Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 36433-NG

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 13 8.10 MILLION (US$200.00 MILLION EQUIVALENT)

TO THE

FEDERAL REPUBLIC OF NIGERIA

FOR THE

LAGOS METROPOLITAN DEVELOPMENT AND GOVERNANCE PROJECT

June 7,2006

Water and Urban 2 Country Department 12 Africa Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective December 1,2005)

Currency Unit = Naira Naira 130 =US$] US$1.43 = SDR 1

ADR BIR CDA CEA C M C cos CPI CPS CRD cso CTC DBO DfID

ESIA FA FCT FGN FM FMF FMR GCP GIS GISF GTCC I C B I C T IDA IEC IFMIS IGR ISR L A C A LAMATA LASEPA LASG LASURA LASURB LAWMA LG LMDGP LSFAA

EBS-RCM

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

Alternate Dispute Resolution Board o f Internal Revenue Community Development Association Component Executing Agency Citizen’s Mediation Center Central Office o f Stitistics, Lagos Consumer Price Index Country Partnership Strategy Directorate for Citizen’s Rights Community Service Organization Community Technical Committee Design Build Operate UK Department for International Development Electronic Banking System o f Revenue Collection and Monitoring Environmental and Social Impact Assessment Federation Account Federal Capital Territory Federal Government o f Nigeria Financial Management Federal Ministry o f Finance Financial Management Report Lagos State Global Computerization Project Global Information Systems Government Improvements Support Fund Governance Technical Coordination Committee International Competitive Bidding Information Communication International Development Association Information, Education and Communications Integrated Financial Management System Internally Generated Revenue Implementation Status Report Local Action Committee on AIDS Lagos Metropolitan Transportation Authority Lagos State Environment Protection Agency Lagos State Government Lagos State Urban Renewal Authority Lagos State Urban Renewal Board The Lagos Waste Management Authority Local Government Lagos Metropolitan Development and Governance Project Lagos State Financial Accountability Assessment

LSPAR LSWC L U C LUTP MDA MEPB MPP&UD M&E MOE MOW MTEF N A C A N C B NEEDS O&M OAGS ODS OPD OPEN PCU PFD P F M P F M U P I M PSC PSP P U RAP RPF SACA SBD SCoA SEEDS SERAC SFAA SG SHoA SIL SLGP SNUWSRP SoE SPAR SSA S W M TA RIAP VAT

Lagos State Procurement Assessment Review Lagos State Water Corporation Land U s e Charge Lagos Urban Transport Project Ministries Departments and Agencies Ministry o f Economic Planning and Budget Ministry o f Physical Planning and Urban Development Monitoring and Evaluation Ministry o f Environment Ministry o f Works Medium-Term Expenditure Framework National Action Committee on AIDS National Competitive Bidding National Economic, Empowerment and Development Strategy Operation and Maintenance Office o f the State Accountant General Office o f Drainage Services Office o f Public Defender Oversight o f Public Expenditure under NEEDS Project Coordination Unit Project Finance Department Public Finance Management State Project Financial Management Unit Project Implementation Manual Project Steering Committee Private Sector Participation Project Unit Resettlement Action Plan Resettlement Policy Framework State Action Committee on AIDS Standard Bidding Document Standard Chart o f Accounts State Economic Empowerment and Development Strategy Social and Economic Rights Action Center State Financial Accountability Assessment State Government State House o f Assembly Sector Investment Loan State and Local Government Program Second National Urban Water Sector Reform Project Statement o f Expenses State Procurement Assessment Report Sub-Saharan Africa Solid Waste Management Technical Assistance Revenue Improvement Action Plan Value Added Tax

V ice President: Gobind T. Nankani Country ManagerDirector: Hafez Ghanem Sector Manager: Eustache Ouayoro Task Team Leader: Deepali Tewari

NIGERIA Lagos Metropolitan Development and Governance Project

A . 1 . 2 . 3 . B . 1 . 2 . 3 . 4 . 5 . C . 1 . 2 . 3 . 4 . 5 . 6 . D . 1 . 2 . 3 . 4 . 5 . 6 . 7 .

