Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004553 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA 51530-PK) ON A LOAN/CREDIT/GRANT IN THE AMOUNT OF SDR 99.5 MILLION (US$ 150 MILLION EQUIVALENT) TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR THE PUNJAB CITIES GOVERNANCE IMPROVEMENT PROJECT APRIL 26, 2019 Social, Urban, Rural And Resilience Global Practice South Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective Jun 29, 2018) Currency Unit = Pakistan Rupee (PKR) PKR 121.54 = US$1 US$ 0.71 = SDR 1 (Exchange Rate Effective August 1, 2012) PKR 94.64 = US$1 US$ 1 = SDR 0.66 FISCAL YEAR July 1 - June 30 Regional Vice President: Hartwig Schafer Country Director: Patchamuthu Illangovan Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez Practice Manager: Catalina Marulanda Task Team Leader(s): Shahnaz Arshad ICR Main Contributor: Suhaib Rasheed ABBREVIATIONS AND ACRONYMS ADP Annual Development Plan NCB National Competitive Bidding CDG City District Government NPV Net Present Value CIP Capital Investment Plan O&M Operation and Maintenance CPUs City Program Units OP Operational Procedure CQS Consultants Qualification Selection ORAF Operational Risk Assessment Framework DA Development Authority OSR Own Source Revenue DCO District Coordination Officer P&DD Planning and Development Department DG M&E Directorate General Monitoring and Evaluation PDCA Punjab Development of Cities Act DLIs Disbursement Linked Indicators PDO Project Development Objective E&TD Excise and Taxation Department PFC Provincial Finance Commission EDO Executive District Officer PFM Public Financial Management EEP Eligible Expenditure Program PFMAA Public Financial Management and Accountability Assessment EIA Environmental Impact Assessment PFM-PR Public Financial Management – Performance Report EPA Environment Protection Agency PHA Parks and Horticulture Authority ESMF Environmental and Social Management PLGO Pakistan Local Government Ordinance Framework ESMP Environmental and Social Management Plan PMSIP Punjab Municipal Services Improvement Project FBS Fixed Budget Selection POL Petrol, Oil, and Lubricants FY Financial Year PPP Public Private Partnership GDP Gross Domestic Product PPPRA Punjab Public Procurement Regulatory Authority GIS Geographic Information System PPRA Public Procurement Regulatory Authority GoPunjab Government of Punjab QBS Quality Based Selection GPN General Procurement Notice RFP Request for Proposal HUDD Housing and Urban Development Department SBDs Standard Biding Documents IAS Internal Audit Specialist SC Steering Committee IBRD International Bank for Reconstruction and SIL Specific Investment Loan Development ICB International Competitive Bidding SOP Standard Operation Procedures IDA International Development Association SSS Single Source Selection IDAMP Integrated Development and Asset SWM Solid Waste Management Management Plan IEE Initial Environmental Examination TA Technical Assistance IEG Independent Evaluation Group TEPA Traffic Engineering and Planning Agency IFR Interim Financial Report TMA Town Municipal Administration LCS Least Cost Selection ToRs Terms of Reference LG Local Government TPV Third Party Validation LG& Local Government and Community UIPT Urban Immoveable Property Tax CDDD Development Department MC Metropolitan/Municipal Corporation UU Urban Unit MD Managing Director WASA Water and Sanitation Agency MIS Monitoring and Information System WB World Bank MTBF Mid-Term Budgetary Framework WHO World Health Organization NAM New Accounting Model The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) TABLE OF CONTENTS DATA SHEET .......................................................................................................................... 2 I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 6 A. CONTEXT AT APPRAISAL .........................................................................................................6 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ..................................... 10 II. OUTCOME .................................................................................................................... 10 A. RELEVANCE OF PDOs ............................................................................................................ 10 B. ACHIEVEMENT OF PDOs (EFFICACY) ...................................................................................... 11 C. EFFICIENCY ........................................................................................................................... 17 D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 19 E. OTHER OUTCOMES AND IMPACTS (IF ANY) ............................................................................ 19 N/A .......................................................................................................................................... 20 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 21 A. KEY FACTORS DURING PREPARATION ................................................................................... 21 B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 22 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 23 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 23 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 24 C. BANK PERFORMANCE ........................................................................................................... 27 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 29 V. LESSONS AND RECOMMENDATIONS ............................................................................. 30 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 32 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 42 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 44 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 45 ANNEX 5. URBAN UNIT COMMENTS .................................................................................... 52 ANNEX 6. FUNDS ALLOCATION ............................................................................................ 53 ANNEX 7. BENEFICIARY SURVEY ........................................................................................... 54 ANNEX 8. SUPPORTING DOCUMENTS .................................................................................. 56 Page 1 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P112901 Pakistan Punjab Cities Governance Improvement Project Country Financing Instrument Pakistan Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Partial Assessment (B) Organizations Borrower Implementing Agency The Urban Unit, Planning and Development Board, Economic Affairs Division Government of Punjab Project Development Objective (PDO) Original PDO The project development objectives are to support the Province of Punjab's cities in strengthening systems for improved planning, resource management, and accountability, and to improve the Province of Punjab's capacity to respond promptly and effectively to an Eligible Crises or Emergency. Page 2 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 150,000,000 147,255,453 140,897,780 IDA-51530 Total 150,000,000 147,255,453 140,897,780 Non-World Bank Financing 0 0 0 Borrower/Recipient 4,000,000 4,000,000 4,000,000 Total 4,000,000 4,000,000 4,000,000 Total Project Cost 154,000,000 151,255,453 144,897,780 KEY DATES FIN_TABLE_DAT Approval Effectiveness MTR Review Original Closing Actual Closing A 11-Sep-2012 14-Feb-2013 21-Mar-2016 30-Jun-2017 30-Jun-2018 RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 01-May-2017 94.66 Change in Loan Closing Date(s) KEY RATINGS Outcome Bank Performance M&E Quality Satisfactory Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 23-Dec-2012 Satisfactory Satisfactory 0 02 12-Jun-2013 Satisfactory Satisfactory 26.72 Page 3 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) 03 19-Dec-2013 Satisfactory Satisfactory 26.72 04 14-Jun-2014 Satisfactory Satisfactory 27.70 05 08-Dec-2014 Satisfactory Satisfactory 55.80 06 27-Mar-2015 Satisfactory Moderately Satisfactory 55.80 07 06-Jul-2015 Satisfactory Satisfactory 94.66 08 27-May-2016 Satisfactory Satisfactory 94.66 09 27-Dec-2016 Satisfactory Satisfactory 94.66 10 23-Jun-2017 Satisfactory Satisfactory 129.70 11 28-Dec-2017 Satisfactory Satisfactory 129.70 12 27-Jun-2018 Satisfactory Satisfactory 140.90 SECTORS AND THEMES Sectors Major Sector/Sector (%) Public Administration 90 Sub-National Government 90 Information and Communications Technologies 10 Public Administration - Information and 10 Communications Technologies Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Finance 17 Finance for Development 17 Housing Finance 17 Page 4 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Public Sector Management 32 Public Administration 32 Administrative and Civil Service Reform 4 E-Government, incl. e-services 18 Municipal Institution Building 10 Urban and Rural Development 51 Urban Development 51 Urban Planning 17 Municipal Finance 34 ADM STAFF Role At Approval At ICR Regional Vice President: Isabel M. Guerrero Hartwig Schafer Country Director: Rachid Benmessaoud Patchamuthu Illangovan Director: John A. Roome Practice Manager: Ming Zhang Catalina Marulanda Shahnaz Arshad, Raja Rehan Task Team Leader(s): Shahnaz Arshad Arshad ICR Contributing Author: Suhaib Rasheed Page 5 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. World Bank Engagement in Punjab’s Urban Sector. After a hiatus of many years, the Bank engaged with the Government of Punjab (GoPunjab) in 1998 to support improving outcomes in urban areas, through support to the urban local governments (ULGs). However, the dialogue was put on the back-burner in 2001 after a “big-bang” devolution of powers process was launched across the country, which brought fundamental changes to the urban governance framework, and structures and mandates of the LGs. Once the transition was over, GoPunjab requested Bank support to the newly-created LGs. 2. The Punjab Municipal Services Improvement Project (PMSIP) approved in 2005, focused on funding institutional development and priority investments in medium and small cities across Punjab. It included a number of innovative features including the establishment of the first Government-owned company in Punjab - the Punjab Municipal Development Fund Company (PMDFC) - as the implementing agency, bringing in the efficiencies and quality control of the private sector in public sector business processes. The Company was envisioned to become a window for institutional development of and performance-based grants for LGs, a role it ably fulfilled and continues to do so through GoPunjab funding since Project closure in 2013. 3. PMSIP resulted in improving governance, transparency, and accountability of 105 ULGs through extensive capacity enhancements in the areas of performance management, financial management, city planning, citizen engagement and access to information, as well as the management of assets, contracts, and projects. It also provided demand-driven priority municipal infrastructure investments in selected cities. PMSIP also supported an urban regeneration and heritage restoration pilot in the historic Walled City of Lahore, which has been deemed as highly successful. 4. Once PMSIP was fully operational, GoPunjab requested Bank support for the largest cities in the province, whose institutional structures were different from those in secondary cities and small towns. At the time of PCGIP Appraisal, Pakistan’s economy was recovering from a period of low growth marked by a crisis of militancy in parts of the country, and historic floods in the Indus and its tributaries in 2010 and 2011. As the largest province in the country, Punjab represented a major determinant of national economic growth and poverty reduction. While Punjab showed a significant fiscal surplus in 2010/11 – an outcome of a favorable National Finance Commission (NFC) Award1 and a strong effort by the provincial government to reduce low priority expenditure – strong development challenges remained amidst a slowing down of economic growth over the previous three years. Pakistan’s economy was expected to perform better in subsequent years, as it recovered from internal and external shocks, and benefitted from an improvement in the law and order situation in the country. 5. With increasing urbanization in the country and in Punjab, urban economic sectors were identified as the key 1The National Finance Commission (NFC) Award determines the shares for distribution of the allocable amount in the federal budget among the provinces. Page 6 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) drivers of economic growth in Pakistan and Punjab. Cities were estimated to contribute 78% of the country’s GDP. In Punjab, the five largest cities accounted for 50% of the gross value of industrial production. However, widespread under-performance in service delivery and infrastructure deficiencies continued to affect living conditions and handicap business growth, reducing the productive potential of Punjab’s cities. Project appraisal identified the key institutional and systemic obstacles to better performance by city governments and agencies to be: (a) fragmented mandates and inconsistent jurisdictional boundaries; (b) weak city level systems for resource planning and management; (c) unpredictable capital investment funding and low own source revenues; and (d) lack of accountability of local governments to citizens. 6. GoPunjab set out its fundamental urban goal in the Mid-Term Budgetary Framework (MTBF) 2011-2014 as “to develop modern and efficiently managed urban centers to serve as engines of growth for provincial economy” and laid out key policy interventions in the accompanying Medium-Term Development Framework (MTDF) 2011-2014. GoPunjab had recognized that achieving the overall goal would be a long-term undertaking, and therefore approached it in three stages (refer figure below). The first stage included key reforms and was largely complete by appraisal. As the second step, GoPunjab would focus on strengthening urban governance, and subsequently tackle service delivery in the third stage. The project was well aligned with GoPunjab’s urban agenda, as it built on the policy reforms already undertaken during project preparation and focused on institutional and governance issues under Stage 2. Step 1: Urban Reforms Step 2: Improve Urban Governance Step 3: Improve Service Delivery • Reintroduction of urban identity in the law. • Alignment of planning areas of city entities • Expansion of service delivery in a phased • Medium Term Development Framework. with city areas. manner in city areas. • Approved Policy Framework for Urban • Improved fiscal consolidation & enhanced • Operationalization of fully autonomous Immoveable Property Tax (UIPT) Reforms. revenue mobilization efforts. entities with clarity of mandates and • Transfer of full UIPT receipts to Local • Automation of UIPT system. jurisdictions. Governments (LG). • Framework for participatory 3 years rolling • Scaled up investments and budgets • Punjab Public Procurement Regulatory integrated development and asset allocations for asset maintenance. Authority Act & Punjab Procurement Rules. management planning. • Increased OSR with widened tax base, • Orperationalization of Urban Unit in • Operationalization of public disclosure and increased user charges, and fee, etc. Planning and Development Department access to information. • Hard budget constraints. (P&DD) as technical support for GoPb and • Enhanced transparency and accountability • Urban development in accordance with 3 LGs. of institutions through citizen feedback years integrated, rolling development and • Performance criteria based and mechanisms and one window complaint asset management plans of CDGs. competitively recurited management team redress systems. • Improved asset management. for WASA. • Improved asset management system with • Improved service delivery with • Service delivery standards for WASAs. GIS based invertory of assets. operationalization of citizen feedback and • GIS based information system (IRIS). • Institutional capacity building. implementation of effective grievance & • Notified city area in five CDGs complaint redress systems. • Application of safeguards procedures and policies. 7. At appraisal, the project was aligned to the priorities of the World Bank Group’s Pakistan Country Partnership Strategy 2010-2013 which included “fostering livability and economic growth and dynamism within Pakistan’s major cities and rapidly growing urban settlements”, and the need for “greater transparency and accountability, improved responsiveness, and a better interface with the citizens”. Page 7 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Theory of Change (Results Chain) 8. The schematic below illustrates the results chain for the project as envisaged at the time of appraisal. A key assumption was that a results-based investment project financing approach, based on the achievement of specific institutional and performance results by the city entities would enable them to improve urban governance and service delivery systems and finance priority repair and maintenance needs. Project Development Objectives (PDOs) 9. The project development objectives were to support the Province of Punjab’s cities in strengthening systems for improved planning, resource management, and accountability, and to improve the Province of Punjab’s capacity to respond promptly and effectively to an Eligible Crisis or Emergency. 10. At Appraisal, the ongoing Bank-funded PMSIP, which was supporting secondary cities and small towns, was scheduled to close shortly. GoPunjab was considering the inclusion of some more cities in PCGIP, in addition to the five largest cities in Punjab (Lahore, Rawalpindi, Multan, Faisalabad, Gujranwala). The PDO was thus kept flexible to facilitate this. Subsequently, PMSIP was instead extended, and PCGIP support remained focused on the five large cities. 