89941 Nepal: Urban Governance and Development Program: Emerging Towns Project (IDA Credit No. 4905-NP and IDA Grant No. H661-NP) Ninth Implementation Review and Support Mission (June 17-30, 2014) Aide- Memoire I. Introduction 1. The ninth Implementation Review and Support Mission of the Urban Governance and Development Program- Emerging Towns Project (UGDP-ETP) was held during the period of June 17-30, 2014. The objectives of the review were to: (i) review progress made in carrying out the priority actions agreed during the Mid-Term Review held in March 2014 with a focus on (a) procurement process and award of contracts for Track I and Track II municipal sub-projects, (b) review of financial management performance as per the agreed action plan, and (c) hiring of the IDA-funded Municipal Support Team (MST); (ii) review progress in implementation of Revenue Enhancement Plans, Multi-Year Investment Plans and Operations & Maintenance (O&M) plans in three municipalities, including publication of Expression of Interest (EoI) for revenue billing software development; (iii) follow-up on progress made on institutional development activities for all project agencies; and (iv) discuss project management and Monitoring & Evaluation (M&E). 2. The IDA team1 (referred to as the “Team” hereafter) would like to thank the officials of the Government of Nepal (GoN), especially from the Ministry of Urban Development (MoUD), the Ministry of Federal Affairs and Local Development (MoFALD), the Ministry of Finance (MoF), the Department of Urban Development and Building Construction (DUDBC), the Town Development Fund (TDF), and the Project Coordination Office (PCO), and the municipalities which the Project is supporting for the hospitality and courtesies extended during the review. The Team visited Dhankuta and Mechinagar municipalities during the review. A half-a-day meeting was held with Baglung, Lekhnath, Tansen and Itahari municipalities and project agencies on June 28, 2014. The list of people met during the review is included in Annex I. 3. This Aide Memoire summarizes the main findings and recommendations of the Implementation Support Review. A draft Aide Memoire was discussed at a wrap-up meeting chaired by Mr. Kishor Thapa, Secretary, MoUD, on June 30, 2014. As agreed at the wrap-up meeting, this Aide Memoire will be classified as a public document as per the World Bank’s Access to Information Policy. 1 The team comprised Elisa Muzzini (Sr. Economist/Task Team Leader), Silva Shrestha (Water and Sanitation Specialist/Co-Task Team Leader), Shambhu Uprety (Procurement Specialist), Drona Ghimire (Environment Specialist), Pradip Gautam (Consultant/Environment), Hari Prasad Bhattarai (Consultant, Social Safeguards), Yogesh Malla (Financial Management Specialist), Pradeep Shrestha (Financial Management Consultant), Pawan Lohani (Consultant/Municipal Finance), Noor Tamrakar (Consultant/Municipal Engineer), Tashi Tenzing (Consultant/Urban Development), Kalyan Nemkul (Team Assistant) and Sulochana Nepali (Team Assistant). 1 II. Key Project Data Project Performance Ratings Project Data Ratings Last Now Board Approval: May 10, 2011 Achievement of PDO MU MU Effectiveness Date: October 2, 2011 Implementation Progress MU MU Closing Date: July 31, 2016 Project Management MU MU Original Gr/Cr. Amt: USD 25 million Procurement MU MU Restructuring (Level II): February 22, 2013 Financial Management MU MU Restructuring (Level I): July 19, 2013 Safeguards MU MU Cancellation: USD 6.4 million M&E MS MS Revised Gr/Cr. Amt: USD 18.4 million Counterpart Funding S S Amount Disbursed: USD 8.15 million (as of June 30, 2014) (44.2%) Ratings: HS=Highly Satisfactory; S=Satisfactory; MS = Moderately Satisfactory; MU= Moderately Unsatisfactory; U=Unsatisfactory; HU=Highly Unsatisfactory; NA=Not Applicable; NR=Not Rated. III. Achievement of Development Objectives 4. A Level I restructuring was approved by the Board of the World Bank on July 19, 2013 to: (a) re-align the Project Development Objective (PDO) and PDO indicators to the institutional capacity of the participating municipalities; (b) reduce the scope of the municipal infrastructure sub-projects in line with the capacity of the municipalities; and (c) enhance municipal support. The revised PDO is to improve the capacity of the participating municipalities to plan, implement and fund urban development activities. Improved capacity will contribute to the higher-level objective of improving infrastructure and service delivery in participating municipalities. The revised PDO indicators are as follows:  PDO # 1: Number of participating municipalities with funded investment and O&M plans. This indicator would measure the enhanced capacity of municipalities to plan for urban development in a sustainable and effective manner. (Year 3 target: 3; end of project target: 6).  PDO # 2: Municipal infrastructure sub-projects under implementation with construction works on track as per the signed contract. This indicator would measure the enhanced capacity of the municipalities to effectively implement municipal infrastructure investments. (Year 3 target: 80%; end of project target: 90%).  PDO # 3: Increase in municipal own source revenues in the participating municipalities. This indicator would measure increase in municipal resources for funding urban development activities. (Year 3 target: 15%; end of project target: 25%).  PDO # 4: Total number of people (of which females and people from disadvantaged groups) benefiting from the project activities. (Year 3 target: 50,000; end of project target: 92,000). 2 5. The likelihood of achieving the PDO has increased since the Level I restructuring. PDO indicators have been achieved, or are on track to meet, FY14 targets2; the status of PDO indicators as of June 30, 2014 is summarized in the table below. However, if not addressed in a timely manner, delays in the completion of priority actions agreed during the Mid-Term Review are expected to negatively affect the likelihood of achieving the PDO. Contracts for four additional sub-projects have been signed since the Mid-Term Review (against a target of 10). Recruitment of the IDA-funded MST has not been completed by end of June 2014 as planned. With the GIZ-funded MST terminating its services on June 30, 2014, there is now a gap between the two teams. If recruitment of IDA-funded MST is not expedited, critical institutional development activities for the achievement of PDO (such as preparation and implementation of Revenue Enhancement Plans [REPs], Operations & Maintenance (O&M) Plans and Investment Plans will be delayed. The updated results framework is presented in Annex II. Because of the delays in achieving priority actions, the rating for the likelihood of achieving the PDO remains “Moderately Unsatisfactory”. 6. PDO Indicator FY14 Target Status, as of June 30, 2014 The target has been achieved. Dhankuta, Number of participating municipalities Itahari and Tansen municipalities included with funded investment and Operations 3 the key performance targets from the & Maintenance (O&M) plans. Revenue Enhancement Plans, O&M plans and Investment Plans in the FY15 budget. The target of 80% has been achieved. Five Municipal infrastructure sub-projects sub-projects are under implementation. Of under implementation with construction 80% the five sub-projects, one is behind works on track as per the signed contract. schedule. The target for FY14 is expected to be Increase in municipal own source exceeded. Increase in municipal own- revenues in the participating 15% source revenue is on track to achieve the municipalities. target based on data up to May 30, 2014. Total number of people (of which The indicator is expected to be achieved. females and people from disadvantaged Estimated cumulative number of groups) benefiting from the project 50,000 beneficiaries is about 49,400 for end FY14. activities. IV Implementation Status 7. Overall progress. The project has made some progress, although with delays, as compared to the schedule agreed during the Mid-Term Review. Activities of the Capacity Building for Municipal Infrastructure Development component (municipal infrastructure sub- projects) have been delayed. The agreed target for awarding 10 municipal sub-projects by June 30, 2014 has not been met. Municipalities have awarded contracts for four sub-projects (of the 10 municipal sub-projects under procurement) since March 2014. There have been delays with the publication of bid invitation notices for the two remaining municipal sub-projects yet to be 2 Fiscal Year based on GoN calendar is used for the results framework: FY 2013/14 is from July 16, 2013 to July 15, 2014. 3 finalized at Mid-Term Review. Activities for the “Strengthening Municipal Planning Capacity for Urban Development” component (municipal block grant) are on track. Municipalities have fully utilized the first and second tranches of the municipal block grant, and the third tranche has been transferred to the municipalities. Limited progress has been made with the implementation of the activities under the Institutional Development component. The Request for Expression of Interest (EoI) for the development of municipal revenue billing software has been published, although with some delays compared to the agreed schedule. Signing of the contract for the IDA-funded MST has also been delayed. The gap between the services of the IDA-funded and GIZ-funded MST is expected to lead to delays in institutional development activities for municipalities. Detailed implementation progress by component is presented in Annex III. Given the delays in awarding contracts for municipal sub-projects and hiring the MST, implementation progress rating remains “Moderately Unsatisfactory”. 8. Progress with municipal sub-projects. IDA is providing funding for a total of 16 municipal infrastructure sub-projects in six participating municipalities, including five Track I and 11 Track II sub-projects. Since the Mid-Term Review of March 2014, Baglung and Lekhnath municipalities have awarded contracts for a total of four Track II municipal sub- projects, and work order has been issued for one of the four sub-projects. A total of five municipal sub-projects are currently under implementation in Tansen, Dhankuta, Mechinagar and Lekhnath municipalities, including four Track I and one Track II sub-projects. Bid evaluation is in process for six additional municipal sub-projects, including five Track II sub- projects (under procurement post review), and the remaining Track I municipal sub-project for the Beautification of Mechinagar Gate, for which IDA provided No Objection on June 23, 2014. Dhankuta Municipality published the bid invitation notice for the Basic Service Improvement for Bus Park sub-project on June 23, 2014 with delays compared to the agreed schedule of April 30, 2014. Itahari Municipality only published the bid invitation notice for the bridge construction sub-project on June 30, 2014, with delays compared to the agreed target date of May 19, 2014. The status of municipal sub-projects is summarized in the table below. Status of Municipal Sub-projects Status Sub-projects (number) Total contracts awarded 8 - Construction works started 5 - Contractors in the process of being mobilized 3 Total sub-projects under procurement 8 - Bid evaluation reports under review 6 - Under bidding (bid invitation notice published) 2 Total sub-projects 16 9. While construction works are broadly on track in four of the five sub-projects under implementation, the Team noted the need to strengthen contract management to reduce the risk of delays. Construction works are on track for the two municipal sub-projects under implementation in Dhankuta Municipality. Works for the Mechinagar Gokul Marg (road 4 improvement) sub-project have started following contract award on February 4, 2014. However, contract management needs to be strengthened to avoid delays with construction works. Although some progress has been made with the works for Tansen Temple Conservation sub- project since the Mid-Term Review of March 2014, progress has not been sufficient to address construction delays. It was agreed that Tansen municipality, with support from the PCO and the World Bank, would hold discussions with the contractor and take appropriate actions to address construction delays by July 31, 2014. While the work order has been issued for the Lekhnath Mandare Park sub-project for which the contract was signed on April 26, 2014, construction works have not yet started. The Team stressed that municipalities need to closely monitor the quality of works. Only Tansen municipality is currently availing of the support of a construction supervision consultant. The Team noted that the hiring of construction supervision consultants needs to be expedited, in particular for those municipalities where municipal sub-projects are under implementation and/or contractors are in the process of being mobilized. The status of municipal sub-projects under implementation is presented below. Status of Municipal Sub-projects under Implementation Dhankuta (Hile) Tansen Dhankuta Mechinagar Market Lekhnath Temple Market Gokul Marg Infrastructure Mandare Park Conservation Infrastructure (Road Improvement Improvement Improvement Upgrading) Conservation Contract signing June 20, 2013 July 12, 2013 February 4, 2014 April 4, 2014 April 26, 2014 date Start date July 20, 2013 August 11, 2013 March 6, 2014 May 4, 2014 May 26,2014 Construction 15 15 15 15 9 period (months) Implementation 11.0 10.3 3.5 1.5 0.8 (months) Physical Progress 26 75 15 5 0 (%) Financial Progress 15 45 15 10 10 (%) 10. Overall progress in implementing the GAAP. Actions agreed under the Governance and Accountability Action Plan (GAAP) is being carried out as part of project implementation activities. Steering Committee meetings have been held at least once every four months, during which project issues are discussed. Institutional development activities are geared towards strengthening project agencies to carry out project activities. The issue of frequent transfer of staff from project agencies has been less than what is observed in other projects, but more prevalent in municipalities due to the frequent transfer of Executive Officers. The Team noted that the position of Component Manager for MoUD has remained vacant for three months. These 5 transfers and vacancies affect implementation negatively. The Team requested the PCO to monitor that participating municipalities carry out social audits for activities funded under the project as part of their regular process. 11. Safeguards. The Team observed that pre-construction safeguard documents have been prepared. Since the Mid-Term Review of March 2014, municipalities (with support from PCO/MST) have prepared and finalized Environmental Management Plans (EMPs) for all eleven Track II sub-projects, as well as Initial Environmental Examination (IEE) of one Track I sub- project. For each sub-project, the Environmental and Social Management Framework (ESMF) for the project requires the respective municipality to regularly monitor implementation of safeguard measures and report status to the PCO on a monthly basis. It also requires three- monthly monitoring from the PCO. However, the Team noted that the municipalities and the PCO have not started monitoring the implementation of environmental and social mitigations, as well as compliance with sub-project specific safeguard documents and performance at site. The Team visited three infrastructure sub-projects that are under implementation in which a few environmental concerns have been noted. These were discussed with the respective municipalities and the PCO, and actions to be taken have been agreed. Since there will be a gap between the IDA-funded MST and the GIZ-funded MST, it is likely that there will be an absence of environmental and social support during this period of transition. This may affect oversight, monitoring, and support to environmental and social safeguard activities. Hence, the PCO has been advised to make transitional arrangements, if necessary. The detailed safeguard assessment and agreed actions are presented in Annex IV. The overall performance rating for safeguards remains “Moderately Unsatisfactory”, since there is no monitoring and reporting of environmental and social safeguard implementation and field visits to project sites indicated weak implementation of safeguard measures. 12. Project Management and M&E. Limited progress has been made to strengthen project management. A system needs to be established to collect information from project agencies and municipalities on a regular basis and consolidate information at the PCO level in the form of monthly progress reports. In particular, the PCO needs to monitor and regularly update the timeline for municipal sub-projects and disbursement projections, and communicate them to the municipalities. The Team requested the PCO to hold regular meetings (in addition to the PCO meetings) for the purpose of reviewing progress and updating the timeline of municipal sub- projects. Particular attention needs to be paid to monitor the timeline for sub-projects with the longest estimated construction period of 18 months. The PCO also needs to provide regular updates on the status of actions agreed during the reviews and the timeline for municipal sub- project to the Team every two weeks until all municipal sub-project contracts are signed. In addition, documentation of project information needs to be strengthened at the PCO. Municipalities and project agencies (MoFALD, MoUD, TDF and Urban Development Training Center) need to submit copies of consultants’ reports and project documents to the PCO, and these documents need to be properly filed by the PCO. Finally, the Team reminded project agencies that Component Managers need to make themselves available to participate in implementation support reviews and regular PCO-level meetings, and appointments of Component Managers need to be made in a timely manner when positions become vacant. The position of Component Manager for MoUD has remained vacant for three months. The Team noted that proactive follow-up with project agencies and municipalities by the PCO and its consulting team is required to strengthen project management. Given the limited progress made 6 to strengthen project management since the Mid-Term Review, the rating for project management remains “Moderately Unsatisfactory”. While the results framework has been updated by the PCO during implementation support reviews, the system for collecting and consolidation results indicators needs to be strengthened. The M&E rating remains “Moderately Satisfactory”. 