The World Bank State and Local Governance Reform Project (P133045) REPORT NO.: RES37890 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE STATE AND LOCAL GOVERNANCE REFORM PROJECT APPROVED ON OCTOBER 17, 2014 TO THE FEDERAL REPUBLIC OF NIGERIA August 15, 2019 GOVERNANCE GLOBAL PRACTICE AFRICA REGION Regional Vice President: Hafez M. H. Ghanem Country Director: Rachid Benmessaoud Regional Director: Elisabeth Huybens Practice Manager: Manuel Antonio Vargas Madrigal Task Team Leader: Ikechukwu John Azubike Nweje The World Bank State and Local Governance Reform Project (P133045) ABBREVIATIONS AND ACRONYMS AA Administration Agreement COFOG Classification of Functions of Government DO Development Objectives EU European Union FA Financing Agreement GA Grant Agreement GFS Government Financial Statistics IFMIS Integrated Financial Management Information System IFR Interim Financial Report IGR Internally Generated Revenue IP Implementation Progress IPSAS International Public Sector Accounting Standard LG Local Government MTSS Medium Term Sector Strategy PDO Project Development Objective PFM Public Financial Management PSGRDP Public Sector Governance Reform and Development Project RETF Recipient Executed Trust Fund SIFMIS State Integrated Financial Management Information System SLOGOR State and Local Governance Reform Project SPCU State Project Coordination Unit TF Trust Fund WBG World Bank Group The World Bank State and Local Governance Reform Project (P133045) BASIC DATA Product Information Project ID Financing Instrument P133045 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 17-Oct-2014 30-Sep-2019 Organizations Borrower Responsible Agency International Donor Support,Ministry of Finance & Economic Planning,Ministry of Finance,Ministry of FEDERAL REPUBLIC OF NIGERIA Budget & Economic Planning,Ministry of Budget & Planning,Ministry of Budget & Planning,Federal Ministry of Budget and National Planning Project Development Objective (PDO) Original PDO The Project Development Objective (PDO) is to improve transparency, accountability and quality in public financial management in the participating states. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-18335 01-Dec-2014 01-Dec-2014 21-Jan-2015 30-Sep-2019 60.67 37.70 23.89 The World Bank State and Local Governance Reform Project (P133045) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING A. Project Status: 1. Per the latest Implementation Status and Results Report (ISR), dated June 17, 2019, the project performance is rated Satisfactory, for both progress towards achievement of the development objective (DO) and implementation progress (IP). The current disbursement rate of the Recipient Executed Trust Fund (RETF) stands at 60 percent, leaving an undisbursed balance of about €22,718,000.00, of which about €12,000,000.00 is already committed on ongoing contracts. 2. So far, early results achieved in the participating states can be observed, as follows: (a.) In the areas of budgeting, Anambra, Cross River, and Yobe States have fully adopted the new harmonized National Chart of Accounts which is Government Financial Statistics/Classifications of Functions of Government (GFS/COFOG) compliant. Significant capacity has also been built in the States for the gradual transitioning to the use of the International Public Sector Accounting Standards (IPSAS) in financial reporting. Fully costed medium term sector strategies (MTSS) have been developed and now drive budgeting in key sectors in Anambra, Cross River, Jigawa, Kano and Yobe States, thus ensuring more strategic budgeting. (b.) In the area of audit performance, the project has helped to clear the arrears of audit report which hitherto existed across the States. There is also improvement in the timeliness, coverage and openness of Audit Reports. The States now convene public audit forums on annual basis, where Auditor General’s reports are presented to and discussed with the various stakeholders, including civil society organizations. (c.) The project has also supported the beneficiaries to grow their taxpayer bases and establish electronic taxpayer database management systems in Kano, Jigawa and Yobe States. For instance, in Cross River, Jigawa and Kano States, following the completion of taxpayer surveys/enumeration exercises, the taxpayer bases grew by 97,000, 317,000 and 176,000 new taxpayers, respectively. This has in turn contributed to the growth of internally generated revenues, ranging from between 46 – 362 percent across the States. (d.) Across all six participating States, Bills have been prepared for Organic Public Finance, Audit and Revenue Administration Legislations. These Bills are currently at various stages of legislation across the States. Five of the six implementing States (Anambra, Cross River, Jigawa, Osun and Yobe) have adopted modern public procurement systems, with Laws enacted and other procurement tools also developed. B. Some key outstanding activities: 1. A major outstanding activity across the States