11. The PDO was not revised during implementation. Page 8 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Key Expected Outcomes and Outcome Indicators 12. Achievement of the PDO was to be measured through the following outcome indicators: a. Percentage of development and asset maintenance expenditure of the city and city entities spent according to the three-year rolling development and asset management plans; b. Percentage of service area population having an institutionalized mechanism available at city service delivery entities for providing feedback and grievance redress. Components 13. The project had three components with an estimated cost of US$ 150 million, as described below. 14. Component 1: Performance Grants (US$145 million), provided an annual grant to project cities subject to achievement of pre-specified results against a set of Disbursement Linked Indicators (DLIs). The DLIs focused on two areas of urban governance: resource planning and management (DLIs 1-4); and transparency and voice (DLIs 5-7). First-year DLI targets were set to be met by Project Appraisal. For the following years, a city needed to meet all specified targets against the DLIs for that year to qualify for the annual performance grant. The achievement of these targets needed to be assessed and validated by independent teams deployed by the Directorate General Monitoring and Evaluation (M&E) of the Planning and Development Department (P&DD), GoPunjab. Table-1: Disbursement Linked Indicators DLIs Indicators 1: Resource Planning Three-Year rolling Integrated Development and Asset Management Plans implemented by each CDG for area within its ‘city’ boundary. 2: Procurement Good procurement performance practices operationalized in CDGs through implementation of the provincial procurement rules. 3: Intergovernmental Finance System Reporting of flow of funds to CDGs and city entities, at the CDG level. 4: Revenue Collection System Improvements in Own Source Revenue (OSR) collection systems. 5: Boundary Alignment Boundary of “city” area adopted by each city and its entities as the spatial planning and service delivery area. 6: Public Disclosure and Access to Information Public Disclosure and Access to Information mechanism operationalized. 7: Accountability Effective and transparent feedback and grievance redress mechanisms operationalized. 15. Disbursements under Component-1 were to be tracked against a set of Eligible Expenditure Programs (EEPs) that included non-salary operation and maintenance (O&M) expenditures of existing urban assets and services by City Governments and Water and Sanitation Agencies (WASAs). Cities were required to spend at least the disbursed amount of annual performance grants on EEPs over the subsequent year. 16. Component 2: Project Implementation and Capacity Building (US$5 million) , was designed to support the province and project cities with technical assistance and capacity building to achieve the DLIs, as well as strengthen their financial, social, and environmental management systems. The Urban Unit (UU) and City Program Units (CPUs) set up in the five cities were responsible for providing this support in areas including, but not limited to: (a) city-wide resource planning; (b) procurement; (c) own source revenue enhancement; d) citizen participation and use of social accountability approaches and tools; and e) management of environmental and social impacts. Component 2 also supported the UU in the automation of Urban Immovable Property Tax (UIPT), and the Directorate General M&E in engaging individuals/firms to assess achievement of DLIs. Page 9 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) 17. Component 3: Contingent Emergency Response (US$0), was included to support preparedness and rapid response to a natural disaster, emergency, and/or catastrophic event and allow for rapid reallocation of Credit proceeds from other components, if needed. At the time of appraisal, Pakistan had seen a series of natural disasters in the previous years, including the record-breaking devastating floods of 2010. PCGIP was one of the first projects that included CERCs, and the implementation modalities developed for PCGIP later contributed to the development of Bank guidelines for including CERCs in investment projects. B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets N/A Revised PDO Indicators N/A Revised Components N/A Other Changes 18. Extensions to Credit Closing Date. In April 2017, the Credit closing date was extended by twelve months from June 30, 2017 to June 30, 2018 to allow: (a) city governments and entities to develop and adopt Integrated Development and Asset Management Plans (IDAMPs), and per the PDO indicator, utilize the remaining performance grant tranche to finance priority expenditures identified in the IDAMPs; and (b) institutionalization and deepening of project interventions following changes in the local government system and the establishment of newly elected city governments with changed institutional structures. 19. Credit Cancellation. IDA Credit equivalent to SDR 1.97 million was cancelled. This was necessitated due to exchange rate differentials during currency conversion from SDR to US$ equivalent at the time the funds were advanced to the Designated Account (DA), and from US$ to SDR equivalent at the time the funds were documented. Rationale for Changes and Their Implication on the Original Theory of Change N/A II. OUTCOME A. RELEVANCE OF PDOs 20. The PDO remains aligned with the World Bank Group’s current Country Partnership Strategy (CPS) FY15-20 for Pakistan. The CPS notes that half of Pakistan is expected to live in cities by 2032, and cities would be the major drivers of economic growth and poverty reduction. CPS Goal 14 envisages ‘adoption of performance and transparency mechanisms in selected institutions’ to address the specific problem area of ‘weak implementation capacity, low accountability and lack of transparency of public institutions.’ The related indicator is ‘increased number of departments adopting citizens’ feedback and performance management systems.’ The Outcome is rated as having ‘High’ impact on eradicating poverty and ‘Medium’ impact on promoting shared prosperity. PCGIP is included as one of the operations Page 10 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) expected to contribute strongly to this outcome. 21. According to the CPS’ Results Matrix, PCGIP contributes to Results Area IV “Service Delivery” , by supporting improvements in governance in selected cities of Punjab. It specifically supports:  Outcome 2.1, “Improved business environment for private sector”, where PCGIP’s expected contribution to improving urban management is targeted cities is expected to help in achieving Government's strategic development objective 'Develop an enabling environment to foster private investment'.  Outcome 4.1, “Improved public resource management”, where gains from UIPT automation in the project cities are seen as an important contributor to the strategic development objective 'Improved domestic revenue mobilization to finance Pakistan’s development needs’.  Outcome 4.4, “Adoption of performance and transparency mechanisms in selected institutions” , where PCGIP is expected to help establish credible performance management and citizen’s feedback systems in target institutions.  Outcome 4.5, “Improved urban management in cities”, by strengthening the performance of participating local governments in urban management. 22. The PDO is also strongly relevant to the most recent strategies formulated by the federal and provincial governments. The federal government’s Pakistan Vision 2025 notes that Pakistan needs to address the existing challenges of large urban centers in future planning for continued migration towards cities. The strategy aims to transform urban areas through, inter alia, improved city governance and effective urban planning to make urbanization an important driver of growth. These improvements are seen as the first step in developing ‘smart cities’, i.e., cities that are capable of adapting to increasing complexity and demand for knowledge communication, given urban expansion. Another stated priority is the digitization of the land registration system. Similarly, the Punjab Growth Strategy 2018 highlights the role of cities as engines of economic growth and identifies the way forward in enabling cities to play this role through reform and public investment. Assessment of Relevance of PDOs and Rating Rating: High B. ACHIEVEMENT OF PDOs (EFFICACY) 23. The PDO comprises two elements: support for the Province of Punjab’s cities in strengthening systems for improved planning, resource management, and accountability; and to improve the province’s capacity to respond promptly and effectively to eligible crisis or emergency. As no eligible emergency was declared during the life of the Credit, and the only activity under Component 3 was the development of implementation modalities for CERC, achievement of the PDO is being assessed only in terms of the achievement of the first element of the PDO. Assessment of Achievement of Element 1: Support for the Province of Punjab’s cities in Strengthening Systems for Improved Planning, Resource Management, and Accountability is rated Substantial 24. Improved Planning Systems. DLI-1 Resource Planning and DLI-5 Boundary Alignment contributed directly to improving planning systems. Before the project, there was a high degree of fragmentation in development spending Page 11 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) with city governments and their entities preparing their annual development plans independently of each other without any inter-agency coordination or integration of development and maintenance needs. Moreover, planning was carried out for a single year without any focus on longer term priorities. Under DLI-1, city governments and WASAs achieved several incremental outcomes. 25. DLI-1 required city governments and WASAs to achieve several incremental outcomes. As a first step, city governments and their entities prepared consolidated Annual Development Plans using specified templates that reflected all on-going, new, and planned investments in the ‘city’, categorized by sector, entity, new assets, refurbishment and replacement. Next, detailed asset inventories (with age and condition, cost, current book value, GIS coordinates, etc.) were prepared for all movable and immovable assets owned by city governments and WASAs. In parallel, an energy audit was undertaken for all power consuming equipment operated by WASAs, such as water supply and disposal pumps, to identify inefficiencies and priority maintenance and replacement needs. These activities, while time- and effort- intensive, furnished essential data to support evidence-based development planning. 26. Subsequently, city governments and their entities adopted the Integrated Development and Asset Management Planning (IDAMP) methodology, which was cleared and notified by the Planning and Development Department for the five city governments and WASAs. It provided detailed procedures for capital planning and investment of resources through effective evidence-based planning, budgeting, and recording of all assets over their life cycle for optimized service delivery. The development of IDAMPs was envisaged for the final two years of Project implementation, per the DLI matrix and results framework, as it built on several earlier activities. The IDAMP framework developed under PCGIP is based on international best practices that include: developing an asset inventory; understanding the current level of service measured using standard metrics; topological (GIS) mapping; estimating costs to maintain levels of service; proposed levels of future service and life cycle management strategy; and financial strategy (medium term financial framework). City governments and WASAs developed three year rolling IDAMPs for 2017-18 and 2018-19. Figure-1: Key Stages of IDAMP Processes Stage Activities IDAMP-Database  Detailed asset inventory database, including asset installation/replacement date  Field survey for verification  Physical assets mapped to Geographic Information System (GIS)  Asset Management Information System Energy Audit for All WASAs  Field audit of all energy consuming equipment of WASA  Analysis of energy usage patterns  Identification of energy saving opportunities & Energy Management Plans Level of Service (LOS) Indicators  For CDGs/MCs, 15 LOS indicators for various areas such as Solid Waste Management; Roads, Traffic System, Citizen Satisfaction, Asset Management and Air Pollution.  For WASAs, 35 LOS Indicators related to coverage, production, consumption, non-revenue water, network performance, complaint resolution, water purification, billing & collection etc. IDAMP Methodology & Process  Complete asset management methodology  Detailed procedures for planning & investment  Updating asset records throughout their lifecycle  M&E systems Investment Appraisal Criteria  Multi-variable appraisal of investment proposals, per given weightage: Social & economic benefits (30 percent); Demonstrable public demand (40 percent); feasibility (10 percent); Environment impacts (20 points). Page 12 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Figure-2: Key Changes Resulting from IDAMP Before … and After No system or criteria for investment appraisal & prioritization  Investment appraisal criteria developed & applied No system for development & management of assets  Consistent approach & common methodology for development & management of assets  Appraisal guidelines to ensure evidence-based decision making by municipal council Inadequate linkage to capital investment plan/ weak  Robust project & asset management plans linked to rigorous near- and long-term accountability financial planning (tied to improving service delivery) Lack of appropriate operating procedures  Detailed guidelines for development & implementation of IDAMPs adopted Inadequate citizen engagement  Investment selection criteria emphasizes social & economic benefits and public demand (70% weightage) 27. In order to address differing jurisdictions and notified ‘service areas’ for city governments and WASAs, DLI-5 on boundary alignment also had an important role in planning, as it aimed to delineate a common ‘city’ area for city governments and WASAs. The ‘city’ boundary was demarcated for the five cities after a detailed survey and was adopted by both entities in each city. WASAs subsequently developed action plans to extend their service delivery area to this boundary in a phased manner, including Level of Service indicators, to align with city boundaries. However, the process suffered a setback when the delimitation of urban areas for the local government (LG) elections of 2015 under the Punjab Local Government Act (PLGA) 2013 excluded large tracts of urban built-up areas. Consequently, WASAs revised the action plans for phased extension of their service boundaries to bring them in line with the officially notified new boundaries. 28. Improved Resource Management Systems. Improving resource management was a key aim of the project. During preparation, several challenges were identified. Resource predictability was low as city governments did not know the total transfers to the city (across all entities) due to multiple and parallel funding sources. City governments also struggled with quantifying revenue potential for various tariffs and fees and were unable to identify the extent of leakages in these systems. While Urban Immovable Property Tax (UIPT) globally represents a key revenue source for urban LGs, its regime in Punjab was unwieldy and cumbersome, with manually maintained records that were not fully updated. Similarly, the Punjab Public Procurement Regulatory Authority’s (PPPRA) rules were inconsistently applied due to a lack of clarity and training of LG officials. In response, the project nurtured various improved systems in LGs and WASAs of the five cities, including:  Procurement. Under DLI-2, standard operating procedures (SOPs) for procurement and contract management, based on PPPRA rules, were approved and operationalized in all partner city entities; their officials were provided training for their implementation, and reference materials were disseminated. These SOPs have since been applied on all contracts of city governments and WASAs; their quantum has increased over time in a phased manner. The application of SOPs and the resultant transparency in procurements has led to savings of US$4.8 million (estimated vs. contract costs) through efficiencies introduced in public procurement practices. Refer Table 2 below.  Fiscal Consolidation. DLI-3 required the provincial government to make available information to requisite officials at the city governments on all funds transferred to city entities. Under the project, all transfers from the provincial Finance Department to WASAs were reported to city governments and are being reflected on the websites of both entities. The disclosure of funding streams and amounts addressed the primary factor contributing to unpredictability of funding, i.e., ad-hoc transfers to city entities, particularly WASAs. City governments were also not aware of the magnitude of development expenditure in the city across multiple streams. Hence this reform, along with the 3-year rolling IDAMPs, led to coordinated development decisions and improved investment Page 13 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) planning.  