Document of The World Bank Report No: 74379-DJ RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF DJIBOUTI URBAN POVERTY REDUCTION PROJECT GRANT NO. H356-DJ BOARD APPROVAL DATE: APRIL 29, 2008 AND ADDITIONAL FINANCING GRANT NO. H582-DJ BOARD APPROVAL DATE: JUNE 10, 2010 TO THE REPUBLIC OF DJIBOUTI January 4, 2012 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS ADDS Djibouti Social Development Agency (Agence Djiboutienne de Développement Social) CDC Community Development Center CSO Civil Society Organization DUPREP DjiboutiUrban Djibouti PovertyReduction UrbanPoverty Project ReductionProject IDA International Development Association OVD Office de la Voirie de Djibouti PPIAF Public-Private Infrastructure Advisory Facility Q7 Quartier 7 (area of intervention) TA Technical Assistance Regional Vice President: Inger Andersen Country Director: Hartwig Schafer Sector Manager/Director: Franck Bousquet/Junaid Kamal Ahmad Task Team Leader: François Boulanger -2- DJIBOUTI URBAN POVERTY REDUCTION PROJECT P088876 CONTENTS Page A. SUMMARY ............................................................................................................................. 4 B. PROJECT STATUS ............................................................................................................... 5 C. PROPOSED CHANGES ........................................................................................................ 7 D. APPRAISAL SUMMARY ................................................................................................... 10 ANNEX 1: RESULTS FRAMEWORK AND MONITORING ................................................ 11 ANNEX 2: PROPOSED REALLOCATION OF GRANT PROCEEDS……......................... 14 -3- DJIBOUTI URBAN POVERTY REDUCTION PROJECT RESTRUCTURING PAPER A. SUMMARY 1. This Restructuring Paper proposes a level-two restructuring of the Djibouti Urban Poverty Reduction Project (DUPREP) (Grant No. H356-DJ (P088876) and Grant No. H582-DJ (P088876). The Project Development Objective (PDO) is to increase access to basic economic and social infrastructure and to community development opportunities within Quartier 7 in the city of Djibouti. The project has three components: (i) Improvement of Infrastructure; (ii) Community Development; and (iii) Technical Assistance (TA). 2. As requested by the Borrower in their letter dated July 7, 2012, the proposed restructuring consists of the following: (i) Extension of the project closing date: A ten-month extension of the project’s closing date, from May 31, 2013, until March 31, 2014, to address previous implementation delays under a sub-component of Component 3, the Djibouti Ville Master Plan, which cannot be absorbed under the current time line. This will be the first extension of the project’s closing date since approval of the additional financing. (ii) Revision of project components: Component 1 – Improvement of Infrastructure: under the street rehabilitation sub-component, a reduction of the total length of streets to be rehabilitated from 3 km to 2.2 km, while preserving east-west and north-south links; Component 2 – Community Development: under the sanitation sub-component, a new focus on technical assistance complementary to investments by other donors in the solid waste management sector in lieu of establishing a community scheme for garbage collection. (iii) Update of the results monitoring framework: updating project indicators to more candidly reflect project impacts, including adding a missing core sector indicator, and adapting specific targets corresponding to the changes at the sub-component level mentioned above. (iv) Reallocation between disbursement categories: reallocation of SDR 520,000 (US$800,000 equivalent) in grant proceeds, from the “unallocated� expenditure category under each grant, to the various components in order to reflect the increased knowledge at the Mid-Term Review (MTR) of actual costs of key sub-components, and alignment of eligible expenditure definitions between the initial and additional grants. 3. The proposed changes are necessary in order to allow the project to achieve its current development objective within the available funding. The proposed restructuring would not modify the PDO. The detailed content, rationale and implications of these changes, and their apportionment to each of the two grants, are provided below. -4- B. PROJECT STATUS 4. The DUPREP was approved by the Board of Directors on April 29, 2008, for a total IDA Grant amount of SDR 1.9 million (US$3.0 million equivalent). The project became effective on January 29, 2009, and in June 2010, the Board approved an additional financing for the project in the amount of SDR 2.0 million (US$2.9 million equivalent). The project development objective (PDO) is to increase access to basic economic and social infrastructure and to community development within Quartier 7 in the city of Djibouti. 