13. Project Risk Assessment. Project risk remains “Substantial”. The lack of elected local officials and the frequent change (every 6 to 12 months) of the Executive Officers (EOs) in the six municipalities represent a significant risk to the achievement of the PDO. The Team noted that since the Mid-Term Review, there has been a transfer of EOs in two municipalities. Another risk is the uncertainty regarding local election post the national election of November 19, 2013. Local election constitute a milestone step for strengthening local governance in Nepal, but the transition to elected officials may lead to project implementation delays in the short term. V. Procurement, Financial Management and Disbursement 14. Procurement. Though there has been some progress in implementing the procurement plan, procurement performance at the municipal level continues to be weak. For example, the award of contracts for municipal sub-projects has taken longer than planned. Completion of bid evaluation has taken an average of 2.35 months for the four sub-projects awarded since the Mid- Term Review. The Team also noted the need to improve contract administration to address issues in contract execution, in particular with regard to the Temple Conservation sub-project in Tansen Municipality, for which works have been significantly delayed. The target of recruiting the IDA-funded MST by June 25, 2014 has not been met. Technical evaluation of the proposal started on March 20, 2014 and is yet to be completed. Improving municipal capacity for bid evaluation and contract management is essential to ensure completion of works by project closure. It was agreed that the training on contract management and financial management would be arranged for municipal staff by September 15, 2014. Considering the delays in implementing the procurement plan and the delays in awarding contracts for municipal sub-projects and MST, the rating for procurement performance is retained as “Moderately Unsatisfactory”. 15. Financial Management. The Team noted that expenditures up to June 24, 2014 are about 15.83% of the approved FY2013/14 budget of NRs.514.41 million. Even though the FY 2013/14 budget was approved on time, expenditure is low mainly due to the delay in implementation of municipal sub-projects, delays in conducting approved program activities, and delays in institutional development activities. The budget for GoN counterpart has been sufficient. The Team reviewed the project financial management system and noted that the required books of accounts and ledgers are maintained, although some mistakes were corrected during the review. The SOE review carried out on a sample basis noted that SOE related records and documents are properly maintained. Finalization of the first trimester implementation progress report (IPR) for FY 2013/14 has been significantly delayed. The revised first trimester IPR of FY 2013/14 was submitted on June 27, 2014; the revised second trimester IPR has not yet been submitted. The Team reminded that the third trimester report for FY 2013/14 is due on August 31, 2014. The Team noted that the external audit report of FY 2012/13 provided an unqualified audit opinion. The Team noted that internal audit of FY 2013/14 had not been carried out until the review date. Some progress has been made with the implementation of the action plan agreed during the Mid- Term Review to improve financial management performance, but financial management capacity 7 at the municipal level remains weak. Reporting templates for submission of Statement of Expenses (SoEs) have been prepared, but training on financial management for the municipalities has not been carried out, and will now be completed by September 15, 2014. Since timeliness and quality of financial reporting requires further improvement and financial management capacity at the municipal level remains low, financial management rating remains “Moderately Unsatisfactory”. 16. Disbursement. Disbursement as of June 30, 2014 is US$8.15 million, consisting of US$3.20 million from the Credit and US$4.95 million from the Grant Account, equivalent to 44.20% of the total allocation. The priority action agreed at the Mid-Term Review to submit withdrawal applications for expenses incurred in FY 2013/14 has been met. Withdrawal applications for FY 2013/14 expenses for a total value of about US$462,000 have been completed since the Mid-Term Review, although with some delay compared to the agreed schedule. The net use of resources, after deducting the balance in Designated Account, is 17.49%. About US$4.96 million advanced to the Designated Account is yet to be documented. The amount of US$44,498 (equivalent NRs.4.39 million) that is already transferred from the Designated Account to the Government treasury is yet to be claimed. Reimbursable expenses of NRs. 12.31 million have been transferred in excess for expenses incurred in FY2013/14 from the Designated Account to the Government treasury. The detailed fiduciary assessment and agreed actions are presented in Annex V. VI. Key Implementation Issues and Agreed Priority Actions 17. Following are the agreed priority actions discussed during the review:  Expedite award of contracts for municipal sub-projects. In spite of the efforts made to expedite bid evaluation, municipalities have not been able to award contracts for municipal sub-projects as per the schedule agreed during the Mid-Term Review, mostly due to delays in completing bid evaluation following bid opening. As the closing date of the project is July 31, 2016, processing and award of contracts needs to be expedited. It was agreed, in principle, to establish October 31, 2014 as the cut-off date to award sub- project contracts under the Project. The risk of not meeting the cut-off date is high for the Itahari Bridges Construction sub-project, Tansen Road Improvement sub-project and Lekhnath Road Improvement sub-project. The timeline for these three sub-projects needs to be monitored very closely by the PCO and the municipalities. In the event that re- bidding is required, bid invitation notices need to be re-published by July 16, 2014 to ensure that contracts are awarded by October 31, 2014.  Expedite hiring of construction supervision consultants and mobilize a senior engineer at the PCO until the IDA-funded MST is on board. The quality of construction at the sites visited by the Team calls for strengthening supervision. There is also a need to improve contract management at the municipal level to address current delays and prevent future implementation issues. Dhankuta, Mechinagar, Baglung and Lekhnath municipalities have not yet completed the hiring of supervision consultants, even though implementation of municipal sub-projects has already started. The Team requested municipalities to complete the submission of grant applications to TDF by July 20, 2014 to secure funding for construction supervision consultants and ensure that all 8 contracts are signed no later than July 31, 2014. The hiring of the construction supervision consultant is particularly urgent for Dhankuta Municipality, where the municipal engineer hired under the municipal block grant has resigned. The IDA-funded MST team will include as core staff an experienced municipal engineer based in Kathmandu and two regional facilitators (one in the Eastern region and the other in the Western region) to provide oversight and guidance to the municipalities and construction supervision consultants. As the new MST team will not be on board until end of August 2014, it has been agreed that PCO/DUDBC will make interim arrangements until the IDA-funded MST is on board to strengthen oversight and implementation support by mobilizing a highly experienced senior professional engineer with project management and contract administration experience to guide the construction supervision consultants in all the six municipalities. It was also agreed that training on contract management and financial management would be provided to municipal staff by September 15, 2014.  Expedite recruitment of IDA-funded MST and make interim arrangements to avoid delays with institutional development activities for the municipalities. The PCO will expedite the hiring and signing of the contract with MST no later than August 15, 2014. The Team requested the PCO to make interim arrangements to avoid delays with institutional development activities for the municipalities, in particular the preparation of REPs, O&M Plans and Investment Plans in Baglung, Lekhnath and Mechinagar municipalities. The PCO will hire an individual consultant to prepare asset inventories in the three municipalities, to be completed by August 31, 2014. The PCO would mobilize consultants for the development of municipal billing software by September 30, 2014. The PCO would complete the preparation of implementation plans in Tansen, Itahari and Dhankuta municipalities by July 31, 2014. 18. The status of the actions agreed during the Mid-Term Review is summarized in the table below. Responsible Priority Actions Milestone Date Status Agency Sign contracts for Municipalities Based on the following schedule: Delayed. Contracts have municipal sub-  By April 30, 2014 for three been signed for four of the projects. municipal sub-projects. 10 municipal sub-projects  By May 30, 2014 for two under procurement. Work additional municipal sub- order issued for one of the projects. four sub-projects.  By June 20, 2014 for five Remaining contracts to be additional municipal sub- signed based on schedule projects (including Mechinagar provided under priority Gate Beautification sub- actions. project). 9 Publish bid invitation Municipalities Based on the following schedule: Completed with delay. notice for Dhankuta with support  By April 27, 2014 for Bid invitation notice for bus park and Itahari from the PCO Dhankuta bus park sub-project. Dhankuta bus park sub- bridge construction  By May 19, 2014 for Itahari project issued on June 23, sub-projects. bridge construction sub-project. 2014. Bid invitation notice for Itahari bridge construction sub-project issued on June 30, 2014. Submit partial PCO Based on the following schedule: Completed with delay. withdrawal  By April 30, 2014 for expenses Withdrawal applications applications. up to the second trimester. for FY14 expenses for a  By June 15, 2014 for expenses total value of about US$ up to end of May 2014. 462,000 completed on June 18, 2014. Sign contract for PCO June 25, 2014 Delayed. Contract IDA-funded MST. expected to be signed by August 15, 2014. Publish the EoI and PCO EoI publication by May 1, 2014; Completed with delay. award contract for the Contract award by July 15, 2014 EoI published on June 12, municipal billing 2014. Consultant expected software. to be mobilized by September 30, 2014. Priority Actions 19. The following priority actions have been agreed during the Ninth Implementation Review: Responsible Priority Action Milestone Date Agency Based on the following schedule:  By July 31, 2014 for two municipal sub- Municipalities projects. Sign contracts for remaining 8 with support  By September 30, 2014 for two municipal municipal sub-projects. from PCO sub-projects.  By October 30, 2014 for four municipal sub- projects. Complete hiring of construction Municipalities supervision consultants in the with support of July 31, 2014 municipalities. the PCO Sign contract for IDA-funded PCO August 15, 2014 MST. Complete inventory of the assets PCO and for Mechinagar, Baglung and August 31, 2014 municipalities Lekhnath Municipalities. 10 Mobilize consultants for development of municipal billing PCO September 30, 2014 software. 20. A summary of actions agreed during the Ninth Implementation Support Review is included in Annex VI. VII. Proposed Timing and Focus of Next Implementation Review 21. As agreed with the PCO, the next implementation review and support is planned for October 2014. The review will assess the overall status of the project, with emphasis on the award of contracts for the remaining municipal sub-projects and hiring of the MST. 11 ANNEX I: List of Persons Met Ministry of Urban Development Mr. Kishore Thapa, Secretary Dr. Mahendra Subba, Joint Secretary Ministry of Federal Affairs and Local Development Ms. Laxmi Pandey Gautam, Under Secretary/ Component Manager Mr. Hari Datta Kandel, Section Officer Department of Urban Development and Building Construction (DUDBC) Mr. Shambhu K.C., Director General Mr. Ramesh Prasad Singh, Deputy Director General/Project Director Mr. Dwarika Shrestha, Sr. Divisional Engineer/Deputy Project Director Mr. Tika Ram Paudel, Component Manager Mr. Sailendra Dulal, Account Officer Mr. Sabin Shrestha, Engineer Mr. Dhruba Dahal, M&E Specialist Mr. Yam Nath Neupane, Financial Management Consultant Mr. Shakti Shrestha, Procurement Consultant Mr. Carsten Zehner, Team Leader, MST Town Development Fund (TDF) Mr. Sushil Gyawali, Managing Director Mr. Dron Pun, Manager- Environment and Social Safeguard Mr. Maniram Singh Mahat Director, PME Center Mr. Harka Chhetri , Director Mr. Man Bahadur Gurung, Engineer GIZ Dr. Horst Matthaus, Program Manager Mr. Lxman Rajbhandari, GIZ consultant Dhankuta Municipality Mr. Kumar Prasad Koirala, EO Mr Mingma Dorjee Sherpa, Engineer Mr Raju Guragain, Officer, Revenue Section Mr. Tribikram Dahal, Internal Auditor Machinagar Municipality Mr. Krishna Pd. Panthi, EO Mr. Kamal Koirala, Engineer Mr. Rajan Kumar Bhetwal, Finance Officer Mr. Ananta Prakash Wosti, Social Development Officer Mr. Chakrapani Khanal, Internal Auditor 12 Tansen Municipality Mr Ram Chandra, Executive officer Lekhnath Municipality Mr Ram Chandra Paudel, Executive officer Baglung Municipality Mr Jagannath Lamichhane, Executive officer Mr. Bikash Sharma, Engineer Itahari Municipality Mr. Pashupati Khatiwada, Executive Officer Mr. Arjun Dahal, Engineer 13 ANNEX II: Results Framework Year 1: FY 2011/12; Year 2: FY 2012/13; Year 3: FY 2013/14; Year 4: FY 2014/15; Year 5: FY 2015/16 (Nepal Fiscal Year ending July 15). Estimates for FY 13/14 as of June 2014. Project Development Objective (PDO): To improve the capacity of the participating municipalities to plan, implement and fund urban development activities. Base- Project Development Target and Achievement line Reference Comments Objective Indicators (Y1) Year 2 Year 3 Year 4 Year 5 Increase in Percentage Target for Year 3 is expected municipal own annual Target % 15 15 20 25 to be achieved. Indicator is on Revenue source revenues increase track to be achieved based on 15 statements of in the 36 progress in the first ten months Actual % 18 municipalities participating (est) of the FY. municipalities. Number of Number Target for Year 3 has been participating Cumulative achieved. Three municipalities 0 3 6 6 municipalities Target have approved REPs, O&M with funded 0 Plans and Investment Plans investment and Cum. and included performance 0 3 O&M plans. Achievement targets in the FY15 budget. Municipal sub- Percentage Target for Year 3 has been projects under of Target % 0 80 80 90 achieved. Five subprojects are implementation Component under implementation. Four with construction 2 Sub- 0 subprojects are on track and works on track as projects one sub-project is behind the per the signed Actual % 0 80 schedule. contracts. Total number of Number Actual data based Target for Year 3 is expected people benefiting Cumulative on progress to be achieved. Number of 36,000 50,000 70,000 92,000 from the project Target reports submitted beneficiaries in FY 12/13 is activities. by the 16,926. Estimated number of 25000 municipalities beneficiaries for FY 13/14 is Cum. 49,422 and estimated 22,689. 26,733 Achievement (est) based on annual program Female Percentage Actual data based Target is expected to be 35 Target % 35 35 35 35 14 beneficiaries, Sub Type on progress achieved for FY 13/14. percentage of Supple- reports submitted total beneficiaries mental by the 48 Actual % 51 municipalities (est) and estimated based on annual program Disadvantage Percentage Actual data based Target is expected to be Target % 10 10 10 10 groups, Sub Type on progress achieved for FY 13/14. percentage of Supple- reports submitted total beneficiaries mental by the 10 50 municipalities Actual % 59 (est) and estimated based on annual program Intermediate Results Indicators Component I: Strengthening Municipal Planning Capacity for Urban Development Municipal grant Percent of Progress reports Target % 35 35 35 35 Indicator for FY 13/14 is allocated to Municipal for FY 2013 and slightly below target. Indicator programs Grant annual revised monitors the allocation and targeting women, allocated to program FY 2014 utilization of funds targeting children and target women, children and disadvantaged groups 35 34 disadvantaged groups. Initially groups. Actual % 35 (est) planned activities have been revised for FY13/14 but allocations are still slightly behind the target. Number of Number PCO records Target achieved for FY 13/14. municipalities Target n/a 6 6 6 All six municipalities submitting submitted annual plans of satisfactory activities to PCO for the FY annual plans for 2013/14 municipal block grant the municipal n/a by August 15, 2013. block grants to the MoUD by Actual n/a 6 August 15 (one month after the start of the FY). 