is the implementation of the State Integrated Financial Management Information Systems (SIFMIS). Diagnostic studies already carried out across the States had revealed major gaps in financial management process arising from the non-existence or at best, rudimentary and/or fragmented systems The World Bank State and Local Governance Reform Project (P133045) scattered across some of the States. Recently, contracts for implementation have been signed in four (Cross River, Jigawa, Kano and Yobe) States, while the procurement processes in the other two (Anambra and Osun) States are almost completed. SIFMIS by their nature, take time to fully implement and mature and these systems remain critical for fully consolidating the reforms and results so far achieved in budget preparation and execution, accounting, financial reporting and revenue management. 2. Bills for critical legislations to ensure that the various reforms being implemented across the different fields of public financial management (PFM) have appropriate legal foundations have been prepared and are at various stages of legislation in the Legislatures of the respective states. 3. On the support to Local Governance, presently, all the States have completed the required diagnostic studies, with recommendations/road maps for devolution of powers to the local government tier. However, the processes of adopting these frameworks for the scaling up of PFM reforms to the local governments tier, remain outstanding. C. Rationale for Extension and Changes: 1. Based on Article 5 and Appendix 2 of the Financing Agreement (FA), the State and Local Governance Reform (SLOGOR) Project was originally designed to be implemented over a period of five years. The delayed signing of the Administration Agreement (AA) between the World Bank Group (WBG) and the European Union (EU) in December 2012 and the Grant Agreement (GA) between the WBG and the Federal Government of Nigeria disrupted the original operational implementation period envisaged under the FA. The project only became effective on January 21, 2015. At the time of effectiveness of the project, there were only two years and two months left to the original closing date. 2. Following an agreement between the EU and the WBG, the closing date of the AA was extended by 30 months from March 31, 2017 to September 30, 2019. Though this extension helped in recovering part of the time earlier lost, it still did not fully compensate for the original delay. 3. The political/electoral cycles and regime changes as well as an initial misunderstanding of the objective of the local governance component as requiring an amendment to the country’s constitution, rather than an agreement of a framework between the State and Local Government tiers on service delivery posed challenges to the full implementation of the activities of the component. In addition, the weak procurement and project management capacity in the implementing entities across the beneficiary states has resulted in significant delays in the implementation of the SIFMIS component, which has gained momentum lately though. 4. Based on global best practice, reforms of other aspects of PFM systems (already carried out by the Project) are envisaged to be anchored on the SIFMIS. One key objective of the SIFMIS implementation across the beneficiary States is to provide an appropriate platform for linking revenue management, budget preparation and execution, as well as for accounting, expenditure control and financial reporting, using a common GFS chart of accounts. This will not only help provide seamless control and institutionalization of sound PFM processes and procedures for the beneficiary states, but also enable functional uniformity and aggregation of national financial data. Thus, the non- completion of the systems portends risks for the sustenance of the reforms instituted by the Project as well as reputational risks to the World Bank. The World Bank State and Local Governance Reform Project (P133045) II. DESCRIPTION OF PROPOSED CHANGES A. Proposed Changes 1. An extension to the closing date of the Project by one year, from September 30, 2019 to September 30, 2020 and correspondingly, the extension of the end disbursement date of the Trustee fund from March 31, 2020 to March 31, 2021 to facilitate the grant extension. 2. A revision of the indicative budget for the reform activities/across components in line with implementation realities and distribution of the performance challenge fund. Based on efficiencies in procurement, savings have been made on the implementation of Components 2 and 3, while the trigger for the distribution of Performance Challenge Fund in Component 4 has been met and distribution ratio communicated to the States in the Management Letter following the last implementation support mission in May 2019. Thus, the revision of the budgets for these components because of the savings above mentioned, will not have adverse impact on achieving the objectives of these components. 