5. The project consists of three components: (i) Improvement of infrastructure, including street rehabilitation and drainage; (ii) Community Development; and (iii) Technical Assistance. The Project’s estimated costs at appraisal are presented in Table 1 below. Table 1: Estimated total Project costs, to be financed by both Grants, at Project appraisal1 Costs in % of Baseline Components (both grants include the same components) US$ Costs 1- Improvement of infrastructure 3,072,000 59%  of which street rehabilitation and drainage 1,625,100 31%  of which construction of a Community Development Center 362,000 7% 2- Community development 693,000 13% 3- Technical assistance 1,105,000 21%  of which urban planning 400,000 8% 4- ADDS fees 348,000 7%  Total baseline costs 5,218,000 100%  Unallocated 682,000  Total funding 5,900,000 6. Substantial Results to date and outlook. Substantial progress in implementing project activities has already been achieved, including the following:  Component 1 (Improvement of Infrastructure): (a) completion of the Community Development Center; (b) signing of both street rehabilitation contracts and near- completion of one; (c) near-completion of other social infrastructure such as a multi- purpose playground; (d) finalization of the design and bidding documents for the Community Health Center; and (e) completion of a technical options analysis for the installation of street lighting.  Component 2 (Community Development): (a) completion of the first round of literacy campaigns and the vocational training program, and launch of a second round for both capacity building initiatives; (b) completion of a “willingness to pay survey� and launch of a study on cost reduction options for equipping neighborhood households with individual latrines; (c) completion of the first phase of a TA to identify a suitable and replicable model for solid waste collection within the neighborhood using local micro- enterprises; and (d) launch of a capacity building program for neighborhood Civil Society Organizations (CSOs). 1 Costs for the project portion appraised under the initial Grant were not revised during the appraisal of the Additional Financing (AF). AF costs were appraised on the basis of the same unit costs as those at appraisal of the initial project. -5-  Component 3 (Technical Assistance): (a) implementation of a new Management Information System (MIS) for the Djibouti Social Development Agency (Agence Djiboutienne de Développement Social, ADDS) accompanied by staff training workshops; (b) launch of design work on the new Djibouti-Ville Master Plan; and (c) pursuit of ongoing mapping and cartography work, closely coordinated with other donors and development agencies funding similar activities in the city. 7. As of the last supervision mission, the most substantial results observed in terms of outcomes are as follows: (a) at least 200 residents using the CDC as of June 2012, but this figure has likely increased significantly since; (b) 1,326 residents benefitting from community development activities; and (c) 9,570 person-days of employment created. As for implementation progress indicators, all mid-term targets were met on time, except for road resurfacing, which has now been met as well. 8. Issues during project implementation and corrective measures. Following the Mid- Term Review of November 2011, the PDO on the likelihood of achieving the PDO by the project’s closing date and implementation progress (IP) ratings were both downgraded to moderately unsatisfactory (MU), requiring implementation of a corrective action plan. This downgrade was essentially due to the following: (i) The disbursement level (in November 2011, 34.5% for the initial IDA grant, and 17% for both grants) stood significantly below initial estimates, mostly as a result of the delay in implementing the largest infrastructure sub-component: road resurfacing; (ii) there was a substantial procurement delay for the largest portion of the Technical Assistance Component (Urban Planning) making it impossible to complete that sub- component by the closing date; and (iii) concerns were raised regarding sustainability of the largest project investment completed at that point, the Community Development Center (CDC). The CDC had been completed in October 2010, but had been very little used and not properly maintained for lack of adequate management. By November 2011, the facilities had already showed signs of deterioration. 