CONTENTS

Page

STRATEGIC CONTEXT AND RATIONALE ....................................................................... 1 Country and sector issues ......................................................................................................... 1

Rationale for Bank involvement .............................................................................................. 4 Higher level objectives to which the project contributes ......................................................... 4

PROJECT DESCRIPTION ...................................................................................................... 5 Lending instrument .................................................................................................................. 5 Project development objective and key indicators ................................................................... 5

Project components .................................................................................................................. 5

Lessons learned and reflected in the project design ................................................................. 7 Alternatives considered and reasons for rejection .................................................................... 7

Partnership arrangements ......................................................................................................... 8 Institutional and implementation arrangements ....................................................................... 8 Monitoring and evaluation o f outcomes/results ..................................................................... 10

Sustainability .......................................................................................................................... 10

Critical r isks and possible controversial aspects .................................................................... 10

Loadcredit conditions and covenants .................................................................................... 12

APPRAISAL SUMMARY ....................................................................................................... 12

IMPLEMENTATION ................................................................................................................ 8

Economic and financial analyses ........................................................................................... 12

Technical ................................................................................................................................ 13

Fiduciary ................................................................................................................................. 13

Social ...................................................................................................................................... 14 Environment ........................................................................................................................... 15

Safeguard policies .................................................................................................................. 16 Policy Exceptions and Readiness ........................................................................................... 16

Annex 1: Country and Sector or Program Background .............................................................. 17

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...................... 26

Annex 3: Results Framework and Monitoring .............................................................................. 27

Annex 4: Detailed Project Description ........................................................................................... 32

Annex 5: Project Costs ..................................................................................................................... 51

Annex 6: Implementation Arrangements ...................................................................................... 54

Annex 7: Financial Management and Disbursement Arrangements .......................................... 58

Annex 8: Procurement Arrangements ........................................................................................... 67

Annex 9: Financial and Economic Analysis ................................................................................... 74

Annex 10: Safeguard Policy Issues ................................................................................................. 92

Annex 11 : Project Preparation and Supervision ........................................................................... 94

Annex 12: Social Issues and Stakeholder Participation ............................................................... 96

Annex 13: Documents in Project File ........................................................................................... 103

Annex 14: Statement of Loans and Credits ................................................................................. 104

Annex 15: Country at a Glance ..................................................................................................... 106

Annex 16: Letter of Sector Policy ................................................................................................. 107

Annex 17: Conflict Resolution ...................................................................................................... 108

Annex 18: Information Education and Communications .......................................................... 112

MAP # IBRD 34469

NIGERIA

ASS OCLATION Total:

LAGOS METROPOLITAN DEVELOPMENT AND GOVERNANCE PROJECT

91.88 113.81 205.69

PROJECT APPRAISAL DOCUMENT

AFRICA

AFTU2

Date: June 7,2006 Country Director: Hafez M. H. Ghanem Sector ManagerDirector: Eustache Ouayoro

Team Leader: Deepali Tewari Sectors: General water, sanitation and flood protection sector (96%); Sub-national government administration (4%) Themes: Municipal governance and institution building (P); Other urban development (P) Environmental screening category: Partial Assessment

Project ID: PO71340

Lending Instrument: Specific Investment Lending

[ ]Loan [XI Credit [ ]Grant [ ]Guarantee [ ]Other:

For Loans/Credits/Others: Total Bank financing (uS$m.): 200.00

Borrower: Federal Ministry o f Finance Finance Headquarters, Central Area Abuj a Nigeria

Responsible Agency: Lagos State Government (LMDGP PCU) 347 B. Odusami St. of f Wempco Rd. Ogba Lagos Nigeria

Project implementation period: Start October 6,2006 End: March 29,2013 Expected effectiveness date: October 6,2006 Expected closing date: September 30,2013 Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 Have these been approved by Bank management?