Improving Own Source Revenues. Under DLI-4, City Governments and WASAs adopted Action Plans for enhancing self-collected OSR during the second year of implementation. The City Governments conducted field surveys to update the consumer base for: (a) licensing fees on trades and vocations; (b) advertisements and billboards; (c) rents from municipal properties; and (d) classification/re-classification of land use. Similarly, WASAs undertook consumer surveys to detect illegal connections and to verify records on the type of connections (residential, commercial, or industrial). As a result, significant improvements were made in revenue collection and recovery of arrears through electronic billing; detection and regularization of illegal water connections; installation of water meters; rationalization of user tariffs; and collection improvements in other avenues of OSR, including from sewerage services, despite rates having remained unchanged in over 10 years. These have led to additional annual own-source revenues through improved collection of water bills and trade & license fees (See Tables 3 and 4), as well as savings from reduced energy bills due to energy audits. The efficiency analysis discusses savings in further detail (Refer Annex-4).  Urban Immovable Property Tax. The project supported the digitization of maps and complete automation of the UIPT system in the five partner cities, as well as in Sialkot city as a pilot. This entailed the scanning and digitization of property maps, electronic translation of ownership and taxation data, field surveys to validate and update the records and add any missing units, and the development of Management and Geographic Information Systems (MIS and GIS) that are currently being used by the Excise and Taxation Department for UIPT administration and collection. Increase in UIPT collection is discussed further in Annex 4. Based on this success, GoPunjab has since scaled up this system across Punjab. Table 2: PCGIP Procurement Savings (PKR million) 2013-14 2014-15 2015-16 2017-18 Estimated Estimated Estimated Estimated Procuring Agency Contract Saving Contract Saving Contract Saving Contract Saving Value Value Value Value CDG/MC-Lahore 184 42 418 16 531 11 515 10 CDG/MC-Faisalabad 296 2 382 60 464 40 417 22 CDG/MC-Gujranwala 202 8 220 2 289 30 260 (0) CDG/MC-Rawalpindi 209 16 261 38 251 70 274 2 CDG/MC-Multan 171 8 193 2 281 80 N/A N/A WASA-L 353 0 401 (0) 572 73 532 98 WASA-F 241 7 264 15 425 75 396 36 WASA-G 195 0 235 14 305 13 281 15 WASA-R 195 - 163 (0) 290 (2) 277 9 WASA-M 193 7 193 7 279 54 236 35 Total (PKR million) 2,241 89 2,730 153 3,687 445 3,189 228 Total (US$ million)2 20.7 0.8 25.3 0.5 34.1 4.1 29.5 2.1 Savings (%) 3.96 5.60 12.06 7.14 2Calculated per Average exchange rate over implementation period. The exchange rate at Project appraisal was US$ 1 = PKR 94.6; The final exchange rate at project closing was US$ 1 = PKR 121.5; The average exchange rate used here is: US$ 1 = PKR 108.09 Page 14 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Table 3: Increase in OSR: CDGs/MCs (PKR million)3 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 LHR 731 985 849 982 1,162 2,242 FSD 387 338 400 441 355 502 GRW 272 208 181 257 484 - RWP 206 169 197 215 - 573 MLT 228 272 272 217 594 - Total (PKR million) 1,824 1,972 1,898 2,113 2,810 4,394 Total (US$ million)4 16.9 18.2 17.6 19.5 26.0 40.7 Table 4: Increase in OSR: WASAs (PKR million)5 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 LHR 2,382 3,138 3,075 3,102 3,213 3,738 FSD 588 697 603 725 - 1,288 GRW 58 44 51 42 49 156 RWP 249 395 422 398 462 484 MLT 495 242 292 358 328 407 Total (PKR million) 3,772 4,515 4,443 4,625 4,777 6,073 Total (US$ million)6 34.9 41.8 41.1 42.8 44.2 56.2 29. Improved Accountability Systems. The project strengthened systems in city governments and WASAs for transparency and accountability to citizens in the five cities. The project assisted city governments and WASAs to comply with the requirements of The Punjab Transparency and Right to Information Act 2013 and subsidiary legislation under the LG Act.  Transparency. DLI-6 focused on establishing mechanisms for public disclosure and access to information in city governments and WASAs in line with the Punjab Right to Information Act 2013. Mechanisms for improved public disclosure and access to information were operationalized in all cities, and are responding to information requests from journalists, academics, lawyers, NGOs, citizens, etc. Proactive disclosure is also being undertaken on the websites of city governments and WASAs.  Accountability. City governments and WASAs institutionalized DLI-7 targets by effective systems for managing complaints and grievance redress. Existing complaint resolution systems run by GoPunjab (such as the Chief Minister’s, Chief Secretary’s and DCO’s complaints cells and “Zimmedar Shehri”) have also been linked to automated systems developed at city entities to allow rerouting of complaints to the agency responsible for the service and reporting.  A successful Communications Strategy was developed and implemented by the Urban Unit under PCGIP. Numerous communication tools were deployed to reach out to the citizens, including tickers on TV; posters and 3 Reported revenues include: Rental Income from Municipal Properties; Fee from Transport Terminals including Parking Fees; Fee for Licensing on Trades and Vocations; Commercialization Fee; Advertisement Fee (till FY13-14). Figures do not include revenues from Urban Immovable Property Tax (UIPT) and Tax on Transfer of Immovable Properties (TTIP). In case OSR figures for a certain year were unavailable, collected revenue from the preceding year has been reused for totals. OSR Action Plans were adopted in FY13-14 and implemented across the remaining years. In FY14-15, the transfer of revenues from advertising (such as billboards and hoardings) from CDGs to Parks and Horticulture Authorities (PHAs) put a significant dent in OSRs of CDGs, which masks improvement in other revenue sources. In the previous FY - advertising fees collected by CDGs Multan, Faisalabad, Gujranwala and Rawalpindi had contributed a third of all OSR collections against sources reported here. 4 Calculated per average exchange rate over implementation period, i.e. US$ 1 = PKR 108.09 5 Reported revenues include: Water Charges; Sewerage and Drainage Charges; Miscellaneous/Other income. In case OSR figures for a certain year were unavailable, collected revenue from the preceding year has been reused for totals. OSR Action Plans were adopted in FY13-14 and implemented across the remaining years. 6 Calculated per average exchange rate over implementation period, i.e. US$ 1 = PKR 108.09 Page 15 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) banners; and consultations with citizen. 30. PDO Outcome Indicators. The achievement of the PDO level outcomes is rated as Satisfactory. 31. Indicator-1: Percentage of development and asset maintenance expenditure of the city and city entities which are spent according to the three-year rolling integrated development and asset management plans. City governments and WASAs developed and adopted IDAMPs for two successive financial years during the project: 2017-18 and 2018- 19. The analysis of the corresponding Annual Development Plans (ADPs) by these entities has established that all items included in the ADPs coincided with priority capital investment and asset management initiatives identified in the IDAMPs. Similarly, the analysis of expenditures incurred by the city governments and WASAs in financial year 2017-18 demonstrates that 100 percent of annual development expenditure was in line with the investment menu from IDAMP (full achievement of indicator). This provides assurance that the improved planning systems have been fully implemented across the entities and are being used for evidence-based investment decisions. 32. Indicator-2: Percentage of service area population having an institutionalized mechanism available at city service delivery entities for providing feedback and grievance redress. Complaints and grievance management systems have been developed and operationalized under the project in the five city governments and WASAs. Citizens have been provided multiple channels to register complaints and to provide feedback, including walk-in complaint centers, dedicated telephone lines and designated staff, and web-based solutions. 33. As part of project evaluation, a third-party survey was conducted in the five cities over January-February 2019 to assess the quality and effectiveness of complaints and grievance redress systems operationalized under PCGIP7. The survey of beneficiaries in the five cities, including complainants to city governments and WASAs, confirmed the availability of grievance redress systems to citizens. Almost 99 percent of respondents were aware of the available mechanisms and on how to lodge a complaint; 92 percent of respondents were satisfied with the ease of access indicators (suitability of channels/modes; conduct of officials; competency of officials). Similarly, over 78 percent were satisfied with the process of complaint registration, e.g. time taken, tracking number given. The results further indicate that female respondents were more likely to be satisfied or highly satisfied with the available systems than male respondents. 34. Overall, more than half the respondents were satisfied with the end-to-end complaints and grievance redressal systems, although results by agencies were more dispersed and included a few outliers. Dissatisfaction was particularly high for WASA Gujranwala and Metropolitan Corporation (MC) Lahore. The key conclusions from the third-party survey report are presented below.  A robust mechanism is in place to track complaints and ensure redress in a timely manner.  The capacities of city agencies (MCs & WASAs) have been strengthened to receive and address public grievances.  An effective tool is available to embed accountability and transparency in MCs & WASAs.  The mechanism is convenient and effective for the public, especially for females, to submit grievances and interact with public agencies.  The responsiveness of MCs and WASAs to the public has increased and the system is suitable for replication in other cities as well. 7 Summary is available in Annex 5; the full Report is in the Project files. Page 16 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) 35. The project also supported improved Public Financial Management (PFM), as well as social & environment management under the TA component and achieved good results. While Bank funds could only be used for rehabilitation and deferred O&M, LGs were required to apply procurement SOPs and safeguard requirements to 100% of initiatives by the end-of-the Project (with a phased increase over project period), regardless of source of funds. However, there were no associated DLIs for these, and therefore they are not reflected in the results framework nor in the economic analysis. Justification of Overall Efficacy Rating 36. Based on the discussion above, efficacy of the project is rated Substantial. C. EFFICIENCY 37. The project focused on improving urban governance in the five largest cities of Punjab, particularly in the areas of: a) better resource planning and management, through introducing evidence-based decision making, consolidating fragmented revenue sources and strengthening resource mobilization; and b) enhancing transparency and voice of citizens in the preparation, monitoring, and evaluation of development projects and programs. The project supported city governments and WASAs in these cities with technical assistance and capacity building interventions to achieve the envisaged objectives. The planned results would ensure that future development budgets and expenditure would be more efficient and pertinent, as opposed to earlier investment programs that were poorly planned and executed, under financed, and ultimately badly maintained. DLIs were specifically designed to achieve the overall objectives and focused on improving systems for resource planning, procurement, intergovernmental finance system, own-source revenue collection, boundary alignment, public disclosure and access to information, and complaints and grievance redress. 38. The project generated substantial economic benefits through better governance, bringing about institutional change, improved resource allocation, upgraded operations and maintenance, effective monitoring, and enhanced efficiency in providing higher quality services. Some of the benefits of the project can be quantified, while the benefits of softer interventions and systemic improvements are more difficult to measure. The appraisal document of the project included an economic analysis of quantifiable aspects, e.g., increase in own source revenues of city entities, better asset management of WASAs, and expected gains through digitization of urban immovable property records. For the ICR, the efficiency analysis covers almost all areas of project interventions, because better data is available through the analytical interventions and M&E systems deployed under PCGIP. 39. Seven types of benefits, aligned with DLIs, were estimated using available data: increase in own source revenues of city governments and WASAs; increase in cities’ collection of urban immovable property tax; rise in efficiency of employees and capital assets and systemic improvements brought about by training and capacity improvement of employees; cost savings in contracts awarded as a result of good procurement practices in CDGs/MCs and WASAs; savings in out-of-pocket costs for citizens due to the establishment of complaint and grievance redress mechanisms; savings in maintenance and repairs (M&R) and the depreciation costs of the existing capital stock of city governments and WASAs through the introduction of integrated spatial planning and asset management using a common city boundary; and the creation of fiscal space through improved intergovernmental finance system by making the provincial government report all transfers to the cities to CDGs/MCs, thereby making the efficient utilization of funds possible and increasing the credibility and predictability of CDGs’ budgets. Page 17 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) 40. The project delivered a net present value worth US$333.0 million, generated a benefit-cost ratio of 3.2, and a significant internal economic rate of return of 45.8 percent. Table 5 summarizes the results of the economic analysis. Annex 4 contains more details. Table 5: Benefits-Cost Analysis of the Project (US$ million) PV of Benefits Total Benefits 2014-18 2019-23 (10 years) Increase in OSR 10.6 6.5 17.1 Increase in UIPT 4.0 2.7 6.7 Gains owing to Capacity Building 12.6 14.9 27.5 Cost saving owing to better procurement practices 6.1 3.1 9.9 Value of Complaint Resolution 0.7 0.7 1.4 Saving in M&R Cost and depreciation 180.9 132.2 313.1 Efficiency Gain of Financial Integration 88.2 19.1 107.4 PV of Total Benefits 303.1 179.3 483.0 Cost of the Project 150.0 NPV 333.0 Benefits-Cost Ratio 3.2 IERR 45.8% 41. Design and Implementation Efficiency. Effective project implementation resulted in the PDO being achieved. The project successfully supported city governments and WASAs in the five largest cities of Punjab to improve their systems for planning, resource management and accountability to citizens. As a result, revenue mobilization in the five cities increased; the enhanced resources were better managed to address key development needs; and infrastructure expenditure became more efficient and environmentally and socially responsible. Despite the serious challenges posed by transition of the LG system and the resultant erosion of institutional capacity, activities supported by the Project led to significant and tangible results. Environmental, Social, and Fiduciary compliance was effective, and contributed to the overall efficiency of the project. 42. Utilization of the IDA Credit and Accrued Savings and Closing Date Extensions. The original Credit closing date required an extension of 12 months to allow city governments and WASAs to adopt and implement IDAMPs, and to utilize the final performance grants provided to them. The extension provided the time needed to train the new staff of the newly established MCs to enable them to operate the improved systems after the transition to new LG structures in Punjab. The equivalent of SDR 1.97 million was cancelled from the Credit in June 2018 at Credit closure, mainly due to considerable savings that emerged in the final year due to the significant differentials in SDR-US$ and US$-PKR exchange rates. 