FOR OFFICIAL USE ONLY Report No: RES38450 INTERNATIONAL DEVELOPMENT ASSOCIATION RESTRUCTURING PAPER ON A PROPOSED PROGRAM RESTRUCTURING OF LOCAL GOVERNANCE AND SERVICES IMPROVEMENT PROGRAM FOR RESULTS APPROVED ON NOVEMBER 2, 2015 TO THE PALESTINE LIBERATION ORGANIZATION (FOR THE BENEFIT OF THE PALESTINIAN AUTHORITY) SMNUR- Urban MNA Middle East And North Africa Region Regional Vice President: Ferid Belhaj Country Director: Kanthan Shankar Regional Director: Ayat Soliman Practice Manager: Jaafar Sadok Friaa Task Team Leader: Christopher T. Pablo The World Bank Local Governance and Services Improvement Program (P148896) ABBREVIATIONS AND ACRONYMS ACIG Annual Capital Investment Grants ACIP Annual Capital Investment Plan DLI Disbursement Linked Indicator DP Development Partner E&S Environment and Social JSE Joint Service Entity JSC Joint Service Council LGSIP Local Governance and Services Improvement Program MDLF Municipal Development and Lending Fund MOLG Ministry of Local Government MTR Mid-Term Review PA Palestinian Authority PDO Project Development Objective PID- MDTF Infrastructure Development Multi-Donor Trust Fund RF Results Framework TFGWB Trust Fund for Gaza and West Bank VC Village Council The World Bank Local Governance and Services Improvement Program (P148896) Page 1 of 16 The World Bank Local Governance and Services Improvement Program (P148896) I. PROGRAM STATUS AND RATIONALE FOR RESTRUCTURING A. Introduction 1. This Restructuring Paper seeks the approval of the Country Director on the restructuring of the Local Governance and Services Improvement Program (LGSIP). The Restructuring has been requested by the Palestinian Authority (PA), through the Ministry of Local Government (MOLG) and the Municipal Development and Lending Fund (MDLF), as the Executing Agency of the Program. The Program will be restructured to adjust the Results Framework (RF) to reflect the Program’s capacity to achieve its objectives. There will be no other changes introduced to the Program. B. Original Grant 2. The original grant in the amount of US$5.0 million in Special Financing from the Trust Fund for Gaza and West Bank (TFGWB) was approved by the World Bank Board of Executive Directors on November 2, 2015 and became effective on June 2, 2016 with an original closing date of December 31, 2020. Co-financing in the amount of US$13.0 million equivalent was provided from the Partnership for Infrastructure Development Multi-Donor Trust Fund (PID-MDTF)1. The PA would contribute the equivalent of US$2.0 million to the Program, provided as share from the Transportation Fee (TF) allocation. Additional Development Partners (DPs)2 are providing parallel financing of around US$44 million equivalent. The Program Development Objective (PDO) is “to strengthen the local government financing system and improve local service delivery in Program villages”. The Program supports the PA in implementing the Palestinian Village Support program and finances the following activities: a. Annual Capital Grants for delivery of local services through the provision of Annual Capital Investment Grants (ACIGs) to eligible Village Councils (VCs) for carrying out activities identified in the Annual Capital Investment Plans (ACIPs) b. Conditional Capital Grants for Investment in Joint Projects supporting community infrastructure development through the provision of Conditional Capital Investment Grants to eligible Joint Service Entities (JSEs) for carrying out Joint Projects developed by two or more VCs. c. Capacity Support for strengthening the capacity of VCs and Joint Service Councils (JSCs) to improve their local governance functions, service delivery, and prepare and implement ACIPs, and strengthening the capacity of relevant agencies at the central level, including, inter alia, MOLG and MDLF, to effectively implement the Program. 1 Donors for PID-MDTF include: Denmark (through Danish International Development Agency, DANIDA), Norway, Finland, Sweden (through Swedish International Development Cooperation Agency, SIDA), France (through Agence Française de Développement, AFD), Croatia, Portugal, Netherlands and the United Kingdom (through Department for International Development, DFID). 