The World Bank Kenya Informal Settlements Improvement Project (KISIP) (P113542) REPORT NO.: RES30616 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF KENYA INFORMAL SETTLEMENTS IMPROVEMENT PROJECT (KISIP) APPROVED ON MARCH 24, 2011 TO OFFICE OF THE DEPUTY PRIME MINISTER AND MINISTRY OF FINANCE SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE AFRICA Regional Vice President: Makhtar Diop Country Director: Diarietou Gaye Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager/Manager: Bernice K. Van Bronkhorst Task Team Leader: Sheila W. Kamunyori, Abebaw Alemayehu The World Bank Kenya Informal Settlements Improvement Project (KISIP) (P113542) I. BASIC DATA Product Information Project ID Financing Instrument P113542 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 24-Mar-2011 31-May-2018 Organizations Borrower Responsible Agency Office of the Deputy Prime Minister and Ministry of Ministry of Land, Housing, and Urban Development Finance Project Development Objective (PDO) Original PDO The overall project development objective of the KISIP is to improve living conditions in informal settlements in selected municipalities in Kenya. This will be achieved by enhancing security of tenure and improving infrastructure based on plans developed in consultation with the community. Current PDO To improve living conditions in informal settlements in selected urban centers in selected counties in Kenya. Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed COFN-C1440 17-Nov-2014 17-Nov-2014 28-Jul-2017 31-Dec-2020 45.00 6.77 38.23 IDA-48730 24-Mar-2011 23-May-2011 30-Jun-2011 31-May-2018 100.00 85.72 7.63 TF-18327 08-Jun-2015 07-Jul-2015 07-Jul-2015 31-May-2018 8.30 4.93 3.37 The World Bank Kenya Informal Settlements Improvement Project (KISIP) (P113542) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES PROJECT STATUS Despite initial delays arising from the post-constitutional reform transition and reorganization, as of October 31, 2017, the project had disbursed US$84 million equivalent (92 percent) of the IDA credit. All remaining funds are committed and expected to be fully utilized by the time of the Project’s closing date of May 31, 2018. The project has consistently been rated moderately satisfactory for progress towards achievement of the Project Development Objectives and for overall implementation progress. The government is committed to the project, and has complied with the covenants specified in the Financing Agreement. Compliance with environmental and social safeguards has been rated moderately satisfactory. There are no outstanding or unresolved fiduciary safeguard problems. An assessment of the project’s financial management arrangements, including compliance with the legal covenants related to financial management, found that they provide reasonable assurance that the project funds are used for the intended purposes. The project account has been audited for the fiscal years ending June 30, 2011, 2012, 2013, 2014, 2015, and 2016 an unqualified report has been issued for each year. Recent Implementation Status and Results (ISRs) rate financial management as satisfactory and procurement as moderately satisfactory. RATIONALE FOR RESTRUCTURING The AFD is providing co-financing to KISIP of €35 million disbursed directly to the Government of Kenya through a Credit Facility Agreement signed on December 17, 2015. AFD has asked the Bank to provide overall implementation support, including fiduciary and safeguards, for the expanded project activities. For this purpose, the Bank and AFD signed a co-financing agreement in November 2014. This agreement provides for joint co-financing of KISIP in the proportion to which each development partner has provided funds for the project. In anticipation of AFD funds becoming available, KISIP was restructured in July 2016 in part to change the disbursement arrangements so that funds would be made from each financier in proportion to their available funding for the Project. At the time of the restructuring it was anticipated that AFD would make 38.9 percent of each payment, IDA would make 53 percent, and the Sida would make 8 percent. However, AFD’s financing agreement became effective only on July 28, 2017. Instead, funds from IDA and Sida were drawn to cover shortfalls in funding. A World Bank financial management supervision report for KISIP prepared in May 2017 noted that this shortfall amounts to approximately US$8 million (the amount may be higher now), and is considered excess disbursement of IDA/Sida funds. Rather than have AFD reimburse IDA this shortfall, this proposed restructuring is to allow IDA/Sida to retroactively finance 100 percent of each contract. PROPOSED CHANGES The World Bank Kenya Informal Settlements Improvement Project (KISIP) (P113542) The proposed changes are to revise the disbursement arrangements to allow IDA/Sida to finance 100 percent of expenditures, with Sida funds being utilized first and exhausted before using IDA funds, until the funding is depleted or four months after the closing date of May 31, 2018 for activities completed on or before the closing date (whichever comes first), and AFD to finance 100 percent of expenditures consecutively. This will be achieved through: (a) applying appropriate financing percentages in the table of disbursement; (b) including an amendment to the Financing Agreement allowing for the retroactive application of amended financing percentage for expenditures already made under IDA/Sida; (c) an amendment to the disbursement letter to stipulate that expenditures are financed sequentially (Sida first, followed by IDA then AFD). To allow IDA/Sida to finance 100 percent of expenditures, the disbursement schedule must be changed. The revised disbursement schedule will apply retroactively to expenditures incurred on or after July 7, 2015. The new disbursement categories will become effective on the date the amendment to the financing agreement is signed by the government. III. DETAILED CHANGES REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Current Current Actuals + Proposed Disbursement % Ln/Cr/TF Expenditure Allocation Committed Allocation (Type Total) Category Current Proposed COFN- Gds, CS Prt C1440-001 A.B.D - Trg all 8,861,000.00 0.00 8,861,000.00 36.00 100 Currency: Prts USD Gds, Wks, CS Prt 34,962,000.00 0.00 34,962,000.00 36.00 100 C of Prj Operating Costs 1,177,000.00 0.00 1,177,000.00 36.00 100 Total 45,000,000.00 0.00 45,000,000.00 IDA-48730- Gds, CS Prt 001 A.B.D - Trg all 12,798,665.00 7,755,938.12 12,798,665.00 53.00 100.00 Currency: Prts XDR Gds, Wks, CS Prt 50,500,000.00 43,405,124.20 50,500,000.00 53.00 100 C of Prj The World Bank Kenya Informal Settlements Improvement Project (KISIP) (P113542) Operating Costs 1,700,000.00 638,337.35 1,700,000.00 53.00 100 PPF Refinancing 1,335.00 1,334.91 1,335.00 Unallocated 0.00 0.00 0.00 Total 65,000,000.00 51,800,734.58 65,000,000.00 TF-18327- GDS,CS FOR PT 001 A,B,D &TRN FOR 1,600,000.00 408,007.48 1,600,000.00 8.00 100 Currency: ALL PT USD GDS,WKS,CS PRT 6,500,000.00 2,591,942.52 6,500,000.00 8.00 100 C OPERATING 200,000.00 50.01 200,000.00 8.00 100 COSTS Total 8,300,000.00 3,000,000.01 8,300,000.00