43. Increases in Operations and Maintenance (O&M) Expenditures. The operation was designed to invest in deferred stock maintenance rather than expansion of new infrastructure. This focus was intended to enable the cities and associated entities to improve efficiencies in service delivery and allow for savings in scarce resources to be channeled to other city development priorities rather than expansion of infrastructure. The project design envisaged disbursements under the performance grant component to cities to be tracked against a set of Eligible Expenditure Programs (EEPs) that included non-salary O&M expenditures on existing urban assets and services, such as roads and water supply networks. Performance grants for each city increased across the four tranches, which required the city governments and WASAs to proportionately increase spending on O&M. Tables 6.1 and 6.2 below show spending on EEPs across the four tranches of performance grants. Page 18 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Table 6.1: Allocation of Funds against EEPs by MC & WASA (PKR million) Lahore Faisalabad Rawalpindi Multan Gujranwala Total CDGs/MCs R&M of Transport 64 10 4 2 4 85 R&M of Machinery & Equipment 35 22 10 3 5 75 R&M of Buildings & Structures 141 237 197 186 221 982 R&M of Roads & Streets 1,612 1,460 880 830 876 5,658 Utilities (electricity, gas & water) 169 - - - - 169 Sub-Total 2,022 1,729 1,091 1,021 1,107 6,969 WASAs R&M of Water Supply 771 494 776 307 371 2,719 R&M of Drainage 485 758 63 626 473 2,407 Purchase of Maintenance Stores 452 142 55 27 105 782 Power and Energy 314 334 196 60 157 1,062 Sub-Total 2,022 1,729 1,091 1,021 1,107 6,970 Total (PKR Mil.) 4,043 3,458 2,182 2,042 2,213 13,939 Total (US$ Mil.)8 37.4 32.0 20.2 18.9 20.5 129.0 Table 6.2: Allocation of Funds against EEPs by Tranches (PKR million) Tranche-1 Tranche-2 Tranche-3 Tranche-4 2013-14 2014-15 2015-16 2017-18 CDGs/MCs R&M of Transport 40 3 4 37 R&M of Machinery & Equipment 11 1 - 63 R&M of Buildings & Structures 31 71 280 600 R&M of Roads & Streets 956 1,291 1,643 1,768 Utilities (electricity, gas & water) 169 - - - Sub-Total 1,207 1,367 1,927 2,468 WASAs R&M of Water Supply 235 307 891 1,286 R&M of Drainage 207 524 771 904 Purchase of Maintenance Stores 63 191 249 278 Power and Energy 702 344 16 - Sub-Total 1,207 1,367 1,927 2,468 Total (PKR Mil.) 2,414 2,734 3,855 4,936 Total (US$ Mil.)9 22.3 25.3 35.7 45.7 Assessment of Efficiency and Rating 44. Based on the above discussion, efficiency of the project is rated Substantial. D. JUSTIFICATION OF OVERALL OUTCOME RATING 45. The overall outcome of the project is rated Satisfactory, based on the ratings of relevance, efficacy, and efficiency. E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 41. There were several positive gender impacts of the Project. The GRM and Access to Information related interventions promoted women’s access through telephone and/or internet-based services. Many city governments and WASAs employed female staff to encourage female complainants. This had positive impacts on female residents of these cities who faced issues to lodge complaints in person. This is confirmed by results from the beneficiary survey where 8 Calculated per average exchange rate over implementation period, i.e. US$ 1 = PKR 108.09 9 Calculated per average exchange rate over implementation period, i.e. US$ 1 = PKR 108.09 Page 19 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) female respondents were more likely to be satisfied with available systems than male respondents. Moreover, consultations under ESMP ensured inclusion of women, which led to greater awareness of issues, such as safe and secure access. Institutional Strengthening 46. Strengthening core business systems and capabilities of city governments and WASAs was the primary objective of the project. The key interventions and outcomes have been highlighted in the section on Efficacy. The project design used mutually reinforcing elements whereby grants based on institutional performance were complemented by focused capacity building support. The incentives on offer, combined with supply side technical assistance and training, resulted in a comprehensive overhaul of operational processes and business systems in city agencies. 47. The across-the-board turnover of officials due to transition of CDGs to MCs necessitated additional training to the newly appointed officials in the last year of project implementation. As a result of these focused institutional strengthening activities, there is substantial evidence of improved capital investment planning and asset management, procurement, financial management, and revenue mobilization systems across the participating LGs and WASAs. These improvements have led to savings in procurement, reduction in power bills, improvement in revenues, and more responsive development planning. 48. Interventions under DLIs 6 and 7 led to positive results, as systems and SOPs were created and embedded in CDGs/MCs and WASAs. Public Information Officers were designated in the city governments and WASAs for responding to Information requests and were responsible for proactive disclosure. The Complaint Cells also appointed trained staff for handling grievances. 49. The systems for safeguard monitoring operationalized in the city entities raised awareness on social and environmental management compliance. Regular training has increased the awareness of staff, contractors, and wider stakeholders. Moreover, ESMPs were included for the first time in contracts awarded for works, with penalties for non- compliance. 50. The Urban Unit has transformed into an independent, self-sufficient public sector company. Based on the positive experience of providing key skill sets in city entities through the CPUs, the provincial LG&CDD is reflecting some of these skill sets in the revised organograms of urban LGs. Mobilizing Private Sector Financing N/A Poverty Reduction and Shared Prosperity 51. The project contributed to reducing poverty and enhancing shared prosperity. Sub-projects implemented through performance grants were identified through a coordinated and evidence-based planning process that responded to identified gaps in coverage and quality of municipal services. Improved business processes in city agencies and investments in infrastructure rehabilitation based on the needs and priorities of the citizens are expected to Page 20 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) contribute directly to improvement of core public services that lead to improved public health outcomes, especially for the poor. Other Unintended Outcomes and Impacts N/A III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 52. The preparation phase for the operation spanned five years, primarily due to successive priorities and challenges arising from the dialogue with the GoPunjab, whereby various instruments were considered. Preparation commenced for a Development Policy Credit (DPC) to strengthen the regulatory environment. However, just when it was ready to be delivered (with the government having undertaken all the agreed reforms), the macro situation changed and DPCs were no longer possible. The Bank instrument for the operation was then changed to Adaptable Program Lending comprising multi-phase support, and later to Investment Project Financing (IPF). Finally, a DLI-based IPF design was selected as the best fit to support GoPunjab’s urban reform agenda for the metropolitan areas, as it combines the benefits of an IPF with a results-based focus. 53. The project preparation allowed several reforms and enabling actions to be completed. The GoPunjab established the Urban Unit (UU) under the Planning and Development Department. The UU was meant to have the convening power to get relevant sectoral agencies at the same table to develop policies and strategies for urban management; provide technical and policy advice to GoPunjab on its urban agenda; build adequate technical capacity in the province; and dialogue with the Bank. The UU built core capacity quickly and managed important analytical inputs for project preparation, e.g., capacity assessment of City District Governments (CDGs) of the five largest cities and benchmarking of service delivery. The dialogue further identified several key constraints to performance of LGs in the five cities such as weak systems for planning, resource management, and accountability. The operation specifically set out to address these areas in the PDO. Another important finding during project preparation concerned the chronic backlog of deferred maintenance of infrastructure assets in all five cities due to dearth of funds, as well as focus on new investments. This informed the selection of eligible expenditure programs (EEPs) under the project. 54. In view of the capacity constraints in the city governments and WASAs, it was agreed to establish City Program Units (CPUs) as the decentralized arms of the UU to supplement available human resources with critical skill sets particularly in fiduciary and safeguards areas, as well as M&E. The CPU staff not only helped the city governments and WASAs meet DLI targets, but also imparted hands-on capacity building. 55. The DLIs and annual result targets against each DLI were agreed with GoPunjab and the city entities. The first- year results were envisaged to be achieved during preparation, which would be verified at effectiveness, and lead to the first disbursement to the cities under Component-1. These were termed as Year-1 results, and primarily comprised instructions or policy notifications that required the concerned agencies to: develop consolidated ADPs (DLI-1); comply with Punjab Public Procurement Rules (DLI-2); receive and consolidate information on all fiscal transfers (DLI-3); adopt UIPT Action Plans and develop OSR Improvement Plans (DLI-4); align their planning boundaries with a notified ‘city boundary’ earmarked during preparation (DLI-5); and establish mechanisms for public disclosure and access to Page 21 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) information (DLI-6), and for citizen feedback and grievance redress (DLI-7). Year-1 results had been achieved by negotiations. B. KEY FACTORS DURING IMPLEMENTATION 56. Effectiveness and Signing. The Credit was approved on September 11, 2012 and was signed on December 10, 2012. The Credit was declared effective only on February 14, 2013 due to the delayed receipt of the federal Ministry of Law’s clearance of the legal documents. This was two months later than originally planned and gave the city entities only four months to achieve Year-2 DLIs. The achievement of the Year-2 results was therefore delayed by a year to FY 2012-13, as the technical assistance and result verification activities could not be carried out in FY 2011-12, as originally planned. This set back the implementation calendar and disbursement cycle by a full year, as the annual assessment and grants cycle was designed to synchronize with the July 1-June 30 budget cycle of city governments and WASAs. 57. Achievement of DLIs for Years 2-4. The implementation model, whereby a central team of Senior Specialists at the UU and mid-level staff at the CPUs supported the city agencies to design and implement improved operational and business systems, proved highly successful. In addition, the UU engaged subject matter experts as consultants to support key activities and transfer technical knowledge to city officials. This represented a sustained period of success for the project as a number of difficult results were achieved, such as: development of consolidated ADPs for the city; development and notification by GoPunjab of the IDAMP framework; completion of asset inventories and energy audits; consolidated record-keeping of all fiscal transfers; digitization of city maps and UIPT automation across the five cities and the pilot city of Sialkot; development of OSR improvement plans and completion of field surveys; design and implementation of information disclosure mechanisms; and establishment of systems for effective management of complaints and grievance redress. Based on the achievement of annual results, as verified by the DG M&E, the second, third, and fourth tranches of funds were respectively disbursed in April 2013, June 2014, and June 2015. 58. Achievement of Year-4 DLI Results. City governments and WASAs faced delays in developing IDAMPs (required under DLI-1 for Year-4), as IDAMPs not only represented a paradigm shift in the planning and budgeting processes of these entities, but also required a change of mindsets, whereby planning needed to be evidence-based, integrated, and multi-year. Similarly, progress towards the full implementation of revenue improvement plans was slower than expected. The achievement of all Year-4 results was verified in May 2017 and the final tranche funds disbursed. However, the PDO Indicator-1 required assurance that development and asset maintenance expenditures of the city and city entities were spent according to the three-year rolling IDAMPs, which meant implementation of IDAMPs as well. Thus, an extension to the Project closing date became necessary. 59. Delayed release of project funds to city governments and WASAs. Delayed release of project funds by GoPunjab’s Finance Department to the cities and the UU remained a recurrent issue during implementation. While the annual cycle (including achievement and verification of results) was followed by disbursement of funds by the Bank in May or June each year in tandem with the annual budget cycle, there was an on average 8-month delay in the onward transfer of earmarked funds to city governments and WASAs. This affected their ability to implement development and procurement plans. It also proved to be a major hindrance to the achievement of infrastructure targets each year. When Year-4 results were established, the Bank was unable to disburse the corresponding funding in full, due to the significant unspent balances of the earlier disbursement tranches. Based on this experience, timely release of funds from the province to LGs has been made a legal covenant in the recently approved Punjab Cities Program. Page 22 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) 60. Changes in regulatory environment and institutional mandates. Sustainability of outcomes and achievement of certain higher-level objectives was impacted by changes in regulatory and institutional environment, as summarized below: a. New local government legislation enacted by GoPunjab in 2013 revamped local government structures, jurisdictions, and mandates. New LG elections were held in 2016 and elected LG representatives assumed office under the new system in early 2017. Under the new system, City District Governments (CDGs) were replaced by Metropolitan and Municipal Corporations (MCs), with significantly different institutional structures, a new cadre of staff, and reduced geographic areas under their jurisdiction compared to their predecessor entities. b. All CDG staff was replaced by a new cadre of officials in the MCs. This represented a major challenge to the project, as the painstakingly built capacities dissipated overnight, and additional training interventions had to be quickly implemented for a new cohort of officials to man the systems developed and deployed under the project. c. The new system introduced an urban-rural divide with separate urban and rural government structures succeeding the district-wide jurisdictions of CDGs. The urban areas demarcated for elections under the new system relied on dated information and left out large urban built-up areas outside the boundaries. While the project had supported the city governments and entities to demarcate, adopt, and plan for consistent urban boundaries based on growth trends and the built-up area in each city, the truncated urban boundaries under the new system required agencies to readjust and revise their plans. d. A shift towards re-centralization of certain municipal institutions and mandates to the provincial government began early on during project implementation. Several core municipal functions were handed over to new agencies, authorities, and companies with unclear accountability to city governments. Similarly, several sources of revenues were handed over to the new institutions, e.g., advertising and billboards to the Parks and Horticultural Authority. This impacted revenue enhancement plans prepared by city governments, as these sources were no longer available to them. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 61. The results framework comprised two PDO indicators and seven intermediate results indicators. The PDO indicators were designed to measure achievement of the planning and resource management themes within the PDO under Indicator 1, and the accountability theme under Indicator 2. The incremental chain of results (outputs and outcomes) was envisaged to converge and interlock into the preparation and execution of IDAMPs, which was measured by the first PDO indicator. The second PDO Indicator focused on accountability systems. Intermediate results indicators were closely aligned to DLI results. This provided some advantages in terms of collation and quality assurance of M&E information, as implementing agencies had clear incentives to collect and compile required evidence for submission to, and review by, the independent assessment agency. All intermediate results indicators provided a description of the baseline conditions and specified incremental yearly targets to be achieved by LGs and WASAs. This arrangement was Page 23 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) useful in delineating intermediate outcomes as part of a sequential chain of results, duly calibrated for each year. Moreover, the DLIs and the corresponding results were measurable and time bound. Verification protocols provided for each DLI clearly laid out the criteria and methodology to measure achievement of intermediate results. 62. Institutional responsibilities for M&E were clearly defined for results monitoring. UU had the overall responsibility, along with CPUs, to provide distributed interface with LGs and WASAs. UU provided frequent progress reports to the GoPunjab and the Bank. This information was complemented by other independent information sources, including quarterly third-party reports on the application of environmental and social safeguards; information on budget execution and IUFRs; and annual third-party procurement assessments. Such information validated progress reports compiled by UU. 63. The project evaluation process was designed to make use of the results chain and evidence collected for annual assessments of progress against DLIs. In addition, a beneficiary survey provided additional evidence to evaluate the coverage and quality of the complaints and citizen feedback system. M&E Implementation 64. M&E systems were implemented as designed. UU put in place the required arrangements for M&E. Annual assessments were conducted by the DG M&E in a timely manner. LGs and WASAs regularly provided information via CPUs on DLI achievement and IR indicators for their respective components. Regular procurement and safeguard assessments were conducted throughout implementation. Reporting by UU was regular and satisfactory. The beneficiary survey for PDO Indicator 2 was been conducted by a firm engaged by UU and contributed to the evaluation of its achievement. M&E Utilization 65. The M&E data was directly utilized for disbursement decisions under the Performance Grants component. The information generated by M&E systems also contributed to key decision points in project implementation, such as the Mid Term Review. Justification of Overall Rating of Quality of M&E 66. Rating: Substantial B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 67. Environment and Social Safeguards. Safeguards performance of the project is rated as Satisfactory. At appraisal, the project was classified as Category B and triggered only one safeguard policy “Environmental Assessment (OP 4.01). An Environmental and Social Management Framework (ESMF) was prepared and disclosed prior to appraisal in compliance with the World Bank safeguard policies. It adequately identified typical adverse impacts and risks for various types of schemes (water, sanitation, drainage and roads), and proposed generic mitigation measures to address them. 68. The ESMF provided screening criteria by categorizing the proposed schemes in three categories depending on size, cost, location, and nature with safeguards impacts: (a) E1 and/or S-1 schemes, wherein major impacts were Page 24 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) foreseen requiring an ESIA; (b) E2 and/or S2 schemes, that were expected to have only moderate environmental impacts requiring an ESMP; and (c) E-3 and/or S3 schemes with negligible impacts with no further action required. These were satisfactorily followed and complied with throughout implementation. 