The World Bank Local Governance and Service Delivery Project (P127079) REPORT NO.: RES35239 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF LOCAL GOVERNANCE AND SERVICE DELIVERY PROJECT APPROVED ON MARCH 28, 2013 TO REPUBLIC OF SOUTH SUDAN, MINISTRY OF FINANCE AND PLANNING SOCIAL, URBAN, RURAL AND RESILIENCE GLOBAL PRACTICE AFRICA Regional Vice President: Hafez M. H. Ghanem Country Director: Carolyn Turk Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager/Manager: Meskerem Brhane Task Team Leader: Zishan Faiza Karim, Makiko Watanabe The World Bank Local Governance and Service Delivery Project (P127079) ABBREVIATIONS AND ACRONYMS GBV Gender Based Violence LGSDP Local Governance and Service Delivery Project ICR Implementation Completion Report IOM International Organization for Migration PAD Project Appraisal Document PCSO Project Coordination and Support Office PDG Payam Development Grant PDO Project Development Objective PMU Project Management Unit MOFP Ministry of Finance and Planning The World Bank Local Governance and Service Delivery Project (P127079) BASIC DATA Product Information Project ID Financing Instrument P127079 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 28-Mar-2013 31-Dec-2018 Organizations Borrower Responsible Agency Republic of South Sudan,Ministry of Finance and Ministry of Finance and Economic Planning Economic Planning Project Development Objective (PDO) Original PDO To improve local governance and service delivery in participating counties in South Sudan. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IDA-52130 28-Mar-2013 14-Nov-2013 21-Feb-2014 31-Dec-2018 50.00 44.52 1.50 TF-18138 28-Aug-2014 28-Aug-2014 28-Aug-2014 31-Dec-2018 6.98 6.98 0 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Local Governance and Service Delivery Project (P127079) Note to Task Teams: End of system generated content, document is editable from here. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Background 1. The Local Governance and Service Delivery Project (LGSDP) was provided an IDA Credit of US$ 50 million (Credit Number 5234-SD) and a Grant from the Local Governance and Service Delivery Trust Fund (LGSD TF; TF072097) of US$ 6.98 million. The project has been under implementation since February 2014 and has a current closing date of December 31, 2018. 2. LGSDP aims to support improvements in local governance and service delivery by strengthening community engagement and local government capacities in planning, implementation and oversight of local development activities. Key activities supported by the project include (i) the provision of block grants to counties for payam development; (ii) support to the engagement of citizens in the planning, implementation and oversight of local development activities; (iii) capacity building for local governments to allow them to assume their mandated responsibilities; and (iv) project management. B. Project Status 3. The overall implementation progress in the project is rated Moderately Satisfactory but progress towards achieving the Project Development Objective is rated Moderately Unsatisfactory largely due to circumstances outside of the control of the project. Key events that have negatively impacted the LGSDP include: (i) the continuous deterioration in the political and security situation which limited accessibility to certain geographical areas; (ii) the severe macroeconomic crisis resulting in a spiralling parallel exchange market premium, thereby reducing the value for money of the Payam Development Grants (PDGs); (iii) the government decision to increase the number of States and counties thereby constraining the government’s budget and resulting in a high turnover of county government staff which undermined the impact of capacity building activities; and (iv) an overall funding shortfall of US$ 44.5 million due to donors not paying their commitments. 4. In spite of the challenges listed above, the project has enabled the county government to deliver services to the communities in a participatory, transparent, and accountable manner. The project has disbursed US$ 51.5 million out of a total credit and TF allocation of US$ 56.98 (US$ 50m IDA and US$ 6.98 from Denmark), representing a 90 percent disbursement rate as of December 11, 2018. The project has mobilized communities across 22 counties and supported the establishment of over 730 decentralized community level institutions. Through intensive hand-holding support, the project has facilitated participatory development planning at the community level and strengthened the communities’ capacities to better manage inter- and intra-communal conflicts. Over 372 community subprojects have been completed to date across 13 counties and an additional 20 subprojects are at an advanced stage of implementation and expected to be completed by the current project closing date of December 31, 2018. The different types of sub-projects financed include construction of pit latrines (40 percent), boreholes (40 percent), rehabilitation of primary schools (9 percent), and rehabilitation/expansion of primary health care units of centers (6 percent). Overall, the project has reached over 774,366 beneficiaries to date of which 367,432 are female. Of this total, 