2 Development Partners include: Germany (through German Development Bank, KfW and Gesellschaft für Internationale Zusammenarbeit, GIZ), Belgium (through the Belgian Development Agency- Enabel), France (through AFD), the European Union, Austria, Italy and Sweden through UNDP and Switzerland (through the Swiss Agency for Development and Cooperation, SDC). Page 2 of 16 The World Bank Local Governance and Services Improvement Program (P148896) C. Status of implementation of the original Program 3. The Program’s implementation progress and progress towards achieving the PDO have both been consistently rated as ‘Satisfactory’. Technical, Environment and Social (E&S), Disbursement Linked Indicators (DLI) and Monitoring and Evaluation ratings are Satisfactory while the rating for Fiduciary systems is Moderately Satisfactory. The legal covenants, most of which are recurrent, are continuously being monitored and complied with. 4. The Program continues to show progress in meetings its objectives. On strengthening local government financing system, 74.5% of the VCs received transparent and predictable Annual Capital Grants in FY19, surpassing the target for PDO Indictor 1 of 60%. Additionally, the timely communication and transfer to VCs of the formula-based ACIG to eligible VCs in FY19 has been sustained for three (3) consecutive years. Steps to improve the transparency in the allocation of the TF were finally adopted by MOLG which marks a critical milestone towards reforming the Intergovernmental Fiscal System. In terms of improving local service delivery in program villages, the project benefited a total of 338,157 people, surpassing the Mid-Term Review (MTR) target of 230,000. D. Rationale for requesting Program Restructuring 5. The Borrower has requested the World Bank to restructure the Program to adjust the RF to reflect the program’s capacity to achieve its objectives. During the last implementation support in April 2019, the client and the Task team identified a need to adjust the Results Framework. The request was recorded in the Aide Memoire and confirmed in the Management letter. A decision has been reached to restructure the project to introduce changes in the results indicators. The changes do not require amending the legal agreements and there will be no other changes introduced to the Program. II. DESCRIPTION OF PROPOSED CHANGES 6. Following consultations with MDLF and MOLG, the following changes were agreed upon to refine the RF in terms of indicators, targets and methodology for collecting data to support achievement of results. A simple restructuring of the Program is required to reflect these RF changes: a. Define the methodology for estimating the number of Program beneficiaries for PDO Indicator three: People benefiting from improved service delivery in Program villages. The methodology for estimating the number of beneficiaries will be decided based on the project typology to capture direct project beneficiaries instead of counting the total population of VC. For example, to count the beneficiaries of a water network expansion subproject, the number of House-Hold connections will be used instead of the total population of that VC. Page 3 of 16 The World Bank Local Governance and Services Improvement Program (P148896) b. Revise Intermediate Results Indicator four: percentage of VCs that have implemented at least 60% of their ACIPs (in terms of expenditure) by the end of each FY. This Indicator was found to be difficult to measure. It was agreed to modify the indicator to become “Percentage of VCs that have initiated the implementation of their ACIPs in the same fiscal year”. The targets will remain unchanged. c. Clarify the measure for the achievement of Intermediate Results Indicator Seven: “Share of vulnerable groups who participated in ACIP consultations”. It was agreed to define vulnerable groups as youth and females. III. SUMMARY OF CHANGES Changed Not Changed Change in Results Framework ✔ Change in Implementing Agency ✔ Change in Program's Development Objectives ✔ Change in Program Scope ✔ Change in Loan Closing Date(s) ✔ Change in Cancellations Proposed ✔ Reallocation between and/or Change in DLI ✔ Change in Disbursements Arrangements ✔ Change in Disbursement Estimates ✔ Change in Systematic Operations Risk-Rating Tool ✔ (SORT) Change in Safeguard Policies Triggered ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Technical Method ✔ Change in Fiduciary ✔ Change in Environmental and Social Aspects ✔ Change in Implementation Schedule ✔ Other Change(s) ✔ Page 4 of 16 The World Bank Local Governance and Services Improvement Program (P148896) IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_EA_TABLE . Page 5 of 16 The World Bank Local Governance and Services Improvement Program (P148896) ANNEX 1: RESULTS FRAMEWORK . . Results framework Program Development Objectives(s) The development objective of the proposed program is to strengthen the local government financing system and improve local servicedelivery in Program villages. Program Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Strengthen local government financing system and improve local service delivery in Program villages. PDO indicator 1: VCs receiving transparent and predictable 0.00 70.00 Annual Capital Grants (Percentage) PDO indicator 2: Timely communication to VCs of the formula based Annual Capital Investment Grant (ACIG) allocations and No Yes timely transfer of ACIGs to eligible VCs (Yes/No) PDO indicator 3: People benefiting from improved service 0.00 350,000.00 delivery in Program villages (Number) Action: This indicator has been Revised PDO indicator 4: Beneficiaries that feel Program investments 0.00 75.00 reflected their needs (Percentage) Page 6 of 16 The World Bank Local Governance and Services Improvement Program (P148896) PDO Table SPACE Intermediate Results Indicators by Result Areas RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 Results area 1: Strengthening local government financing system One: Annual Capital Grant Allocation Formula No Yes approved by MoLG (Yes/No) By FY 18, at least 25% of Annual Capital Two: Steps to improve transparency and Grants allocation to VCs is disbursed predictability of Transportation Fee adopted by Not available annually per capita and on time in line with MoLG (Text) LGSIP Annual Capital Grant Flow Chart. Three: Percentage of VCs submitting their annual budget to MoLG electronically on time and have 1.00 1.00 60.00 disclosed budgets publicly (Percentage) Results area 2: Strengthening institutional systems for improved service delivery Four: Percentage of VCs that have initiated implementation of their ACIPs in the same fiscal 0.00 70.00 year (Percentage) Action: This indicator has been Revised Five: Cumulative number of joint projects 0.00 18.00 approved (Number) Six: Number of JSCs qualifying for financing under 14.00 22.00 the Program (Number) Seven: Share of vulnerable groups who 0.00 30.00 participated in ACIP consultations (Percentage) Action: This indicator has been Revised Page 7 of 16 The World Bank Local Governance and Services Improvement Program (P148896) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline Intermediate Targets End Target 1 Eight: Direct beneficiaries (number) (Number) 0.00 350,000.00 Direct beneficiaries of which female 0.00 50.00 (Percentage) IO Table SPACE Disbursement Linked Indicators Matrix DLI IN00740698 ACTION DLI 1 DLI 1: Enabling steps to strengthen local governance by MoLG Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Output No Yes/No 1,800,000.00 55.56 Period Value Allocated Amount (USD) Formula Baseline No Prior Results Yes 1,000,000.00 FY16 Yes 800,000.00 FY17 0.00 FY18 0.00 FY19 0.00 FY20 0.00 Page 8 of 16 The World Bank Local Governance and Services Improvement Program (P148896) DLI IN00740699 ACTION DLI 2 DLI 3: Percentage of VCs meeting the Program eligibility criteria annually Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Process No Percentage 5,000,000.00 0.00 Period Value Allocated Amount (USD) Formula Baseline 0.00 Prior Results 0.00 0.00 FY16 0.00 FY17 50.00 1,000,000.00 FY18 60.00 1,000,000.00 FY19 70.00 1,500,000.00 FY20 70.00 1,500,000.00 DLI IN00740700 ACTION DLI 2: Timely communication to VCs of the formula-based Annual Capital Investment Grant (ACIG) allocations and timely DLI 3 transfer of ACIGs to eligible VCs Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Process No Yes/No 3,200,000.00 0.00 Period Value Allocated Amount (USD) Formula Baseline No Page 9 of 16 The World Bank Local Governance and Services Improvement Program (P148896) Prior Results 0.00 FY16 0.00 FY17 Yes 800,000.00 FY18 Yes 800,000.00 FY19 Yes 800,000.00 FY20 Yes 800,000.00 DLI IN00740701 ACTION DLI 4 DLI 4: Cumulative number of Joint Projects approved Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Output No Number 4,000,000.00 0.00 Period Value Allocated Amount (USD) Formula Baseline 0.00 Prior Results 0.00 0.00 FY16 0.00 FY17 6.00 1,000,000.00 FY18 10.00 1,000,000.00 FY19 14.00 1,000,000.00 FY20 18.00 1,000,000.00 Page 10 of 16 The World Bank Local Governance and Services Improvement Program (P148896) DLI IN00740702 ACTION DLI 5 DLI5: Aggregated expenditure percentage of approved Joint Projects Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Process No Percentage 1,500,000.00 0.00 Period Value Allocated Amount (USD) Formula Baseline 0.00 Prior Results 0.00 0.00 FY16 0.00 FY17 0.00 FY18 30.00 500,000.00 FY19 40.00 500,000.00 FY20 50.00 500,000.00 DLI IN00740703 ACTION DLI 6 DLI 6: Steps to improve transparency and predictability in the allocation of Transportation Fee adopted by MoLG Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Process No Text 1,000,000.00 0.00 Period Value Allocated Amount (USD) Formula Baseline no Prior Results 0.00 Page 11 of 16 The World Bank Local Governance and Services Improvement Program (P148896) FY16 25% of Transportation Fee disbursed per POM 1,000,000.00 FY17 0.00 FY18 0.00 FY19 0.00 FY20 0.00 DLI IN00740704 ACTION DLI 7 DLI 7: Capacity Building Activities delivered by MoLG based on their Annual Capacity Development Plan Type of DLI Scalability Unit of Measure Total Allocated Amount (USD) As % of Total Financing Amount Process No Yes/No 1,500,000.00 13.33 Period Value Allocated Amount (USD) Formula Baseline No Prior Results 0.00 FY16 Yes 200,000.00 FY17 Yes 400,000.00 FY18 Yes 500,000.00 FY19 Yes 400,000.00 FY20 0.00 Page 12 of 16 The World Bank Local Governance and Services Improvement Program (P148896) Page 13 of 16 The World Bank Local Governance and Services Improvement Program (P148896) ANNEX 2: PROGRAM ACTION PLAN . . PAP_CHANGE_TBL Action Completion Description Source DLI# Responsibility Timing Measurement Action Decree for Technical Client Due Date 30-Nov-2015 Decree issued No Change disbursement of and transfers are grant to larger VC executed to large bank account VCs annually issued Development of Client Due Date 15-Jun-2016 No Change program Environmental and Social Management Manual (ESSM) Development of Client Due Date 26-May-2016 No Change the Program Operation Manual Annual Capital Client Due Date 01-Oct-2016 No Change Investment Plans (ACIPs) prepared according to prescribed format Draft proposal Technical Client Due Date 01-Mar-2018 uncompleted Revised prepared for revised LGU functional assignments Proposed Draft proposal Technical Client Due Date 28-Jan-2020 proposal prepared for prepared revised LGU functional assignments Establish Program Client Due Date 31-Oct-2015 No Change Committee to ensure effective inter-ministerial coordination Allocation of the Technical Client Due Date 30-Jun-2018 Transportation No Change transportation Fee reform fee to VCs directive was Page 14 of 16 The World Bank Local Governance and Services Improvement Program (P148896) reformed approved by the Minister of Local Government Design and Client Due Date 31-Dec-2016 No Change implement a comprehensive VC/JSC monitoring system Assessment and Client Due Date 31-Oct-2016 No Change ranking of JSCs carried out in accordance with Program schedule Regular training Client Recurrent Continuous No Change to be provided on FM, procurement, social and environment systems and participatory monitoring and evaluation focusing on women and youth, at the village council, directorate, and central levels (MDLF and MoLG) All VCs to submit Client Recurrent Yearly No Change their budgets, annual plans, annual financial statements and audit reports to the MoLG on a regular and timely basis VCs to prepare Client Recurrent Continuous Revised annual action plan to address audit findings within a period of six months after the receipt of the audit report Proposed VCs to prepare Fiduciary Systems Client Recurren Continuous compliance of the annual action requirement Page 15 of 16 The World Bank Local Governance and Services Improvement Program (P148896) plan to address t (preparation of audit findings annual plans) within a period of every year six months after the receipt of the audit report Qualified VCs, Client Recurrent Continuous Revised JSCs, MDLF and MoLG post their procurement and contract award notices on single procurement portal Proposed Qualified VCs, Fiduciary Systems Client Recurren Continuous VCs, JSCs, MDLF JSCs, MDLF and t and MoLG are MoLG post their posting their procurement and procurement and contract award contract award notices on single notices as they procurement come on a single portal procurement portal. Procurement Client Recurrent Continuous No Change complaint handling mechanism and Dispute Review Unit operational . Page 16 of 16