3. Reallocation across disbursement categories (see details in Annex 1). 4. The end targets of all indicators (at PDO and intermediate level) are being extended to September 30, 2020, to enable the tracking of progress and measuring results through to the end of the revised project implementation period. 5. The EU has agreed in principle to extend the closing date and modify the indicative budget, hence this restructuring to formalize the processes. The EU has also in the interim already extended the FA between the Federal Government of Nigeria and the EU. 6. The task team confirms that the Project’s Development Objectives remain achievable, the performance of the Recipient remains satisfactory, and the World Bank and the Recipient has agreed on actions that will be undertaken to complete the Project (see attached work plan at Annex 2). III. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Reallocation between Disbursement Categories ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Cancellations Proposed ✔ Disbursements Arrangements ✔ The World Bank State and Local Governance Reform Project (P133045) Disbursement Estimates ✔ Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ Procurement ✔ Implementation Schedule ✔ Other Change(s) ✔ Economic and Financial Analysis ✔ Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Component A: Public Financial Component A: Public Financial 43.00 Revised 56.55 Management Reforms. Management Reforms. Component B: Support to Local Component B: Support to Local 5.50 Revised 2.68 Governance. Governance. Component C: Project Component C: Project 14.50 Revised 9.06 Coordination. Coordination. Performance Challenge Fund and Performance Challenge Fund 10.50 Revised 5.21 Contingency and Contingency TOTAL 73.50 73.50 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE The World Bank State and Local Governance Reform Project (P133045) LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications TF-18335 Effective 31-Mar-2017 30-Sep-2019 30-Sep-2020 30-Jan-2021 OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed TF-18335-001 | Currency: EUR iLap Category Sequence No: 1 Current Expenditure Category: Gd,OC,Wk,NnCS,Trg,CSPtA,B,C.2 Anamb 7,395,000.00 4,809,258.80 8,415,333.30 100.00 100.00 iLap Category Sequence No: 2 Current Expenditure Category: Gd,OC,Wk,NnCS,Trg,CSPtA,B,C.2 CrsRi 7,395,000.00 4,865,662.67 8,415,333.34 100.00 100.00 iLap Category Sequence No: 3 Current Expenditure Category: Gd,OC,Wk,NnCS,Trg,CSPtA,B,C.2 Osun 7,395,000.00 4,146,840.05 7,824,333.34 100.00 100.00 iLap Category Sequence No: 4 Current Expenditure Category: Gd,OC,Wk,NnCS,Trg,CSPtA,B,C.2 Kano 7,395,000.00 5,640,695.20 8,415,333.34 100.00 100.00 iLap Category Sequence No: 5 Current Expenditure Category: Gd,OC,Wk,NnCS,Trg,CSPtA,B,C.2 Jigaw 7,395,000.00 5,316,413.66 8,415,333.34 100.00 100.00 iLap Category Sequence No: 6 Current Expenditure Category: Gd,OC,Wk,NnCS,Trg,CSPtA,B,C.2 Yobe 7,395,000.00 3,899,787.77 7,824,333.34 100.00 100.00 iLap Category Sequence No: 7 Current Expenditure Category: Gd,OC,Wk,NnCS,Trg,CSPt C.1 The World Bank State and Local Governance Reform Project (P133045) 2,780,000.00 1,067,474.49 1,780,000.00 100.00 100.00 iLap Category Sequence No: 8 Current Expenditure Category: UNALLOCATED 7,840,000.00 0.00 3,900,000.00 Total 54,990,000.00 29,746,132.64 54,990,000.00 . The World Bank State and Local Governance Reform Project (P133045) . Results framework COUNTRY: Nigeria State and Local Governance Reform Project Project Development Objectives(s) The Project Development Objective (PDO) is to improve transparency, accountability and quality in public financial management in the participating states. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Improved transparency in the public financial management in participating states (Action: This Objective has been Revised) State Government audited accounts are submitted to the legislature within 6 months from end of financial year in any 12.00 6.00 state. (Months) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. Improved accountability in the public financial management in participating states (Action: This Objective has been Revised) Participating States producing annual financial statements using 1.00 4.00 new SIFMIS (Number) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. Imroved quality in the public financial management in participating states (Action: This Objective has been Revised) The World Bank State and Local Governance Reform Project (P133045) RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Actual collection of internally generated revenue in participating 1.00 40.00 states (Percentage) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. Public contracts above threshold awarded through open 20.00 80.00 competition (Percentage) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Component A: Public Financial Management Reforms. (Action: This Component has been Revised) Participating States with modern* Finance Legislation (* Legislation not more than 5 years old. Most states currently rely 0.00 4.00 on Federal Finance Control and Management Act of 1958) (Number) Rationale: Action: This indicator has been Revised Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator remains the same. The World Bank State and Local Governance Reform Project (P133045) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Participating States publishing Auditor General’s Report 0.00 4.00 (Number) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. Participating States’ revenues and expenditure covered in 75.00 90.00 Auditor General’s annual report (Percentage) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. Participating States convening Annual Audit Forums (with CSO 0.00 4.00 participation) (Number) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. States that have implemented 3 key modules of SIFMIS (Number) 1.00 4.00 Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. Participating States that have used the National Chart of 0.00 5.00 Accounts for the production of Budgets (Number) The World Bank State and Local Governance Reform Project (P133045) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. Participating States that have developed medium- term (3 year rolling) sector strategies in at least 3 pilot MDAs (Health, 2.00 5.00 Education and 1 other) (Number) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. Taxpayer database established in participating states 0.00 4.00 (Percentage) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. States with Procurement Regulatory Framework (Legislation, 2.00 5.00 Regulation and Standard Bidding Documents) (Number) Rationale: Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator Action: This indicator has been Revised remains the same. Direct project beneficiaries, percentage of which are female 10.00 35.00 (Percentage) Action: This indicator has been Revised Rationale: The World Bank State and Local Governance Reform Project (P133045) RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Only the end target date has been revised to align with the new closing date of the project. The substance of the indicator remains the same. Component B: Support to Local Governance. (Action: This Component has been Revised) Road map for devolution of authority and function to LGs by 0.00 3.00 States’ Governments (Number) Action: This indicator has been Revised IO Table SPACE The World Bank State and Local Governance Reform Project (P133045) Annex 1 REVISED DISBURSEMENT TABLE Revised Percentage of Old Amount of Amount of Expenditures to Grant Allocated DISBURSEMENT CATEGORIES (expressed in Grant Allocated be Financed (expressed in (exclusive of in Euros) in Euros) taxes) (1) Goods, Operating Costs, non- 7,395,000.00 8,415,333.30 100% Consulting Services, Training and consultants’ services under Parts A, B and C.2 of the Project for Anambra (2) Goods, Operating Costs, non- 7,395,000.00 8,415,333.34 100% Consulting Services, Training and consultants’ services under Parts A, B and C.2 of the Project for Cross River State (3) Goods, Operating Costs, non- 7,395,000.00 7,824,333.34 100% Consulting Services, Training and consultants’ services under Parts A, B and C.2 of the Project for Osun State (4) Goods, Operating Costs, non- 7,395,000.00 8,415,333.34 100% Consulting Services, Training and consultants’ services under Parts A, B and C.2 of the Project for Kano State (5) Goods, Operating Costs, non- 7,395,000.00 8,415,333.34 100% Consulting Services, Training and consultants’ services under Parts A, B and C.2 of the Project for Jigawa State (6) Goods, Operating Costs, non- 7,395,000.00 7,824,333.34 100% Consulting Services, Training and consultants’ services under Parts A, B and C.2 of the Project for Yobe State (7) Goods, Operating Costs, Training 2,780,000.00 1,780,000.00 100% and consultants’ services under Part C.1 of the Project 7,840,000.00 3,900,000.00 (8) Unallocated UNALLOCATED (Contingency & PCF)) The World Bank State and Local Governance Reform Project (P133045) Annex 2 SLOGOR Project: Work Plan for Extension September 2019 - September 2020 (Currency: Euros) S/ Activity States Budget Qtr 4, 2019 Qtr 1, 2020 Qtr 2, 2020 Qtr 3, 2020 Target date N of delivery 1 State Integrated Financial Anambra 3,500,000 700,000 1,200,000 900,000 700,000 30-Jul-2020 Management Information System (SIFMIS) Cross River 3,100,000 1,000,000 1,200,000 900,000 30-Mar-2020 Jigawa 3,100,000 1,500,000 1,600,000 30-Jan-2020 Kano 3,500,000 1,500,000 1,200,000 800,000 30-Jan-2020 Osun 2,900,000 800,000 1,000,000 800,000 300,000 30-Jul-2020 Yobe 3,000,000 900,000 1,150,000 950,000 30-Mar-2020 Sub-total 19,100,000 2 Support to Local All 650,000 150,000 150,000 200,000 150,000 August 30 Governance Local 2020 Governance Reforms (6 states) 3 Project Coordination Federal Level (NPCU) 1,080,000 300,000 400,000 230,000 150,000 Sept 2019 - Sept 2020 State level (6 States) All 1,870,000 550,000 400,000 600,000 320,000 Sub- total 2,950,000 Grand Total 22,700,000