15 Number of Number PCO records Target Achieved for FY municipalities 12/13. All six municipalities submitting Target n/a 6 6 6 submitted progress reports to satisfactory PCO for activities funded with annual progress the FY 2012/13 municipal reports to MoUD block grant by September 15, n/a for the municipal 2013. block grants by September 15 Actual 6 (two months after the end of the Fiscal Year). Component II: Capacity Building for Municipal Infrastructure Development Number of Number Target exceeded for FY municipal Cumulative 13/14. 16 bid invitation 3 13 18 18 infrastructure Target notices published in FY 13/14 sub-projects as of June 30, 2014. The total successfully number of municipal sub- appraised and 0 projects has been reduced ready for bidding Cum. from 18 to 16 because two (i.e. procurement 3 16 sub-projects have been Achievement notice published) consolidated at the bidding stage and one sub-project has been dropped. Percentage of Percent of funds for sub- Cumulative The target for FY 13/14 will 0 20 60 100 municipal sub- project's Target not be met because of delays projects budget with contract signing. disbursed. 0 7.9 Cum. (actual as 0 Achievement of June 14, 2014) 16 Component III: Institutional Development Policy guidelines and Text Target for FY 13/14 will not be met. procedures for Yes Yes The preparation of ToR has been Yes municipalities on Target No (Updated) (Imple- (Imple- delayed. governance and mented) mented) No budget planning updated and implemented by Actual No No MoFALD. Policy guidelines and Text Target for FY 13/14 is expected to procedures for Yes Yes be met. Preparation of the policy Yes municipalities on Target No (Imple- (Imple- document is at an advanced stage and (Updated) physical planning and mented) mented) is expected to be completed by July infrastructure No 15, 2014. development developed/updated Yes Actual No and implemented by (est) MoUD. TDF collection ratio Percenta TDF Data Target of 80% for FY 13/14 is Target % 80 90 meets prescribed ge expected to be met. 75 thresholds. 84 Actual % 78 (est) Standard lending Text Target for FY 13/14 has been met. policies and Target No Yes Yes Yes procedures applied to No all ETP municipal Actual Yes Yes sub-projects. Number of Number Target for FY 13/14 has not been municipalities that met. DUDBC has prepared model have developed and bye-law for the municipalities; approved planning specific bye-laws have been drafted Cumulative norms and building 0 0 3 6 6 for Tansen, Mechinagar and Target byelaws based on the Dhankuta municipalities. Approval guidelines by MoUD. of those bye-laws by the municipal council is expected by December 2014. 17 ANNEX III: Implementation Progress by Component 1. This annex summarizes implementation progress for each project component. III.I Strengthening Municipal Planning Capacity for Urban Development (Component I) 2. The municipalities received the FY 2013/14 block grant allocation and authorization for NRs. 95 million (USD 1 million) and have provided interim progress reports on the activities carried out up to the second trimester of the Fiscal Year. Municipalities have fully utilized the first and second tranches of the municipal block grant, and the third tranche has been transferred to the municipalities. Municipalities are expected to complete the activities funded with the FY 2013/14 block grants by July 15, 2014. The block grant allocation for the municipalities for FY 2013/14 is as follows: Table 1: Block Grant Allocation FY 2013/14 (NRs. ‘000) S.N Municipality FY 2013/14 1 Mechinagar 19,356 2 Dhankuta 10,028 3 Itahari 23,757 4 Tansen 10,681 5 Lekhnath 21,701 6 Baglung 9,477 Total 95,000 3. The municipalities were requested to revise the list of FY 2013/14 activities funded with the municipal block grant to ensure that 35 percent of the funds are allocated to activities directly benefiting women and disadvantaged groups, as required by the Local Government and Community Development Program (LGCDP) guidelines for FY 2013/14. All six municipalities provided the revised list of activities for FY 2013/14 by May 27, 2014 (Itahari Municipality submitted a further revised list of activities on June 20, 2014). The Team noted that the revised list of activities still allocate slightly less than 35 percent of the target amount of the block grant to activities directly benefiting women and disadvantaged groups even after the revisions made to the original list of activities. The Team requested the PCO to support the municipalities to plan the activities for FY 2014/15 to ensure that the target amount of 35% to women and disadvantaged groups is met in each year as well as to the end of the project. For this, the municipalities will be required to allocate more than 35% of activities to women and disadvantaged groups in subsequent fiscal years to cover the gap from previous years. 4. During its field visit to Dhankuta and Mechinagar municipalities, the Team observed that the quality of the works carried out with the municipal block grants could be significantly improved if timely technical advice were provided to the municipalities by the PCO, both on the selection of activities and implementation. 18 5. In order to avoid delays with FY 2014/15 activities, MoUD needs to receive the allocation for the FY 2014/15 block grant for the municipalities from MoFALD by July 31, 2014. The authorization should be sent to the municipalities by August 15, 2014 so that the municipalities can commence the activities as soon as the review of the municipalities’ annual program for the FY 2014/15 block grant is completed by MoUD and PCO. The municipalities are required to send their approved annual program for the FY 2014/15 block grant based on the agreed format, including the list of activities that will be funded with the block grants based on notional allocation, by August 15, 2014 and to submit progress reports for the activities carried out in FY 2013/14 by September 15, 2014 as per the results framework of the project. 6. Once the MoUD and PCO receive the final list of activities proposed for funding by the municipalities for FY 2014/15, the PCO needs to review the activities in a timely manner to ensure compliance with the target allocation to programs targeting women, children and disadvantaged groups. The safeguard review of the proposed activities needs to be carried out by the PCO and any safeguards issue communicated to the municipalities (see safeguard section). The Team reiterates the need for the PCO to also provide technical advice to the municipalities to make the activities technically sound. Status of Actions Agreed during the Mid-Term Review of March 2014 Action Responsibility Completion Date Status Submit the final list of activities for FY Municipalities April 30, 2014 Completed with 2013/14 as per the agreed reporting delay by May 27, templates based on actual allocation 2014. and in line with the target 35 percent allocation to activities benefiting women and disadvantaged groups Actions for Strengthening Municipal Planning Capacity for Urban Development Component  Municipalities will submit the annual program for the FY 2014/15 block grants to the MoUD and PCO by August 15, 2014.  MoUD will issue authorization to the municipalities for the block grant allocation by August 15, 2014.  Municipalities will submit the progress report on the activities carried out in FY 2013/14 to the MoUD and PCO by September 15, 2014.  The PCO and MoUD will review the annual program for FY 2014/15 and provide comments to the municipalities by October 15, 2014. 19 III.II Capacity Building for Municipal Infrastructure Development (Component II) 7. Overall progress. This component provides finance through a mix of sub-loans and sub- grants for municipal sub-projects as well as engineering advisory consulting services, and associated social environment management activities of participating municipalities with the objective of improving their capacity to plan and implement municipal investments. Municipal capacity to carry out infrastructure investments is to be built through learning by doing. The list of municipal sub-projects is provided in Table 2. IDA is providing funding for a total of 16 municipal infrastructure sub-projects in the six participating municipalities, including 5 Track I and 11 Track II sub-projects. The section presents the current status of these municipal infrastructure sub-projects. The updated timeline for the Track I and Track II municipal sub- project is presented in Table 4 and Table 5, respectively. 8. Status of Track I sub-projects. Currently, four out of the five Track I sub-projects in Tansen, Dhankuta and Mechinagar municipalities are under construction. All the Track I sub- projects are expected to be in the construction phase by August 14, 2014, one month after the expected contract signing date for the Mechinagar Gate Beautification sub-project on July 15, 2014. The progress of Tansen Amar Narayan sub-project continues to be unsatisfactory. The PCO and TDF recently carried out a site visit with the municipality to understand and address the issues related to the very poor performance of the contractor for this sub-project. The municipality has imposed liquidated damage for non-achievement of the first milestone. Although some progress has been made with implementation since the Mid-Term Review, it is doubtful that the contractor can complete this sub-project as per the contractual schedule. A joint team from the PCO/TDF and the Bank is planning to visit Tansen around mid-July, 2014 to review progress and hold discussions with the municipality and the contractor to find remedial measures for expediting implementation of this sub-project. Unless closely supervised and the municipality supported on contract administration, delays in implementation of Track I sub- projects may surface in other sub-projects as well as the contractors in Dhankuta Hile Market Improvement sub-project and Upgrading of Gokul Marg sub-project in Mechinagar are already raising issues regarding availability of construction materials, like flat stones and pebbles/boulders locally. Proactive follow up by the PCO to support the municipalities with supervision and contract management is paramount. 9. Status of Track II sub-projects. Of the 11 Track II sub-projects, currently only one – namely the Mandare Park in Lekhnath Municipality – is in the construction phase. The implementation schedule agreed during the Mid-Term Review of March 2014 has not been met; bid evaluation and, thereby, signing of contracts have generally taken longer than planned due to capacity and/or dedicated manpower constraints within the municipalities and project entities. The revised schedule shows that the contract for two sub-projects would be signed by end of July, two sub-projects by September 30, 2014 and the remaining four sub-projects by October 15, 2014. It is imperative that the processing and award of contracts be expedited so that the sub- projects can be completed by the Project closing date and funded out of the proceeds of the IDA funds. In view of the above, it was agreed, in principle, to establish October 31, 2014 as the cut- off date to award sub-project contracts under this Project. 20 10. Supervision arrangements. The quality of construction of the sites visited by the Ream during this review calls for a need to improve the quality of supervision, both at the preparatory as well as implementation phases. This is compounded by the fact that construction supervision engineers have not been recruited in a timely manner in the municipalities where construction works have started, while the municipal engineer recruited with the municipal block grant in Dhankuta Municipality has recently resigned. As an example, the contractor for the Hile Market in Dhankuta has begun construction by a piecemeal layout of the site. Without laying out the overall plan at the site before initiating construction, the opportunity to check and correct, if required, the suitability of the designed layout and orientation of the structures to suit site condition is lost. Such weaknesses could be attributed, inter alia, to the lack of experience. It was also noted that the submission of work implementation schedules and project monitoring charts to the Team has been further delayed. Only the revised implementation schedule for the Amar Narayan Temple conservation sub-project has been received during the review. Therefore, there is a need to strengthen the supervision arrangements under the project and make interim arrangements until the IDA-funded MST is recruited. The IDA-funded MST team will include as core staff an experienced municipal engineer based in Kathmandu and two regional facilitators (one in the Eastern and one in the Western region) to provide oversight and guidance to the municipalities and supervision consultants. Given the delay in hiring the MST, there is a need to make interim arrangements to strengthen the supervision under the project until the IDA-funded MST is recruited. 11. It has been agreed that the PCO would support the municipalities in expediting the hiring of construction supervision engineers/consultants. The Team requested municipalities to complete the submission of grant applications to TDF by July 20, 2014 to secure funding for supervision consultants and ensure that all contracts with construction supervision consultants are signed no later than July 31, 2014. To fill the gap until the IDA-funded MST is hired and mobilized, it has been agreed that the PCO/DUDBC will quickly mobilize an experienced professional engineer with project management and contract administration experience to guide the construction supervision engineers in all the six municipalities so as to ensure quality of construction and avoid delays. This senior professional would be tasked to provide overall support and guidance through “on-the-job-training” to the construction supervision engineers as well as the municipal engineer on project management and contract administration. It is envisaged that the engineer will be stationed in Kathmandu and be available to advise the construction supervision consultants as and when required, in addition to making periodic visits to the municipalities. It was also agreed that training on contract management would be provided to municipal staff by September 15, 2014. 12. Loan and grant commitments for the municipal sub-projects. The IDA loan and IDA grant allocations for the municipal sub-projects are US$ 3.3 and US$ 4.5 million, respectively for a total of US$ 7.8 million. The estimated IDA loan and IDA grant commitments are US$ 2.4 million and US$ 3.6 million, respectively, equivalent to about 41%-59% loan-grant mix, for a total of 16 municipal sub-projects (including 5 Track I sub-projects and 11 Track II sub- projects). The expected IDA loan and grant commitments have been estimated based on the latest available cost figures and contract prices. Actual bid prices have been used for awarded contracts, and cost estimates from the Detailed Project Reports (DPRs) (including a 5% contingency) have been used for sub-projects under procurement. For awarded contracts, a provision of 15% cost increase has been assumed for possible cost overruns. The loan-grant 21 ratios are estimated on the basis of the financial appraisal carried out by the TDF in line with project’s loan grant policy. The loan and grant commitments are presented in Table 3. Quarterly disbursement projections for the municipal sub-projects for FY 2014/15 are shown in Table 6. Disbursements for municipal sub-projects is estimated at US$ 3.6 million for FY 2014/15 based on cost estimates for sub-projects under procurement. The Team requested the PCO to update regularly the disbursement projections based on timeline and actual costs as contracts are awarded. The rest of the section provides detailed status of each sub-project. Table 2: List of Municipal Sub-projects Municipality No. Sub-project Name Track I Sub-projects Tansen 1 Amar Narayan Temple Conservation Dhankuta 2 Dhankuta Weekly Market Infrastructure Improvement 3 Hile Market Infrastructure Improvement Mechinagar 4 Mechinagar Gate Beautification 5 Upgrading of Gokul Marg Track II Sub-projects Baglung 6 Sahid Smriti Park Development 7 Upgrading of Access Road to Deprived Community (Track I and Track II) Tansen 8 Upgrading of Existing Roads in Urban Areas, including: a) Bus Park to Mission Hospital; (b) Mission Hospital to Eye Hospital; (c) Gaurishanker to Holangdi; (d) Bandevi to Laxmi School and (e) Prabash to Baghkhor 9 Multi-Purpose Building (shops and guest rooms) 10 Shrinagar Park Improvement Lekhnath 11 Barah Chhetra Improvement 12 Picnic Spots & Amusement Zone at Mandare Park 13 Upgrading of Roads in Urban and Peri urban Areas, including (a) Oil Nigam To Rithe Pani; (b) Dahar No.3; (c) Dahar No.4; (d) Wada Sewa Kendra To Deurali Khola; (e) Buddha Tole To Dadapari and (f) Universal Chowk To Kholako Chheu Itahari 14 Upgrading of Link Road 15 Construction of Bridges on the Link Road Dhankuta 16 Basic Service Facilities for Hile Bus Park 22 Status of Track I Municipal Infrastructure Sub-projects 13. Tansen Amar Narayan Temple Conservation Sub-project: This sub-project has been in implementation since August 2013 but the work progress has been very slow and not been satisfactory. Though some progress has been reported in the implementation of the sub-project after the Mid-Term Review in March 2014, this does not seem to be adequate to complete construction of the sub-project within the stipulated contract period. The physical progress of the sub-project is only about 26% after about 73% of the contract period has elapsed. The municipality has imposed liquidated damage to the contractor for not meeting interim milestones defined in the contract. A very close monitoring of progress is essential to expedite the work to ensure that the sub-project is completed without much delay. 