Document of The World Bank Report No: 19913-BHU PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 7.9 MILLION (US$10.8 MILLION EQUIVALENT) TO THE KINGDOM OF BHUTAN FORA BHUTAN - URBAN DEVELOPMENT PROJECT November 23, 1999 South Asia Regional Office CUR-RENCY EQUIVALENTS (Exchange Rate Effective ) Currency Unit = Ngultrum Nu 1= US$ 0.023 US$ 1 = Nu 43.57 FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy DYT Dzongkhag Yargye Tshogchung ECOP Environmental Code of Practice EMP Environmental Management Plan FMIS Financial Management Information System FC Financial Consultant FYP Five Year Plan GEF Global Environment Fund GYT Gewog Yargye Tshogchung MOC Ministry of Communication MOF Ministry of Finance NBACD National Budget and Aid Coordination Division NEC National Environment Commission NFS National Finance Services NTTA National Technical Training Authority OD Operational Directive O&M Operation and maintenance PC Project Cell PMR Project Management Reports RAA Royal Audit Authority RCSC Royal Civil Service Commission RGoB Royal Government of Bhutan R&R Resettlement and Rehabilitation SA Social Assessment SEA Sector Environment Assessment SEP Second Education Project SFO Senior Finance Officer UDHD Urban Development and Housing Division Vice President: Mieko Nishimizu Country ManageriDirector: John W. Wall Sector Manager/Director: Frannie A. Leautier Task Team Leader/Task M\anager: Evangeline Kim Cuenco BHUTAN Urban Development Project CONTENTS A. Project Development Objective Page 1. Project development objective 2 2. Key performance indicators 2 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 2 2. Main sector issues and Government strategy 3 3. Sector issues to be addressed by the project and strategic choices 3 C. Project Description Summary 1. Project components 4 2. Key policy and institutional reforms supported by the project 5 3. Benefits and target population 5 4. Institutional and implementation arrangements 5 D. Project Rationale 1. Project alternatives considered and reasons for rejection 6 2. Major related projects financed by the Bank and other development agencies 7 3. Lessons learned and reflected in proposed project design 8 4. Indications of borrower commitment and ownership 8 5. Value added of Bank support in this project 9 E. Summary Project Analyses 1. Economic 9 2. Financial 9 3. Technical 10 4. Institutional 10 5. Social 11 6. Environmental assessment 12 7. Participatory approach 12 F. Sustainability and Risks 1. Sustainability 13 2. Critical risks 13 3. Possible controversial aspects 14 G. Main Loan conditions 1. Effectiveness conditions 14 2. Other 14 H. Readiness for Implementation 14 I. Compliance with Bank Policies 14 Annexes Annex 1: Project Design Summary 15 Annex 2: Detailed Project Description 18 Annex 3: Estimated Project Costs 22 Annex 4: Cost Benefit Analysis Sumrnary, or Cost-Effectiveness Analysis Summary 23 Annex 5: Financial Summary 26 Annex 6: Procurement and Disbursement Arrangements 30 Annex 7: Project Processing Schedule, 39 Annex 8: Documents in Project File 40 Annex 9: Statement of Loans and Credits 41 Annex 10: Country at a Glance 43 MAP(S) IBRD 28474 BHUTAN Bhutan - Urban Development Project Project Appraisal Document South Asia Regional Office SASIN Date: November 3, 1999 Team Leader: Evangeline Kim Cuenco Country Manager/Director: John W. Wall Sector Manager/Director: Frannie A. Leautier Project ID: P057570 Sector(s): UY - Other Urban Development Lending Instrument: Specific Investment Loan (SIL) Theme(s): URBAN Poverty Targeted Intervention: N Project Financing Data O Loan 1 Credit El Grant E Guarantee El Other (Specify) For Loans/CreditslOthers: Amount (US$m) 10.8 Proposed Terms: El To be defined 1 Multicurrency C] Single currency L Standard Variable 1 Fixed O LIBOR-based Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.5 Govermnent 0.84 0.59 1.43 IBRD IDA 1.82 8.98 10.80 Total: 2.66 9.57 12.23 Borrower: ROYAL GOVERNMENT OF BHUTAN Responsible agency: MINISTRY OF COMMUNICATIONS Other Agency(ies): Urban Development and Housing Division, Ministry of Communications Address: Thimphu, Bhutan Contact Person: Tshering Dorji, Joint Secretary, UDHD Tel: 975-23-23416 Fax: 975-23-23441 Email: dorjit@druknet.net.bt Estimated disbursements (Bank FY/US$M): =2 a Annual 0.1 2.4 3.3 3.0 1.7 0.3 Cumulative 0.1 2.5 5.8 8.8 10.5 10.8 Project implementation period: 5 years Expected effectiveness date: 01/31/2000 Expected closing date: 12/31/2005 OCS PAD F-,, Otb.S.9 j A: Project Development Objective 1. Project development objective: (see Annex 1) The objective of the Project is to improve the quality of life through enhancement of the level and coverage of basic urban services in selected secondary towns of Bhutan, and, to that end: (a) to strengthen the financial and institutional capacity of the responsible authorities to deliver such services; and (b) to finance high priority investments in suc]h services for which there is broad public support. This objective reflects the Royal Government of Bhutan's (RGoB) policy of balanced regional development and decentralization, and its dedication to environmentally sustainable development. 2. Key performance indicators: (see Annex 1) The ID component will strengthen the capacity of the Urban Development and Housing Division (UDHD) of the Ministry of CommunicaLtions, and the project towns (dzongkhag towns) in: (a) urban planning, land use management and malpping; (b) planning and implementation of urban development investments, focusing on adequate operation and maintenance (O&M); and (c) project management and monitoring within the UDHD and project towns. Success will be measured in terms of: (a) the development of well planned and livable district centers, designed with respect for the local cultural context; (b) improved O&M of urban development investments, supported by adequately trained staff and equipment; and (c) improvement in the lprocurement and financial management capacity of the UDHD and project towns. The Urban Development component will increase access by a larger number of inhabitants to safe and reliable water supply and sanitation. Performance indicators will include: for water supply, percent of households with access to safe piped water supply; for solid waste management, percent of waste collected and disposed appropriately; for sanitation, number of rehabilitated/new community latrines); and for access roads and stormwater drains (length of access roads and drains built and maintained). Specific indicators for each sub-component are provided in Annex 1. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: P6016-BHU Date of latest CAS discussion: 07/06/93 The last CAS was prepared in FY94. A CAS Progress Report will be presented alongside this Credit, reflecting developments in Bhutan and its relationship with the World Bank. This project supports the Government objective, reflected in the CAS Progress Report, of carefully planned growth of secondary towns, with special attention to hygiene and amenity values. It also supports the objective of encouraging beneficiary and community ownership through decentralization, community participation in urban planning and development, and the selective use of user fees to provide partial cost-recovery. - 2 - 2. Main sector issues and Government strategy: Bhutan's development has been rapid and broadly shared. Up until the 1950s Bhutan was isolated from the rest of the world, and its dispersed rural population was entirely dependent upon subsistence agriculture. Once it opened up to the outside world in the 1 960s, Bhutan embarked upon a far reaching development strategy that has been articulated in successive five-year plans, the latest being the Eighth Plan covering the period 1997-2002. On the basis of the development strategy articulated in these five-year plans, Bhutan has developed a physical infrastructure of roads, power supply, telecommunications, and water supply that now serves a growing share of the population. At the same time the Government has developed a social infrastructure of education and health services which have, despite the difficult terrain and scattered population, greatly improved access to education and health services. The Government's strategy in every sector is guided by its Vision Statement "Bhutan 2020: A Vision for Peace, Prosperity and Happiness" which seeks a "cautious interpretation of modernization". The Vision Statement puts human happiness, not economic growth, at the center of the nation's vision and values, and calibrates the ambitions of development policy to Bhutan's ability to absorb change without creating alienation and excessive inequality: "Our guiding principles for the future development of our nation and for the safeguarding of our sovereignty and security as a nation-state must be complemented by a single unifying concept of development,...the distinctively Bhutanese concept of Gross National Happiness.. .The concept places the individual at the center of all development efforts and it recognizes that the individual has material, spiritual and emotional needs. It asserts that development cannot and should not be defined exclusively in material terms. ... The concept of Gross National Happiness must be translated into objectives that are able to give direction to the Kingdom's long-term development.. .These objectives are: human development; culture and heritage; balanced and equitable development; governance; and environmental conservation." The goals of balanced and equitable development are reflected in the urban development strategy, which aims to ensure viable and sustainable urban growth outside the now rapidly growing commercial centers of Thimphu and Phuntsholing. The Government aims to ensure that the secondary towns grow in a well-planned manner into livable district centers. 3. Sector issues to be addressed by the project and strategic choices: Through a program of institutional development and support for high priority investments in secondary towns, the project addresses the following sector issues: * Urgent need for basic services through the implementation of the physical investment program in the project; * Weak local government institutions through the provision of technical assistance to improve the institutional and financial management capacity of participating municipalities; * Neglect of operations and maintenance (O&M) aspects of infrastructure services by focusing on rehabilitation, and provision of technical assistance towards maintenance activities; and * Improved sustainability to service provision through the involvement of the community and other stakeholders in the planning, implementation, and O&M of these services. - 3 - C: Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The project covers ten district towns, namely: Wangdue Phodrang, Trongsa, Zhemgang, Tingtibi, Bumthang, Lhuentse, Trashi Yangtse, Duksum, Rangjung and Paro. Of the ten towns, the higher priority towns are: Paro, Trongsa, Zhemgang, Lhuentse, Trashi Yangtse, Rangjung, Wangdue Phodrang and Bumthang. Although Tingtibi and Duksum have remained in the list of towns, they have been accorded lesser priority due to either the slow pace of development (Tingtibi) or the very small urban population (Duksum). The project has two major components: (a) institutional development and (b) urban development. Institutional Development (ID): The ID component will strengthen the capacity of the UDHD, and the project towns in: (a) urban planning, landl use management and mapping; (b) planning and implementation of urban development investments, focusing on adequate O&M; and (c) project management and monitoring within the UDHD and project towns. Under the ID component, support will also be provided to the National Environmental Commission (NEC) for the development of environmental guidelines for the urban sector; and UDHD, for environmental codes of practice (ECOP) for solid waste management. Urban Development (UD): The second component of the project will consist of the following: Water Supply and Chlorinatioin Equipment: Water supply investments are confined mainly to the rehabilitation and augmentation of existing systems and construction of some new schemes. Solid Waste Collection: All project towns will benefit from the solid waste management program under project. The program also includes public information campaign and comprehensive programs of training for waste management personnel (refer to ID Component, section (a) above) Sanitation: The program includes construction and rehabilitation of public toilet blocks, and regular emptying of septic tanks. There will be no sewerage installations since all the towns are very small, and many of the developments are yet to be started. Urban Infrastructure: This will consist of drains, urban roads, and civic facilities. Institutional Development Institutional 1.60 13.1 1.60 14.8 Development Urban Development Other Urban 10.63 86.9 9.20 85.2 Development Total Project Costs 12.23 100.0 10.80 100.0 Total Financing Required 12.23 100.0 10.80 100.0 -4 - 2. Key policy and institutional reforms supported by the project: The RGoB has committed itself to the goals of decentralization, and balanced and equitable development. An important step in this direction has been the introduction of local government autonomy at the city level, initially applying only to the Thimphu City Corporation (TCC), and to a lesser extent, to the Phuntsholing City Corporation (PCC). The National Assembly recently approved the Bhutan Municipal Act which provides a further degree of autonomy, which is planned to be extended to PCC. The Act also provides for the establishment of autonomous corporations in other towns over time. By supporting development in secondary towns, the project reflects the government's commitment to decentralization and balanced regional development. 