69. Nineteen full time staff in the UU and CPUs ensured effective implementation of the ESMF/ESMPs. At the city level, each CPU had a dedicated Environmental and Social Safeguard Specialist for coordination, and to oversee application of the requisite mitigation measures to ensure safeguard compliance, gather requisite data and report on compliance. At each entity level, E&S focal persons were notified, and were the implementers of ESMF/ESMPs along with the respective contractors. Safeguard documents/clauses were duly included in the bid documents/contracts and implementation costs were made an integral part of the overall scope of work. Some 22 training sessions were conducted by the UU on safeguards, with the participation of 607 people, including LG and WASA staff, contractors, and other stakeholders. 70. An ESMF Committee was formed in each entity, headed by the respective Executive District Officer (EDO) and comprised of 7/8 members from various departments. The Committees were responsible for reviewing and approving ESMPs and monitoring compliance. These Committees met a total of 176 times during the Project to oversee safeguard issues. 71. The Project also contracted an independent firm for Third Party validation (TPV) to evaluate annual ESMF implementation performance. The TPV process revealed that efforts were made by CPU staff to raise awareness on E&S issues among concerned officials of CDGs/MCs, WASAs and contractors, was satisfactory. The TPV reports proved useful in effectively encouraging cross-entity learning through experience sharing and drawing useful lessons for possible future operational integration. 72. All schemes, whether under ADP (1,132 schemes) or EEPs (776 schemes), were screened for environment and social impacts. Since no land acquisition was required and there were no impacts on livelihoods, none required a Resettlement Action Plan (RAP) or an Abbreviated Resettlement Action Plan (ARAP). Consultations were conducted during the ESMP preparation for all schemes, and the views captured led to improved management of mitigation measures. Annual independent Third-Party Monitoring Reports confirmed that the ESMP implementation was well monitored, with only minor issues of non-compliance. Trainings on safeguard issues were held regularly at multiple levels for both LG and WASA staff and contractors, leading to greater awareness of mitigation measures. 73. Procurement risk was initially rated High and was subsequently lowered to Substantial in 2016. The project included a DLI to improve the procurement systems of CDGs/MCs and WASAs by helping them implement the Punjab Public Procurement Rules. The Rules were translated into SOPs and were implemented in a phased manner to eventually cover all procurement undertaken by the entities. The SOPs cover planning, bidding, evaluation, approvals and award, contract management, payments and contract closing; they delineated the roles and responsibilities within jurisdictions, along with service standards. 74. Credit funds were disbursed through two budget line items included in eligible expenditures - expenditures on utilities and energy were procurement neutral; however, investments in repairs and maintenance required fiduciary due diligence. Based on the procurement outlays involved, all procurements were carried out either under national competitive bidding or shopping. The Bank performed a prior review of the first three contracts. Subsequent annual Page 25 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) plans were approved by the Bank, and the Urban Unit assumed responsibility for regular support and supervision of the CDGs/MCs and WASAs. This arrangement worked very well. The participating city governments and WASAs applied procurement SOPs for their EEPs, as well as for other expenditures. Savings were around PKR1 billion (8.9 percent of the estimated value of contracts) over the project implementation period, as shown in Table 7 below. The entities reinvested these savings in the later years of the project and utilized them for additional procurement. Table 7: Procurement Savings Value of contracts Agency No. of O&M contracts Planned Awarded Savings PKR Million % CDG/MC Lahore 107 1,682 1,542 140 8.30% WASA Lahore 81 1,522 1,337 175 11.50% CDG/MC Gujranwala 70 1,072 964 54 5.03% WASA Gujranwala 76 866 819 47 5.45% CDG/MC Faisalabad 122 1,690 1,490 199 11.80% WASA Faisalabad 61 1,169 1,030 139 11.89% CDG/MC Multan 32 668 635 113 16.97% WASA Multan 50 902 732 85 9.45% CDG/MC Rawalpindi 110 1,029 939 56 5.41% WASA Rawalpindi 73 786 780 6 0.79% TOTAL 782 11,384 10,268 1,014 8.91% 75. In some instances, corrective actions and remedial measures were used to address lapses. In the last year for example, MC Multan did not plan procurements or apply procurement rules adequately, mainly due to the change in LG structures, leadership, and high staff turnover. This resulted in a few bidding processes getting cancelled before contracts could be awarded, as the provincial rules had been violated. Similarly, in the initial years, procurement plans sent to the Bank only comprised activities to be funded by the Bank rather than the entire budget line item, in response to which a rigorous ex-post review was undertaken. However, no major non-compliances were identified. 76. Financial Management. A number of risks and mitigation measures were identified at entry, including that an internal audit function was not established at CDGs and WASAs. Under the Project, an internal audit section was established at the Urban Unit, headed by a qualified and experienced accountant, and supported by qualified audit staff. Semi-annual Internal Audit Plans, using a Risk-Based Audit approach, were applied while conducting internal audit at CDGs/MCs and WASAs. The internal audit reports highlighted control weaknesses, but no cases of fraud and corruption were reported. Project funds were released by the Finance Department, GoPunjab with some delays. 77. The five ex-CDGs used a computerized cash-based accounting system with budget codes based on the government’s standard Chart of Accounts (CoA). WASAs used a manual system of accounting and reporting, with non- standard CoAs. PCGIP supported WASAs to develop and adopt a uniform Financial Management (FM) Manual with the standard CoA for consolidating and developing an integrated financial management system. WASAs’ accounting staff was trained to implement the new FM Manual. In early 2017 when the LGs were restructured, the CDG FM systems were transferred to the divisional level, and MCs as successor entities of CDGs, adopted a computerized financial management and reporting system developed under an earlier Bank supported project. MCs are required to follow APPM (Accounting Policies and Procedures Manual) for the classification of accounting transactions and reporting. However, the FM systems have not yet been fully operationalized, mainly due to lack of qualified accounting staff in the Page 26 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) MCs. The FM function of MCs remains dependent on their Municipal Officers (Finance) for accounting and recording, and Local Fund Audit (LFA) staff for pre-audit. 78. Tracking and reporting of Eligible Expenditures of Project (EEPs) was effective. EEPs for CDGs were generated from monthly Budget Execution Reports (BERs), produced from the National Financial Management Information System. EEPs pertaining to WASAs’ were produced from their manual accounting system, after being reviewed by the respective Financial Management Specialist (FMS) at the City Program Unit (CPU). Expenditure accounts were maintained adequately by the UU for Component 2. The EEPs accounting information was consolidated semi-annually by the FM Specialist at UU and reported to the Bank after obtaining requisite approvals as envisaged in the project documents. The Bank received acceptable semi-annual IFRs over the implementation period. The final review of audited financial statements for FY 2017/18 (for the year ended June 30, 2018) showed that the Director General (DG) Audit, Punjab of the Auditor General of Pakistan had inadvertently submitted the audit report based on the draft financial statements. Revised audited financial statements and the auditor’s report is expected to be submitted to the Bank by April 30, 2019. 79. Overall, the project was compliant with the financial covenants, and submitted acceptable interim quarterly financial reports and annual audited financial statements (except audited financial statements for the year ended June 30, 2018, see above). C. BANK PERFORMANCE Quality at Entry 80. The protracted project preparation provided the Bank and GoPunjab with the opportunity to undertake detailed diagnostic and preparatory activities, such as institutional and capacity assessments, policy analysis, budget analysis, and fiscal assessment of the city governments. This ensured that project design was informed by comprehensive research, technical inputs, and empirical evidence. The design adopted an interlocking model of annual grants to LGs based on their performance on a set of indicators that focused on systems’ improvements, reinforced by focused capacity building support and supply-side technical assistance. Cities were required to spend the grant funds on eligible expenditures that addressed chronic financing gaps for operation and maintenance, as well as a large backlog of deferred repair and maintenance in the participating entities. Project components were designed with care and resulted in a clearly identified set of activities and outputs. The project benefited from the experience of PMSIP, as well as similar operations in South Asia and Africa. The PDO was clear and focused, and consistent with GoPunjab’s stated policy objectives. The project was aligned to the priorities of the World Bank Group’s Pakistan Country Partnership Strategy 2010-2013. 81. The project design focused adequately on fiduciary and safeguards requirements. FM and procurement arrangements were designed in detail and addressed the principal risks identified by the capacity and risk assessments. The applicable environmental and social safeguard policies were triggered (OP 4.01) and the ESMF complied with Bank policies. A comprehensive economic and financial analysis was also carried out. 82. Project appraisal was comprehensive and thorough, with proper assessment of technical, institutional, fiduciary, environmental and social safeguards, and economic aspects to ensure that the project development objective could be achieved. Disbursement Linked Indicators and the results framework were clearly defined with baselines, annual targets, data sources, verification protocols, and responsibilities for data collection/compilation and reporting. Page 27 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) The Director General, Monitoring and Evaluation, (DG M&E) was assigned the responsibility to verify the achievement of annual DLI targets. Quality of Supervision 83. The project was comprehensively and closely supervised by the Bank Task Team throughout the implementation period. A total of 11 implementation support missions (ISMs) were conducted over the six years of execution, in addition to numerous technical missions undertaken on key issues, as needed. The related ratings, such as for procurement and financial management, were downgraded several times in the ISRs. All core team members participated in the implementation support missions. In addition, international staff from outside the region also contributed expertise in certain areas, particularly in developing the IDAMP framework and overseeing its implementation by the city entities. 84. The mid-term review was comprehensive and contributed to making the necessary mid-course corrections. During the last two years of implementation, the Task Team had to address complicated issues associated with the transition of LG structures, jurisdictions, functions, and human resources under the new LG Act. The team flagged potential issues to GoPunjab ex ante and documented these in the AMs and provided policy advice on issues such as sub-optimal urban boundaries, fragmentation of mandates, transition of staff, and financial management systems. The team subsequently worked with counterparts to implement critical corrective measures to address these issues, which were implemented through the extended implementation period. The Task Team also worked with GoPunjab leading up to, and even after Credit closing, to identify critical measures to mitigate risks to the sustainability of outcomes. This included briefing the new provincial government after the July 2018 national elections. 85. Implementation support was focused on helping achieve the PDO and the overall development impact of the project, as measured by the DLIs. Close and continuous supervision ensured that: (a) city entities delivered envisaged results, despite initial issues and consequent delays; and (b) implementation issues were escalated in a timely manner and were discussed with provincial counterparts, as needed. Reporting was timely, frank and candid, as reflected in the Management Letters, Aide Memoires and Implementation Status Reports (ISRs). 86. The Bank’s safeguards specialists worked very closely with UU and CPU staff and provided guidance on the preparation of key safeguards instruments, such as the ESMF and their application. Bank Social safeguards support was available for all missions (except one) during the life of the Project and regular dialogue was maintained with the UU, LGs, and WASAs to discuss any issues. Field visits to schemes under implementation were conducted during missions and local communities were consulted on the implementation of mitigation measures. Third party validation reports were submitted to the Bank, and course correction was provided through rigorous dialogue and engagement. 87. The positive results emerging from the Project led the GoPunjab to request the Bank team for assistance in developing a province-wide Urban Sector Reforms Roadmap. A strategic dialogue ensued, including a presentation by the Bank team10 to Punjab’s leadership on the state of cities in Punjab compared to regional and global comparators, highlighting the opportunities and challenges, and the actions to be taken to tap Punjab’s urban dividend for cities to 10The Bank team was led by the Senior Director of the Social, Urban, Rural and Resilience Global Practice (GSURR) and included the Country Director, Pakistan and Practice Manager, for South Asia Urban Sector. Page 28 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) become engines of economic growth. The engagement resulted in the preparation and delivery of the Punjab Cities Program. Justification of Overall Rating of Bank Performance 88. Rating: Satisfactory D. RISK TO DEVELOPMENT OUTCOME 89. Performance and systems improvements achieved in the five WASAs under PCGIP are sustainable, primarily due to continuity of leadership and staff, and full institutionalization of improved processes over several annual cycles. These improvements have also found traction as key benefits, such as enhanced revenues and improved performance, are seen as strong incentives by officials for continuing to use and, where possible, improve these systems. In the case of city governments, the gains in improved urban governance systems achieved over the first four years eroded somewhat during the transition to the new local government system at the beginning of 2017. To address this challenge, the Urban Unit and CPU had to make a significant effort over the final year of implementation to tailor the new systems per revised mandates and jurisdictions of successor entities, and train new staff to run the improved systems. Nevertheless, the performance of new systems and proficiency of staff at the five MCs is weaker than in the WASAs. 90. The improved PFM and social & environment management processes supported under the TA component have achieved strong results. LGs were required to apply procurement SOPs and safeguard requirements to all their initiatives by the end-of-the Project (with a phased increase over project period), regardless of the source of funds. Similarly, cities have shifted budget allocations to allow for more stable funding for O&M, which is determined through a formula in the IDAMP Manual developed under PCGIP. 