14. Dhankuta Weekly Market Infrastructure Improvement Sub-project: The physical progress of this sub-project is satisfactory, with about 75% of physical works completed after elapse of about 68% of contract period. The financial progress is about 45%. The quality of the work, however, requires much improvement. There is currently no engineer to supervise the work as the previously assigned UGDP engineer has recently resigned. There is therefore urgent need to recruit a construction supervision engineer to supervise the works and ensure work quality. 15. Dhankuta Hile Market Infrastructure Improvement Sub-project: This sub-project has only recently entered the construction phase after signing of the contract on April 4, 2014. The contract amount is NPR 34,620,384 including VAT. The contractor has already been mobilized and has carried out demolition of some structures and has started excavation work for construction of the slaughterhouse. The layout of the new slaughter house has been done on an individual basis without linkage to other structures. This activity has been carried out without setting out a layout of the proposed structures in the market area. The Team suggested that the contractor first set out the layout of all proposed structures in the market area and make adjustments in the layout if required, before excavation and construction of structures are carried out so that there will be no inconsistencies afterward. 16. Mechinagar Gate Beautification Sub-project: This sub-project is still under procurement. The rebidding notice for the sub-project was published on March 9, 2014 and the received bids were opened on April 9, 2014. The evaluation of bids has been completed and the Bank provided no objection on June 23, 2014. The contract is expected to be signed with the successful bidder by July 15, 2014. 17. Mechinagar Gokul Marg Road Improvement Sub-project: The contract for this sub- project was signed on February 4, 2014. The contractor has started construction of roadside drains on both sides of Gokul Marg. Both the physical progress as well as the financial progress of the sub-project is reported to be about 15%. It was agreed that the PCO and municipality will identify critical points where coverage of drains is required during construction. During the field visit, the Mechinagar Municipality engineer voiced concern about the possibility of delay in construction works due to the recent shortage of stone and boulders and the long haulage distance required. The PCO needs to guide and provide support to the municipality on these matters so that there is no delay in construction works of the sub-project. 23 Status of Track II Municipal Infrastructure Sub-projects 18. Baglung Shahid Smriti Park Sub-project: This sub-project is moving from procurement to the implementation phase. Baglung Municipality signed a contract agreement with the contractor for construction of Shahid Smriti Park on June 9, 2014. The construction work is expected to start by July 9, 2014. The contract amount is NPR 9,319,313.82 including VAT, and the estimated cost of the sub-project is NPR 14,815,774 including contingencies and VAT. 19. Baglung Upgrading of Access Road (combined Track I and Track II) Sub-project: The procurement phase of this sub-project was completed on June 16, 2014 with the signing of the contract with the lowest evaluated bidder. The contractor is now expected to start construction works by July 16, 2014. The construction period is 18 months and the sub-project is expected to be completed by January 15, 2016. The contract amount is NPR 112,768,983.70 including VAT. The estimated cost of sub-project is NPR 208,285,875 including contingencies and VAT. 20. Tansen Urban Roads Upgrading Sub-project: This sub-project is in the procurement stage. The bid invitation notice was published on April 1, 2014 and the received bids were opened on May 2, 2014. The municipality is carrying out an evaluation of bids with support from the PCO. The municipality completed evaluation of bids, and informed the PCO of the need for re-bidding. The bids should be evaluated and approved by September 14, 2014 and the contract signed by October 6, 2014. 21. Tansen Shrinagar Park Improvement Sub-project: The bid invitation notice for Tansen Shrinagar Park Improvement Sub-project was published on March 9, 2014. The received bids were opened on April 9, 2014. The municipality completed evaluation of bids, and informed the PCO of the need for re-bidding. This should be completed and bid evaluation report approved by September 14, 2014 and the contract signed by October 6, 2014. 22. Tansen Multi Purpose Building Sub-project: This sub-project is in the final stages of contractor procurement. Tansen Municipality has completed evaluation of bids received from bidders and submitted a bid evaluation report to the PCO on May 30, 2014 for approval. It is expected that the PCO will complete the approval process by June 30, 2014, and the contract is expected to be signed by July 21, 2014. 23. Lekhnath Barah Chhetra Improvement Sub-project: Lekhnath Municipality signed a construction contract with the lowest evaluated bidder for Barah Chhetra Improvement Sub- project on June 24, 2014. The contract amount is NPR 9,749,102.90 including VAT. The construction works are expected to start by July 24, 2014 and entire works completed by June 22, 2015. 24. Lekhnath Mandare Park Sub-project: This sub-project is already in the implementation stage. The contract for this sub-project was signed on April 27, 2014. The contractor mobilized and commenced works on June 23, 2013. The contract amount is NPR 5,603,914 including VAT. The estimated amount for the sub-project is NPR 5,766,463 including contingencies and VAT. The municipality has already provided 10% mobilization advance to the contractor. 25. Lekhnath Urban and Peri-urban Roads Sub-project: This sub-project is still in the procurement stage. The bid invitation notice for this sub-project was published on March 18, 24 2014 and the received bids were opened on April 17, 2014. The municipality is carrying out evaluation of bids with support from the PCO. It is likely that this sub-project will require rebidding. In case rebidding is required, it should be completed and the bid evaluation report approved by September 14, 2014 and the contract should be signed by October, 2014. 26. Itahari Link Road Improvement Sub-project: Itahari Municipality published the bid invitation notice for this sub-project on March 14, 2014. The received bids were opened on April 15, 2014. The municipality has conducted bid evaluation with support from the PCO and submitted a bid evaluation report to the PCO on June 23, 2014. The contract is expected to be signed by July 23, 2014. 27. Itahari Bridges Sub-project: This sub-project is just entering the procurement phase. The detailed design report and bid documents have been finalized. The loan agreement between TDF and Itahari Municipality was signed on June 27, 2014. The bid invitation notice for the sub- project was published on June 30, 2014. It is expected that the contractor for this sub-project will be in place by September 14, 2014. Construction works are expected to be completed by April 24, 2016. As the expected completion date is very close to the project closing date of July 31, 2016, there is no room for any delays. There is therefore a need for closely monitoring works to ensure that they are completed on time. 28. Dhankuta Basic Services Facilities in Hile Bus Park Sub-project: This sub-project has just entered the procurement stage, with the bid invitation notice published on June 23, 2014. The bid will now be opened on July 24, 2014. The evaluation of received bids is expected to be completed and approved by August 31, 2014. The contract signing is expected by September 21, 2014. The construction works are expected to be completed by January 20, 2016. 29. The status of actions for this component agreed during the Mid-term Review is presented in the table below. 25 Status of Actions Agreed during Mid-Term Review 2014 Action Responsibility Completion Date Status Make available to the World Bank Tansen and April 15, 2014 Partially completed work implementation schedules Dhankuta with delay. Only and project monitoring charts for Municipalities implementation Track I sub-projects under chart for Tansen implementation (including sub-project shared safeguard monitoring) with the Team. Sign contracts for the sub-projects Dhankuta and (i) Three municipal Delayed. Contracts under procurement based on the Mechinagar sub-projects by April have been signed agreed schedule: Municipalities 30, 2014; (ii) two for four of the 10 additional municipal municipal sub- sub-projects by May projects under 30, 2014; (iii) five procurement. Work additional municipal order issued for one sub-projects of the four sub- (including Track I projects. Remaining Mechinagar Gate contracts to be Beautification sub- signed based on project) by June 20, schedule provided 2014 under priority actions. Publish bid invitation notices for Dhankuta and Itahari April 27, 2014 and Completed with Dhankuta Hile Bus Park and Municipalities May 19, 2014 delay. Bid Itahari Bridges Construction sub- invitation notice for projects Dhankuta bus park sub-project issued on June 23, 2014. Bid invitation notice for Itahari bridges construction sub-project issued on June 30, 2014. Assess the causes of non- Tansen Municipality April 30, 2014 Completed. The performance and take appropriate municipality has actions to address the construction imposed liquidated delays, and provide an update on damage for non- status to the team achievement of the first milestone, but progress remains unsatisfactory. 26 Actions for Capacity Building for Municipal Infrastructure Development Component  PCO will make available to the World Bank work implementation schedules and project monitoring charts for all Track I sub-projects under implementation (including safeguard monitoring) by August 15, 2014;  Municipalities, with support from PCO, will complete the hiring of construction supervision consultants by July 31, 2014;  Municipalities, with support from PCO, will sign contracts for remaining 8 municipal sub-projects based on the following schedule: (a) by July 31, 2014 for two municipal sub-projects; (b) by September 30, 2014 for two municipal sub-projects; and (c) by October 30, 2014 for four municipal sub-projects. 27 Table 3: Loan and Grant Commitments for Municipal Sub-projects Infrastructure Financing (in USD '000) (USD 1 = Sub Project NPR 95) Category Municipality Name of Sub Project Total IDA IDA GoN Municipal (U=Utility, Cost (TDF) (TDF) Grant Matching S=Social) Estimate Loan Grant Fund Track 1 Sub projects Mechinagar Mechinagar Gate Beautification Project S 148 15 66 53 15 Upgrading of Gokul Marg U 343 (A) 103 114 91 34 Dhankuta Dhankuta Weekly Market Infrastructure Improvement S 172 (A) 17 76 61 17 Hile Market Infrastructure Improvement S 364 (A) 36 162 130 36 Tansen Amar Narayan Temple Conservation S 58% U 42% 362 (A) 67 144 115 36 Track 2 sub projects Itahari Improvement of Link Road U 1230 369 410 328 123 Construction of Bridges in the Link Road U 669 201 223 178 67 Dhankuta Basic Service Facilities for Hile Bus Park S 168 17 75 60 17 Baglung Improvement of Shahid Smriti Park S 98 (A) 10 44 35 10 Upgrading of Baglung Access Road U 1187 (A) 356 396 317 119 Tansen Improvement of Existing Road U 1321 396 440 352 132 Improvement of Shreenagar park S 140 14 62 50 14 Construction of Multipurpose Building U 306 92 102 82 31 Lekhnath Improvement of Barah Chhetra Park S 103 (A) 10 46 36 10 Improvement of Mandare Park S 59 (A) 6 26 21 6 Improvement of Existing Road U 1583 475 527 422 158 All Consulting Services 293 0 264 0 29 Total 8546 2183 3177 2331 855 TDF service fee 1.5% of grant disbursement 0 0 48 0 0 Contingency @15% on contract award 403 91 151 121 40 Additional contingency @10% on estimate for non contract awarded 556 158 191 152 56 Grand Total 9505 2432 3566 2604 951 (A) = Actual Contract Amount 28 Table 4: Timeline for Track I Sub-projects Completion of Bid Approval Construction Period Bid Notice Bid Bid IEE and Contract Construction SN Sub-Projects from various (months) and publication Opening Evaluation approval by Signing Starts by agencies Completion Date MoFALD Tansen Amar Narayan R 15 16-Nov-14 1 Temple A 24-Mar-13 24-Apr-13 14-May-13 11-Jun-13 N/A 20-Jun-13 17-Aug-13 R 15 18-Dec-14 2 Dhankuta weekly Market A 29-Mar-13 29-Apr-13 13-May-13 11-Jun-13 N/A 12-Jul-13 19-Sep-13 R 15 2-Aug-15 3 Dhankuta Hile Market A 9-Oct-13 13-Nov-13 10-Feb-14 23-Mar-14 31-Mar-14 4-Apr-14 3-May-14 Mechinagar Gate R 23-Jun-14 N/A 15-Jul-14 14-Aug-14 15 13-Nov-14 4 Beautification A 9-Mar-14 9-Apr-14 1-Jun-14 R 15 2-Jun-15 5 Mechinagar Gokul Marg A 30-Sep-13 11-Nov-13 6-Dec-13 13-Jan-14 N/A 4-Feb-14 3-Mar-14 29 Table 5: Timeline for Track II Sub-projects Loan DPR Clearance Endorsement Bidding Appraisal DPR TDF appraisal Approval from Agreement S.N. Sub-Projects from central from the Documents Approved by finalized completed World Bank Signed agencies municipality Finalized TDF Board with TDF Baglung Sahid Smriti Park R 1 Development A 15-Jan-14 NA 12-Dec-13 15-Jan-14 29-Dec-13 15-Jan-14 29-Dec-13 31-Dec-13 Baglung Upgrading of R 2 Access Road A 24-Dec-13 NA 12-Dec-13 24-Dec-13 16-Dec-13 24-Dec-14 16-Dec-13 19-Dec-13 Tansen Upgrading of R 3 Road A 26-Feb-14 NA 9-Dec-14 11-Mar-14 19-Mar-14 19-Mar-14 23-Mar-14 25-Mar-14 Tansen Multi-Purpose R 4 Building A 19-Feb-14 NA 9-Dec-13 19-Feb-14 12-Jan-14 21-Feb-14 12-Jan-14 22-Jan-14 Tansen Shrinagar Park R 5 Improvement A 19-Feb-14 NA 9-Dec-13 19-Feb-14 29-Dec-13 27-Feb-14 29-Dec-13 31-Dec-13 Lekhnath Barah Chhetra R 6 Improvement A 9-Feb-14 NA 11-Dec-13 9-Feb-14 29-Dec-13 11-Feb-14 29-Dec-13 31-Dec-13 Lekhnath Picnic Spots at R 7 Mandare Park A 19-Jan-14 NA 11-Dec-13 19-Jan-14 29-Dec-13 24-Jan-14 29-Dec-13 31-Dec-13 Lekhnath Upgrading of R 8 Roads A 19-Feb-14 NA 11-Dec-13 19-Feb-14 29-Dec-13 25-Feb-14 29-Dec-13 31-Dec-13 Itahari Upgrading of Link R 9 Road A 18-Feb-14 NA 24-Jan-14 23-Feb-14 17-Feb-14 26-Feb-14 17-Feb-14 18-Feb-14 Itahari Construction of R 10 Bridges A 6-Jun-14 NA 6-Jun-14 16-Jun-14 17-Jun-14 25-Jun-14 27-Jun-14 R 11 Dhankuta Hile Bus Park A 12-May-14 NA 18-Jun-14 9-Jun-14 10-Jun-14 13-Jun-14 20-Jun-14 30 Bid Approval Construction Period Bid Notice Bid Contract Construction S.N. Sub-Projects Bid Opening from various Completion publication Evaluation Signing Starts by Months agencies date Baglung Sahid Smriti Park R 8-Jul-14 9 7-Apr-15 1 Development A 20-Jan-14 20-Feb-14 24-Mar-14 4-May-14 9-Jun-14 Baglung Upgrading of Access R 16-Jul-14 18 15-Jan-16 2 Road A 27-Dec-13 10-Feb-14 19-Mar-14 6-May-14 16-Jun-14 R 29-Jun-14 14 Sep 14 6 Oct 14 5-Nov-14 18 5-May-16 3 Tansen Upgrading of Road A 1-Apr-14 2-May-14 Tansen Multi Purpose R 29-Jun-14 14 Sep 14 6 Oct 14 5-Nov-14 15 5-Feb-16 4 Building A 4-Mar-14 3-Apr-14 Tansen Shrinagar Park R 29-Jun-14 14-Sep-14 6-Oct-14 5-Nov-14 9 4-Aug-15 5 Improvement A 9-Mar-14 9-Apr-14 Lekhnath Barah Chhetra R 23-Jul-14 12 22-Jun-15 6 Improvement A 16-Feb-14 18-Mar-14 8-Apr-14 6-Jun-14 24-Jun-14 Lekhnath Picnic Spots at R 9 26-Feb-15 7 Mandare Park A 27-Jan-14 26-Feb-14 21-Mar-14 16-Apr-14 27-Apr-14 27-May-14 Lekhnath Upgrading of R 30-Jun-14 14-Sep-14 6-Oct-14 5-Nov-14 18 5 May 16 8 Roads A 18-Mar-14 17-Apr-14 Itahari Upgrading of Link R 7-Jul-14 28-Jul-14 27-Aug-14 18 26-Feb-16 9 Road A 14-Mar-14 15-Apr-14 23-Jun-14 Itahari Construction of R 30-Jun-14 30-Jul-14 21-Aug-14 4-Sep-14 25-Sep-14 25-Oct-14 18 24-Apr-16 10 Bridges A Dhankuta Basic Service R 24-Jul-14 16-Aug-14 31-Aug-14 21-Sep-14 21-Oct-14 15 20-Jan-16 11 Facilities for Hile Bus Park A 23-Jun-14 A= Actual as of June 24, 2014, R= Revised estimated, June 2014 31 Table 6: Status of Contracts for Track I and Track II Sub-projects (USD) Contract Disbursement in FY 2014-15 Estimated Contract Cumulative Date Construction Disbursement S.N. Sub- Project Name Amount Amount I Qtr. II Qtr. III Qtr. IV Qtr. Annual (Actual/ period (MM) till June 2014 (US$) (US$) (2014-15) Estimated) Estimated Estimated Estimated Estimated Track I Sub-projects Tansen Amar Narayan 1 397,061 362,402 20-Jun-13 (A) 15 41,597 65,232 130,465 88,868 Temple Conservation Dhankuta Market Area 2 187,853 171,693 12-Jul-13 (A) 15 86,215 23,179 30,905 14,225 68,309 Improvement Dhankuta Hile Market 3 408,256 400,868 4-Apr-14 (A) 15 28,202 