3. Benefits and target population: Direct Benefits: The main expected benefits of the project are two-fold: improved institutional capacity; and improved levels of service to urban populations in participating towns. Improved institutional capacity would be achieved by the development of project management capacity at the UDHD/MOC and improved O&M capacity at the district level. Improved service delivery would be achieved through more efficient delivery of urban services, improved coverage and enhancement of sustainable development. The project would also assist NEC in developing environmental guidelines for the urban sector, and UDHD, for ECOP in solid waste management. Economy-wide benefits: These would include : (a) enhanced resource generation, with a consequent reduced dependency on government transfers through the introduction of user fees with metering; (b) contributing to improved financial, managerial and institutional capacity and enhanced performance by municipalities; and (c) incrementally improved environment, health and productivity in urban populations with consequent savings in health care costs. These benefits would result in increased tax and revenue collection and savings; and demonstrated management practices and institutional processes, which can contribute to overall improvements in governance. Beneficiaries: The principal direct beneficiaries of the project are: (a) the residents of the participating towns who would receive improved infrastructure services; (b) staff at both the UDHD/MOC and district level; and (c) NEC. 4. Institutional and implementation arrangements: The implementation agency will be the UDHD at the MOC. The linkage between the staff of the UDHD and Dzongkhag will be strengthened during project implementation. Execution of civil works will be through private contractors according to IDA procurement guidelines. A Project Cell (PC) under a Project Manager within the UDHD will coordinate urban planning and development, engineering design and contractor procurement activities, establish the monitoring and evaluation system for the project, supervise the studies, coordinate inter-Dzongkhag coordination activities, and liaise with NEC on the development of the urban environmental guidelines and codes of practice.The Project Manager will be assisted by deputy project manager, a Chief Technical Expert (CTE), a Senior Finance Officer and Project Accountant, a Financial Consultant to introduce the financial reporting system consistent with IDA requirements, and a Procurement Specialist. In addition, there will be a full-time site construction supervisor in each of the project town. The operation and maintenance unit in the Dzongkhag administration will be concurrently strengthened to assume greater responsibilities for urban works - 5 - implementation and O&M. The proposed project will support these efforts. Development and implementation of the institutional development and training component of the project would be closely coordinated with the Royal Civil Service Commission (RCSC) and the National Technical Training Authority (NTTA). Financial Management Arrangement: (See Annex SA for details) The RGoB would pass on the budgeted funds for capital expenditure to the UDHD through the Letter of Credit (LC) system in accordance with the normal formula in which assistance is passed on to various ministries and dzongkhags. The PC would route the requisitions for funds through the UDHD in Thimphu. Initially, the project will follo w traditional disbursement method and will switch to PMR-based disbursement over a period of time. It has been agreed with MOC and Ministry of Finance (MOF) that PMR-based disbursements will be 42dopted not later than July 1, 2001. Books of accounts for the project would be maintained as per RGoB rules prescribed in the Financial Manual, 1988. A separate cash book and general ledger will be maintained by each project town for project related transactions. From the commencement of the Project, simplified PMR's would be generated from the project accounts and submitted to IDA within 45 days of the end of each quarter for IDA's review. As and when the project graduates to PMR-based disbursements, the PC would arrange to submit all the PMR's (as per format agreed during the negotiation) and the disbursements will be based on these quarterly PMR's. The Accounts of the Project will be audited every year by the Royal Audit Authority (RAA) as per RGoB rules. However, the RAA will have the ciption to contract out annual audit to private sector auditors (who should be qualified chartered accountants acceptable to IDA). The annual project financial statements audited by the RAA/private sector auditors would be submifted to IDA within 6 months of the close of RGoB 's fiscal year. MOF and MOC would ensure that a Financial Consultant (a professional accountant with knowledge of computerized accounting) is recruited by March 31, 2000 to oversee projectfinancial management. MOF will ensure that the implementing units would have sufficient number of finance staff to carry out various routine activities. After reviewing the available products in the market, MOF and MOC would adoplt a computerized Project Accounting and Management System software most suited to Bhutan 's needs by June 30, 2000. D: Project Rationale 1. Project alternatives considered and reasons for rejection: Several alternatives were considered for the project design. The first would be to invest in Thimphu and Phuntsholing which are experiencing the fastest rate of urbanization. This was rejected given the existing concentration of development assistance in these two cities, and the clear need to broaden assistance to other district centers to support the Government's policy of more balanced regional development. The second alternative was for a technical assistance project. This would consist of establishing full institutional and legal framework, including land management, municipal finance, and human settlements policy; training, in-service and external; and introduction and strengthening of degree programs in existing training institutions. The project could be prepared rapidly and would have the benefit of reducing manpower shortages in subsequent investments. This was rejected because DANIDA, ADB and UNDP are already providing assistance in these areas. -6 - The third alternative would be assistance in a specific sector (e.g., water supply) only. Activities would include investments in one sector or sub-sector in several district towns and strengthening of regulatory frameworks, tariff structures and results assessment at the central level. This alternative was rejected because a sectoral focus does not address broader urban development issues. The fourth and last alternative would be to strengthen the management of development in selected districts through investment programs directed by the communities. The components would include creation of a fund for investments--with clear eligibility criteria for sub-projects--for which district can participate and compete for. This alternative was rejected because of weak local capacity to prepare sub-projects. Given the above, the strategic choice was made to design a project which combined both TA and investment in high priority areas in selected urban centers outside Thimphu and Phuntsholing. 2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision Sector Issue Proiect (PSR) Ratings: ______________________________ _____e____i___.____.___ (Banklvnanced projiecs only) implementation Development Bank-financed Progress (IP) Objective (DO) This is the Bank's first urban development project in Bhutan. Other development agencies DANIDA Water Supply Consolidation and Sewerage Project in Thimphu and Phuntsholing (completed in March 1997) DANIDA Urban Sector Program Support (started in January 1999) ADB Urban Infrastructure Improvement Project: Thimphu and Phuntsholing (negotiated 1999) ADB Urban Centres Water Supply and Sanitation Project (completed in 1992) UNDP Urban Development and Housing Technology (completed in 1989) UNDP Strengthening the Survey Department UNDP Urban Planning (completed in 1989) UNDP Human Resource Development - 7- UNDP Human Settlements Sector Review (Reports 1990, 1993 and 1996) UNDP Strengthening Capacity for Urban Management and Human Settlements Sector Planning in Thimphu and Phuntsholing (completed in February 1999) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: This would be the first World Bank-assisted urban development project in Bhutan. However, Bank experience with project implementation has been excellent, on account of very strong government ownership and commitment to effective project implementation, and good collaboration with co-financiers, notably the Swiss Development Corporation. The portfolio currently consists of two projects, the third Forestry Credit, for which implementation remains satisfactory, and the Second Education Project. The recently closed First Education Project and GEF Environment Trust Fund were also fully satisfactory, although the education project had to be extended by 18 months because of delays in school construction during the project's first few years. Both projects met or surpassed their major benchmarks, with the exception of teacher training candidates on account of a shortage of applicants up to 1994. The Environment Trust Fund even met its conservation benchmarks in three years rather than the anticipated five. There are also lessons to be learned from urban projects in countries experiencing a similar low level of urbanization and weak institutional capacity. These are the need to: (a) keep the project simple in terms of design, scope and institutional arrangements; (b) emphasize the importance of combining capacity building and investments; and (c) set out modest goals which can be achieved within existing constraints. These have been considered in the design of the project. The experience from the DANIDA water supply and sanitation project in Thimphu and Phuntsholing demonstrates the feasibility of cost recovery for O&M in water supply. These projects introduced meters, a good pricing structure, and most important, separate water accounts so that the little subsidy given is not hidden. This sets an important precedent for other urban centers. 