256,956 people are benefiting from improved access to water, 183,145 benefitting from improved primary health centers/units and 33,079 from improved primary schools. The World Bank Local Governance and Service Delivery Project (P127079) 5. The LGSDP has also contributed to strengthening local government and enhanced their accountability to their citizens. Under the project, county governments are not only responsible for ensuring community priorities are incorporated into their annual plans and budgets but also for overseeing the implementation and supervision of sub- projects. To date, 238 county staff have received classroom training and 412 sessions of on-the-job training support have been provided to county officials in the topics of planning and budgeting, financial management, procurement, engineering, and environment and social safeguards. This has resulted in the improvement in performance of counties as assessed in the annual Local Government Performance Audits.1 C. Rationale for Restructuring 6. By the current closing date of December 31, 2018, the project would have an undisbursed budget of US$ 724,729 from the IDA Credit. The Government has therefore requested a two-month extension to the project closing date to utilize this outstanding budget towards retaining key staff at the Project Management Unit (PMU) in Juba and in the State Project Coordination and Support Offices (PCSOs). These staff would include key component staff as well as finance and monitoring staff in the State offices. Such an extension and the retention of key staff would (i) ensure that financial audits findings for the year ended June 30, 2018 are adequately addressed and that the audit for the period of 1 July – December 2018 is properly completed; (ii) the inventory for project assets and their handover is properly managed; (iii) the Third-Party Monitoring of the project by the International Organization for Migration (IOM) is facilitated; and (iv) the various assessments that are essential for the Implementation and Completion Report (ICR) are finalized. 7. As mentioned above, the project extension and the retention of key staff is essential for the completion of the final audit of project financial statements for the period from 1 July – 31 December 2018 which includes the financial audit of the 13 counties where PDGs have been disbursed. This final audit is necessary to confirm that these funds were used for the intended purpose. During the quarter ended September 30, 2018, the project spent a total of US$ 1,234,534 including PDGs expenditure of US$ 768,587. It is projected that the project would spend a similar amount or more during the current quarter ending December 31, 2018. The finance staff at the PMU and State PCSOs are necessary for not only facilitating the successful completion of this audit but also for the smooth handover of financial documents to the Ministry of Finance and Planning (MOFP) after project completion. Furthermore, upon completion of the final audit, the key staff at the PMU would be needed for processing a refund of the residual cash balances to the Bank, in line with Bank Policy and Bank Directive on Investment Project Financing. 8. Similarly, the National Audit Chamber is currently undertaking a comprehensive verification of all the assets acquired using project funds and the report is expected by end December 2018. The two-month project extension would therefore allow for proper handover of project assets to the government or to the new operation as appropriate. 9. The Third-party monitoring firm (IOM) are still in the process of carrying out the monitoring of LGSDP and plan to interview community members and county officials in January 2019. Robust third-party monitoring results are essential for the Bank to impartially evaluate the effectiveness of the project. Having project staff at the State level would help facilitate the third-party monitoring efforts by introducing the IOM teams to communities and county government officials, which is critical particularly in areas with high political and security risks. 10. Finally, the task team has been making considerable efforts to make the most of the PMU’s presence and expedite the preparation of the ICR. A project extension would provide more time for the completion of the beneficiary assessment, preparation of the Borrowers Report and ensure the ICR adequately reflects the various findings and lessons learned. 1 The Local Government Audit is carried out by the National Audit Chamber through external consultants using LGSDP funds. The World Bank Local Governance and Service Delivery Project (P127079) II. DESCRIPTION OF PROPOSED CHANGES 11. This proposal includes a level two restructuring of the original project to: (i) extend the project closing date from December 31, 2018 to February 28, 2019; (ii) revise the Results Framework target dates to match with the date of project extension; (iii) make adjustments to component costs; (iv) re-allocate budget across disbursement categories for the IDA Credit; and (v) make changes to the project risk ratings. The Project Development Objective (PDO) however will remain unchanged. 