWO-ODOFIN Iponri Okobaba Sari Iganmu Otto Amukoko Amukoko Amukoko Drain Amukoko Drain Ijora Oloye Ajegunle Ajegunle Badia Badia AchapoAchapo Bale/Okoyaa Bale/Okoy Simpson TLS Simpson TLS TLSTLS Lagos Island Channel AJEROMIAJEROMI Channel Marine LAGOSLAGOS IFELODUNIFELODUN Obalende Beach ISLAND SLAND System 5 Outfall System Outfall Badagry Channel ETI-OSAETI-OSA Maroko APAPA AP PA 0 1 2 3 4 5 KILOMETERS AT L A N T I C O C E A N This map was produced by the Map Design Unit of The World Bank. IBRD MARCH 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, or any 34469 endorsement or acceptance of such boundaries. 2006 310' 320'