4. Indications of borrower commitment and ownership: The RGoB has identified urban development as a priority area in its long-term development strategy. It is introducing changes in the legislative framework that would support urban planning and management at the national and district levels. The Bhutan Municipal Act was recently passed and RGoB is developing a separate Urban Administration Act. A draft Urban Planning Act has been completed. On cost recovery, metering has been introduced in Thimphu, Phuntsholing, Paro, Gelephu and Samdrup Jongkar, setting an important precedent for other cities. The RGoB recognizes that water tariffs need to cover O&M and capital replacement and meet all debt servicing requirements satisfactorily. There is a recognition that tariffs in Thimphu and Phuntsholing need to be increased to provide sufficient revenues for medium and long-term sustainability. Metering has been introduced in these towns. For the project, RGoB would like to install meters progressively in all houses and commercial buildings once the water supply delivery has been demonstrated as satisfactory. Progress in this objective would be monitored in terms of percent of household metered and percent of O&M cost recovered over time. - 8 - At the district level, district administrators of all ten project towns have indicated their full support to introduce appropriate tariffs and charges for the proposed water supply, solid waste and sanitation improvements. District administrators have assisted fully in the project preparation field surveys as well as in the formulation of urban development plans and investment programs. RGoB and Dzongkhag administrations have also demonstrated their commitment by participating in several workshops to launch and discuss the findings of the preparatory studies. 5. Value added of Bank support in this project: IDA brings to bear a comprehensive view of sector development, a strategic focus, and the lessons of experience in implementing sector wide projects throughout the world. IDA's role is crucial in achieving the project objectives of strengthening the institutional structure at the district level thereby supporting the Government's decentralization policy and implementation of the newly passed Municipal Act, and addressing the much needed urban services in district towns. The Bank's involvement would also reinforce the efforts of bilateral and other multilateral agencies. This is particularly in relation to the importance of building institutional capacity at the district level, and to ensuring medium- and long-term sustainability through a realistic cost-recovery policy. This project represents a potential model which could be implemented at a later date in other urban centers in Bhutan facing similar urban environmental problems and pressures, as experienced in the selected project towns. E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (supported by Annex 4): D Cost benefit NPV=US$ million; ERR = 20.7 % O Cost effectiveness O Other (specify) The proposed project would support the RGoB's decentralization policy and improve urban service provision in selected municipalities. The investments will result in substantial direct and indirect benefits, including improved urban environment, better health from cleaner water and better sanitation; reduced household cost of fetching water; and higher tourism income through improved municipal conditions and services.The quantifiable incremental economic benefits are: (a) time savings from not having to fetch water; (b) health cost savings (drugs and hospital care); and (c) incremental tourism revenues. Willingness-to-pay estimates -- obtained from social surveys in each project town -- were undertaken for: (a) improved water services, (b) improved solid waste (garbage) services, and (c) improved sanitation. The overall EIRR is 20.7%. The FIRR for the water supply components is 11.2%, with individual water supply scheme FIRRs varying from 0.3% (Duksum) to 19.6% (Paro). The major assumptions are: (a) project life of 20 years; (b) FIRRs are based on water user charges, but exclude land taxes, urban surcharges etc.; (c) the capital charge is 2.75% of total water supply capital cost, amortized over 15 years; (d) the O&M costs are 3% p.a. of all project costs, less the institutional support component. The after 20 years residual value is 40% of all capital costs. 2. Financial (see Annex 5): NPV=US$ million; FRR= % The total project cost is estimated at US$12.23 million equivalent to finance infrastructure investments and technical assistance for institutional development. The cost of the project is expected to be financed from an IDA Credit of $10.8 million, with the remaining amount to be financed by RGoB. - 9- Fiscal Impact: The overall burden on government finances as a result of the project would be small. As most of the funding would be made as a grant to municipalities, debt service impacts on municipalities would be small. Implementation of the project would increase urban productvity, introduce fiscal discipline, improve public sector resource allocation and strengthen the capacity of local government to prepare, finance, and implement a program of urban improvements. The net fiscal impact of these improvements is expected to substantially outweigh project investments. Financial Management: The National Budget and Aid Coordination Division (NBACD) of the Ministry of Finance, which handles the foreign currency special account is familiar with World Bank disbursement procedures since they have been satisfactorily managing several on-going projects in the country. Therefore, there would be no problem in commencing the project using the traditional mode of disbursements. During appraisal, the financial system of the UDHD in MOC was reviewed to identify the type of external support required by the departmental accounting staff for the phased introduction of disbursements based on Project Management Reports (PMRs). On the basis of the review, a suitable time frame has been agreed with UDHD and MOF to fill in the gaps identified in the proposed review to graduate to PMR-based disbursements in a phased manner. It has been agreed with MOC and MOF that PMR-based disbursements will be adopted not later than July 1, 2001. Annex 5 details the proposed financial management arrangements and the plan of action, The project will provide a TA component to meet the costs of consultant(s) salaries, accounting software, computers, training, etc., to build up UDHD's financial management capacity. 3. Technical: Special effort will also be taken to ensure that urban design considerations in the urban development plans give due attention to the unique cultural features of the built environment. The design of the proposed civil works must be appropriate to the conditions in the individual ten towns and to the existing capacity for O&M which will be enhanced under the project. To suit the local situation, the project will support simple systems which are easy to operate and maintain and require little mechanical and electrical equipment and chemicals. 4. Institutional: a. Executing agencies: The MOC is in charge of urban affairs. The UDHD in the MOC is responsible for urban development and management as regards infrastructure provision and operation, planning aspects, and coordination with sector ministries as regards social and economic development. The Ministries of Finance and Home Affairs are other important ministries involved in urban development. The local government structure comprises 20 districts (Dzongkhags) and 202 blocks (Gewog) being the lowest level of administration. The district administrations are headed by an appointed district administrator (Dzongdhag). The latter is assisted by a deputy district administrator and by sectoral representatives of the central ministries. The larger districts are divided into subdivisions (Drungkhag) headed by a Dungpa. The Dzongdhag is also the head of the district town. The responsibilities of the -1 0 - Dzongkhag and DYT include the preparation of 5-year plans, annual plans, and execution of the same, and the monitoring and review of programs in the Dzongkhag level. Within this framework, the proposed project execution arrangements for the project will be the UIDHD under the MOC with district level implementation of works. b. Project management: For the planning, coordination, monitoring, and supervision of all project components, UDHD has designated the Executive Engineer as the Project Manager of the Project Cell/UDHD in Thimphu. He will coordinate engineering design and contractor procurement activities, oversee project disbursement and accounts, manage the development and implementation of training programs in coordination with existing training institutions, establish monitoring and evaluation system for the project, supervise studies, and coordinate the inter-district activities. The Project Manager will be assisted by a full-time deputy project manager, a Chief Technical Expert, a Senior Finance Officer, project accountant, and Financial Consultant in introducing the financial reporting system consistent with IDA requirements, a procurement specialist, and construction site engineers in the project towns. 5. Social: The proposed investments in basic infrastructure services will have direct and positive benefits on the social and physical environment, in a sustainable manner for the ten urban centers of Bhutan. The proposed high priority investments will provide improvements to the safe drinking water, sanitation facilities, solid waste management and road and transport system. These improvements in basic urban services will translate into wider social and environmental benefits over the life of the project. As part of the project preparation study, a social assessment (SA) was carried out to find out the potential beneficiaries: (a) preferences and priorities for basic services; (b) willingness and affordability to pay for the improved services; and, (c) undertake land requirement assessment to determine the likely adverse impacts. Household surveys were carried out among the 600 families of domestic and commercial users. In addition, consultations were held with the representatives of bulk users of the services such as schools, hospitals, monk bodies, army, hotel, police, etc. to assess the needs and priorities as well as their willingness and affordability to pay for the improved services. The SA indicated a positive response from the potential beneficiaries and other stakeholders towards the proposed project. The outcome of SA revealed that the: (a) first priority for urban environment upgrading was the provision of improvements to water services followed by solid waste disposal services; (b) generally high willingness to pay for private water supply connections, solid waste collection services, and improved sanitation system; and, (c) the need for greater public health education, and awareness program for promoting cleanliness, personal hygiene and health conditions. The project has been designed to reflect the needs and views expressed by the potential beneficiaries as expressed in the social assessment. Social Safeguard Policies Keeping the Bank's social safeguard policies in view, a land requirement assessment was carried out to assess the likely requirement of land for various proposed physical investments and its associated adverse impacts. The assessment indicate that the total land required for all physical components is only about 7.5 acres and most of the sites for the proposed activities have been identified within the government owned lands free from any encumbrances. Only a small portion of land will be acquired from 11 private land owners who will loose only part of their total land holding. Thus the adverse social impacts are very minimal. In order to compensate the losses suffered by the land owners and assist the adversely affected persons, RGOB had prepared a "Policy Framework for Land Acquisition and Resettlement" consistent with the Bank's OD 4.30 on Involuntary Resettlement. The Policy Framework has been reviewed by the Bank - 11 - and found to be satisfactory. The Framework has been adopted by the MOC. RGoB will undertake the baseline socio-economic survey among the adversely affected families to record the baseline socio-economic characteristics including the details of assets owned and lost to the project. Based on the survey results, an action plan will be prepared outlining the details of compensation payment and assistance to be extended to affected families in accordance with the provisions outlined in the policy framework. The policy framework ensures the payment of compensation and assistance to all adversely affected persons prior to the start of civil works. This will be ensured by a mechanism, wherein the concerned Dzongkhag and UDHD/MOC has to certify prior to the award of each contract package that "the payment of compensation and R&R assistance to all affected persons has been completed". The Land requirement assessment did not reveal any risk of damage or destruction to any form of cultural properties (Cultural Property - OPN 11.03). Further, the potential beneficiaries or affected persons of the proposed land acquisition are not a separate indigenous group in the sense that they do not have any separate social and cultural identity distinct from the dominant society (OD 4.30 On Indigenous Peoples). Therefore, it is concluded that preparation of separate Indigenous Peoples Development Plans (IPDPs) and separate measures for protecting cultural properties may not be required. 