32,798 49,197 49,197 81,996 213,189 Area Improvement Mechinagar Gate 4 147,912 15-Jul-14 (E) 15 N/A 13,312 19,968 23,962 33,280 90,522 Beautification Mechinagar Gokul Marga 5 682,311 343,030 4-Feb-14 (A) 15 39,000 46,309 46,309 61,745 185,236 30,873 Road Total for Track I Sub-projects 1,823,393 1,277,993 195,014 165,394 276,844 222,561 177,021 841,820 32 Disburse Disbursement in FY 2014-15 Estimated Contract Contract Date Construc ment till Cumulativ S.N Sub- Project Name Amount Amount (Actual/ tion June I Qtr. II Qtr. III Qtr. IV Qtr. e Annual (US$) (US$) Estimated) Period 2014 (US$) Est Est Est Est Track II Sub-projects Baglung Sahid Smriti Park 1 155,956 98,098 9-Jun-14 9 13,243 13,243 22,072 26,486 75,045 Development 2 Baglung Upgrading of Road 2,192,462 1,187,042 16-Jun-14 18 160,251 106,834 106,834 160,251 534,169 3 Tansen Upgrading of Roads 1,321,322 6-Oct-14 18 0 178,378 118,919 118,919 416,216 4 Tansen Multi Purpose Building 305,672 6-Oct-14 15 0 41,266 41,266 68,776 151,308 Tansen Shrinagar Park 5 139,762 6-Oct-14 9 0 37,736 31,446 31,446 100,629 Improvement Lekhnath Barah Chhetra 6 123,681 102,622 24-Jun-14 12 13,854 9,236 18,472 23,090 64,652 Improvement Lekhnath Picnic Spots at Mandare 7 60,700 58,989 27-Apr-14 9 4,204 2,654 10,618 18,581 17,032 48,886 Park 8 Lekhnath Upgrading of Road 1,582,631 6-Oct-2014 18 0 213,655 142,437 142,437 498,529 9 Itahari Upgrading of Link Road 1,229,991 23-Jul-14 18 166,049 55,350 110,699 110,699 442,797 10 Itahari Construction of Bridges 1,031,731 25-Sep-14 18 0 90,263 60,175 90,263 240,702 Dhankuta Basic Service Facilities 11 157,895 21-Sep-14 15 0 22,715 15,144 22,715 60,574 Hile Bus Park Total of Track II Sub-Projects 8,301,803 4,204 356,051 779294 686,045 812,115 2,633,506 Consulting Services 303,756 47,605 15,643 31,684 27,258 29,674 104,260 Total of Track I & II Sub-Projects and 10,428,952 246,823 537,088 1,087,823 935,865 1,018,810 3,579,586 Consulting Services 33 III.III Institutional Development Component 30. Limited progress has been made with the institutional development activities since the Mid-Term Review. The EoI for the municipal billing software was published with delay compared to the agreed schedule. Institutional development activities of MoFALD, TDF and DUDBC are being significantly delayed so that those activities will be carried over for next fiscal year. This section reviews institutional development activities for the: (a) municipalities; (b) DUDBC; (c) TDF (including BRAP); (d) MoFALD; (e) MoUD; and (f) UDTC, and review M&E system and performance. (a) Institutional Development for the Municipalities 31. The institutional development component for the municipalities aims to strengthen the capacity of the municipalities to plan and fund urban development activities. Through the MST, the PCO is providing support to the municipalities for the preparation and implementation of Revenue Enhancement Plans (REPs), Investment Plans and O&M Plans. Three municipalities – Dhankuta, Itahari and Tansen – have prepared Revenue Enhancement Plans (REPs), O&M Plans and Investment Plans in FY 2013/14, and had them approved by their municipal council in January 2014 in line with the PDO target indicator. Performance Agreements were signed with the three municipalities in December 2014. Other three municipalities – Mechinagar, Lekhnath and Baglung – are planning to prepare and implement these plans in FY 2014/15. Through the MST, the PCO is expected to: (a) assist the municipalities in budgeting the performance targets included in the plans; (b) provide technical and financial support to municipalities to implement the plans where external technical and financial support are required, including the procurement of revenue billing software and technical support for software operation; and (c) document and monitor achievements in the implementation of the plans. Performance Agreements and Implementation Plans 32. Following the signing of the performance agreements between the PCO and Dhankuta, Itahari and Tansen Municipalities in December 2013, the PCO was requested to prepare and cost implementation action plans with the three municipalities for FY 2014/15 and FY 2015/16 by April 15, 2014. This has been delayed. During the review, an implementation action plan was prepared and discussed with Dhankuta municipality. As per the agreed implementation plan, the PCO will provide financial support as well as technical support through the MST to Dhankuta Municipality to carry out a revenue survey, data entry and implement revenue collection campaign. It was agreed that the PCO would prepare and cost the implementation action plans for Itahari and Tansen municipalities based on the one prepared for Dhankuta Municipality and send them to the Team by July 31, 2014. The Team also noted that the PCO has not yet released to the municipalities the allocated grant for municipal capacity development for FY 2013/14. This grant could have been used by the municipalities to carry out activities for the implementation of REPs, O&M plans and Investment Plans and other capacity development activities. 33. The Team re-emphasized the importance of closely monitoring achievements and implementation of the plans as per the signed performance agreements. The PCO needs to properly document progress in achieving the targets set in the performance agreements as well as the support provided to the municipalities by the project. It was agreed that the PCO would provide quarterly reports monitoring progress made with the implementation of the plans. The 34 PCO will sign performance agreements with remaining three municipalities after finalizing the Revenue Enhancement Plan, O&M Plan and Investment Plan by December 31, 2014. It was noted that the PCO has not yet submitted documentation of the support provided to the three municipalities for the budgeting of the REP, O&M Plans and Investment Plans. Revenue Enhancement Plans (REP) 34. REPs have been prepared in three municipalities (Dhankuta, Itahari and Tansen). Five- year revenue projections have been made based as part of the REPs and revenue targets for FY 2014/15 have been included in the annual budget of the municipalities. Main activities planned for the improvement of own-source revenues include development of revenue billing software, revenue data collection, data entry and revenue campaigns, and contracting out municipal assets for revenue generation based on a Public-Private Partnership modality. Implementation status of the actions of the REP and revenue collection has to be monitored regularly. With the support of the MST, the PCO would monitor and update the REPs of the three municipalities by November 30, 2014. Through the MST, the PCO will provide support to prepare REPs for the other three participating municipalities (Mechinagar, Lekhnath and Baglung) by December 15, 2014 and assist municipalities in implementing the plan. Billing Software Development 35. The PCO published the EOI notice on July 12, 2014 to hire consultants for developing and implementing revenue billing software for Integrated Property Tax (IPT) and integrating IPT with business and rent taxes and other related fees, with significant delays as per the schedule agreed at the Mid-Term Review. The software would have the capacity to separate tax demands into arrear and current due, and hence provide an accurate measure of collection effort. 36. ToRs have been prepared with the support of IDA-funded international consultants and national consultants hired by the PCO, but the final ToRs have not yet been shared with the Team. The ToR has been submitted to MoFALD for review, but no comments have yet been provided. The Team noted that a formal agreement should be made between the MoFALD and MoUD for the hand-over of the revenue software after project closing. It was agreed that the agreement would be made and communicated to the World Bank by August 31, 2013. It was noted agreed that the PCO needs to ensure close working relations between the software development consultants and MOFALD from the beginning so that the MOFALD can take over the software and install it in other municipalities. 37. The development of billing software is a critical activity for the implementation of the REPs. The Team noted that the software should be ready for use by July 15, 2015 so that municipalities can benefit from the use of the software in FY 2014/15. If the billing software is not ready for use in FY 2014/15, implementation of REPs will be compromised. It was agreed that the PCO would complete EOI evaluation and issue RFP by August 1, 2014 and mobilize software development consultants by September 30, 2014. The consultant should complete software development works including general testing by March 31, 2015 and start the installation process and data entry works in municipalities immediately thereafter. To ensure completion of the software development by end of FY 2014/15, the PCO should pay special attention to procuring the software consultant as per the agreed schedule and ensure progress as per the work schedule. The Team noted that municipalities would require technical support for software operation (including data import from existing software). 35 O&M Plans 38. O&M Plans for next five years have been prepared in three municipalities (Dhankuta, Itahari and Tansen) with the support of the PCO and MST. The municipalities approved the O&M plan from their council and used it for the budgeting of O&M expenses for FY 2014-15. Through the MST, the PCO needs to provide support to the municipalities to update the O&M Plans by November 30, 2014. Preparing an O&M plan requires an updated inventory of municipal assets, O&M needs assessment and estimation of O&M costs. Therefore, to complete O&M plans for the other three municipalities (Mechinagar, Lekhnath and Baglung) by December 15, 2014 – before the municipal council meeting of January 15, 2015 – the PCO has to provide support to the municipalities to prepare the inventory of the assets by August 15, 2014. Investment Plans 39. All three municipalities (Dhankuta, Itahari and Tansen) have budgeted their capital investment plans from revenue surplus and capital revenues in line with the borrowing capacity of the municipality and ensuing debt service in their projected cash flows. The investment plan prioritized and commits resources to new capital investments for the next five years (FY 2015 to 2019). The PCO would monitor progress and support municipalities with the update of the Investment Plans by November 30, 2014. Likewise, through the MST, the PCO will provide support to the rest of the municipalities to prepare Investment Plans by December 30, 2014. Training and Workshops 40. Through the MST, the PCO will carry out a training needs assessment and prepare a detailed training plan for municipalities, and communicate to the participating municipalities as well as stakeholders by October 30, 2014. Critical capacity gap areas such as programming and budgeting, contract management, financial management, monitoring and reporting, social and environmental safeguards will be the part of the training program. In addition to the specific trainings to the municipalities, with the support of MST, the PCO will prepare a plan to organize central level workshops to facilitate municipalities’ performing of key critical tasks related to the project, including planning and review workshops. Equipment 41. There has been delay in procuring the equipment for establishing the GIS unit for DUDBC and the municipalities. The evaluation of bids for the equipment for the municipalities is ongoing and PCO issued the Intent to Award notice on June 29, 2014. Since the process is now expected to cross over the next fiscal year, the actual award of contact is expected to be further delayed and the goods are expected to be delivered by September 30, 2014. 36 Actions Agreed during the Mid-Term Review of March 2014 Action Responsibility Original Date Status Finalize the bid documents for the first PCO April 10, 2014 Completed on April batch of IT equipment 28, 2014 Document in writing to the Team the PCO April 15, 2014 Delayed support provided to the three municipalities for budgeting of REP, O&M Plans and Investment Plans Finalize and cost the implementation PCO April 15, 2014 Partially completed action plans (including activities such with delay. Cost as billing software development, estimate for billing collection campaigns and surveys) and software send it to the Team development - NPR 9.7 million and grant for REP implementation support for 6 municipalities - NPR 15 million Detail program for yet to be prepared and send to the team review. Issue EOI for the procurement of the PCO May 1, 2014 Completed with consultant for billing software delay ( June 12, development 2014) Sign contract for IT equipment June 15, 2014 Delayed Mobilize the consultant for billing PCO July 15, 2014 Date will not be met. software development Revised date is September 30, 2014. Actions for Institutional Development Component for Municipalities  The PCO will submit to the Team for review the ToR for revenue billing software development by July 15, 2014  The PCO will prepare implementation actions plans as per the agreed Performance Agreements for Dhankuta, Itahari and Tansen municipalities by July 31, 2014  The PCO will mobilize an individual consultant to prepare inventory of municipal assets, assess O&M needs and estimate O&M cost for Mechinagar, Lekhnath and Baglung municipalities by August 15, 2014  The PCO will agree with MoFALD on hand-over arrangements for the billing software development and communicate them to the World Bank by August 31, 2014  The PCO will provide support to Dhankuta, Itahari and Tansen Municipalities to update REPs, O&M Plans and Investment Plans by November 30, 2014  The PCO will provide support to Mechinagar, Lekhnath and Baglung municipalities to complete preparation of REPs, O&M Plans and Investment Plans by December 15, 2014  The PCO will mobilize consultants for revenue billing software development by September 30, 2014 37 (b) Institutional Development for the PCO/DUDBC 42. Building and planning bye-laws for three municipalities. The Team reviewed the Planning and Building Byelaws for three municipalities: Tansen, Dhankuta and Mechinagar prepared by consultants in Nepali and has provided its comments to the PCO separately. The main issues identified during the review are the following: (a) the byelaws have been prepared without the finalization of the model or framework byelaws that DUDBC and MoUD had started to prepare; (b) there are questions about any contradictory or conflicting legal provisions related to the authorization of implementation of the byelaws by the municipalities; and (c) there is general lack of capacity in the municipality to understand, analyze, review and implement the provisions in the byelaws. This is made even more difficult if the municipality lacks a framework of proper land use plans. The capacity issue in the municipality to be able to implement correctly the provisions in the byelaws is very critical and needs to be addressed as a priority. 43. Since the Team did not receive the draft byelaws for comments as was agreed in April, 2014, comments could not be provided such that the MST could incorporate them in their final draft. Since the issue of legal mandate is critical for implementation of the byelaws, it was agreed that the PCO will conduct a legal review of the byelaws to ascertain the legal authority for implementation of the provisions of the byelaws between the municipality and the Town Development Committees by August 31, 2014. Because of the delays, the target of three municipalities that have developed and approved planning norms and building byelaws for this fiscal year will not be met. However, if the preparation of byelaws for the remaining three municipalities (Itahari, Baglung and Lekhnath) is started immediately and completed by November 30, 2014 so that they are ready for endorsement by the respective municipality councils in December 2014 when the next council meeting is held, the FY 2014/15 target of six municipalities with the approved planning norms and building byelaws can be met. 44. Preparation of GIS maps in the six participating municipalities. Some progress has been made with the procurement of services for the preparation of GIS maps. The evaluation of EoIs has been completed; the contract is expected to be awarded by August 31, 2014. 45. Equipment for GIS unit of DUDBC and municipalities. In case of hardware for the GIS unit, the list has been agreed, but since the specifications on the software is unclear, the procurement process has been delayed. It has been agreed that the procurement process will be started by July 15, 2014 and completed by October 30, 2014. 