9. The above action plan implemented to address these issues included the following: (i) A new Project Manager was appointed in October 2011 following low proactivity in project management during FY11. As a result, by February 2012, all road resurfacing contracts were signed (representing commitments for an additional 27% of total project funds), as well as the contract for the urban planning sub-component; and (ii) the Government addressed nationwide CDC management issues through a decree establishing professional managers in each CDC to be hired by the State Secretariat for Youth and Sports. In Quartier 7, a CDC manager was appointed in January 2012; by March 2012, facility usage had drastically increased and repairs were underway to ensure better maintenance. 10. By June 2012, the agreed-upon Action Plan was fully implemented, all mid-term intermediate indicators had been achieved, commitments stood at 83%, disbursements had steadily resumed (17% in November 2011, 33% in June 2012, and 48% today) and subsequently, project ratings were upgraded to Moderately Satisfactory. This reflected strong commitment on the part of government to carry this project forward and to achieve the PDO. 11. Implementation ratings for Procurement, Financial Management, and Environmental Safeguards are all rated Moderately Satisfactory (MS) or Satisfactory (S). While OP 4.12 was not -6- triggered under the project, one case of economic activity relocation has arisen, for which an action plan through amicable resolution was designed in consultation with the Regional Safeguards Advisor. Its implementation has been closely monitored by the task team.. –An amicable settlement has been reached and documented between the relevant State counterpart and the affected person. The team will seek LEGEN views on the adequacy of this settlement and will keep monitoring the situation. C. PROPOSED CHANGES 12. Despite very substantial progress achieved under the project, changes are required in the components and indicators, funds should be reallocated, and an extension of the closing date is required so that the project can achieve its current development objective within the available funding. 13. Components: The three project components will be maintained. However, some changes are needed to sub-components beyond normal adjustments made in the course of project supervision, as follows: (i) Component 1 (Improvement of Infrastructure): the total length of streets to be rehabilitated would be reduced from 3 km to 2.2 km. The original Grant (NoH365-DJ) included the rehabilitation of 1.5 km of streets (paving and drainage), and an additional 1.5 km were added in the additional Grant (No. H582-DJ). However, at the time of contract award, it appeared that the lowest evaluated price for these works was 47% higher than the costs estimated at appraisal of the original project (the same unit costs were also used to appraise the Additional Financing). This increase was due to: (a) an optimistic initial estimate, based on outdated unit costs; (b) substantial price increases in Djibouti between appraisal and actual tendering; and (c) the limited competition for such works on the Djibouti market. Since this increase could not be entirely absorbed by the project’s unallocated funds, it was decided to remove one of the streets from the project scope (Avenue 39), keeping however basic access functionality with the rehabilitation of two north-south streets, and one east- west, to be funded as follows: about 1 km from Grant No. H365-DJ (P08876), and about 1.2 km from Grant No. H582-DJ (P120190). In addition to reducing the required, this also reduces some technical risks (due to modifications needed to a sewage collector). ADDS is seeking to identify further multilateral funding to execute the rehabilitation of Avenue 39 at a later date. (ii) Component 2 (Community Development): the project will no longer establish a community scheme for garbage collection, but will focus instead on technical assistance complementary to investments by the Agence Française de Développement (AFD), the European Union (EU) and the Japan International Cooperation Agency (JICA) in this sub- sector. Project funds will be partly used for technical assistance to the public operator (Office de la Voirie de Djibouti, OVD) which was identified in a Public-Private Infrastructure Advisory Facility (PPIAF) financed study as a critical roadblock for any improvement in solid waste collection in Quartier 7, including through community systems. This will carried out in coordination with AFD which is launching a large, community-based solid waste management project, and with JICA which will be funding equipment for OVD, and