6. Environmental assessment: Environment Category: B The project would have an overall positive impact on the environment. It is placed in category B. Bhutan is a country seriously committed to protecting and preserving its environment, and has an adequate legal and institutional framework for sound environmental management. The NEC has adequate and increasing capacity to manage and mnonitor, and the environmental assessment process -- which meets IDA requirements -- has been approved and made effective by NEC in February 1999. The overall philosophy of RGoB towards sustainable development and environment, is detailed by NEC in the "National Environmental Strategy, December 1998". In this strategy, the Government has stated in the strongest possible terms that protecting the natural environment and ensuring that development activities undertaken in the Kingdom must be done: in a suitable and environmentally sensitive manner. Currently, there are no guidelines for the urban sector and NEC is in the process of developing these; the project will assist NEC in this endeavor. It will also assist the UDHD to formulate environmental codes of practices in solid waste management. These ECOPs will recognize that the majority of environmental impacts occur during the operation and maintenance stage. These ECOPs will be consistent with the relevant rules/acts such as the recently approved municipal act, water and sanitation rules (the Municipal Corporation of Thirnphu is currently developing performance indicators), land use act, etc. A Sector Environment Assessmernt (SEA), carried out during project preparation by the UTDHD with assistance from NEC, clearly indicates that the improvements in urban infrastructure have positive effects in environmental conditions in the project towns, particularly as they relate to water supply and sanitation. The Environmental Management Plan (EMP) for all project activities, which forms part of the SEA, ensures that any minor negative impacts during implementation or operation will be adequately mitigated. Responsibilities and indicators for mitigation and monitoring are also set out in the EMP. 7. Participatory Approach (key stakeholders, how involved, and what they have influenced or may influence; if participatory approach not used, describe why not applicable): a. Primary beneficiaries and other affected groups: - 12 - The proposed project reflects RGoB's thrust to involve communities in planning, implementation and management of all development projects. The Social and Environmental assessments served usefully to inform the communities about the project, identify investment priorities, and elicit their views on willingness-to-pay for improved services. F: Sustainability and Risks 1. Sustainability: The project's sustainability relates to continued commitment to decentralization, use of appropriate technologies in the provision/rehabilitation of urban infrastructure, and enhanced institutional capacity developed under the project. By focusing on O&M under the institutional development component, the project will assist the project towns to execute planned maintenance in accordance with district plans and to better use limited resources. Appropriate technology and community participation promoted under the project will help facilitate local participation by project beneficiaries in project implementation, promote cost recovery and proper O&M. 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Risk Risk Rating -Risk Mlnimization Measure From Outputs to Objective Continuing commitment from RGoB N Continuing dialogue with RGoB on (MOC, MOF and Ministry of Home policy issues relating to urban Affairs) and District Administrations to development policy of balanced regional development Adequacy of trained personel at the M Designation of project manager and UDHD and district engineering cells agreement with RGoB to deploy staff for project implementation and hiring consultants as needed; training of staff Community groups are properly M Informed community consultations; motivated to contribute to cost-sharing agreement with Government on cost arrangement to cover O&M recovery guidelines From Components to Outputs Continued government commitment to N Continuing policy dialogue with policy of decentralization Government and selected towns Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) - 13 - 3. Possible Controversial Aspects: None G: Main Loan Conditions 1. Effectiveness Condition None 2. Other [classify according to covenant types used in the Legal Agreements.] The Borrower shall ensure that any land required for the Project will be acquired, and any persons affected by the acquisition of such land will be compensated, resettled and/or rehabilitated, all in accordance with the provisions of the Policy Framework for Land Acquisition and Resettlement. Dated Covenants: The Borrower will appoint a Chief Technical Expert (not later that March 31, 2000); a Financial Consultant (a professional accountant with knowledge of computerized accounting) (not later than March 31, 2000) to introduce a financial reporting system for UDHD consistent with IDA requirements; a Procurement Specialist (not later than March 31, 2000); and (f) a full-time construction supervisor in each Project town (not later than June 30, 2000). The Borrower shall adopt PMR-based disbursement procedures not later than July 1, 2001. H. Readiness for Implementation 1 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. 2 1. b) Not applicable. I2 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. 1 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. O] 4. The following items are lacking ancl are discussed under loan conditions (Section G): 1. Compliance with Bank Policiies Z 1. This project complies with all applicable Bank policies. El 2. The following exceptions to Bank policies are reconmended for approval. The project complies with all other applicable Bank policies. v/.X>, A Evangeline Kim Cuenco /AiFrannie A. Leautier John W. Wall Team Leader Sector Manager/Director Country ManagerlDirector - 14 - Annex 1: Project Design Summary BHUTAN: Bhutan - Urban Development Project Key PeEormaic-; 'iterarch r&bjectives indkalorO M & a on. i- t Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) To improve access to basic Full government support to 5-year Development Plan Infrastructure constraints infrastructure where the Development Plan removed to support poverty economically justified, and Economic and sector reports alleviation in the project strengthen institutional districts capacity in theUDHD and Dzongkhags Complementary investments take place to support infrastructure developments Project Development Outcome / Impact Project reports: (from Objective to Goal) Objective: Indicators: The objective of the Project is Extent of satisfaction with UDHD progress reports Continuation of Government's to improve the quality of life urban service delivery emphasis on urban through enhancement of the expressed by citizen Supervision mission reports development level and coverage of basic respondents to representative urban services in selected survey or social assessment Evaluation mission reports Continuation of the secondary towns of Bhutan, (mid-term and final) Government's decentralization and, to that end: (a) to Public health - morbidity rates initiative strengthen the financial and of water borne diseases Consultant studies and reports institutional capacity of the Ability to plan and execute responsible authorities to Improved capacity of project sub-projects to improve urban deliver such services; and (b) towns in fulfiling essential service delivery to finance high priority urban service responsibilities investments in such services for which there is broad public support. - 15 - H@obj= ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,q1 Output from each Output Indicators: Project reports: (from Outputs to Objective) component: Enhanced UDHD/municipal Percent of municipal and UDHD progress reports, Continuing commitment from capacity in project towns to UDHD staff trained in mid-term review evaluation, RGoB and District plan, implement and operate financial management, ICR, OED end of project Administrations to policy of and maintain basic services budgeting and accounting evaluation decentralization and balanced systems, and procurement regional development procedures Other projects in Bhutan Percent of municiipal staff contributing to the same trained in the following development objectives with technical areas (land use similar outputs planning/management, O&M) Community groups are properly motivated to Percent of O&M cost contribute to cost-sharing recovered from metering arrangement to cover O&M Improved urban services in Percent of households with project towns access to safe piped water supply Percent of domestic waste water disposed properly Percent of solid waste collected and disposed properly No. of community toilets built and rehabilitated; and regular emptying of individual septic tanks Length of urban roads built or rehabilitated Percent of civil works completed (e.g., length of footpaths, streetlighting, market sheds and parking improved, community parks constructed/improved, bus terminals constructed/rehabilitated, erosion control works in selected towns) - 16 - Key Perormnco, Hierarch of Objctives ncilcators Moniitprln & vkain Crt2 ~ Ii Project Components I Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) a. Institutional $1.6 million Same as above Timely counterpart funds Development available as planned; procurement actions are streamlined and timely; adequate staff continuity within UDHD b. Urban $10.6 million infrastructure investments and services (See Annex 2 for detailed project description). - 17 - Annex 2: Project Description BHUTAN: Bhuitan - Urban Development Project The project will be implemented in ten district towns namely: Wangdue Phodrang, Trongsa, Zhemgang, Tingtibi, Bumthang, Lhuentse, Trashi Yangtse, Duksum, Rangjung and Paro. Of the 10 towns, the higher priority towns are: Paro, Trongsa, Zhemgang, Lhuentse, Trashi Yangtse, Rangjung, Wangdue Phodrang and Bumthang. Although Tingtibi and Duksum have remained in the list of towns, they have been accorded lesser priority due to either the slow pace of development (Tingtibi) or very small urban population (Duksum) both at present and the future. The Project consists of two components: (a) Institutional Development and (b) Urban Development. By Component: Project Component I - US$1.60 million Institutional Development: The ID component will strengthen the capacity of the UDHD, and the project towns in: (a) urban planning, land use management and mapping; (b) planning and implementation of urban development