46. Drainage Master Plan for Itahari Municipality. The PCO is carrying out the evaluation of the EoIs received from the firm and expects to complete the evaluation by July 15, 2014. The contract is expected to be awarded by September 15, 2014. The PCO will send the final ToR for review before issuing the RfP. 38 Status of Actions Agreed during the Mid-Term Review of March 2014 Action Responsibility Completion Date Status Re-publish the EoI for the GIS DUDBC April 15, 2014 Completed. Bid maps notice published on April 20, 2014. Submit to the World Bank for PCO April 15, 2014 Partially completed, review the model bye-law and draft with delays. Draft specific bye-laws for three bye-laws submitted municipalities on June 12, 2014 and discussed with municipalities during the review. Model bye-law not submitted to the World Bank. Finalize the ToR for Master Plan PCO April 20, 2014 Delayed. EoI has for Drainage in Itahari Municipality been published. Finalize the list of hardware and DUDBC May 15, 2014 Partially completed. software for the GIS unit of The list of software DUDBC and the municipalities is yet to be completed. Finalize specific bye-laws for three PCO May 30, 2014 Delayed. municipalities Complete the procurement for the DUDBC September 30, 2014 Procurement process GIS maps is expected to be finalized on time. Actions for Institutional Development Component for PCO/DUDBC  The PCO/DUDBC will conduct a legal review of the byelaws to ascertain the legal authority for implementation of the provisions of the byelaws between the municipality and the Town Development Committees and conduct municipal capacity needs assessment to implement the bye-laws by August 15, 2014.  The PCO/DUDBC will complete the preparation of byelaws for the remaining three municipalities (Itahari, Baglung and Lekhnath) by November 30, 2014.  The PCO/DUDBC will award contract for the preparation of drainage Master Plan in Itahari by September 15, 2014.  The PCO/DUDBC will start procurement process for hardware and software for the GIS unit of DUDBC by July 15, 2014 and sign contract by October 30, 2014.  The PCO/DUDBC will finalize the EOI evaluation for the GIS maps by July 15, 2014 and award contract by August 31, 2014. 39 (c) Institutional Development for the TDF and Business Restructuring Action Plan 47. The Team reviewed progress made with the institutional development activities of TDF. The TDF has completed the borrowing capacity analysis for 15 municipalities, and shared the final analysis with the municipalities during the review. The ToR for the following activities have been completed, although with delay compared to the agreed schedule: (a) review of TDF’s financial appraisal manual and training of TDF staff in financial analysis; (b) legal review of TDF’s capital structure; and (c) brochures for borrowers. It was decided that the policy brief on municipal financing, which was meant to be prepared as an input for the National Urban Development Strategy (NUDS), would be dropped since the NUDS is at an advanced stage of preparation. The consultant for the legal review of TDF’s capital structure has been mobilized; the review will be completed by July 15, 2014. It was agreed that the other two tasks would be completed by September 30, 2014. Three regional training on TDF lending policies were carried out in FY14. Progress has been made with procurement of micro-banking, which is expected to become operational by July 15, 2014. It was agreed that the TDF will generate financial statements by using Micro-banking and MIS system by September 15, 2014, and would provide five year forecast of its financials based on actual disbursements and recovery rates by September 30, 2014. The vacancy notice for the in-sourcing specialists is in the process of being published and recruitment is expected to be completed by August 31, 2014. 48. It was agreed that the following key capacity development activities would be carried out in FY 2014/15: (a) preparation of municipal finance strategy; (b) orientation and training for municipal finance officers for municipal borrowing capacity assessment in line with Local Body Fiscal Regulation and standard TDF appraisal mode; and (c) system automation, linking micro- banking to asset management and payroll system. It was also agreed that regional-level training on TDF lending policies would be carried out for the newly declared municipalities. It was agreed that the TDF would prepare a detailed annual work program by July 15, 2014 and finalize ToRs for the above tasks would be finalized by September 15, 2014. It was also noted that the development of MIS by MoFALD with project funds represents a good opportunity for collaboration with TDF for the update of the revenue and expenditure database. 49. The Team noted that the approval of the revised Business Restructuring Action Plan (BRAP) has been delayed. The TDF was requested to obtain its Boards approval for the revised BRAP by July 31, 2014. Although the loans for the Urban Environmental Improvement Project (UEIP) have been re-scheduled, and TDF has paid its dues to MoF based on the rescheduled amount, the TDF is formally still in default with GoN. The TDF is awaiting formal approval from MoF for the rescheduling of the loans. The default situation is expected to be resolved by September 30, 2014. The Team noted that any new loan extended by TDF needs to be consistent with the objective of the BRAP to improve the financial viability of the TDF. 40 Status of Actions Agreed during Mid-Term Review of March 2014 Action Responsibility Original Date Status Finalize the revised ToRs to the Team TDF April 30, 2014 Completed. One for the 4 agreed consultancies task dropped. including cost estimates and timeline Complete the review of the borrowing TDF April 30, 2014 Completed with capacity analysis and share the results delay. with the Team and municipalities Assessment completed on May 9, 2014, Final results shared with municipalities. Obtain a Board approval for the TDF June 30, 2014 Delayed revised BRAP and communicate the approval to the World Bank Complete the brochures for borrowers TDF June 30, 2014 Delayed and the legal review of TDF’s capital structure Procure software for micro-banking TDF April 30, 2014 Completed with and MIS in consultation with GIZ delay on June 20, 2014 Resolve the default situation with TDF June 30, 2014 Delayed GON Actions for Institutional Development Component for TDF  The TDF will complete the legal review of its capital structure by July 15, 2014.  The TDF will prepare draft annual program and budget for FY 2014-15 by July 15, 2014 and submit to the Team review through PCO.  The TDF will approve the revised BRAP by July 31, 2014.  The TDF will resolve the default situation with MoF by September 15, 2014.  The TDF will generate financial statements by using Micro-banking and MIS system by September 15, 2014.  The TDF will prepare ToR for following tasks by September 15, 2014: a) preparation of municipal finance strategy; (b) orientation and training for municipal finance officers for municipal borrowing capacity assessment; and (c) system automation, linking micro- banking to asset management and payroll system.  The TDF will complete the review of TDF’s financial appraisal manual and training of TDF staff in financial analysis; and brochures for borrowers by September 30, 2014.  41 (d) Institutional Development for the MoFALD 50. The Team noted further delays in the implementation of the institutional development activities of the MoFALD and this is a matter of serious concern. The Team had provided comments on the proposal submitted by MoFALD for compilation of policy guidelines and procedures for governance and budget planning for the municipalities. Since the ToRs for this task has not yet been provided to the Team, it is highly unlikely that the activity can be funded under the project for FY 2013/14. The Team requested that for FY 2014/15, a detailed ToRs for the preparation of templates for the implementation of policy guidelines and orientation to the municipalities will be prepared by July 15, 2014 and draft documents prepared by September 30, 2014. The Team reminded that activities should only start after the ToRs have been reviewed and agreed with the World Bank. 51. MoFALD has finalized the draft ToRs to develop the Management Information System (MIS) strategy and the notice for hiring of the consultants will be published by July 15, 2014. The consultant is expected to start the work of preparing the MIS strategy for MOFALD by August 31, 2014. 52. The Government of Nepal has declared additional 72 new municipalities, bringing the number of municipalities to 130. Based on the discussion with MoFALD, it was agreed that “Capacity Building and planning needs assessment” of about 10 municipalities will be carried out that will provide a basis for infrastructure planning and capacity building activities. It was agreed that MoFALD will put this activity in their annual work program and prepare the ToRs for this work by July 31, 2014. 53. The Team reminded the MoFALD once again that all activities funded under this component would need to contribute to strengthening the capacity of the ministry and contribute to the achievement of the PDO. For this, it was agreed that focus on the two activities – MIS for MoFALD and policy guidelines and procedures for governance and budget planning for the municipalities – would be required. Status of Actions Agreed during Mid-Term Review of March 2014 Action Responsibility Completion Date Status Finalize the ToRs for the MoFALD April 20, 2014 preparation of templates for budget Delayed planning procedures and submit a copy of the budget planning framework document to the Team Consult with other divisions within MoFALD April 20, 2014 Decision made to the ministry on the scope of the continue the activity work for MIS to be funded under under the project. the project and inform the Team Finalize the ToR for MIS MoFALD April 30, 2014 Completed on June 8, 2014 42 Actions for Institutional Development Component for MoFALD  The MoFALD will prepare the ToRs for developing the templates for the implementation of policy guidelines and procedures for governance and budget planning and orientation to the municipalities by July 15, 2014 and prepare draft documents by September 30, 2014.  The MoFALD will publish the notice for hiring of consultant for preparation of MIS strategy by July 15, 2014 and hire the consultant by August 31, 2014.  The MoFALD will prepare the ToRs for “Capacity Building and planning needs assessment” by July 31, 2014. (e) Institutional Development for the MoUD 54. A consultant has been hired by MoUD to support with preparation of the National Urban Development Strategy (NUDS). The draft NUDS will be prepared by July 4, 2014 and finalized by July 31, 2014. The program for FY 2014/15 for institutional development activities needs to be detailed for MoUD by August 15, 2014 by the new Component Manager so that the activities can be funded. The Team noted that the position of Component Manager for MoUD has remained vacant for three months. Status of Actions Agreed during Mid-Term Review of March 2014 Action Responsibility Completion Date Status Complete the hiring of the NUDS MoUD April 15, 2014 Completed consultant Actions for Institutional Development Component for MoUD  The MoUD will finalize NUDS by July 31, 2014.  The MoUD will finalize the program for the institutional development activities for FY 2014/15 by August 15, 2014. (f) Institutional Development for the UDTC 55. Of the activities carried out in FY 2013/14, six trainings on topics ranging from gender inclusion, accounting, local revenue generation, leadership development, environment management, have been completed. The remaining three trainings will be completed by July 15, 2014. The Urban Development Training Center (UDTC) has shared the annual program for FY 2014/15 with PCO on June 24, 2014. The Team requested the PCO to provide the priority areas identified by UDTC for FY 2014/15 training to the World Bank. The Team reminded the PCO to ensure that the UDTC’s annual program include the hiring of consultants as trainers of trainers to 43 strengthen the human resource capacity of the center. The UDTC provided MoUD with the report on the activities carried out in FY 2012/13 in July, 2014. A copy of the report was sent to the PCO. It is recommended that such reports be copied to the PCO when sent to MoUD. Status of Actions Agreed during Mid-Term Review of March 2014 Action Responsibility Completion Date Status Prioritize training areas for funding UDTC April 15, 2014 Completed with under the project based on training delay on June 24, needs assessment and submit the 2014, pending FY 2014/15 work plan to the PCO review. Submit report documenting UDTC April 30, 2014 Completed with activities carried out in FY 2012/13 delay on June 24, with project funding to the PCO 2014. Complete the planned training UDTC June 30, 2014 Delayed will be activities for FY 2013/14 completed by July 15, 2014. (g) Project Management and M&E 56. The Team reviewed the project management arrangements an M&E system for the project. As highlighted in the previous reviews, the Team noted that there is no institutionalized process to ensure regular flows of information from project agencies and municipalities to the PCO to monitor progress. It was agreed that the PCO would prepare a simplified reporting template covering key project activities (including timeline of municipal sub-projects, financial and physical progress of sub-projects as well status of the actions agreed during the reviews) by July 15, 2014 and submit it to the team for review. The PCO would request project agencies and municipalities to fill the basic reporting template on a regular basis. Project's activities should be monitored by the PCO on a monthly basis from August 1, 2014 by consolidating information collected from the project agencies and municipalities. It was agreed that municipalities would appoint a focal person for the project to report to the PCO. 57. The Team emphasized the importance of establishing a reporting system based on standard formats and procedures of the GoN and preparing consolidated project's progress reports by covering overall project’s activities. The PCO should collect the annual program and financial and physical progress reports from all project agencies and municipalities and prepare a consolidated report to monitor overall progress of the project on a trimester basis (every four months). It was agreed that the PCO would finalize the annual program and budget for FY 2014- 15 with inputs from all project agencies and municipalities by August 15, 2014 and prepare a consolidated financial and physical progress report for FY 2013/14 activities (including updated results framework with final indicators for Year 3) by September 30, 2014. 44 Status of Actions Agreed during Mid-Term Review of March 2014 Action Responsibility Original Date Status Prepare excel-based results PCO April 30, 2014 Completed with delay. framework templates to enable Excel-based framework regular collection and prepared during the consolidation of results indicators review. from the project agencies and the municipalities. Submit M&E report with updated PCO June 1, 2014 Partially completed with results framework to the Team. delay. Result framework submitted in June 2014. M&E report has not yet been submitted. Actions for Project Management and M&E  The PCO will prepare a simplified reporting template to monitor progress of key project activities by July 15, 2014 and submit to the Team for review.  The PCO will use the simplified reporting template to monitor progress of key project activities on a monthly basis starting from August 1, 2014 and share the consolidated M&E reports with the Team.  The PCO will finalize a consolidated annual program and budget for FY 2014-15 by August 15, 2014 based on the annual program received from all project agencies and municipalities.  The PCO will collect financial and physical progress reports of FY 2013-14 project activities from all project agencies and municipalities and submit a consolidated report including updated results framework by September 30, 2014. 45 ANNEX IV: Social and Environmental Safeguards 58. The Team visited Mechinagar and Dhankuta Municipalities and held several discussions with the PCO, MST, TDF, municipality officers and project beneficiaries on the following key areas: (a) safeguard compliance for the civil works funded by the municipal block grants; (b) safeguard issues relating to the municipal infrastructure sub-projects; (c) safeguard capability of the municipalities; (d) third-party monitoring of safeguards compliance; (e) preparation of brochures for the municipal sub-projects; (f) environmental profiles of the municipalities; and (g) grievance redress mechanisms. The Team noted that some actions agreed during the Mid-Term Review of March 2014 have been fulfilled, some actions have been partially complied with, and a few have been delayed or not-complied. A summary of the discussions and agreed actions is provided below. Safeguard compliance for civil works funded by the municipal block grant 59. The Team discussed mitigation measures for civil works carried out in FY 2012/13. The Team noted substantial progress in works that the previous review found to be incomplete. During field visits, the team found that the incomplete culvert construction (Kamal Chimriya House’s East to Devi Khola in Ward 4) has already been completed and construction of surface drainage from Keshab Sapkota’s House to Khola, Ward 5 and Ward 7, Mechinagar, has already been started and will most probably be completed within this FY. The Team visited a few block grant sites (Road improvement—Prithivi Marg to Kagate, Dhankuta Ward 4, Chuliban Park, Dhankutat and drainage improvement in Mechinagar) and found that there were no significant social or environmental issues. Screening and field verification for civil works funded by the municipal block grant in FY 2013/14 60. As was agreed during the previous review, the following actions have been carried out: (i) the DPR for the Basic Service Facilities for Hile Bus Park sub-project has been finalized and the scope of work does not include the Plain Cement Concrete (PCC) work. It is agreed that the PCC work will be the responsibility of the municipality through its own funds, and that it will not be funded with municipal block grants; (ii) Gajur Hotel –Chiyabagan-Tallosijali Tole Road Improvement in Dhankuta Municipality has excluded road widening or works beyond existing available right of way in order to avoid acquiring additional lands; (iii) construction of roadside drains from the east side of Rajan Khadka’s house (Mechinagar) will start from the drain outlet point; (iv) Chameko Kulo- Omshanti Road Construction Work (Baglung) is excluded from project support; and (v) activities for Baraha Kshetra Promotion (Lekhanath Municipality) have been excluded from project support. 