thus contribute to the integration of donor initiatives. -7- 14. Regarding individual household sanitation, the willingness to pay survey and latrine prototypes have shown that unless a dedicated funding scheme is created and costs are further reduced, it is unlikely that households would invest in individual latrines at this stage. The project will thus continue to fund a campaign that promotes individual sanitation and a techno-economic study to explore possible cost-reducing technical alternatives, in coordination with the United Nations Development Program (UNDP), without expecting direct household investments by the grant closing date. 15. Results/indicators: The proposed restructuring does not change the overall PDO. The Results Framework, however, would be revised to reflect the impact of changes in the sub- components described above, and to adjust various definitions or targets for greater candor, based on information collected since Appraisal. These changes, together with their rationale, are detailed in Table 2 below, and a complete revised Results and Monitoring Framework is included in Annex 1. Table 2: Changes to the Original Monitoring Framework Current Indicators Revised Indicators Comments and 20132 Targets and 20132 Targets Project Outcome Indicators Project Beneficiaries 16,800 direct project  Indicator added to meet Core (None) beneficiaries, of which 50% Sector Indicator requirements. female. Basic Infrastructure Number of properties within  Number of properties within The adjustment reflects the 50m of surfaced roads increase 50m of surfaced roads reduction in the length of by 50%. increases by 35%. streets to be rehabilitated. 10% of households willing to 10% of households have been  This is aligned with the invest in new latrines. made aware of the benefits of revised outcome expectations investing in new latrines. of this sub-component, following the willingness to pay survey. 70% of households benefiting Dropped  Under the proposed from an organized solid waste restructuring, the project will collection. not directly improve coverage. Dropped 40% reduction of rain water  There is no measurable evacuation time baseline or measurement method. However all streets to be resurfaced under the project will still benefit from new drainage, which is captured in output indicators. Facilities 1000 Quartier 7 residents 540 Quartier 7 residents  Targets have been revised to 2 2013 unless another date is specified. -8- making use of the Community making use of the Community more realistic values Development Center and its Development Center and its reflecting experience on equipment. equipment. CDCs and health centers in 70% of Quartier 7 residents 47% of Quartier 7 residents other districts of Djibouti. making use of health center. making use of health center Community Development   of 10% of Quartier 7 residents  of 5% of Quartier 7 residents Targets have been revised to   all age groups, of which 50% all age groups, of which 50% more realistic values  women, benefit from the  women, benefit from the reflecting experience with  community development sub- community development sub- community development subprojects in the first phase  projects.  projects. of DUPREP. Job creation   12,000 person-days of short-  20,000 person-days of short- The target has been increased term employment created term employment created in line with the adoption of a under the project. under the project. more labor intensive road paving technique. Intermediate Results Indicators Component 1 Basic infrastructure Road rehabilitation and Road rehabilitation and  The change reflects the drainage works will be 80% drainage works will be 50% revised project schedule. completed at mid-term, completed in 2012 and 100% in 2013. Intermediate Results Indicators Component 3 (None)   Launch (2012) and delivery This newly added indicator (2013) of the Djibouti-Ville captures progress made on Master Plan, one of the only remaining activities of Component 3. 16. Reallocation. Since all but one of the larger infrastructure sub-components have been committed (construction of the health center is under procurement), and procurement of the largest technical assistance sub-component (the Djibouti-Ville Master Plan) has also been completed, there is sufficient cost certainty to allocate the unallocated amounts under each Grant. In comparison to the initial allocation3, there have been cost increases in all components and the total unallocated amount, SDR 520,000, will thus be reallocated as follows: SDR 188,000 under Component 1: Improvement of Infrastructure; SDR 97,000 under Component 2: Community Development; SDR 211,000 under Component 3: Technical Assistance; and SDR 24,000 under Component 3: Project Management. 