investments, focusing on adequate O&M; and (c) project management and monitoring within the UJDHD and project towns. Under the ID component, support will also be provided to the National Environmental Commission (NEC) for the development of environmental guidelines for the urban sector, and to UDHD for ECOP in solid waste management. Project management support to the Project Cell and project towns will be in the form of consultants and equipment. The consultants recruited shiall be both international and regional/local experts to support required specific areas where existing capacities are limited. They will assist the Project Manager and each of the ten project towns to supervise construction works. In particular, the Project Manager will be assisted by a Chief Technical Officer, a Financial Consultant, and a Procurement Specialist in the management of the project. In addition other specialized specific short international inputs will be made available during the project implementation. The inputs are for: (i) erosion control measures; (ii) development of billing,collection and accounting systems;(iii) training; (iv) urban design, planning, mapping, etc. Chief Technical Expert The main tasks will be to provide assistance in the overall management of the project and to ensure that technical standards with regard to design, tender documentation and physical work implementation are adequately achieved. In addition, the consultant will: monitor the performance of construction site supervisors and the construction quality check quality of tender documentation and assist in the evaluation of tenders and award of contracts provide advice to Project Manager in the development of suitable computer software applications for project monitoring, technically and financially assist in the preparation of proper O&M work plans for the facilities constructed assist and advise on training programs for UDHD and district O&M staff participate in field trips for construction supervision and quality monitoring assist in data collection for monitoring construction progress and for monthly reporting. - 18 - assist in the preparation of monthly and quarterly reports to World Bank and Government and the project completion report. Financial Consultant The consultant will be a professional accountant knowledgeable in computerized accounting.. He/she would be responsible for: (a) all aspects of project financial management; (b) guiding and assisting the project accounting staff in consolidation of project accounts at the national level; (c) coordinating preparation of PMRs for the World Bank and other stakeholders; and (d) fmancial planning and management of the project including financial forecasting. The FC would be located in the PC and would also work closely with the Project ManagerDirector and the project accounting staff. Apart from providing support on financial accounting, and reporting aspects of the project, the FC would also interact with various field offices, RAA and/or the private sector auditors, as necessary. Procurement Management Specialist The Consultant will have an engineering background and not less than ten years of experience in procurement. He/she will assist in monitoring and providing guidance on procurement to UDHD and the project towns. Construction Site Engineers Construction site engineers will be recruited for each of the ten project towns to supervise construction works. These engineers should have at least 5 years' experience in the design and implementation of water and urban works. The main task of the site engineers is to make sure that works constructed are in accordance with the tender drawings and specifications. In detail, he would: * participate and record all results for pipeline and concrete testing * check all materials used in the construction for compliance with the specifications check that constructions and steel reinforcement are in accordance with drawings monitor construction progress participate in measuring completed works for program payments make on-site decisions for urgently required changes in construction * check the contractors' bills for progress payments prepare monthly progress reports prepare as-built drawings of works completed * liaise with district authorities To ensure adequate O&M, in addition to trained staff, the project also provides in the physical contingency allowance for adequate supply of spares and replacement to be brought in with the original equipment, stored in a central area for safe keeping. This also applies to the common set of O&M equipment to be shared by project towns. Said equipment should be stored safely, with its use and maintenance being the responsibility of the district engineer assigned for urban civil works in the designated storage location. Urban Planning: For all the ten towns, the rapid assessment of existing and projected urban land uses and demographic trend has been completed. Based on this information schematic land use plans were prepared - 19 - sufficient to guide the implementation of the high priority infrastructure investments. The schematic land use plans have identified the optimal future land use patterns and primary networks with sufficient certainty to design the water supply, drainage, solid waste management, and other infrastructure activities. During the implementation of the project, more detailed and comprehensive urban development plans would be prepared as necessary. This will include the specification of geographical scope, date requirements, planning information systems, required plan components, cartographic and other essential outputs of the urban planning process. Further detailed planning under the loan project will be based on schematic land use plans from the project preparation study completed by the consultants. Assistance to the NEC The NEC is presently developing environmental guidelines for the urban sector. The Project's ID component will support this endeavor through the provision of consultancy support. Project Component 2 - US$10.63 million Urban Development: This component will consist of the following subcomponents: (a) Water Supply and Chlorination: 'Water supply investments are confined mainly to the rehabilitation and augmentation of existing systems and construction of some new schemes. The water supply program will apply to all the project towns. (b) Solid Waste Collection: All project towns would benefit from the solid waste management program under the project. The provision of communal refuse storage bins, tractors and trailers will improve storage facilities and collection services. Paro town will, in lieu of tractors and trailers, receive 3-ton tipper trucks because of the long haul distance. Funds have been allocated for purchase of equipment (two small excavators) and development of sites with roads, fence, drains, and site office. The program also includes public information campaign and comprehensive programs of training for waste management personnel. (c) Sanitation: The program includes the construction of 5 new public toilet blocks and rehabilitation of 3 toilets. The construction of new toilets will be started only if the local authority agrees to operate on a pay-and-use basis. Each block will provide latrine facilities for both men and women. There will be no sewerage installations since all the towns are very small, and many of the developments are yet to be started. Therefore, to cope with the sanitary service facilities, a desludging vacuum pump mounted on a truck will be provided to each of the towns fbr emptying of septic tanks and for disposal at the controlled landfill site. (d) Urban Infrastructure: (i) Urban Drainage: Drainage improvements will aim to alleviate the inundation in the Chamgkhar town at Bhumthang. Eight towns will receive investments in drainage. For the majority of towns in the program, the drain overflows is due to inadequacies of the existing system. Drainage improvements include new masonry drains, r econstruction and covering of existing drains. As part of erosion control of streams and rivers flowing beside the towns, about 3 km erosion protection of river embankmnent is included in the project. The erosion control works in Paro and Bhumthang will only be started after a hydraulic expert has visited the sites and completed the detailed design. - 20 - (ii) Urban Roads: Investments will focus on the upgrading of existing roads operated by the municipal corporations, and also some new road development. Upgrading will consist of converting earthen, gravel surfaced roads to bitumen surfaced. The priority program includes improvements of about 6.2 km of roads. The new road development is about 3 km. (iii) Civic Facilities: Two project towns will benefit from new or refurbished bus terminals and expanded parking areas. Four town residents and the school children will benefit from new footpaths, which will be provided inside the town, or as walking access to nearby schools. Three project towns will benefit from investments to improve their central kitchen market places. Three towns will be provided with recreational parks. The parks will focus on the need for children's playground facilities. -21 - Annex 3: Estimated Project Costs BHUTAN: URBAN DEVELOPMENT Institutional Development 0.90 0.60 1.50 Urban Development 1.34 7.10 8.44 Total Baseline Cost 2.24 7.70 9.94 Physical Contingencies 0.24 1.28 1.52 Price Contingencies 0.18 0.59 0.77 Total Project Costs 2.66 9.57 12.23 Total Financing Required 2.66 9.57 12.23 Technical Assistance 0.96 0.64 1.60 Civil Works 1.69 7.79 9.48 Goods and Equipment 0.01 1.14 1.15 0.00 0.00 0.00 Total Project Costs 2.66 9.57 12.23 Total Financing Required 2.66 9.57 12.23 -22 - Annex 4: Cost Benefit Analysis Summary BHUTAN: Bhutan - Urban Development Project The project will benefit an estimated 55,000 people in ten secondary towns over twenty years. Benefits were calculated using estimated values for value of time, cost of medical treatment, value of tourist days. Willingness-to-pay data -- used to assess the lowest monetary value of changes in environmental quality and health1 -- was obtained from social assessment surveys in each project town. The quantifiable incremental economic benefits are: (a) time savings from not having to fetch water; (b) health cost savings (drugs and hospital care); and (c) incremental tourism revenues. Willingness-to-pay estimnates -- obtained from social surveys in each project town -- were undertaken for: (a) improved water services, (b) improved solid waste (garbage) services, and (c) improved sanitation. The overall EIRR is 20.7%. The FIRR for the water supply components is 11.2%, with individual water supply scheme FIRRs varying from 0.3% (Duksum) to 19.6% (Paro). 