61. The PCO informed that the environmental and social risks of covering the drain/sewer with a slab cover in some section of the settlement in Dhankuta Municipality have been reviewed. The PCO informed that in order to minimize the risk of mixing grey water into the system, households along this path were asked, and agreed to construct soak pits in their residences by July 16, 2014. The Team emphasized the need for due diligence on the issues of indigenous peoples and vulnerable groups as reflected in the Environmental and Social Management Framework (ESMF) while implementing activities under the municipal block grant. 46 Screening and field verification for civil works funded by the municipal block grant in FY 2014/15 62. Desk screening of the civil works proposed to be funded with the municipal block grant for FY 2014/15 has been delayed; the PCO confirmed that the screening will be completed by July 31, 2014, and field verification will be done by September 30, 2014. The Team reminded the PCO that the block grants should not be released to the municipalities without the field verification report. The Team suggested that the PCO consider including the slaughterhouse and related activities under the higher risk category while screening the new lot of block grant proposals. The Team suggested that the PCO hire one environmental and one social expert, if necessary, in order to carry out the screening and field verification for civil works funded by the municipal block grant for FY 2014/15. Safeguard issues relating to municipal sub-projects 63. Progress has been made with regard to the finalization of Initial Environmental Examination (IEE) and Environmental Management Plans (EMPs). The MoFALD approved the IEE for the Dhankuta Hile Market Improvement Sub-project, which has been shared with the World Bank. While providing the approval, the IEE review committee put forth some recommendations/conditions to be fulfilled by the project. The PCO was requested to follow up on progress to ensure that those conditions are met. Final EMPs of the Track II sub-projects have been prepared. World Bank comments have been shared prior to and during the review. It was agreed that the remaining three final EMPs to be finalized would be submitted by July 15, 2014. The table below provides a summary of the progress made in the preparation of safeguard documents until the review. 64. The Team noted that while this work was not reflected in the sub-project’s design, at the request of the users, the Dhankuta Weekly Market Sub-project supported the maintenance (plastering of wall) of the Athapariya Rai temple and shrine located near the sub-project site. The Team advised that this work needs to be reviewed by a cultural heritage expert and that wider consultation with the users is needed. The PCO and municipality are requested to monitor as well as arrange the expert review and consultation. It was also observed during the site visit that waste management of the market was poor, with waste being dumped into the newly constructed drains. The municipality has been asked to pay attention to the matter and enforce proper waste management. The Team also advised the municipality that the nearby traditional water source needs to be protected from pollution and other adverse impacts. 65. Site clearance for the Hile Market Sub-project has just started. The existing market has been shifted to a new area at Hile Sibling, about 1.5 km from the existing place. It was reported by the locals that the municipality held consultations with the stakeholders before shifting the market for construction. On site discussion with the contractor and municipal team indicated that the site team is unclear about the following: (i) the surface drains provided under the sub-project will collect water in one place, but it is unclear where this water will be disposed, and what implications it might have; (ii) operation of the slaughterhouse and management of slaughterhouse waste stream is unclear; and (iii) it is unclear whether the layout of planned sheds and other structures will restrict the existing access to houses. These issues have been discussed with the municipality and the PCO; it was agreed that the matters will be reviewed thoroughly, 47 and that site verifications of the design will be made. If needed, site adjustment in the designs will be made or additional measures will be included. 66. The size of the drain constructed for the Gokul Marga, Mechinagar appears large, posing a risk for children and elderly person when crossing rom their houses. Covering of drainage in front of houses is required to reduce the risks. In coordination with the municipality, the PCO will review the risks and come up with a plan to mitigate these risks. Environmental monitoring of ongoing works 67. Works are ongoing for five sub-projects. The Team noted that environmental monitoring is not taking place as envisaged in the ESMF and Project Implementation Manual (PIM) as well as relevant EMPs. The ESMF and PIM require that the municipality regularly monitor progress made in the implementation of environmental and social actions, compliance, and performance, and that it reports to the PCO on a monthly basis. In turn, the PCO is required to arrange and manage the monitoring of the environmental and social safeguard compliance every three months. This Team noted that such monitoring and reporting is not taking place in the said sub- projects despite agreement in the previous review to carry out such monitoring. The PCO informed that the Department of Archeology (DoA) made one site inspection to the Amar Narayn Temple Conservation’s sub-project site in December 2013. The PCO obtained with delay a written report from DoA. The report includes several recommendations with regards to implementing the Amar Narayan Temple Conservation work. It was agreed that Tansen Municipality with support from the PCO will prepare a status brief on the DoA’s recommended actions, and then a team from the PCO and DoA will carry out combined visit to the project site to monitor compliance and report to the Bank. Safeguard capability of the municipalities 68. The previous review noted that municipal staff needed hands-on and practical/on-the job type of training as well as expert site support to ensure transfer of knowledge and skills related to social and environmental management. The PCO agreed to prepare an action plan for additional safeguard training/support. This has been delayed, and will now be completed by September 30, 2014. The Team emphasizes that in consideration of the slow progress and limited capacity of the municipalities, the PCO shall hire one Environmental Specialist and one Social Specialist as required to fill the gap until the IDA-funded MST is on board. These specialists will provide increased guidance and support to the municipalities in addressing social and environmental safeguard issues and in carrying out monitoring. 48 Status of Environmental Safeguard Documents of Track I and Track II Sub-projects Status of environmental safeguard Municipality Sub-project Name Track Status documents Amar Narayan Under EMP was cleared; monitoring reports Tansen I Temple Conservation construction not yet received. Dhankuta Weekly EMP was cleared; monitoring reports Under Market Infrastructure I not yet received. construction Improvement EMP was prepared and cleared; as Dhankuta Hile Market per the GoN requirement, IEE was Infrastructure I Work started submitted to the MoFALD and Improvement approved in May 2014. Monitoring reports not yet received. Bid Evaluation EMP was cleared; sub-project under Mechinagar Gate Report procurement. I Beautification submitted to Mechinagar WB for NOL EMP was cleared; safeguard Upgrading of Gokul Construction I monitoring report is expected along Marg started with the construction progress report. Sahid Smriti Park EMP was cleared; contract signed. II Contract signed Development Baglung Final comments on revised EMP Access Road II Contract signed provided, Final Report yet to be received. PCO is EMP was cleared; sub-project under Upgrading of reviewing the procurement. Existing Road in II Bid Evaluation Urban Areas Report PCO is EMP was cleared; sub-project under Multi-Purpose reviewing the procurement. Tansen II Building Bid Evaluation Report Municipality is EMP was cleared; sub-project under Shri Nagar Park preparing the procurement. II Improvement Bid Evaluation Report Letter of EMP was cleared; sub-project under Barah Chhetra II acceptance procurement. Improvement issued Final comments on revised EMP Improvement of II Work started provided, Final Report yet to be Lekhnath Mandare Park received. PCO is EMP was cleared; sub-project under Improvement of reviewing the procurement. II Existing Road Bid Evaluation Report PCO is EMP was cleared; sub-project under Improvement of Link reviewing the procurement. Itahari II Road Bid Evaluation Report 49 Construction of Bid invitation Final comments on revised EMP Bridges on the Link II notice provided, Final Report yet to be Road (two bridges) published. received. Basic Service Bid invitation Final comments on revised EMP Dhankuta Facilities for Hile II notice provided, Final Report yet to be Bus Park published. received. Third-party monitoring of safeguards compliance 69. The recruitment of third-party monitoring consultants for safeguards compliance has been completed with delay. The ToR was prepared in January, 2013 and the contract signed on April 28, 2014. The consulting firm hired is onboard and has started its inception: the firm will be carrying out the first annual third-party monitoring of safeguard compliance and submit its report by July 21, 2014. Preparation of sub-project brochures 70. Brochures for sub-projects have been finalized. A total of seven brochures have been prepared: one for each municipality covering all sub-projects in the respective municipality, and one for the overall project. Brochures have been printed and are being distributed (it is expected that by the end of this review period, the brochures will reach the municipalities). The Team noted that Information, Education and Communication (IEC) activities have not yet been initiated. The Team advised that the PCO start the implementation of IEC activities at the sub- project level as soon as possible. Environmental profile of the municipalities 71. No progress has been made since the Mid-Term Review. The consultants for the preparation of the GIS maps are expected to be hired by August 31, 2014. The Team advised that the PCO consider alternative options for the preparation of the environmental profiles for the municipality, should the GIS report preparation be further delayed. Grievance redress mechanisms 72. No any grievances were reported and recorded. Implementation of the IP-VC framework 73. Some measures have been taken to ensure inclusion of disadvantaged groups, women and children while selecting the municipal grant activities. As per the requirements of the Local Governance and Community Development Programme (LGCDP), 35 percent of the funds are utilized for activities benefiting these groups. The requirements stipulated in the Indigenous People-Vulnerable Communities (IP-VC) Framework have, however, not been fully followed, arguing that indigenous people and vulnerable communities are not adversely affected by the project. It was noted that the IP-VC framework requires consultations with, and support to the IPs and VCs if necessary. The Team advised that this issue should be addressed while implementing EMPs of municipal sub-projects. 50 Status of Actions Agreed during the Mid-Term Review of March 2014 Completion Action Responsibility Status Date Safeguard compliance for civil works funded by the municipal block grant Report progress on safeguard PCO April 30, 2014 Work ongoing. compliance for the activities funded Completion under the municipal block grant by expected end of Mechinagar (drain from Keshab June, 2014. Sapkota’s House to Khola, ward 5 and ward 7 and culvert construction, Kamal Chimriya House’s East to Devi Khola ward 4) Complete incomplete surface drain Mechinagar June 30, 2014 On Schedule. (Construction of Surface drain from municipality Completion Keshab Sapkota’s House to Khola, expected end of ward 5 and ward 7) and culvert June, 2014. construction (Kamal Chimriya House’s East to Devi Khola ward 4) Follow up on the agreed actions PCO April 28, 2014 Delayed. regarding FY 2013/14 civil works Completion funded by the block grant with the expected end of municipalities and submit status June, 2014. report Carry out desk review of the PCO April 30, 2014 Delayed. proposed civil works to be funded Completion by the municipal block grants in FY expected end of 2014/15 in all municipalities June, 2014. Carry out field verification of the PCO September 30, 2014 On Schedule. proposed civil works to be funded Completion by the municipal block grants in FY expected end of 2014/15 in all municipalities September, 2014. Safeguard issues relating to municipal infrastructure sub-projects Submit approved IEE for Dhankuta Dhankuta April 15, 2014 Completed with Hile Market Improvement Sub- Municipality delay. project to the World Bank Support municipalities in finalizing PCO April 30, 2014 Completed with EMPs incorporating the consent delay (still awaiting letter from the respective final EMPs of three forest/irrigation user groups where sub-projects). needed for all the Track II sub- projects Clarify land requirement for Tengra PCO April 15, 2014 Completed with Bridge (Itahari) and complete delay. required steps for land taking (as per SMF) prior to DPR and EMP finalization 51 Obtain written report from the DoA PCO April 30, 2014 Completed with on the inspection visit carried out delay. for Amar Narayan Temple Conservation in Tansen Carry out first three-monthly PCO April 30, 2014 Not complied. environmental monitoring of the New date agreed is Dhankuta Weekly Market, Gokul by August 7, 2014. Marg and Amar Narayan Temple. The PCO will ensure that all civil works under municipal infrastructure sub-projects from now onward will be subjected to three-monthly environmental compliance and performance monitoring Safeguard capability of the municipalities Review the training undertaken and PCO May 21, 2014 Not complied. New further needs, and prepare an action date agreed is plan for safeguard training/support September, 2014. Third-party monitoring of safeguards compliance Complete the technical evaluation PCO April 10, 2014 Completed with report for Third Party Monitoring delay. Award the contract for third party PCO June 20, 2014 Completed. monitoring Distribution of sub-project brochures Distribute brochures in Nepali to all PCO April 15, 2014 Completed with municipalities delay. 52 Actions for Safeguards Safeguard Compliance for Civil Works Funded by the Municipal Block Grant  PCO will hire environmental and social consultants for the field verification of civil works that will be carried out under the municipal block grant in FY 2014/15 in all six municipalities by July 31, 2014, and field verification to be done by September 30, 2014.  PCO will review the risks of open drains constructed under the municipal block grant in Mechinagar Municipality, and explore mitigation options to ensure human safety by October 30, 2014. Safeguard Issues Relating to Municipal Infrastructure Sub-projects  Municipality, with support from PCO, will review the Hile Market project design, particularly the slaughter house operational aspects; drainage flow and access management to adjacent houses, conditions put forward by the MoFALD IEE review committee and report to the Team by August 10, 2014.  PCO and municipality will consult with wider stakeholders and hire a heritage expert to review whether the Aath Pariya Rai Temple and shrine (Dhankuta Hile Market) maintenance is compatible with the heritage value and Aath Pariya Rai's preferences by August 10, 2014.  PCO will follow up on the current status of DoA recommendations for Tansen Amar Narayan Temple Conservation/Renovation work, and prepare a status report by July 15, 2014.  The PCO will finalize the EMPs of remaining 3 sub-projects (Baglung Road, Itahari Bridges, and Dhankuta Hile Bus Park) to World Bank by July 15, 2014.  The PCO will carry out first three-monthly safeguard monitoring of the Dhankuta Weekly Market Infrastructure Improvement, Gokul Marg and Amar Narayan Temple sub-projects by August 31, 2014, and every three months thereafter.  Mechinagar, Dhankuta, and Tansen municipalities will carry out regular monitoring of social and environmental safeguards and submit monthly reports starting from August 31, 2014. Safeguard Capability of the Municipalities  PCO will review the training undertaken and further needs, as well as prepare an action plan for safeguard training/support by September 15, 2014. Third-Party Monitoring of Safeguards Compliance  PCO will share the Third Party Monitoring Inception Report submitted by the consultants to Team before end of review, and Final Report by July 21, 2014. 