91. The new provincial government in Punjab is committed to strengthening and empowering local governments and this was a headline in the party’s election manifesto. Since assuming office, the new government has set out to revamp the local government system and is currently drafting a new legislative framework. The dialogue with the new government has established that several regulatory issues under PLGA 2013 (that had obstructed the full realization of potential benefits from improved local governance systems in the five cities during the later years of implementation, such as non-optimal urban boundaries, fragmentation of mandates between various agencies, and weak institutional accountabilities for urban management and service delivery) will be resolved by GoPunjab. The Local Government and Community Development Department (LG&CDD) has identified several reforms planned in this regard: drafting new boundaries for cities that are consistent with built up areas, and for use in the next local government elections; reviewing the current institutional model, where several service delivery companies and authorities are operating in these cities, and strengthening accountabilities of these entities to local governments; empowering the office of the mayor, who will be elected directly under the new systems to strengthen accountability to citizens; and mainstreaming, institutionalizing, and scaling up improved systems operationalized under PCGIP in the five cities by incorporating these in the new legislative framework applicable to all cities, under rules of business, budgeting, and accounting. Instructions are being issued by LG&CDD to the five MCs and WASAs that benefitted from PCGIP to ensure that systems and processes operationalized under PCGIP are sustained, with LG&CDD oversight. Page 29 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) 92. The new government’s commitment to strengthening urban governments’ mandates and business processes would help ensure the sustainability of outcomes; however, in order to avoid the problems that accompanied the last transition, the transition to the new local government systems will need to be carefully managed. V. LESSONS AND RECOMMENDATIONS 93. The implementation experience of PCGIP reaffirms that institutional reform requires patience and perseverance and needs sustained Bank and Borrower commitment over the longer term, despite setbacks and challenges. It also shows that public sector institutions such as the Urban Unit, established for the longer-term, provide a stronger base for sustaining project outcomes, especially in the face of political uncertainty and risk. Key lessons learned from PCGIP are summarized below. a) Hands on capacity building for systems and process improvements, with continuous post implementation follow-up and support, can bring about sustainable institutional development. Under PCGIP, the improved procurement, financial management, and environmental and social management systems were implemented initially on project-funded interventions but were subsequently mainstreamed and applied to all development spending by the city governments and WASAs. The officials and staff found tangible benefits from the new systems, and this augurs well for the sustainability of these improvements beyond the project life. b) Decentralized implementation through LGs, while slowing progress, ensured local ownership and sustainable results. While a centralized model for infrastructure delivery may be simpler and initially quicker, it is important for the LGs to expend additional funds through their own systems, as it will provide them with hands-on experience and help the enhanced systems to get fully institutionalized. c) The project successfully helped inculcate a culture of internalizing safeguard considerations in municipal development processes for CDG/MCs and WASAs, which was previously lacking if not completely absent. This was achieved through: (i) a series of targeted trainings and awareness sessions; (ii) compliance monitoring and mandatory reporting requirements; and (iii) persistent follow up and constructive engagement by the Bank Task Team throughout project implementation. d) Investments in the strengthening of systems for revenue collection, procurement, and financial management can result in substantial increases in revenues and savings in expenditures. This is demonstrated by the economic analysis of interventions whereby city governments and WASAs improved own source revenues and cut down on inefficient expenditures such as on energy and premiums involved in delayed maintenance of service delivery assets. e) For performance grant systems, it is important to build mechanisms for unobstructed flow of funds. Under PCGIP, delayed transfer of performance grants from the provincial Finance Department to city governments and WASAs was a recurring problem. Due to this the annual window available to city governments and WASAs to utilize performance grant proceeds was significantly cut down each year. Based on this experience, the new Punjab Cities Program has used a stronger mechanism in the legal documents to address such issues. f) Project implementation through a semi-autonomous public sector company brought efficiencies and curtailed undue political interference. The Urban Unit has transformed into an independent, self-sufficient public sector owned company. Page 30 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) g) Continuity of key staff in the Urban Unit and the Bank Task Team benefited project implementation and ensured institutional memory. Moreover, country office led team ensured just-in-time responsiveness to emerging issues. h) Dearth of requisite staff and skillsets in counterparts can not only delay project progress, but also risk sustainability of interventions. Continuous technical assistance and capacity building is therefore critical for counterpart officials, especially hands-on training in procurement, contract management, social and environment safeguards, and citizen engagement. . Page 31 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Percentage of development Percentage 0.00 80.00 80.00 80.00 and asset maintenance expenditure of the city and 14-Feb-2013 30-Jun-2017 30-Jun-2018 21-Jun-2018 city entities which is spent according to the three-year rolling integrated development and asset management plan (IDAMP)(%) Comments (achievements against targets): The development planning process in the MCs and WASAs has been fundamentally improved. Moving away from Annual Development Planning, city entities have begun to develop evidence-based three-year, rolling Integrated Development and Asset Management Plans. Page 32 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Percentage of service area Percentage 0.00 100.00 100.00 100.00 population having an institutionalized mechanism 14-Feb-2013 30-Jun-2017 30-Jun-2018 21-Jun-2018 available at city service delivery entities for providing feedback and grievance redress. Comments (achievements against targets): Each city entity has an operational GRM, with documented processes and service standards. A.2 Intermediate Results Indicators Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion DLI-1: Three year integrated Text CDG and its entities 3-year rolling 3-year rolling 3-year rolling rolling plans for development prepare annual Integrated Integrated Integrated and asset management development plans Development and Development and Development and implemented by each CDG independent of each Asset Management Asset Management Asset Management for area within its 'city' other. There is no Plans have been Plan prepared. Plans have been boundary. coordination or prepared. prepared by each integration of CDG/MC and WASA development and Page 33 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) maintenance needs and plans. 14-Feb-2013 30-Jun-2017 30-Jun-2018 21-Jun-2018 Comments (achievements against targets): IDAMPs not only represent a paradigm shift in the planning and budgeting processes of city entities, but also a change of mindsets whereby planning needs to be evidence-based, integrated, and multi-year. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion DLI-2: Procurement process Text Inconsistent Stipulations of the Stipulations of the Procedures for conforms with provincial application of Punjab procurement rules procurement rules planning, rules. Public Procurement (and the SOPs) (and the SOPs) procurement, and Regulatory Act complied with for all complied with for all contract management (PPPRA) rules and lack city level projects. city level projects. (based on provincial of clarity due to rules and the SOPs) conflicts with some have been developed directives and and notified, and are administrative issues. being implemented by the CDGs/MCs and WASAs. 14-Feb-2013 30-Jun-2017 30-Jun-2018 21-Jun-2018 Comments (achievements against targets): Page 34 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Procurement SOPs were applied on all contracts of city entities, increasing their quantum over time in a phased manner. Their application and the resultant transparency in procurements, led to significant savings (estimated vs. contract costs) through efficiencies introduced in public procurement practices. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion DLI-3: Reporting of flow of Text There are multiple Each CDG is being Each CDG is being Each CDG/MC is being funds from GoPunjab to parallel funding provided details by provided details by provided details by urban areas is consolidated sources to CDGs and the Finance the Finance the Finance at the city level the city entities, due Department regarding Department regarding Department regarding to which the CDG does transfers being made transfers being made transfers being made not have knowledge of to the city entities, at to the city entities, at to the city entities, at the total funding the time of the the time of the the time of the coming to the city. transfers. transfers. transfers. 14-Feb-2013 30-Jun-2017 30-Jun-2018 21-Jun-2018 Comments (achievements against targets): Disclosure of funding streams and amounts, along with the 3-year rolling IDAMPs, led to coordinated development decisions and improved investment planning. Indicator Name Unit of Measure Baseline Original Target Formally Revised Actual Achieved at Page 35 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Target Completion DLI-4: Systems for Own Text The UIPT records are At least 75% UIPT At least 75% UIPT 100% UIPT Source Revenue (OSR) maintained manually automation automation automation collection are improved. and not fully ordered completed. completed. completed in the five and updated. partner cities and one additional pilot city (Sialkot). Additionally, each city entity has operationalized approved Action Plans for enhancement of self-collected OSR. 14-Feb-2013 30-Jun-2017 30-Jun-2018 21-Jun-2018 Comments (achievements against targets): These have resulted in significant improvements in UIPT as well as self-collected OSR avenues for city entities. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion DLI-5: A common boundary Text Planning boundaries Implementation of the Implementation of the Action Plans for for urban planning is utilized of CDG and city first year of extension first year of extension phased extension in by urban institutions to entities are different. of the service of the service Service Delivery area achieve an integrated boundary of each city. boundary of each city. of city entities are planning process.. approved and being implemented, with Page 36 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) first year extension completed. 14-Feb-2013 30-Jun-2017 30-Jun-2018 21-Jun-2018 Comments (achievements against targets): The ‘city’ boundary was demarcated for the five cities after a detailed survey and adopted by city entities in each city. Subsequently Action Plans were developed to extend their service delivery area to this boundary in a phased manner. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion DLI-6: Periodic reports on Text There is no consistent CDGs implement the CDGs implement the Mechanism developed plans and programs are and transparent approved mechanism. approved mechanism. and approved for prepared by city district mechanism of public public disclosure and governments and disclosed disclosure and access access to information to public. to information, in is being implemented particular financial by all CDGs/MCs and and procurement WASAs. information across all cities and city entities. 14-Feb-2013 30-Jun-2017 30-Jun-2018 21-Jun-2018 Comments (achievements against targets): Page 37 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Mechanisms for improved public disclosure and access to information, per Punjab's Right to Information (RTI) Act, have contributed to greater transparency in city entities. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion DLI-7: Citizens can utilize Text There is no CDGs implement the CDGs implement the Mechanism developed feedback and grievance established system or approved mechanism. approved mechanism. and approved for redress mechanism mechanism of complaint monitoring feedback and and resolution, as well grievance redress at as grievance redress the city and city entity related to municipal levels. services, is being implemented by each CDG/MC and WASA. Although CDGs and city entities have established complaint cells, these need to be strengthened. 14-Feb-2013 30-Jun-2017 30-Jun-2018 21-Jun-2018 Comments (achievements against targets): These systems have contributed to greater accountability and responsiveness of city entities to their citizens. Page 38 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Page 39 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) B. KEY OUTPUTS BY COMPONENT Objective/Outcome: To support the Province of Punjab’s cities in strengthening systems for improved planning, resource management, and accountability. 1. Percentage of development and asset maintenance expenditure of the city and city entities which are spent according to the three-year rolling development and asset management plan. Outcome Indicators 2. Percentage of service area population having an institutionalized mechanism available at city service delivery entities for providing feedback and grievance redress. 1. Three year rolling plans for capital investment and asset maintenance are adopted by city district governments. 2. Procurement process conforms with provincial rules. 3. Reporting on the flow of funds from GoPunjab to urban areas is consolidated at the city level. Intermediate Results 4. Systems for Own Source Revenue collection are improved. Indicators 5. A common boundary for urban planning is utilized by urban institutions to achieve an integrated planning process. 6. Periodic reports on plans and programs are prepared by city district governments and disclosed to public. 7. Citizens can utilize feedback and grievance redress mechanism. 1. Consolidated Annual Development Plans prepared by CDGs for 4 years. 2. CDGs/MCs and WASAs prepared IDAMPs for 2017-18 and FY 2018-19. 3. Stipulations of Punjab public procurement rules complied with for all investments undertaken by CDGs/MCs and WASAs. 4. CDGs/MCs being provided details by provincial Finance Department regarding transfers being made to city entities, at the time of the transfers. Key Outputs by Component-1 5. CDGs and WASAs developed, adopted, and operationalized Action Plan for enhancing OSRs. 6. UIPT automation completed for six cities including Lahore, Faisalabad, Rawalpindi, Multan, Gujranwala and Sialkot (pilot city). 7. Mechanism developed and approved for public disclosure and access to information fully implemented by each city government and WASA. 8. Mechanism developed, approved and implemented for complaint resolution, and grievance redress related to municipal services by each CDG/MC and WASA. Page 40 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) 1. Project implementation team at the Urban Unit provided project management support throughout the project implementation period. 2. City Program Units in the five cities provided hands-on training and on-site support to city governments and WASAs for deployment and operation of systems. 3. Supply side technical assistance mobilized for developing and implementing IDAMPs, procurement SOPs, Key Outputs by Component-2 OSR action plans and field surveys, energy audits, information dissemination systems, complaint and grievance redress system, et al. 4. Third party safeguards, procurement, and performance assessment surveys undertaken. 5. Beneficiary survey of satisfaction with complaints and grievance management systems for project evaluation completed. Page 41 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Supervision/ICR Shahnaz Arshad Task Team Leader(s) Uzma Sadaf Procurement Specialist(s) Qurat ul Ain Hadi Financial Management Specialist Anwar Ali Bhatti Team Member Salma Omar Social Specialist Michael G. Schaeffer Team Member Naveed Saeed Team Member Imran-ul Haq Social Specialist Shahnaz Meraj Team Member Suhaib Rasheed Team Member Rahat Jabeen Environmental Specialist B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY09 94.640 338,590.58 FY10 30.109 80,617.93 FY11 9.646 86,237.54 FY12 48.739 339,505.15 FY13 10.108 45,692.53 Total 193.24 890,643.73 Supervision/ICR Page 42 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) FY13 25.554 131,241.97 FY14 26.482 85,868.89 FY15 31.084 116,918.44 FY16 29.037 123,158.12 FY17 22.500 84,968.33 FY18 13.090 51,592.19 FY19 16.280 60,848.42 Total 164.03 654,596.36 Page 43 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) ANNEX 3. PROJECT COST BY COMPONENT Amount at Approval Actual at Project Percentage of Approval Components (US$M) Closing (US$M) (US$M) Component 1: Performance 145.0 136.2 93.9% Grant Component 2: Project Implementation and Capacity 9.0 8.7 96.6% Building Component 3: Contingent 0 0 0 Emergency Response Total 154.0 144.9 94.1% Page 44 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) ANNEX 4. EFFICIENCY ANALYSIS Economic Analysis 1. The project focused on improving urban governance in the five largest cities of Punjab, particularly in the areas of: a) better resource planning and management, through introducing evidence-based decision making, consolidating fragmented revenue sources and strengthening resource mobilization; and b) enhancing transparency and voice of citizens in the preparation, monitoring, and evaluation of development projects and programs. The project supported city governments and WASAs in these cities with technical assistance and capacity building interventions to achieve the envisaged objectives. The planned results would ensure that future development budgets and expenditure would be more efficient and pertinent, as opposed to earlier investment programs that were poorly planned and executed, under financed, and ultimately badly maintained. DLIs were specifically designed to achieve the overall objectives and focused on improving systems for resource planning, procurement, intergovernmental finance system, own-source revenue collection, boundary alignment, public disclosure and access to information, and complaints and grievance redress. 