1. Better health from cleaner water and better sanitation A major benefit from the project would be improved health for urban residents. At present there is a serious level of water and hygiene-related sicknesses and diseases in all project towns (as identified by the social assessment, discussions with hospitals and BHU personnel in each of the project towns, from health data provided by the district administrators and hospital management personnel, and from published Ministry of Health and Education data). This has led to high and recurrent levels of public expenditure on drugs and hospital/health institution patient care, which will become an increasing fiscal drain as the Government moves closer to its aim of health-for-all, while continuing largely free provision of health services. Improved urban sanitation can contribute to reducing health costs -- both for the community and the Government -- through improved sanitation, especially the removal/reduction of fecal and other contamination from water sources. Reliable delivery of potable drinking water to domestic consumers and bulk users in the ten towns will ameliorate many environment-related health problems. In 1997/98 the twelve most prevalent conditions were: ARI/pneumonia; intestinal infections/viral hepatitis; skin diseases; peptic ulcer syndrome; musculoskeletal diseases; jaundice/headaches; eye diseases; teeth and gum diseases; injuries; worms; hepatitis/unknown fevers; ear diseases. Of these twelve conditions, almost 50 per cent can be attributed directly or indirectly to contaminated water, or related contamination/bacterial infection from a lack of water for personal hygiene. Diarrhea sickness/disease and dysentery represent a major water-related health problem which is significantly under-reported in all hospitals and health stations. It remains the third most common sickness at Basic Health Units, and there has been little change over the last five years in the number of cases reported of diarrhea and dysentery linked to contaminated drinking water. With the introduction of potable water all-year-round, the number of water and hygiene-related sicknesses and diseases will be reduced. Savings can be expected in all urban centers from: (a) drug costs associated with the treatment of patients, both as day visits, and from drugs administered after hospital admission; and (b) costs associated with hospital treatment (as out-patients or as admissions). Bulk water users such as Monk Bodies, army, police and school boarders are also expected to derive health benefits. - 23 - 2. Reduced Household Costs of Fetching Water Willingness-to-pay surveys indicated a high-willingness to pay for private (in-dwelling) water supply in all towns except Tingtibi, where stringent requirements for new house construction and limited government investment to date has resulted in resistance to payment for new services. In all towns except Wangdue-Phodrang (where supply is currently very intermittent), there was a low willingness to pay for improved stand-pipe service. Time-saving analysis for residential users suggests that the project will have substantial benefits for the popula-tions of all ten towns. At present the average distance to a tap stand varies from 7 meters (Ranjung) to 82 meters (Paro), with a weighted average of 36 meters. While in the wet season some water is available on site from rainwater, no such provision is effectively possible in the dry season. Total time savings in opportunity cost terms vary from Nu. 31,000 a year (Ranjung) to Nu. 770,000 a year (Paro). The average is Nu. 207,000 a year. The estimates use a market wage (opportunity cost of labor) of Nu. 80 a day for an average 8 hour day, and assume 9 trips per day with a 20 litre bucket; if bulk users were included benefits would be significantly higher. 3. Higher Tourism Income through Improved Municipal Services/Conditions A third quantifiable benefit of the project is increase tourist income. Tourism has been growing steadily, expanding four-fold since 1990. This tourism has been high-value, with the Government setting a minimum $200 fee per day. The Government continues to see higher value-lower volume tourism as economically, culturally and environmentally desirable. Future sustainable tourism development will be undertaken through the private sector, while continuing to be prudently regulated. As a sign of the potential for future growth an additional 25 tourist licenses were granted in 1998 over and above the existing 33. But a range of possible determinants to further rapid growth have been identified. These include: The relatively poor development of urban town centers outside Thimphu, particularly access to potable water in hotels, the standard of sanitation in hotels, and the near-absence of adequate public toilets. A degraded urban environment, with open dumping of garbage in almost all towns. Poor standard of many hotels, particularly in relation to access to clean water for bathing, kitchen hygiene, shortages of electricity, and overloading of septic tanks. The proposed project will foster urban upgrading of benefit to tourism in the following areas: urban water supply (quality and quantity); garbage collection and disposal/burial; upgrading of public toilets; desludging of septic tanks; provision of urban amenities/street paving, street lighting, drainage, parks/play lots. Major Assumptions: Project life of 20 years. FIR:Rs based on water user charges, but exclude land taxes, urban surcharges etc. Capital charge of 2.75% of total water supply capital cost, amortized over 15 years. O&M costs 3% p.a. of all project costs, less the institutional support component. After 20 years residual value is 40% of all capital costs. -24 - Sensitivity Analysis: Sensitivity analysis indicated no major or unexpected down-side risks. For the economic analysis the impacts of increase in capital costs, decreases in estimated benefits, and delays in completion are: 10% increase in capital costs : 16.46% 10% decrease in benefits . 16.92% Delay in completion by one year : 18.98% - 25 - Annex 5: Financial Summary BHUTAN: Bhutan - Urban Development Project Years Ending June 30 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Total Financing Required Project Costs Investment Costs 0.1 2.5 3.8 3.5 2.0 0.3 0.0 Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Costs 0.1 2.5 3.8 3.5 2.0 0.3 0.0 Total Financing 0.1 2.5 3.8 3.5 2.0 0.3 0.0 Financing IBRDIIDA 0.1 2.4 3.3 3.0 1.7 0.3 0.0 Govemment 0.0 0.1 0.5 0.5 0.3 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User Fees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 0.1 2.5 3.8 3.5 2.0 0.3 0.0 Year I Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Total Financing Required Project Costs Investment Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Financing IBRD/IDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0 User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total Project Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Main assumptions: -26 - Attachment 1 Financial Management Arrangements Flow of Funds The RGoB would pass on the budgeted funds for capital expenditure to each Implementing Unit (IU) through the Letter of Credit (LC) system in accordance with the normal formula in which assistance is passed on to various ministries. A specially designated Bank LC account will be maintained by the Ministry of Communications (MOC) for routing project transactions. The Administration and Finance Division (AFD) of MOC will prepare their project expenditure budget for each fiscal year based on the proposed project activities in consultation with the lUs. The actual disbursement of funds for capital expenditures from the Ministry of Finance (MOF) would take place, on a case by case basis, upon requisition submitted by MOC supported by relevant documentation. The recurrent expenses will be transferred quarterly. In order to ensure project coordination and accounts consolidation, all project related transactions will be routed through the Project Cell (PC) and AFD of MOC in Thimphu. MOC will initially advance the amounts to the lUs based on agreed work program and the IUs will submit supporting documentation for their expenditure. The PC and AFD will consolidate the same submission to MOF. Initially, the project will follow traditional disbursement method and will switch to PMR-based disbursement over a period of time. It has been agreed with MOC and MOF that PMR-based disbursements will be adopted not later than July 1, 2001. Accounting and Internal Controls Books of accounts for the project would be maintained as per RGoB rules prescribed in the Financial Manual, 1988. A separate cash book and general ledger will be maintained for project related transactions which will be routed through a unique Bank Account LC number. Accounting of project expenditures will be capable of capturing data by RGoB budget heads, project components, sub-components, expenditure categories (summary and detailed), and disbursement categories (as per Legal Agreements). This would match closely with the classification of expenditures and sources of funds indicated in the project documents (Project Implementation Plan and Project Cost Tables in the Project Appraisal Document). From commencement of the Project, simplif ed PMR's (Forms 1-A and 3 as per format agreed with IDA during project negotiations) would be generatedfrom the project accounts and subnmtted to IDA within 45 days of the end of each quarter for IDA's review. As and when the project graduates to PMR-based disbursements, AFD and PC would arrange to submit all the PMR's (as per format agreed during negotiation) and the disbursements will be based on these quarterly PMRs. Consolidation of project accounts would be done by AFD and PC. The Chart of Accounts would ensure that data is captured in a manner as to facilitate financial reporting for the project to various stakeholders. Financial Reporting The IUs would submit their consolidated monthly statement of accounts to AFD, PC and MOF in the format prescribed in the RGoB Financial Manual. Apart from this, the AFD and PC supported by the recruited Financial Consultant (FC) and the project accounting staff would be responsible for consolidating the project accounts and preparing quarterly PMRs as per format -27 - agreed with the World Bank. Auditing Arrangements The Accounts of the Project will be audited every year by the Royal Audit Authority (RAA) as per RGoB rules. However, the RAA will have the option to contract out annual audit to private sector auditors (who should be qualified chartered accountants acceptable to IDA). When the audit is contracted out to private sector aiuditors, the audit fees for the same shall be eligible for reimbursement from IDA Credit. The AFD and PC would ensure that the accounts are finalized and the project financial statements are submitted to auditors within 3 months of the close of RGoB 's fiscal year. The annual project financial statements audited by the RAA/private sector auditors would be submitted to IDA wiithin 6 months of the close ofRGoB 'sfiscal year (as required under World Bank's operationalpolicies). Any accounting firm(s), or any of its associates providing accounting or other consultancy services for this project would not be eligible to be the auditor for the project, to avoid conflict of interest. Staffing for Financial Management Key Professional Staff: The most important requirement for effective financial management of the project is appointment of qualified and appropriate staff at key levels. The MOF and MOC would ensure thiat a Finance Consultant (Professional Accountant with knowledge of computerized accounting) is recruited by March 31, 2000 to oversee the project financial management. The FC would be responsible for: (a) all aspects of project financial management; (b) guiding and assisting the project accounting staff in consolidation of project accounts at the national level; (c) coordinating preparation of PMRs for the World Bank and other stakeholders; and (d) financial planning and management of the project including financial forecasting. The FC would be located in the PC and would also work closely with the Project Manager and the project accounting staff. Apart from providing support on financial accounting, and reporting aspects of the project, the FC would also interact with various field offices, RAA and/or the private sector auditors, as necessary. SupportingStaff: MOF will ensure that there is a dedicated Finance Officer and Chief Accountant to handle project transcations. The designated accounting staff for the project would be given appropriate training in World Bank disbursement procedures. Computerized AccountinLe and Manaaement Information System MOF will review the Financial Management Information System (FMIS) being developed for the Second Education Project (SEP) in Bhutan and other software products available in the market to find out whether the system meets the reporting requirements of RGoB and the World Bank for PMR-based disbursements. The World Bank has provided information on other vendors who have developed simnilar software for other Bank projects. After reviewing the available products, MOF would adopt a software most suited to Bhutan's needs by June 30, 2000. FMS Development Action Plan i) MOF and MOC would recruit a Financial Consultant (Professional Accountant with knowledge of computerized accounting) by March 31, 2000 to oversee the proposed new project with responsibilities as described above. -28 - (ii) MOF and MOC would review the FMIS developed for the SEP as well as other products available/emerging in the market and arrange to adopt a suitable software for the project by June 30, 2000. (iii) MOF and MOC would make all arrangements to switch over to PMR-based disbursement by July 1, 2001. - 29 - Annex 6: Procurement and Disbursement Arrangements BHUTAN: Bhutan - Urban Development Project Procurement A. General Rules 1. The proceeds of the Loan will be used to finance the procurement of civil works (water supply including filtration plants, footpaths, drains, civic works, river erosion control measures, street lighting, etc.), goods (domestic water meters, chlorination equipment, vehicles, waste collection bins, computers, etc.) and services (consulting services, training, etc.). 