53 ANNEX V: Financial Management and Procurement Budget for FY2013/14 and Expenditures 74. The budget of NRs.514.41 million for FY2013/14 has been approved, including block grants of NRs. 95.00 million to be provided under Part A by MoUD and loan of NRs.133.78 to be paid to municipalities through TDF under financing budget. The approved recurrent, capital and financing budgets of UGDP of the FY2013/14 are as follows: Budget Budget Budgeted amount in NRs. million Head GoN IDA Grant IDA Loan Total DUDBC Recurrent 58.53 120.66 13.85 193.04 Capital 3473163 4.00 39.13 49.46 92.59 Total 3373164 62.53 159.79 63.31 285.63 MOUD Recurrent 159.79 0 52.30 42.70 95.00 TDF 63.31 Financing 285.63 47.79 0 85.99 133.78 Grand Total 110.32 212.09 192.00 514.41 75. The annual program of FY 2013/14 was approved on October 2, 2013 by the National Planning Commission. The conditional grant and loan to be provided to the participating municipalities through TDF and conditional grant for institutional development to TDF have been budgeted under the recurrent budget and financing budget. The PCO has not released any budget to TDF and municipalities for the FY2013/14 due to surplus fund of the last Fiscal Year. TDF has not requested budget from financing budget for the FY2013/14 against budgeted amount of NRs.133.78 million. Reimbursable expenses of NRs.81.42 million have been incurred in the FY2013/14 up to June 14, 2014 as follows, equivalent to about 15.83% of the approved budget of NRs.514.41 million by the following implementing agencies: Implementing Agencies Amount in NRs. million MOUD (Block Grant) 43.48 DUDBC/PCO/MoFALD 7.72 TDF 27.46 Total 78.66 TDF - Financing 2.76 Grand Total 81.42 76. The expenditures incurred by MOUD under the institutional development component have not been included as the statement of expenses has not yet been received. The Team reviewed the supporting documents of expenses at the PCO and TDF and they are found to be satisfactory except per diem of NRs. 2,500 paid for the day of return to the consultants by PCO. Disbursement 77. Total disbursement as of June 30, 2014 was USD 8.15 million consisting US$ 3.20 million from Credit and US$ 4.95 million from the Grant Account, which was about 44.20% of the total allocation. The net use of resources deducting balance in the Designated Account was 54 about 17.49%. About US$ 4.96 million advanced to the Designated Account is yet to be documented. Amount of USD 44,498 (equivalent NRs.4.39 million) already transferred from Designated Account to Government treasury is yet to be claimed. Reimbursable expenses of NRs.12.31 million have been excess transferred for expenses incurred in FY2013/14 from Designated Account to Government treasury. Financial Management 78. Since the Mid-Term Review, the PCO has put substantial efforts to improve the overall financial management of the Project, including maintaining correctly required ledgers such as main and subsidiary grant and credit registers, SOE ledger, and program ledgers. The PCO has initiated coordinating financial management activities across different project agencies and components. The agreed actions have been complied except a few mistakes in maintaining ledgers which were addressed during the review. The following are some other observations of the Team:  SOE Ledger: The SOE ledger has been maintained by the PCO to account SOE and monitor reimbursement of SOE from the IDA without mentioning expenditures incurred, and authorization number. A few mistakes were found and corrected during the review.  Other Ledgers and Subsidiary Ledgers: The Team noted that other ledgers such as main and subsidiary ledgers and designated account ledger have been maintained, although there were still a few issues which were corrected during the review.  Internal Control and Internal Audit: The Team observed that supporting documents of expenses have not been defaced with the PAID stamp. This is required as part of a good control system to avoid any double payments. The internal audit of the TDF and PCO of the FY 2013/14 is yet to be conducted. Implementation Progress Reports 79. Finalization of the first trimester implementation progress report (IPR) of FY 2013/14 has been delayed. The Team provided guidance to correct mistakes and revise the IPR, which was submitted on June 27, 2014. The Team also reminded the PCO that the second trimester IPR for FY 2013/14 is overdue. The PCO agreed to submit the revised first and second trimester IPR by July 15, 2014. The Team also reminded that the third trimester IPR of FY2013/14 is due on August 31, 2014. Implementation of the Action Plan 80. An action plan has been agreed with the PCO during the Mid-Term Review to improve project financial management performance. It was agreed that the PCO would prepare reporting templates based on standard formats by April 30, 2014 to support the municipalities with the preparation of SoEs. It was also agreed that training on financial management would be carried out by the PCO, with support from the World Bank, for project agencies and municipalities by April 30, 2014. The preparation of reporting templates has been completed. However, the training on financial management has been delayed. It was agreed that the training would be carried out by September 15, 2014. 55 Status of Actions Agreed during the Mid-Term Review of March 2014 Action Responsibility Completion Date Status Send the revised first trimester IPR for PCO April 10, 2014 Partially completed FY 2013/14 and revised unaudited with delay. Un- project account for FY2012/13 audited project account for FY 2012/13 received on April 23. 2014; the first trimester IPR is yet to be finalized. Submit a draft annual work program of PCO April 15, 2014 Completed with FY 2014/15 for review by the Team delay. Online submission completed in April; annual work program submitted to the World Bank on May 21, 2014. Submit disbursement projections for PCO April 15, 2014 Delayed. the remaining part of FY 2013/14, FY 2014/15 and FY 2015/16 Submit the audited project account of PCO April 15, 2014 Completed with FY 2012/13 by April 15, 2014 delay. Audited project account received on May 6, 2014 Maintain required ledgers such as main PCO April 30, 2014 Completed with and subsidiary grant and credit delay. Some registers, SOE ledger, and program progress made, ledgers in required format with with pending complete information issues corrected the review. Complete financial management PCO April 30, 2014 Delayed. Training training for the project agencies and will be provided by municipalities with support from the September 15, World Bank team 2014. Prepare reporting templates based on PCO April 30, 2014 Completed. standard formats to support the municipalities with the preparation of SoEs Submit withdrawal application for PCO April 30, 2014 Completed with expenses incurred in FY 2013/14 up to delay. the second semester Submit partial withdrawal application PCO June 15, 2014 Completed. for expenses incurred in FY 2013/14 up to the third semester 56 Actions for Financial Management  The PCO will submit the second trimester IPR by July 15, 2014.  The PCO will submit quarterly disbursement projections for FY 2014/15 and annual projections for FY 2015/16 by July 15, 2014 and monthly updates thereafter.  The PCO will carry out training on financial management for the municipalities by September 15, 2014. PROCUREMENT 81. A revised timeline for the recruitment of the IDA-funded MST has been prepared during the review. It was agreed that the PCO will complete the technical evaluation and submit it to the World Bank for No Objection in line with the schedule reported below, aiming to award the contract by August 15, 2014. The PCO was requested to give high priority to complete the recruitment process with no further delays which will negatively affect implementation. It was noted that procurement training could not be undertaken in FY 2013/14 because of insufficient budget allocation for training. It was agreed that procurement training with a focus on contact management would be provided with financial management training by September 15, 2014. Revised Timeline for MST Recruitment Revised Step Activity Start date End date Issue LOI to shortlisted consultants and 1 Feb 16, 2014 (A) Mar 15, 2014 (A) receive proposals 2 Conduct technical evaluations Mar 20, 2014 (A) July 1, 2014 Obtain WB clearance to technical 3 July 7, 2014 July 12, 2014 evaluation Inform firm of opening of financial 4 July 13, 2014 proposal 5 Public opening of financial proposals July 23, 2014 6 Select consultant July 25, 2014 7 Invite consultants for negotiations Aug 1, 2014 Aug 5, 2014 Obtain WB clearance to selection and draft 8 Aug 5, 2014 Aug 10, 2014 of negotiated contract 9 Sign contract Aug 15, 2014 10 MST starts work Aug 30, 2014 57 Status of Actions Agreed during Mid-Term Review of March 2014 Action Responsibility Completion Date Status Carry out training on procurement PCO April 30, 2014 Delayed. and contract management with support from the World Bank Prepare a final report of activities, MST May 30, 2014 Completed. inventory of equipment and filing of documentation, including training material, for review Sign the contract for IDA-funded PCO June 25, 2014 Delayed MST Actions for Procurement  The PCO will sign contract with MST by August 15, 2014.  The PCO will complete training on contract management by September 15, 2014. 58 ANNEX VI: Summary of Agreed Actions Area Action Agency Timeline Submit the annual program for the FY Municipalities August 15, 2014 2014/15 block grants to the MoUD and PCO Issue the authorization to the municipalities Strengthening Municipal MoUD August 15, 2014 for the block grant allocation Planning Capacity for Urban Development (Component I) Submit the progress report on the activities carried out in FY 2013/14 to the MoUD and Municipalities September 15, 2014 PCO Review the annual program for FY 2014/15 PCO October 15, 2014 and provide comments to the municipalities Make available to the World Bank work implementation schedules and project monitoring charts for all Track I sub-projects PCO July 20, 2014 under implementation (including safeguard monitoring) Complete the hiring of construction Municipalities with the July 31, 2014 supervision consultants (priority) support of the PCO Capacity Building for Two municipal sub-projects by Municipal Infrastructure July 31, 2014 Development (Component Sign contracts for remaining 8 municipal Municipalities with the Two municipal sub-projects by II) sub-projects (priority) support of the PCO September 30, 2014 Four municipal sub-projects by October 30, 2014 59 Municipalities Submit to the Team for review the ToR for PCO July 15, 2014 revenue billing software development Prepare cost implementation actions plans as per the agreed Performance Agreements for PCO July 31, 2014 Dhankuta, Itahari and Tansen Municipalities Mobilize an individual consultant to prepare inventory of municipal assets, assess O&M needs and estimate O&M cost for PCO August 15, 2014 Mechinagar, Lekhnath and Baglung municipalities Institutional Development (Component III) Agree with MoFALD on hand-over arrangements for the billing software PCO August 31, 2014 development and communicate them to the Team Mobilize consultants for revenue billing PCO September 30, 2014 software development (priority) Update REPs, O&M Plans and Investment Plans for Dhankuta, Itahari and Tansen PCO with municipalities November 30, 2014 Municipalities Complete preparation of REPs, O&M plans and Investment Plans for Mechinagar, PCO December 15, 2014 Lekhnath and Baglung municipalities DUDBC 60 Start procurement process for hardware and PCO/DUDBC July 15, 2014 software for the GIS unit of DUDBC Finalize the EOI evaluation for the GIS maps PCO/DUDBC July 15, 2014 and award contract Award contract for the GIS maps PCO/DUDBC August 31, 2014 Conduct a legal review of the byelaws to ascertain the legal authority for implementation of the provisions of the byelaws between the municipality and the PCO/DUDBC August 15, 2014 Town Development Committees and conduct municipal capacity needs assessment to implement the bye-laws Hire consultants for the preparation of byelaws for the remaining three PCO/DUDBC August 31, 2014 municipalities (Itahari, Baglung and Lekhnath) Award contract for the preparation of PCO/DUDBC September 15, 2014 drainage Master Plan in Itahari Sign contract for hardware and software for PCO/DUDBC October 30, 2014 the GIS unit of DUDBC Complete byelaws for the remaining three municipalities (Itahari, Baglung and PCO/DUDBC November 30, 2014. Lekhnath) TDF Prepare draft annual program and budget for TDF July 15, 2014 FY 2014-15 and submit to the Team review 61 through PCO. Complete the legal review of its capital TDF July 15, 2014 structure Approve the revised BRAP July 31, 2014 Generate financial statements by using TDF September 15, 2014 Micro-banking and MIS system Resolve the default situation with MoF TDF September 15, 2014 Prepare ToR for following tasks (a) preparation of municipal finance strategy; (b) orientation and training for municipal finance officers for municipal borrowing TDF September 15, 2014 capacity assessment; and (c) system automation, linking micro-banking to asset management and payroll system. Complete the review of TDF’s financial appraisal manual and training of TDF staff in TDF September 30, 2014 financial analysis; and brochures for borrowers MoFALD Publish the notice for hiring of consultant for MoFALD July 15, 2014 preparation of MIS strategy Prepare the ToRs for developing the templates for the implementation of policy guidelines and procedures for governance MoFALD July 15, 2014 and budget planning and orientation to the municipalities 62 Prepare the ToRs to carry out capacity building and planning needs assessment for a MoFALD July 30, 2014 sample of new municipalities Prepare draft documents for the implementation of policy guidelines and procedures for governance and budget MoFALD September 30, 2014 planning and orientation to the municipalities Hire the consultant for preparation of MIS MoFALD August 31, 2014 strategy MoUD Finalize NUDS MoUD July 31, 2014 Finalize the program for the institutional MoUD August 15, 2014 development activities for FY 2014/15 Project Management and M&E Prepare a simplified reporting template to monitor progress of key project activities PCO July 15, 2014 and submit for the team review. Use simplified reporting template to monitor progress of key project activities on a bimonthly (twice in every month) PCO Starting from August 1, 2014 basis and share the consolidated reports to the Team. 63 Finalize consolidated annual program and budget for FY 2014-15 from all project PCO August 15, 2014. agencies and municipalities Collect financial and physical progress report of FY 2013-14 project activities from all project agencies and PCO September 30, 2014 municipalities and submit consolidated report including updated results framework 64 Follow up on the current status of DoA recommendations for Tansen Amar Tansen Municipality with July 15, 2014 Narayan Temple Conservation/Renovation support from the PCO work, and prepare a status report Finalize the EMPs of remaining 3 projects (Baglung Road, Itahari Bridge, and PCO July 15, 2014 Dhankuta Hile Bus Park) and send them to the Team Conduct field verification of civil works that will be carried out with municipal PCO July 31, 2014 block grant in FY 2014/15 Share the final report of the Third Party PCO July 21, 2014 Monitoring Review the Hile Market project design, Safeguards particularly the slaughter house operational aspects; drainage flow and Municipality with support access management to adjacent houses, August 10, 2014 from PCO conditions put forward by the MoFALD IEE review committee and report to the Team Consult with wider stakeholders and hire a heritage expert to review whether the Aath Pariya Rai Temple and shrine (Dhankuta PCO and municipality August 10, 2014 Hile Market) maintenance is compatible with the heritage value and Aath Pariya Rai's preferences Carry out regular monitoring of social and Mechinagar, Dhankuta, and environmental safeguards for municipal August 31, 2014 Tansen municipalities sub-projects and submit monthly report. 65 Carry out first three-monthly safeguard monitoring of the Dhankuta Weekly Market Infrastructure Improvement, Gokul PCO August 31, 2014 Marg and Amar Narayan Temple sub- projects and every three months thereafter. Review the training undertaken and further needs, as well as prepare an action plan for PCO September 15, 2014 safeguard training/support Carry out field verification of civil works under the municipal block grant in FY PCO September 30, 2014 2014/15 in all six municipalities Review the risks of open drains constructed under the municipal block October 30, 2014 grant in Mechinagar Municipality, and PCO explore mitigation options to ensure human safety Submit the second trimester IPR PCO July 15, 2014 Submit quarterly disbursement projections July 15, 2014 and monthly Financial Management for FY 2014/15 and annual projections for PCO updates thereafter FY 2015/16 Carry out training on financial PCO September 15, 2014 management for the municipalities Sign contract with MST (priority) PCO August 15, 2014 Procurement Complete training on contract PCO September 15, 2014 management for the municipalities 66 67 68