17. While eligible expenditures under the original IDA Grant (Grant No.365-DJ) excluded taxes, they include taxes under the additional IDA Grant (Grant No.582–DJ). The change was made for the additional financing following the introduction of a value added tax in Djibouti. Under the proposed restructuring, eligible expenditures would be aligned between the original and additional grants, to include taxes which would simplify the financial management of the project. A detailed revision of the reallocation of grant proceeds is presented in Annex 2. 18. Closing date: A ten-month extension of the project’s closing date is proposed, from May 31, 2013, until March 31, 2014, for both Grant No. 365-DJ and Grant No. 582–DJ. This would be 3 There was a minor reallocation between components in 2009, as shown in Annex 2. -9- the first extension of the project’s closing date since the approval of the Additional Financing4. The closing date extension is necessary in order to allow sufficient time for completion of the Djibouti-Ville Master Plan (expected duration: 18 months) under Component 3 (Technical Assistance). The corresponding consultancy services in October 2012 and their delivery schedule have now been confirmed and this would be the last project activity to complete. Although the ongoing infrastructure works are scheduled to be completed before June 30, 2013, the previous project delays and the shift to more time-intensive technology (cut stones instead of asphalt), the current closing date does not allow for additional time in case of unforeseen delays during construction. The proposed extension would thus provide a contingency buffer for unexpected delays. D. APPRAISAL SUMMARY 19. Economic, financial and technical analysis. The original (2009) economic rate of return estimate for the entire project was 12%, obtained through a forecast in the increase of property values due to project investments. This increase was calculated with a hedonic regression methodology, using another area of Djibouti (PK12) as a control. Since the length of roadway to be paved is the only change in investments under the proposed restructuring – namely, reducing the output for that component by 27% for the same monetary investment (itself representing 27% of the project investment), the economic rate of return (ERR) would empirically be expected to decrease with this restructuring. However, the very small data sample available for the 2009 analysis entails a wide margin of uncertainty. In particular, the property valuation coefficient calculated for ‘proximity to a paved road’ was close to zero, resulting in a calculated non - significant change in the estimated ERR for this restructuring under the existing model. 20. Social and Environment: The proposed restructuring would not result in any changes to the appraised social and environmental aspects. In particular, all roads to be resurfaced had already been included in the environmental impact assessment. 21. The proposed changes do not affect any other activities appraised under the original and the additional financing grants, in terms of procurement, fiduciary, implementation arrangements, or risks. 22. The proposed changes do not trigger any exception to Bank Policy. 4 When the Additional Financing was approved, the closing date of Grant No.365-DJ was extended by one year to align it with the closing date of the Additional Financing Grant No.582-DJ. Although Implementation Progress at the time was rated Fully Satisfactory, the alignment of completion dates allowed for optimizing the allocation of expenditures between the two grants. -10- ANNEX 1 Results Framework and Monitoring DJIBOUTI- URBAN POVERTY REDUCTION PROJECT Project Development Objective (PDO): Increase access to basic economic and social infrastructure and to community development opportunities within Quartier 7 in the city of Djibouti (unchanged) D=Dropped Responsibility Data Source/ C=Continue Unit of Cumulative Target Values Frequency for Data PDO Level Results Indicators Baseline Methodology N= New Measure Collection Core R=Revised End of 2012 End of 2013 Project beneficiaries Aggregation of other Semi-annual Direct project beneficiaries, N Number 0 n.a. 16,800 indicators, ADDS Reports of which female % 50% surveys, registrations Basic infrastructure (i) Number of properties within R5 % increase 0% 10% 35% 50m of surfaced roads (ii) Households aware of benefits R6 % 0 5% 10% Semi-annual Contract of investing in new latrines. ADDS Reports documentation (iii) Households benefiting from an organized solid waste D % 0 collection (iv) Reduction in rainwater 5 Targets decreased to match the reduction in length of roads to be resurfaced under the project. 