2. Procurement of works, goods and related services under the Project would be carried out in accordance with the provisions of the Bank 'Guidelines: Procurement under IBRD Loans and IDA Credits' of January 1985 and revised in January/August 1996, September 1997 and January 1999. 3. Procurement of consultants would be done in accordance with the provisions of 'Guidelines: Selection and Employment of Consultants' by World Bank Borrowers of January 1997 and revised in September 1997 and January 1999. 4. Invitation for bids will be published in the press: (i) UNDB and local/Indian press for all ICB cases; (ii) local and Indian press for all NCB cases; and (iii) local press only for all cases valued at less than US $50,000 (works/goods locally procured). 5. Minimum post qualification criteria mwill be fixed and indicated in the documents in all cases to ensure selection of bidders with appropriate financial and technical capability. 6. No special preference will be accorded to any bidder, either for terrns and conditions, or for price, except to the extent agreed to for ICB, in accordance with Appendix 2 of the Procurement Guidelines. All bidders/contractors shall provide bid/performance security as indicated in the bidding/contract documents A bidder's Bid Security shall apply only to a specific bid, and a contractor's perforrnance security shall apply only to the specific contract under which it was furnished 7. Post-bidding negotiations shall not be, allowed with the lowest evaluated or any other bidders. 8. Extension of bid validity shall not be allowed without the prior concurrence of the Bank (i) for the first request for extension if it is longer than eight weeks; and (ii) for all subsequent requests for extension, irrespective of the period. 9. Re-bidding shall not be carried out without the Association's prior concurrence. Bids shall not be rejected merely on the basis of a comparison with an official estimate without the prior concurrence of the Association. Contracts shall be awarded to the lowest evaluated bidders. 10. Detailed design and engineering, including soil investigation and land acquisition should be completed before bids are invited. - 30 - 11. Schedule of rates (based on which estimates are prepared) should be updated regularly, taking into account realistic data based on construction methodology to be used, current market prices for materials and labor and reasonable contractor's profit. 12. BOQ should have separate schedule for those general items which are not covered in the analysis of rates based on which the estimates are prepared. 13. Contractors should be made responsible for providing all materials, including cement/steel/pipes, etc. 14. There will be no restriction in the sale of bidding documents. Bid documents shall be made available, by mail or in person, to all who are willing to pay the required fee. Foreign bidders shall not be precluded from bidding and no preference of any kind shall be given to national bidders in the bidding process. There shall not be any restrictions on the means of delivery of the bids. Bids shall be opened in public in one location, immediately after the deadline for submission of bids. 15. Bids shall not be invited on the basis of percentage premium or discount over the estimated cost. Evaluation of bids shall be made in strict adherence to the criteria disclosed in the bidding documents, in a format and specified period agreed by the Association. 16. Bid packages should be formulated optimally to attract competitive bids from qualified bidders to ensure satisfactory completion in desired time frame. 17. ICB procedures will be used for all cases needing import of equipment. 18. The Project Cell will develop an acceptable Procurement Management Reporting system to flrnish periodical reports on progress of procurement. Procurement methods (Table A) 1. Civil Works Civil works include: (a) water supply works, including filtration plants (b) roads, footpaths, drains, civic works, river erosion control measures (c) street lighting These works are small and scattered over ten towns. These will be packaged into separate packages for each town, valued approximately $0.1-0.5 million. Foreign frms would not fnd the contracts attractive in view of the very nature of the works and their geographical distribution. They will therefore be procured following the National Competitive Bidding (NCB) procedures ($8.71 million). Nonetheless, bids from foreign contractors would not be precluded. Strict post-qualification criteria will be incorporated in the bidding document for each work to ensure selection of qualified contractors for execution. 2. Procurement of Small Civil Works - 31 - Small civil works of value individually costing less than $50,000 per contract ($770,000 in aggregate) would be awarded: (a) on the basis of comparison of price quotations obtained from at least three qualified contractors eligible under the guidelines; (b) on the basis of unit/piece rate system to qualified contractors; or (c) by Force Account as a last resort in a manner satisfactory to the Association in accordance with Paragraph 3.8 of the Guidelines. 3. Bidding Documents Standard NCB documents as finalized by the RGoB were reviewed and comments offered during appraisal. RGoB will amend the documents keeping the Bank's Standard Bidding Documents (SBD) as base and incorporate all suggestions. The modified documents will be submitted to the Bank for review and comments, before final adoption. FoT procuring small civil works under Shopping, RGoB will prepare a model document for review by the Bank before adoption. 4. Goods and Equipment The project supports the procurement of the following items: (a) domestic water meters and chlorination equipment (b) vehicles (c) mobile sewage pumps with tankers (d) solid waste collection bins These will be procured following International Competitive Bidding (ICB) procedures in accordance with Procurement Guidelines. ICB documents shall be compiled by the RGoB based on the Bank SBD's. International/National Shopping procedures will be adopted for procurement of office equipment, computers, etc., valued at less than $50,000 per contract, not to exceed in aggregate approximately $0.23 million, in accordance with Paragraphs 3.5 and 3.6 of the Guidelines. Books, periodicals, video tapes, cornputer software, etc., costing at less than $50,000 per contract, not to exceed in aggregate approximately $0.05 million, will be procured following Direct Contracting procedures in accordance with Paragraph 3.7 of the Guidelines. 5. Technical Assistance, Studies and Training Technical assistance and consultancy services would be contracted following procedures in accordance with Bank Guidelines for Selection and Employment of Consultants by World Bank Borrowers, January 1997 [revised January 1999]. The Standard Request for Proposals [RFP] and Conditions of Contract would be used for all contracts. Mainly Quality and Cost Based Selection [QCBS] method will be followed. For some cases, selection of inidividuals based on qualifications could be used in accordance with Section V of the Guidelines. Training services in established institutions would be procured directly subject to clearance with the Bank on course content, number and details of personnel to be deputed and course fee. Other training - 32 - services would be procured following QCBS procedures. Table A: Project Costs by Procurement Arrangements (US$ million equivalent) 1. Works 0.00 8.71 0.77 0.00 9.48 (0.00) (7.40) (0.65) (0.00) (8.05) 2. Goods 1.15 0.00 0.28 0.00 1.43 (1.15) (0.00) (0.28) (0.00) (1.43) 3. Services 0.00 0.00 1.32 0.00 1.32 Technical Assistance (0.00) (0.00) (1.32) (0.00) (1.32), 0.00 0.00 0.00 0.00 0.00 ___________________________ (0.00) (0.00) (0.00) (0.00) (0.00' Total 1.15 8.71 2.37 0.00 12.23 (1.15) (7.40) (2.25) (0.00) (10.80) Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies a Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, traiing, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. -33 - Table Al: Consultant Selection Arrangements (optional) (US$ million equivalent) s ~~~~~~~~~~~~~ { ~~~~~~~~~~~~ A. Firms 1.08 0.00 0.00 0.00 0.00 0.00 0.00 1.08 (1.08) (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (1.08) B. Individuals 0.00 0.00 0.00 0.00 0.10 0.14 0.00 0.24 (0.00) (0.00) (0.00) (0.00) (0.10) (0.14) (0.00) (0.24) Total 1.08 0.00 0.00 0.00 0.10 0.14 0.00 1.32 (1.08) (0.00) (0.00) (0.00) (0.10) (0.14) (0.00) (1.32) 1\ Including contingencies Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB = Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed Figures in parenthesis are the amounts to be financed by the Bank loan. - 34 - Prior review thresholds (Table B) 1. Procurement Planning Prior to the issuance of any invitations to bid for contracts, the proposed procurement plan for the project shall be furnished to the Bank for it's review and approval, in accordance with the provisions of Paragraph 1 of Appendix I to the Guidelines. Procurement of all goods and works shall be undertaken in accordance with procurement plan as shall have been approved by the Bank and with the provisions of the said Paragraph 1. 2. Prior Review Civil Works All packages for civil works exceeding the equivalent of $100,000 or more will be subject to prior review by the Bank as per procedures set forth in Paragraphs 2 and 3 of Appendix 1 to the Bank Guidelines. Goods and Equipment All ICB packages irrespective of value would be subject to prior review by the Bank. Technical Assistance, Studies and Training The following would be subject to prior review by the Bank: (a) Terms of Reference for all consultancies; (b) Contracts for the employment of consulting firms estimated to cost more than $50,000; (c) Contracts for employment of individuals estimated to cost more than $10,000 3. Post Review Works and Goods The contracts below the prior review threshold for Works and Goods shall be subject to post review as per procedures set forth in Paragraph 4 of Appendix I of the Bank Guidelines. Technical Assistance. Studies and Training Contracts for the employment of consulting firms estimated to cost less than $50,000 and contracts for employment of individuals estimated to cost less than $10,000 shall be subject to post review provided that the TORs have been cleared with the Bank. 4. Procurement Information Procurement information will be collected and recorded as follows: - 35 - (a) Prompt reporting of contract award information by the Project Cell/MOC of the RGoB; (b) Comprehensive semi-annual reports by Project Cell/MOC of the RGoB indicating: (i) revised cost estimated for individual contracts and total cost; (ii) revised timings of procurement actions including advertising, bidding, contract award and completion time for individual contracts; and (iii) compliance with aggregate limits of on the specified methods of procurement (c) Completion by the Borrcwer within three months of the Credit closing date. 5. Assessment of Procurement Management System The Bank reviewed the Procurement/Project Management system of Project Cell/MOC to determine whether the systems are in conformity with the Bank's guidelines for procurement in the investment projects. The following action is agreed: (a) The Project Cell would have a Procurement Management Specialist (with engineering background and not less than 10 years experience in procurement) to assist in monitoring and providing guidance on procurement to the various urban local bodies. (b) The Project Cell would identify and select a panel of engineering consultants who could be deputed to inspect the works and conduct technical audits of contracts as and when required, under implementation to ensure quality and provide recommendations to the Cell for following up and corrective action necessary. (c) The Project Cell would also engage a consultant to develop and implement a Procurement Monitoring System (PMS) to ensure generation of all PMR reports in the Bank approved formats. Table B: Thresholds for Procurement Methods and Prior Review' 1. Works More than US$50,000 NCB Works costing more than US$100,000 Up to US$50,000 NS/FA/Unit/Piece Rate None System 2. Goods - goods More than US$50,000 ICB All - computer and office Up to US$50,000 International/National None equipment Shopping - books, periodicals, videotapes, computer Up to US$50,000 Direct Contracting None software, etc . - 36 - 3. Services- Technical More than US$200,000 QCBS All Training More than US$100,000 up to US$200,000 QCBS (shortlist could All comprise entirely of national consultants) Up to US$100,000 Single Source Individual consultants costing the equivalent of US$10,000 or more and firms costing the equivalent of US$50,000 or more. 4. Miscellaneous Total value of contracts subject to prior review: $8 million Overall Procurement Risk Assessment Average Frequency of procurement supervision missions proposed: One every 6 months (includes special procurement supervision for post-review/audits) 1Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance. - 37 - Disbursement Allocation of loan proceeds (Table C) The allocation of Loan proceeds is given in Table C. Disbursements against civil works contracts will cover about 85% of certified expenditures, with the balance to be fnanced from counterpart funds. Table C: Allocation of Loan Proceeds Civil Works 7.28 85% Goods and Equipment 1.20 100% of foreign and local expenditures (ex-factory cost) and 90% of local expenditures for other items procured locally Institutional Development Training and 1.24 100% Management Support Unallocated 1.08 Total Project Costs 10.80 Total 10.80 Use of statements of expenditures (SOEs): Applications for withdrawals will be sent by the Borrower to IDA based upon the anticipated payments schedule (based upon corresponding procurement plan). Full documentation for all contracts requiring Bank's prior review will be sent to IDA in support of withdrawal applications. Expenditures for individual contracts of goods and services, for which prior review by IDA is not required, will be disbursed against Statement of Expenditures (SOEs); all records evidencing such information must be retained by UDHD until at least one year after IDA has received the audit report for the fiscal year in which the last withdrawal from the Credit is made. All withdrawal applications in respect of civil works will be accompanied by certificates from the Supervision Consultants attesting that the works and materials meet the design standards and specifications agreed by IDA, and that the payments are in accordance with the completed works. Royal Audit Authority will conduct or contract out to a private sector firm the financial audit; certified copies of the audited accounts and financial statements for each fiscal year, together with the auditor's report and the auditor's opinion on the statement of expenditure (SOE) would be made available to IDA no later than 6 months after the end of the fiscal year. Special account: A Special Account of US$1.0 million will be established at the Royal Bank of Bhutan to meet anticipated expenditures of about four months. Eligible payments greater than one third of the Special Account amount may be paid by the Bank directly to suppliers at a specific request of RGoB. The Special Account will be replenished on the basis of reimbursed clairms for eligible expenditures received by IDA. - 38 - Annex 7: Project Processing Schedule BHUTAN: Bhutan - Urban Development Project Time taken to prepare the project (months) 23 First Bank mission (identification) 02/08/98 02/08/98 Appraisal mission departure 06/12/99 06/12/99 Negotiations 10/14/99 Planned Date of Effectiveness 01/31/2000 Prepared by: Preparation assistance: Bank staff who worked on the project included: Name Specility Evangeline Kim Cuenco Task Leader/Urban Development Paul Blanchet Engineering Karl Kleiner Engineering Peter Nicholas Economics Jonathan Kamkwalala Municipal Finance P.K. Subramanian Financial Management I.U.B. Reddy Social Development R.R. Mohan Social Development Dan Hoornweg Environment Panneer Selvam Environment Akhtar Hamid Legal Counsel Ivonna Teresa Kratynski Disbursement Carmen Severino-Jones Project Finance/budget Cliff Ellis Land Management/Urban Design Orville Grimes Economics N. Raman Procurement Heinz Unger Environment - 39 - Annex 8: Documents in the Project File* BHUTAN: Bhutan - Urban Development Project A. Project Implementation Plan 1. Borrower's Project Implementation Plan - September 1999 2. Sectoral Environmental Assessment - July 1999 3. Policy Framework for Resettlement and Rehabilitaton of Project Affected Persons - September 1999 B. Bank Staff Assessments None C. Other 1. Bhutan Eighth Five-Year Plan (1997-2002), Ministry of Planning, September 1996 2. Environmental Act of Bhutan (draft), National Environment Commission, August 1997 3. Bhutan Human Settlements Review Report, November 1993 4. National Report to HABITAT II, "City Summit", Royal Government of Bhutan, March 1996 *Including electronic files -40 - Annex 9: Statement of Loans and Credits BHUTAN: Bhutan - Urban Development Project Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd Number of Closed Projects: 5 BT-PE-9582 1994 ROYAL GOVT OF BHUTAN FORESTRY III 0.00 5.40 0.00 3.41 3.03 0.89 BT-PE-9574 1998 ROYAL GOVT OF BHUTAN EDUCATION 11 0.00 13.69 0.00 12.81 2.43 0.00 Total: 0.00 19.09 0.00 16.22 5.46 0.89 Active Closed Projects Projects Total Total Disbursed (IBRD and IDA): 2.64 21.00 23.64 of which has been repaid: 0.00 0.91 0.91 Total now held by IBRD and IDA: 19.09 16.37 35.46 Amount sold: 0.00 0.00 0.00 of which repaid: 0.00 0.00 0.00 Total Undisbursed: 16.22 0.00 16.22 Actual disbursements to date minus intended disbursements to date as projected at appraisal. -41 - BHUTAN STATEMENT OF IFC's Held and Disbursed Portfolio In Millions US Dollars Committed Disbursed IFC IFC FY_Approval____ Company Loan Equity_ Quasi Partic Loan Equity_ Quasi Partic Total Portfolio: Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic Total Pending Commitmient: 0.00 0.00 0.00 0.00 -42 - Annex 10: Country at a Glance BHUTAN: Bhutan - Urban Development Project 11/17/99 POVERTY and SOCIAL South Low- - Bhutan Asia Income Development dlamond^ 1998 Population, mid-year (millions) 0.76 1.305 3,515 Life expectancy GNP per capita (Atlas method, IJS8I 480 430 520 GNP (Atlas method, U5$ bitlions) 0 36 555 1,844 Average annual growth, 199248 PoPulation (%) 2.9 1.8 1.7 Labor force (%1 2.3 2.3 i's GNP V Gross per primary Most tecent estimate (latest vear available, 1992-98) capita enrollment Poverty (% of population below national Povertv line) Uirban population (%of totalpooulation) 15 27 31 Life expecancy at birth (years) 66 62 63 Infant mortality (per 1,000 hve births) 71 77 69 Child malnutrition (% of children under 5t 38 53 Access to safe water Access to safe water (% of population) 64 81 74 Illiteracy (% of population age 15+) 46 49 32 Gross primary enrollment (% of school-age population) 72 100 108 Shutan Male .. 109 113 Low-income group Female 90 103 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1977 1987 1997 1998 Economic ratios' GOP (USS billions) 0.28 0.40 0.43 Gross domestic investment/GOP . 30.5 48.1 47.3 Exports of goods and services/GOP .. 21.4 33.0 33.2 Trade Gross domestic savings/GOP . 17,2 38.8 37.9 Gross national savings/GDP . 10.1 35.8 36.5 Current account balarince/GDP -34.0 -14,1 -10.8 Domestic Interest payments/GDP 0.2 0.6 0.5 Savings Investment Total debt/GDP .. 14.4 30.3 27.8 Total debt servicelexports .. 1.0 6.0 6.3 Present value of debtUGDP .. Present value of debtlexports .. Indebtedness 1977-87 1988-98 1997 1998 1999-03 (average annual growth) GDP 7.9 6.1 7 8 7.1 7.1 -Bhutan GNP per capita 7 2 2.0 Z.6 2.4 3.1 - Low-income group Exports of goods and services .. . STRUCTURE of the ECONOMY 1977 1987 1997 1998 Growth rates of output and Investment (%) I5% of GOP at factor cost) Agriculture .. 46.0 37.8 38.2 Industry .. 27.4 36.5 36.5 o Manufacturing .. 5.8 11.4 11.6 . Services ,, 26.6 25.8 25.4 2 0_ ,- _ =_i__ Private consumption .. 65.2 35.8 38.2 .20 P4 95 9r 7 P8 General government consumption .. 17.6 25.5 25.8 -0GDI a GDP Imports of goods and services .. 34.6 42.3 42.6 (average annual growth) 1977-87 1988-98 1997 1998 Growth rates of exports and Imports (%) Agriculture 6.2 3.1 3.1 3.4 2- Industry 14.8 9.0 3.8 7.3 Manufacturing 11.6 12.2 3.6 13.0 Services 6.7 7.0 16.1 7.2 I Private consumption.. . .. . General government consumption .. , Gross domestic investment 4.7 9.9 0.3 7.5 95 9C 97 98 Imports of goods and services .. .. . .. - Exports 0 Imports Gross national product 9.4 5.0 5.7 5.5 Note: 1998 data are preliminary estimates. 'The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. -43 - Bhutan PRICES and GOVERNMENT FINANCE 1977 1987 1997 1998 Domestic prices nan % (% change) 20 Consumer prices 4.8 7.4 9 Implicit GDP deflator 8.6 14.7 Government finance s (% of GDP, includes current grants) o Current revenue .. .. 18.5 19.9 93 94 as se S7 9t Current budget balance 0.6 3.3 Overall surplus/deficit -2.3 3.2 GDP deflator CPt TRADE (USS millions) 1977 1987 1997 1998 Export and Import levels (US$ millions) Total exports (fob) .. 29 99 111 ie2 Electricity .. .. 21 37 Agric. Prods. .. .. 12 Manufactures .. Total imports (cif) . 101 131 136 Food Fuel and energy Capital goods .. .. .. .. Export price index (1995=100) ..2 93 94 9S 9t 97 9 Import price index (1995=100) . Exports Ilmports Terms of trade (1995=100) .. BALANCE of PAYMENTS (US$ millions) 1977 1987 1997 1o98 Current account balance to GDP ratio (%) Exports of goods and services . 50 121 146 a t Imports of goods and servires . 144 183 203 .s 92T 93 54 as ss 97 95 Resource baldnce .. -95 -62 -57 -o __ L Net income .. 0 0 0 .15 Net current transfers . 0 6 11 -20 Current account balance .. -95 -56 -47 -2s Financing items (net) .. 79 78 92 -30 Changes in net reserves .. 16 -22 -45 -3s Memo: Reserves including gold (USS millions) .. .. 176 218 Conversion rate (DEC, locaMUSS) 8.7 13.0 36.3 41.3 EXTERNAL DEBT and RESOURCE FLOWS 1977 1987 1997 1998 (USS millions) Composition of total debt, 1998 (USS millions) Total debt outstanding and disbursed 0 40 121 120 IBRD 0 0 0 0 IDA 0 9 23 24 B: 24 Total debt service 0 1 7 9 E: 38 IBRD 0 0 0 0 IDA 0 0 0 0 Composition of net resource flows Official grants .. .. 74 85 Official creditors 0 16 14 2 Private creditors 0 0 -2 -2 Foreign direct investment .. 0 0 0 Portfolio equity .. 0 0 ° D: 5 World Bank program Commitments 0 0 0 14 A - IBRD E - Bilateral Disbursements 0 5 1 1 B - IDA D - Other multilateral F - Private Principal repayments 0 0 0 0 C - IMF G - Short-term| Net flows 0 5 1 1 Interest payments 0 0 0 0 Net transfers 0 5 1 0 Data on National Accounts and Debt is in calendar year, all other data is in fiscal year. 11/17/99 Development Economics -44 - MAP SECTION IBRD 28474 -40' AD, -28'30' BHUTAN 28J30'- Thimpky_ BHUTA UNPAVED ROADS, ROADS RIVERS .; .T.5000 ) ~~~~~~~~~~~~~~~~~~~ ~~~~~UNDER CONSTRUCTION _,_DISTRICT BOUNDARIES I 3000 5 A52WG ~~~~~ . #F NATIONALCAPITAL -S-- INTERNATIONALEOUNDARIES \ . .S. 1000~~~~~~~NAIONL CAITALloo 20 IDiXf o 2 . DISTRICT CAPITALS ITRAINLBUDRE / ) \ t Z - \ ; O~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ OTHER TOWNS -28 00 8£0, , W, xJ ET\N /A_ 28 00'- 0 ID 20 30 AO 50 ' iG ti ' 7 ->| p|-* J 7 hlLOMETER~S v t t '..,j7 f T d L~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Ff,JN \au~~~~~~~~~~~~~~~~~~~~~~~~~~~~AUR HA99