12. Table 1 below shows the comparison of the project costs as per the PAD for both the IDA and Trust Fund versus the expected cost by component by February 28, 2019. As shown in the table below, component costs for Component 1 – Block Grants for Payam Development and Component 2 – Community Engagement are lower than what was outlined in the original Project Appraisal Document (PAD) while Component 3 – Institutional Strengthening and Component 4 – Project Management are higher. There was a US$ 5 million loss in the project due to exchange rate of the SDR to US dollars. Table 1: Project Costs by Component (USD million) Components Original Budget (PAD) Revised Budget by February 2019 IDA TF 018138 Total IDA 5213 TF 018138 Total 5213 1 2 3(1+2) % 4 5 6(4+5) % Component 1: Block Grants 15 15 30 30% 6 3 9 16% to Counties Component 2: Community 13 13 25 26% 11 1 12 21% Engagement Component 3: Institutional 11 11 22 22% 13 2 15 26% Strengthening Component 4: Project 9 9 19 19% 13 1 14 25% Management Project Preparation Advance 3 - 3 3% 1 - 1 2% (PPA) Loss Due to exchange (SDR 0% 5 5 9% vs USD) Total Project Cost 50 49 99 100% 50 7 56 100% 13. The downward adjustment of Component 1 (Payam Development Grant) budget allocation is due to the slow progress of subproject implementation due to the temporary suspension of PDG disbursement to counties at several periods throughout project implementation. The disbursement of PDG was temporarily put on hold (i) when there was a widening gap between the formal and parallel exchange rate of the SSP to the USD and concerns over the value for money of the PDG and again (ii) when there was a drastic deterioration in the political and security situation in July 2016. PDG The World Bank Local Governance and Service Delivery Project (P127079) disbursement resumed only after adequate fiduciary safeguards had been put in place by the Government to respond to the changed country context. The temporary hold on PDG disbursement was concentrated between late 2015 – 2017 when LGSDP was to scale-up subproject implementation substantially. 14. Component 2 (Community Engagement) costs were lower than anticipated as some counties became inaccessible due to insecurity and therefore the original target of counties could not be achieved and less input from NGO Facilitating Partners was needed. Component 3 allocation was higher than anticipated as the contract with the Technical Assistance firm was underestimated and additional staff were hired by the PMU under this component (the County Inspectors of Works), in order to provide additional oversight and verification of subproject implementation progress. Component 4 allocation is also higher as project management activities continued over the 5-year project duration despite the suspension of subproject implementation and PDG disbursement. 15. The project was meant to be restructured to scale down the project scope, adjust the results framework to match the revised scope and adjust project component costs in 2017 with the proposed Additional Financing of US$ 65 million that was under preparation. Given the changed country context, a decision has been taken to cancel the preparation of the Additional Financing and project restructuring and prepare a new operation that would use third party implementation arrangements. 16. As per the amendment to the project Financing Agreement dated August 28, 2014, there are five categories for disbursement in the project. Through this restructuring, disbursement Category 4 as per the Financing Agreement (Grants Under part 1 of the Project – PDG) will be reduced by USD 1,000 while Category 5 – will be increased by USD 1 million. 17. The social risk rating in the project has been changed from low to high due to pronounce Gender Based Violence (GBV) risks and the widely prevalent fragility and conflict affected environment. All other risks related to government capacity, fiduciary, macroeconomic, stakeholder and security continue to be high as per the ratings in the original project. 18. The only change made to the Results Framework is the revision of the dates that targets are to be achieved from December 31, 2018 to February 28, 2019. The Results Framework table below shows that the indicators are new as there has been a migration to the new portal. 19. PMU performance is satisfactory and there are no outstanding audits for this project (both IDA 52130 and TF 18138). The current audit for FY18 is due by December 31, 2018. The project has however incurred ineligible expenditures of USD 2,379 (364,000 SSP) and this is based on the outcome of the audit of Payam Development Grants (PDGs) disbursed to counties in FY16 and FY17 conducted by the National Audit Chamber. The audit identified PDG expenditures amounting to SSP 364,000, which were not supported by adequate documentary evidence as required by both Government and World Bank Financial Management policies and procedures. This includes (i) missing payment vouchers as well as (ii) instances where payment vouchers were not supported by relevant invoices and receipts. The Government is being requested to refund this amount by December 31, 2018. The World Bank Local Governance and Service Delivery Project (P127079) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Overall Risk Rating ✔ Implementation Schedule ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ Disbursement Estimates ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ The World Bank Local Governance and Service Delivery Project (P127079) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component 1: Block Grants to Component 1: Block Grants to 14.80 Revised 6.10 Counties and Communities Counties and Communities Component 2: Community Component 2: Community 12.60 Revised 10.90 Engagement Engagement Component 3: Institutional Component 3: Institutional 10.90 Revised 13.40 Strengthening Strengthening Component 4: Project Component 4: Project 11.70 Revised 14.70 Management Support Management Support TOTAL 50.00 45.10 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications IDA-52130 Effective 31-Dec-2018 28-Feb-2019 28-Jun-2019 TF-18138 Effective 31-Dec-2018 28-Feb-2019 28-Jun-2019 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IDA-52130-001 | Currency: XDR iLap Category Sequence No: 1 Current Expenditure Category: Grants Under part 1 of the project 750,000.00 528,682.05 528,682.05 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: GDS,WKS,CS,NCS,OP,TRG PART 2,3,4 The World Bank Local Governance and Service Delivery Project (P127079) 1,800,000.00 5,491,328.86 5,491,328.86 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: PPF REFINANCING 889,798.00 889,797.55 889,797.55 iLap Category Sequence No: 4 Current Expenditure Category: Grants under part 1 of the project 8,850,000.00 2,496,363.53 3,730,317.54 100.00 100.00 iLap Category Sequence No: 5 Current Expenditure Category: GDS,WKS,CS,NCS,OP,TRG PART 2,3,4 20,210,202.00 20,655,056.12 21,859,874.00 100.00 100.00 Total 32,500,000.00 30,061,228.11 32,500,000.00 OPS_DETAILEDCHANGES_SORT_TABLE SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating at Approval Current Rating Political and Governance  High Macroeconomic  High Sector Strategies and Policies  Substantial Technical Design of Project or Program  Moderate Institutional Capacity for Implementation and  High Sustainability Fiduciary  High Environment and Social  High Stakeholders  High Other  High Overall  High . The World Bank Local Governance and Service Delivery Project (P127079) . Results framework COUNTRY: South Sudan Local Governance and Service Delivery Project Project Development Objectives(s) To improve local governance and service delivery in participating counties in South Sudan. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target To improve local governance in participating counties in South Sudan (Action: This Objective is New) Intended beneficiaries that are aware of project informaiton and 0.00 60.00 project supported investments (Percentage) Action: This indicator is New Participating payams with functioning Payam Development 6.00 80.00 Committees (Percentage) Action: This indicator is New Subprojects or investmens for which arrangemetns for 0.00 80.00 community engagement in O&M are established (Percentage) Action: This indicator is New Counties remaining eligible in subsequent year for the Payam 0.00 80.00 Development Grant (Percentage) Action: This indicator is New To improve service delivery in participating counties in South Sudan (Action: This Objective is New) Financed subprojects functioning and delivering services to 0.00 80.00 communities one year after completion (Percentage) The World Bank Local Governance and Service Delivery Project (P127079) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Action: This indicator is New Direct project beneficiaries (of which female %) (Number) 0.00 4,100,000.00 Action: This indicator is New PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Block grants to counties for payam development (Action: This Component is New) PDG Indicative Planning Figures published for counties by official No Yes due date (Yes/No) Action: This indicator is New Eligible counties with variance between budgeted and actual 0.00 90.00 PDG expenditures not exceeding 35 percent (Percentage) Action: This indicator is New Disaggregated list of investment by type and sector (Text) Unkown 500.00 Action: This indicator is New Community engagement (Action: This Component is New) Participants in consultation activities during project 0.00 200,000.00 implementation (Number) Action: This indicator is New Grievances registered related to delivery of project benefits that 0.00 80.00 are actually addressed (Percentage) The World Bank Local Governance and Service Delivery Project (P127079) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Action: This indicator is New Institutional strengthening (Action: This Component is New) Participating counties submitting complete plans and budgets 24.00 85.00 each year. (Percentage) Action: This indicator is New Participating counties with "clean" (not adverse or disclaimed) 0.00 85.00 audit opinion on PDG expenditures (Percentage) Action: This indicator is New Subprojects adhering to technical standards and completed 0.00 70.00 within one year of grant disbursement (Percentage) Action: This indicator is New IO Table SPACE The World Bank Local Governance and Service Delivery Project (P127079) Note to Task Teams: End of system generated content, document is editable from here. Please delete this note when finalizing the document