6 Definition revised. -11- evacuation time D % 0 Community facilities (v) Quartier 7 residents make R (targets Number of 0 320 540 use of the Community decreased) users Development Center and its Semi-annual Registrations ADDS equipment. reports (vi) Quartier 7 residents make use of health center R (targets Percentage 0% n.a. 47% decreased) of residents Community Development Memoranda (vii) Quartier 7 residents of all R (targets Percentage 0 3.5% 5% of age groups, of which 50% decreased of residents Semi-annual understanding women, benefit from the based on ADDS reports with community development current associations, subprojects. program and reports new census data) Job creation (viii) Short-term employment R (targets Person- 0 15,000 20,000 Semi-annual Contractor ADDS created under the project. increased) days reports reports -12- INTERMEDIATE RESULTS Intermediate Result (Component 1): Completion of road rehabilitation and drainage works Completion % of road R % 0 50% 100% Semi-annual Contractor ADDS rehabilitation and drainage (2012 target) reports reports works Rainwater drains constructed or N total drain - 3,500 m rehabilitated length in m Intermediate Result (Component 1): Construction of various community facilities Completion % of Community C % 0 100% 100% Semi-annual Contractor ADDS Development Center reports reports Completion % of Health Center R % 0 Construction 100% Semi-annual Contractor ADDS (2012 target) launched reports reports Completion % of playgrounds C % 0 0% 100% Semi-annual Contractor ADDS and commercial spaces reports reports Intermediate Result (Component 2): Completion of community development subprojects Number of components C Number 0 4 launched; n.a. Semi-annual MoU with ADDS identified/launched identified / the rest reports associations launched/ identified completed Intermediate Result (Component 3): Delivery of the Djibouti-Ville Master Plan Stage of Master Plan study N Study 0 Launched Delivered Semi-annual Contractor ADDS status reports reports -13- ANNEX 2 Proposed Reallocation of Grant Proceeds DJIBOUTI- URBAN POVERTY REDUCTION PROJECT Aggregated total of IDA Grants H3560 and H5820 (DJIBOUTI-Urban Poverty Reduction Project and Additional Financing*) Proposed Current Initial allocation allocation * allocation Difference (a) (b) (c) (a)-(b) (a)-(c) Amount of Amount of Amount of Financing Financing Financing Category SDR SDR SDR SDR SDR Goods, works & consultant services for Part I 2, 348,000 2,066,900 2,160,000 281,100 188,000 Community Grants for Part II.1 and goods, works, consultant services & training for Part II.2 447,000 443,100 350,000 3,900 97,000 Consultant services & training for Part III 851,000 640,000 640,000 211,000 211,000 Project implementing fees 254,000 230,000 230,000 24,000 24,000 Unallocated 0 520,000 520,000 -520,000 -520,000 3,900,000 3,900,000 3,900,000 0 0 * Following the November 12, 2009, reallocation. -14- This aggregated total is split between two IDA grants, with the following disbursement tables (1) IDA Grant - H3560 (DJIBOUTI–Urban Poverty Reduction Project - P088876*) Initial allocation Current allocation * Proposed allocation %of %of %of Amount of Expenditures Amount of Expenditures Amount of Expenditures Financing to be financed Financing to be financed Financing to be financed (Exclusive of (Exclusive of (Inclusive of Category SDR taxes) SDR taxes) SDR taxes) Goods, works & consultant services for Part I 1,080,000 100% 986,900 100% 1,087,000 100% Community Grants for Part II.1 and goods, works, consultant services & training for Part II.2 220,000 100% 313,100 100% 321,000 100% Consultants' services (including audits) and Training for Part III of the Project 190,000 100% 190,000 100% 375,000 100% Project implementation Entity's fees 120,000 100% 120,000 100% 117,000 100% Unallocated 290,000 290,000 0 1,900,000 1,900,000 1,900,000 -15- (2) IDA Grant - H5820 (DJIBOUTI–Urban Poverty Reduction Additional Financing - P120190 *) Initial Allocation (current) Proposed Allocation %of %of Amount of Expenditures Amount of Expenditures Financing to be financed Financing to be financed (Inclusive of (Inclusive of Category SDR taxes) SDR taxes) Goods, works & consultant services for Part I 1,080,000 100% 1, 261,000 100% Community Subproject Grants for Part B.land goods, works, consultant services & training for Part B.2 130,000 100% 126,000 100% Consultants’ services (including audits) & training for Part C 450,000 100% 476,000 100% Project implementing Entity's fees 110,000 100% 137,000 100% Unallocated 230,000 0 2,000,000 2,000,000 *Following the November 12, 2009, reallocation. -16-