2. The project generated substantial economic returns in the form of better governance, bringing about institutional change, improved resource allocation, upgraded operation and maintenance, effective monitoring and enhanced efficiency in providing higher quality services. Some of the benefits of the project can be quantified, while others, especially related to softer interventions and systemic improvement, are more difficult to measure. The appraisal document of the project included economic analysis which is based on easily quantifiable economic returns like expected increase in own source revenue of city entities, better asset management of WASAs, and expected gains through digitization of urban immovable property record. For ICR, efficiency analysis covers almost all the areas in which the Project intervened, mainly because of more and better data becoming available through analytical interventions and M&E systems deployed under PCGIP. Efficiency analysis includes increase in own source revenue of city governments and WASAs, upsurge in UIPT collection, efficiency gains from training and capacity building of human resource, cost savings by improving procurement procedures, economic returns attributable to complaints resolution, cost saving by avoiding overlapping interventions through deepened intergovernmental finance system, and lower depreciation owing to better asset management. 3. For efficiency analysis, seven types of benefits, aligned with DLIs, are identified and estimated using available data: increase in own source revenue of WASAs and city governments; increase in cities’ collection of urban immovable property tax; rise in efficiency of employees and capital assets and systemic improvements brought about by training and capacity improvement of employees; cost saving in the value of projects awarded by operationalizing good procurement performance practices in CDGs; saving in out-of-pocket cost for citizens due to the establishment of complaint and grievance redress mechanisms; saving in maintenance and repair (M&R) and depreciation cost of the existing capital stock in the ownership of city governments and WASAs through introducing an integrated spatial planning and asset management using a common city boundary; and creation of fiscal space through improving intergovernmental finance system by making provincial government report all transfers coming to the cities to CDGs/MCs, thereby making possible the efficient utilizing of funds coming to cities and increasing credibility and predictability of CDGs’ budgets. 4. The benefits of the project are estimated for a period of 10 years including five project years and five year after the completion of project. All benefits are first estimated in PKR and then converted to US$ using annual average exchange rate (PKR/US$). For the project years actual exchange rate is used while for years after the project it is forecast based on the World Bank’s macroeconomic model. The exchange rate was approximately PKR 97 per US$ at Page 45 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) the start of the project (year 2013), 107 at the end (year 2018) and forecasted at 172 for the year 2020 and 195 for 2023. Benefits expected to accrue in the five years after the project are found low mainly because of sharp expected increase in the exchange rate; if the exchange rate did not increase as sharply, the returns in US$ terms will be proportionately higher. All benefits measured in US$ are then discounted to year FY 2013, the first year of the commencement of project and the discount rate is taken 7.5% which is aligned with the interest rate on recent foreign loans of Pakistani government. The overall efficiency of the project is measured using three parameters: net present value, internal economic rate of return, and benefits-cost ratio. 5. The project delivered net present value worth US$ 333.0 million, generating a moderate benefits-cost ratio (3.2) and significant internal economic rate of return (45.8 percent). Seven types of benefits, discussed above, are estimated using available data for the project years and forecasts for years after the project. First, the project resulted in increased own source revenue; OSR of WASAs increased by average annual growth rate of 7.6% in the period 2006- 12 compared with the average annual growth rate of 12.2% during the project years (the corresponding growth rate of OSR of CDGs is 5.3%). The PV of benefits of this significant increase amount to US$ 17.1 million if only 25% of the total gains are attributed to the project11. Second, UIPT was very low, before the project, mainly because of poor record keeping and inappropriate valuation of urban immovable property. The digitization of records, automation of systems, and field surveys to validate records, added half a million new units to the UIPT net, resulting in US$ 6.7 million (in present value) more revenues over a period of 10 years. Third, the successful implementation of any project critically depends on capacity and skills of human resource involved in planning, execution and management of operations. Therefore, the project focused on capacity building of employees of city governments and WASAs and trained more than 2,000 personnel. The capacity building through training increases efficiency of labor, improves efficient utilization of assets/capital and enhances total factor productivity (TFP) mainly because of competent management. Moreover, trained workers extend positive externality to other workers who do not participate in training program. Assuming values for these four parameters (detailed in Annex), capacity building intervention accumulates to US$ 27.5 million. Fourth, the city government procurement policies and practices were identified to be inefficient adding unreasonably to the cost of operation. Clients have unclear project objectives, select inappropriate project delivery models, and fail to guarantee the accuracy of information in project briefs. A report on procurement practices, using computable general equilibrium (CGE) model, finds that better procurement practices can bring 6% reduction in the cost12. Using this information, 6% saving is estimated on the projects awarded by CDGs and WASAs, which amounts to US$ 9.9 million over 10 years period. Fifth, during project life, more than 170 thousand complaints were resolved by WASA and above two thousand by city governments of the five project cities. The resolution of these complaints saved out-of- pocket costs for consumers, which amounts to US$ 1.4 million (in present value) over 10 years period. Sixth, asset management through improved governance can improve the performance of existing capital assets and reduce cost of maintenance and rehabilitation. Hundson et al. (2001) estimate that improved asset management can increase the life of assets by two years13. Assuming that assets’ life increase by two years, the resultant decrease in depreciation of assets and less M&R cost generated benefits that add up to US$ 313.1 million over 10 years period. Seventh, the project identified that lack of coordination among different entities of government at city level hampered the efficient utilization of development funding. Therefore, the project envisaged better utilization of public money through improving city level systems for resource planning and management. Assuming that 5% of the development funding at city level can be saved by avoiding overlapping allocation of funds by different entities through enhanced intergovernmental financial integration, the benefits accrue to US$ 107.4 million over 10 years period. Aggregating 11 Attribution factor is taken 25 percent to take care of inflation and expanding size of the economy and hence city services. 12 “Economic benefits of better procurement practices” (2015) by Consult Australia, Deloitte Access Economics. 13 Hudson, W. Ronald, Stuart W. Hudson, Willem Visser, and Virgil Anderson. Measurable Benefits Obtained from Pavement Management. In 5th International Conference on Managing Pavements. CD-ROM. Seattle, Washington, 2001. Page 46 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) these seven economic gains result in benefits-cost ratio of 3.2 and IERR of 45.8% (table A1). Table A1: Benefits-Cost Analysis of the Project (US$ million) PV of Benefits Total Benefits 2014-18 2019-23 (10 years) Increase in OSR 10.6 6.5 17.1 Increase in UIPT 4.0 2.7 6.7 Gains owing to Capacity Building 12.6 14.9 27.5 Cost saving owing to better procurement practices 6.1 3.1 9.9 Value of Complaint Resolution 0.7 0.7 1.4 Saving in M&R Cost and depreciation 180.9 132.2 313.1 Efficiency Gain of Financial Integration 88.2 19.1 107.4 PV of Total Benefits 303.1 179.3 483.0 Cost of the Project 150.0 NPV 333.0 Benefits-Cost Ratio 3.2 IERR 45.8% A. Increased OSR 6. Cities were supported to achieve improvements in the property tax regime through the digitization of Urban Immovable Property Tax (UIPT) records, GIS based spatial-mapping of urban properties, and the establishment of a UIPT database and billing system that allows the taxpayers to use a web-based interface to view property valuations as well as to generate vouchers for annual payment. The own source revenues are further categorized into two sources; UIPT and other sources including rental income, transport terminal and parking fee, commercialization fee, fee for licensing trade and vocations, advertisement fee, water supply charges, and sewerage and drainage charges. 7. Data of OSR, other than UIPT, of WASAs is available for the period 2006 to 2018. Two scenarios are defined; baseline scenario in which business as usual strategy is assumed without project intervention and the actual scenario in which project was successfully implemented. For baseline scenario, data on OSR has been used for the period 2006 to 2012 to estimate a regression on time. The estimated parameters of the regression14 are then used to forecast OSR for the period 2013 to 2023. For the case of implementation of project, actual data on OSR is taken for the period 2006 to 2018 and then a regression is estimated15 which is then used to forecast OSR for the period 2019 to 2023. Project benefits are then estimated by taking difference of OSR in these two scenarios and then multiplied by 0.25, assuming that quarter of the difference between two scenarios can be attributed to the project intervention and rest of the difference can be attributed to efforts of provincial government, inflation differential, and expanding size of the economy. The benefits increase from PKR 176 million in 2014 to PKR 527 million in 2023 (Figure A1); the corresponding figures in US$ are US$ 1.72 million and US$ 2.71 million and the present value of benefits amounts to US$ 0.86 million in 2014 and US$ 1.31 million in 2023 generating a cumulative present value of benefits at US$ 12.4 million (Table A2) for a period of 10 years. For CDGs data is available for the period 2010 to 2016. Due to limited data availability, baseline scenario for CDGs is developed using parameters of WASAs. However, for the case of project intervention, regression is estimated using actual OSR for 2010 to 2016 and then estimated parameters16 are used to forecast OSR of CDGs for the period 2017 to 2023. The benefits of the project are then found using difference of OSR in two scenarios and attribution factor of 0.25; the cumulative present value of benefits is found US$ 4.7 million for the period 2014 to 2023 (Table A2). 14 The estimated regression is: Ln(OSR_WASA) = 7.7 + 0.06*Time; where Ln represents natural logarithm. 15 The estimated regression is: Ln(OSR_WASA) = 8.2 + 0.08*Time. 16 Ln(OSR_CDG) = 7.6 + 0.02*Time Page 47 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Table-A2: Increase in OSR and UIPT 2008-13 2014-18 2019-23 Average Growth Rate of OSR: WASAs 7.6 12.2 8.1 Average Growth Rate of OSR: CDGs 4.1 2.2 Average OSR of WASAs with Project* 3027.5 4950.6 7332.4 Average OSR of WASAs w/o Project* 3027.5 4294.7 5747.0 Average Increase in OSR of WASAs with Project* 0.0 655.9 1585.3 Average Increase in OSR of WASAs with Project** 0.0 6.3 9.0 Average PV of Increase in OSR of WASAs with Project** 1.2 1.2 Cumulative PV of Increase in OSR of WASAs** 1.6 6.2 12.4 Average OSR of CDGs with project* 1522.5 2153.6 2340.2 Average OSR of CDGs w/o project* 1522.5 1719.9 2301.5 Average Increase in OSR of CDGs with Project* 0.0 433.7 38.7 Average of Increase in OSR of CDGs w Project** 0.0 4.2 0.2 Average PV of Increase in OSR of CDGs w Project** 0.9 0.1 Cumulative PV of Benefits of OSR CDGs** 2.0 4.4 4.7 Average Growth Rate of UIPT (%) 5.1 5.8 5.5 Average UIPT with project* 377.3 598.6 759.5 Average UIPT w/o project* 377.3 467.9 593.6 Average Increase in UIPT with Project* 0.0 130.8 165.9 Average Increase in UIPT with Project** 0.0 1.3 0.9 Average PV of Increase in UIPT with Project** 0.0 1.0 0.5 Cumulative PV of Benefits of UIPT** --- 4.0 6.7 Average ER (PKR/US$) 79.9 104.0 175.8 * Measured in PKR Million, ** Measured in US$ Million 8. Prior to project there were 1.76 million units in five project cities that used to contribute in UIPT. In the process of automation of UIP record and new valuation and location survey, half a million new property units were added into UIPT-net. The UIPT in baseline scenario of no project is found by multiplying actual UIPT collection by proportion of old Figure A2: Increase in UIPT: Effect of Project Figure A1: Increase in OSR of WASAs: Effect of Project 900 9000 800 8000 700 7000 600 6000 500 5000 4000 400 3000 300 2000 2012 2006 2008 2010 2014 2016 2018 2020 2022 Project No Project Project No Project number of property units in total number of units after the survey. Project benefits are then estimated by subtracting UIPT in baseline scenario from actual UIPT collection (Figure A2). The PV of increased UIPT due to project intervention Page 48 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) is found US$ 1.04 million in 2015 and US$ 0.5 in 2023, while the cumulative PV of increased UIPT over a period of 10 years amounts to US$ 6.7 million (Table A2). Table A2 also contains information on the average annual growth rate of UIPT; tax collection on urban immovable property grew at an average annual growth rate of 5.1% in the 5 years period prior to project, at 5.8% during project years and is expected to increase by 5.5% in the five years after the project. B. Capacity Building, Procurement Practices, and Grievance Redress Mechanism 9. The project aimed at improving urban governance through systemic progress by building capacity of human resource, implementing good procurement practices and mechanism for complaint resolution and grievance redress. For capacity building 2320 staff of CDGs and WASAs was trained for complaint system, PDI mechanisms, ADP consolidation, procurement, asset inventory and others. Capacity of human resource is very much important for the successful intervention of any project. Three main transmission channels from human capital to economic benefit have been identified in the literature. These are through improved: labor productivity of the individuals undertaking training, and the flow-on effects of the training to other individuals; capital productivity arising from the complementarity between human capital and physical capital as more-capable workers can better adapt to and utilize equipment, machinery and the latest technology; total factor productivity arising from better management, intra and inter-entities synergies and, over time, higher rates of improvements in the enabling environment17. Augmented human capital increases labor productivity, promotes efficient utilization of capital, and enhances total factor productivity (TFP) through systemic and managerial improvement. Moreover, training increases the pace of accumulation of human capital through learning by doing and generates positive externality for the workers who do not directly attend the training. In this analysis 10% percent efficiency gain is assumed each for labor productivity, efficient utilization of capital and TFP growth, while external effects are assumed to be 20%18. The total 50% gain in efficiency is measured in terms of the average productivity (proxied by income) of workers in CDGs and WASAs. Average monthly income of an employee is assumed PKR 50 thousand in 2018, which is then discounted by 10% for past years and compounded at the same rate for future years. The increased capacity of staff (2320) of city entities translates into annual gain in the range US$ 1.3 million to US$ 4.5 million and generates cumulative efficiency benefit (in present value) of US$ 27.5 over 10 years period (Table A3). 10. The project aimed at developing Standard Operating Procedures (SOPs) of cities focusing on streamlining of the procurement rules with other directives; and implementation of procurement rules, including but not limited to, procurement planning, equal opportunity, transparency and efficiency. Poor procurement practices result in inefficiency, adding unnecessarily to the cost of infrastructure. This includes cases where government clients have unclear project objectives, select inappropriate project delivery models, fail to guarantee the accuracy of information in project briefs and manage risk inefficiently19. A report by Consult Australia on procurement practices, using CGE model, finds that better procurement practices can bring 6% reduction in the cost of projects. City entities in the five project cities awarded US$ 129 million worth of development projects during 2014-18. The future values of projects are forecasted assuming that development expenditure will grow by 10% in PKR. Assuming that implementation of procurement rules laid down by provincial government results in 6% saving in the cost of development, the cumulative present value of US$ 9.9 million can be attributed to streamlining rules (Table A3). 17 “Impact assessment of capacity building and training: assessment framework and two case studies” (2007) by Jenny Gordon and K evin Chadwick. 18 These estimates are conservative as Gordon and Chadwick (2007) find 10% increase in labor productivity, 30% in TFP growth, 50% due to R&D spillovers and half of the benefits of investment emanating from training of workers (their study is on Agriculture sector, but training of workers may result in even higher returns in urban areas as cities are considered engines of growth. 19 “Economic benefits of better procurement practices” (2015) by Consult Australia, Deloitte Access Economics. Page 49 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) Table A3: Benefits of Capacity Building, Systemic Procurement Strengthening and Complaint Resolution (US$ Million) 2014 2018 2023 Average Annual Output of an Employee (PKR) 409808.1 495867.8 966306 Number of Employees Trained (Cumulative) 696 1856 2320 Efficiency Gain (%) 50% 50% 50% Increase in Productivity 0.5 6.5 5.8 PV of Increase in Productivity 0.4 4.5 2.8 Cumulative PV of Increase in Productivity 0.4 12.6 27.5 Value of Projects Awarded 13.7 27.5 24.4 Cost Saving owing to improved procurement practices 0.8 1.7 1.5 PV of Cost Saving 0.8 1.2 0.7 Cumulative PV of Cost Saving 0.8 6.1 9.9 Complaints Resolved by WASAs (Thousands) 170* 204** Complaints Resolved by CDGs 2.2* 2.6** Value of Complaint Resolution: WASA (PKR) 300 600 Value of Complaint Resolution: CDGs (PKR) 15000 30000 Value of Complaint Resolution: WASAs & CDGs 0.8 1.2 PV of Complaint Resolution: WASAs & CDGs 0.7 0.7 Cumulative PV of Complaint Resolution: WASAs & CDGs 0.7 1.4 * Complaints registered during 2015-18, ** Expected Complaints registration during 2019-23. 11. The project also supported the development of a complaint and grievance redress mechanism for citizens by operationalizing a one-window complaint center and follow-up mechanism. This intervention through establishing CMS significantly improved the performance of cities entities in resolving the complaints of citizens. Operationalization of one-window complaint center increased the resolution rate: during 2015-17, 175,000 complaints were received by WASAs and CDGs, out of which 98.35% were resolved, 1.53% were pending and 0.12% were rejected. The resolution of these complaints would have burdened citizens had the resolution managed by themselves. So, complaint resolution directly saves out-of-pocket cost, which amounts to US$ 1.4 million (in present value) over 10 years period (Table A3). In finding these benefits, it is assumed that each complaint resolution in WASAs is worth PKR 300 and that in CDGs is worth PKR 15000 (complaints of CDGs being at community level). Moreover, it is assumed that number of complaints will grow by 20% and value of complaint resolution will double in the next five years. C. Asset Management and Intergovernmental Finance 12. Without proper asset management maintenance and rehabilitation (M&R) costs continue to increase over time because of infrastructure deterioration caused by extensive use of assets, aging infrastructure, and inappropriate M&R strategies (Mizusawa and McNeil, 2005). Moreover, the performance degrades because M&R cannot catch up with the pace of deterioration of infrastructure and an agency cannot afford to invest in the additional M&R needed due to budget constraints. Ultimately, the degradation in performance will translate to increased user costs. Therefore, the project intended to better manage assets owned by city entities. For this, the project envisaged Cities to prepare three- year rolling Development and Asset Management Plans (DAMP) coordinated at the city level and based on integration of the capital improvement and asset maintenance plans of the city and its entities. 13. Data on capital expenditure of city entities of five project cities is available for 2013-16. Regression has been estimated on this data to find parameter estimates20 which are then used to forecast future data and back cast past data. Economic life of infrastructure is assumed 10 years which translates to 10% depreciation; capital expenditure of 20 Ln(Exp_dev) = 10.7 + 0.11*Time Page 50 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) last 10 years after subtracting accumulated depreciation cost is used as a proxy of value of capital asset managed by city entities. Following Hundson et al. (2001) it is assumed further that improved asset management can increase the life of assets by two years21, which translates into saving in depreciation and M&R cost. This saving amounts to US$ 35 million in 2014 to US$ 52.6 million in 2023 and cumulative PV of benefits of US$ 313 million over 10 years period (Table A4). 14. The project at appraisal identified weaknesses in the intergovernmental finance system; there were multiple funding windows, some supporting CDGs and others service entities (e.g., WASAs), with the result that the CDG does not have a complete picture of the level of funding coming to the city for infrastructure and service delivery. Therefore, to address this, the project planned to intervene by making necessary for the Government of Punjab to report to the CDGs, all transfers including amounts to city entities, at the time of making the transfers. The objective was to provide a complete picture to each CDG of the funding available to the city as a whole, and the funds flowing to the city entities. The economic analysis at the completion of project identifies avoidance of overlapping use of development funds as the quantifiable benefit of this intervention. A very conservative figure (5%) is assumed to be saved from overlapping use of resources. The saving through this intervention creates additional fiscal space for city district governments to invest in infrastructure or better management of resources. It is assumed that this additional 5% fiscal space is further used in capital accumulation, which increases the M&R cost in the future. After adjusting this cost, the PV of net benefits amounts to US$ 20.5 million in 2014 and US$ 1.7 million in 2023, generating cumulative PV of benefits of US$ 17.4 million over a period of 10 years (Table A4). 15. The benefits included in the analysis are mostly first round effects of the project; there are multiplier effects of the systemic improvements that are expected to unfold in the future. This sort of intervention makes cities livable, creative and vibrant. It increases the satisfaction of citizens thereby making them more productive and innovative. Better management of public assets decreases the financial burden on city governments which creates additional fiscal space that may be utilized in more productive sectors of the economy. Moreover, the primary beneficiaries of public service delivery are households in lower income groups as they cannot afford to purchase services from the market. Therefore, the project is also hoped to share prosperity by making lower income groups less vulnerable. Table A4: Decreased Cost of Maintenance and Rehabilitation, and Benefits of Integrated Financial Management 2014 2018 2023 Development Expenditure* 50355.7 77306.1 132105.0 Total Capital value w/o project* 249587.8 394965.3 684787.0 Capital value with Project* 253277.2 400847.8 695021.8 Saving in M&R and Depreciation** 35.9 55.0 52.6 PV of Saving in M&R and Depreciation** 33.4 38.3 25.5 Cumulative PV** 33.4 180.9 313.1 Saving owing to integrated budgeting* 2517.8 3865.3 6605.3 M&R cost of new capital** -2.4 -15.1 -30.4 PV of Net saving owing to integrated budgeting** 20.5 14.6 1.7 Cumulative PV of Net saving** 20.5 88.2 107.4 * measured in PKR million, ** measured in US$ million 21 Hudson, W. Ronald, Stuart W. Hudson, Willem Visser, and Virgil Anderson. Measurable Benefits Obtained from Pavement Management. In 5th International Conference on Managing Pavements. CD-ROM. Seattle, Washington, 2001. Page 51 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) ANNEX 5. URBAN UNIT COMMENTS 1. Punjab is one of the most urbanized regions of South Asia and is experiencing a consistent and long-term demographic shift of the population to urban regions and cities. Cities have inadequate infrastructure and urban management capacities to meet required needs and respond to growing demand. Widespread under-performance in service delivery and infrastructure deficiencies affect living conditions and handicap business growth reducing the productive potential of cities. Yet they remain the engines of provincial and national economic activity. 2. GoPunjab had recognized that carrying out of urban reforms is a long-term agenda and it needed to focus on strengthening urban governance - the institutions and management systems required to ensure the success of these reforms. To carry out urban reforms, Punjab Cities Governance Improvement Project was launched by GoPunjab with the financial assistance of the World Bank. The Urban Unit was established as the Management Unit of the Project through P&D Board in 2006. In 2012 it was transformed into an independent private sector company fully owned by GoPunjab. Under the Project, the Urban Unit was responsible for administration & coordination, financial management, project reporting, monitoring & evaluation, and strategic communications. Cities achieved all the project targets through technical assistance of the Urban Unit. Project support not only built the capacity of cities but the institutional capacity of Urban Unit as well, through well-equipped resources in each project area and attracted other donors and public institutions toward its strengths. 3. The Project activities contributed to strengthen the cities through aligning planning areas of cites through demarcation of boundaries and action plans for phased extension of service delivery, integrating fiscal transfers, revenue enhancement and mobilization interventions through conduct of various surveys, energy audits and strengthening procurement processes, UIPT automation, improved planning process through consolidating ADPs and developing 3-year rolling Integrated Development and Asset Management Plans (IDAMPs), enhanced transparency and accountability through establishment of Complaint Management and Citizen Feedback Mechanism and capacity building. 4. All interventions like Asset Management Information System (AMIS), IDAMPs, Own Source Revenue (OSR) Enhancement, Procurement, Compliant Management System, Public Disclosure and Access to Information, implementation of safeguards etc. were developed after extensive stakeholder consultations, input from World Bank experts, and dedicated efforts by project entities and project staff in cities. Some of the interventions are even comparable to systems in developed countries. The importance of interventions has been recognized by the GoPunjab who has given its assurance to sustain them and scale them up across local governments in Punjab. An Action Plan for their sustainability has been developed by LG&CDD, with the required finances to be included in the next provincial Annual Development Program. The success of reforms through the Project lead to quantifiable increase in revenue resources for urban areas. This inspired the GoPunjab to continue work on Punjab Agenda for Urban Sector Reforms with more donor support. In short, the success of the Project has enabled the GoPunjab and the cities to commence with the third stage of GoPunjab’s urban strategy to improve municipal service delivery in the medium to long term on a more sustainable basis. Page 52 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) ANNEX 6. FUNDS ALLOCATION 1. Component–1 fund allocation for the five cities was determined based on the Provincial Finance Commission (PFC) formula, at an increasing scale of distribution annually. The US$145 million were distributed from 18% for Year- 1, 20% for Year-2, 28% for Year-3, and 34% for Year-4. The incremental increase, in parallel with the improvement and strengthening of the city systems for planning, budget allocation, procurement, expenditure management, and systems and procedures for O&M of infrastructure and services, ensured against misuse of the funds. The increase in the performance grants was to be matched by progressive and sustainable increases in cities’ revenues. 2. All Component-2 funds (US$ 5 million from PCGIP and US$ 4 million from GoPunjab) were provided to the Urban Unit, to undertake TA and capacity building initiatives. These included: support to the province and project cities to achieve the DLIs, strengthen their financial, social, and environmental management systems, and in areas including, but not limited to: a) city-wide resource planning; b) procurement; c) own source revenue enhancement; d) citizen participation and use of social accountability approaches and tools; and e) management of environmental and social impacts. Component-2 also supported the UU in automation of Urban Immovable Property Tax (UIPT), and the Directorate General M&E in engaging individuals/firms to assess achievement of DLIs. Table A6.1: PFC Allocation Shares PFC Formula Share Lahore 29% Faisalabad 24% Rawalpindi 16% Gujranwala 16% Multan 14% Total 100% Source: PFC Formula Table A6.2: Allocation of Project Funds for Each Year (million US$) Year 1 Year 2 Year 3 Year 4 Total Share of Project Funds 18% 20% 28% 34% 100% Amount of Project Funds 26.1 29.0 40.6 49.3 145.0 Table A6.3: Allocation of Project Funds for Each City, Each Year (US$ million) City EEP Expenditures 2010- Year 1 Year 2 Year 3 Year 4 Total 2011 Lahore 7.7 8.5 11.9 14.5 42.7 36.0 Faisalabad 6.4 7.1 9.9 12.0 35.3 12.3 Rawalpindi 4.3 4.8 6.7 8.1 23.9 5.1 Gujranwala 4.1 4.6 6.4 7.8 22.9 5.0 Multan 3.6 4.0 5.7 6.9 20.2 4.9 Total 26.1 29.0 40.6 49.3 145.0 63.3 Page 53 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) ANNEX 7. BENEFICIARY SURVEY on FUNCTIONALITY of CITIZEN FEEDBACK and GRIEVANCE REDRESS MECHANISM SUMMARY22 1. One of PCGIP’s key interventions has been the operationalization of institutionalized systems for citizen feedback and grievance redress. These systems were developed and implemented in each city for each CDGs/MC and WASA. The Urban Unit hired EY Ford Rhodes (EY) to conduct a beneficiary survey on functionality of the systems, with the objective to assess their quality and efficacy. The scope of the assignment included the following phases:  Planning and Design Phase: Design of questionnaire instrument and development of sampling plan and work plan in consultation with the Urban Unit and the World Bank Task Team.  Survey Phase: Administration and data entry of survey questionnaire in the five cities of Punjab i.e. Lahore, Faisalabad, Multan, Gujranwala and Rawalpindi.  Analysis Phase: Data analysis and interpretation of findings. 2. Approach & Methodology for Beneficiary Survey. The assessment was based upon complainants’ feedback across following dimensions:  Ease of access to complaint modes;  Complaint submission process; and  Complaint redressal process. 3. A Survey Questionnaire was developed with the help of field experts. The sample population included complainants registered with WASAs or MCs in the years 2017 and 2018. Telephonic Surveys were conducted over a three (03) week period. A sample of 383 complainants was interviewed for this study; 67 of which were females. The number of complainants interviewed from each entity were proportionate to the number of complaints registered with each agency and city respectively. 4. Key Findings of Beneficiary Survey. Almost all the respondents (99%) knew how to lodge a complaint with the respective agencies when the need arose. In case of WASA complainants, 83% of the respondents were informed about the Complaint modes through the bills they received. In case of MC complainants, 74% were informed about complaint modes through government officials. Below is the summary of key findings of the beneficiary survey. 5. Ease of Access  95.6% of the respondents believed that the available modes to register a complaint with respective government agencies were reasonable.  96.1% of the respondents said that the official on call correctly understood their problem.  73.1% of the respondents were satisfied with the way the official on call treated them and talked to them regarding their complaint. 22 The detailed Report is available in the Project files. Page 54 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) 6. Complaint Submission Process  78.1% of the respondents were able to have their complaint registered with the respective government agencies in less than 5 minutes.  67.6% of the respondents were informed about their complaint ID, and 56.4% of the respondents received an SMS while the remaining were informed by the official on call. 7. Complaint Redressal Process  70.5% of the respondents were informed about the timeframe in which their complaint would be resolved, mostly communicated to them by the official on call. However, only 39.6% of the respondents who were informed about the timeframe had their complaints resolved in the promised timeframe.  26% of the respondents were informed once their complaints had been resolved. 8. Overall, 56.9% of the respondents were satisfied with the complaint redressal system. Page 55 of 56 The World Bank Pakistan Punjab Cities Governance Improvement Project (P112901) ANNEX 8. SUPPORTING DOCUMENTS Supporting Documents available in Project Files are: 1. Beneficiary Perception Survey – Full Report 2. Project Aide Memoires. 3. Project Implementation Status Reviews (ISRs). 4. Guidelines for developing IDAMPs 5. Action Plans for OSR improvements 6. Procurement Standard Operating Procedures 7. Third Party Validation Reports on ESMF implementation Page 56 of 56