[ ]Yes

Expected closing date: September 30,2013 Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 Have these been approved by Bank management?

[ ]Yes [XINO

[ ]Yes [XINO

0 f Yes f x j ~ o Does the project include any critical r isks rated “substantial” or “high”? Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The project’s objective i s to increase sustainable access to basic urban services through investments in critical infrastructure.

[XIYes [ ] N o

[XIYes [ ] N o

Project description [one-sentence summary of each component] Re$ PAD B.3.a, Technical Annex 4 A: Infrastructure: US$ 165.35 mill ion A (i): Upgrading (US$40.154 million). This component will build the capacity o f the Lagos State Urban Renewal Authority (LASURA) to assess, develop, plan and coordinate the execution o f a city-wide upgrading program, through the execution o f the upgrading subprojects in nine o f the largest s lums identified in 1995: Agege, Ajegunle, Amukoko, Badia , Iwaya, Makoko, Ilaje, Bariga, Ijeshatedohtire.

A (ii): Drainage (US$6 1.38 million). The drainage component will develop a long-term technical solution to flooding. A (iii): Solid Waste (US63.81 million). Solid waste activities will be unbundled to segregate collection, transfer, and disposal activities, and initiate private sector participation in transfer and disposal activities.

B: Public Governance and Capacity Building: US$ 5.97 mi l l ion

This component will support public finance and budget reforms, and the institutionalization of the use o f information systems for policy making and performance management.

C: Urban Policy and Project Coordination: US$ 12.13 mi l l ion

This component w i l l finance M&E, knowledge management and strengthening metropolitan policy dialogue, communications, and operating costs.

Which safeguard policies are triggered, if any? Re$ PAD 0.6, Technical Annex 10 Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OPBP/GP 4.01) [XI [ ] Involuntary Resettlement (OPBP 4.12) [XI [I

Significant, non-standard conditions, if any, for: Re$ PAD C.7 Board presentation: None. Loadcredit effectiveness: None. Covenants applicable to project implementation: None.

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues 1. Background. Nigeria, the most populous country, as well as the second largest economy in Sub-Saharan Africa (SSA), has an estimated population o f 136.5 mill ion people,’ growing at an annual rate o f 3 percent. Until 2004, economic growth had been stunted and Nigeria’s per capita GDP was an average o f US$390 over the past three decades. An overwhelming share of government revenues, 76 percent, comes from oil. 95 percent o f export earnings are also derived from oil. Substantial improvements in non-oil, non-government, private economy will be essential for Nigeria to realize i ts considerable potential for growth and poverty reduction. As outlined in Nigeria’s National Economic, Empowerment and Development Strategy (NEEDS), the Federal Government o f Nigeria (FGN) has initiated significant economic and financial management reforms that include improving the budgetary planning process; maintaining an oil-price based fiscal ru le to bind Federal and State governments to base their budgets on “long run” rather than “current” o i l prices; adopting a Medium Term Expenditure Framework (MTEF); strengthening the budget office; ensuring better collaboration on the budget between the State Government’s executive and the legislative branches; and making public procurement transparent, efficient, open and competitive.

2. Organization of Government and revenue sharing. There are 36 States in the Federation o f Nigeria, a Federal Capital Territory, and 774 Local Governments. Most o f the powers accorded to the States in the Constitution are exercised concurrently by the States with the FGN, and few powers are assigned exclusively to States. Local Government (LG) functions are specified in the constitution, but LGs are subject to varying degrees o f control and oversight by State Governments (SGs) depending on the enabling legislation passed by a particular State. Revenues from o i l and VAT are shared amongst the three tiers o f government as follows: Federal Government: 35 percent; SGs: 50 percent; and LGs: 15 percent.

3. Urbanization characteristics in Nigeria. Nigeria’s urbanization rate o f 5.5 percent per annum i s one o f the highest in the world. I t will cross the 50 percent urbanization mark by 2007, making i t s urban population the largest o f any low income country, except India. By 2020, 53.9 percent o f Nigeria’s poor as defined by income poverty will be city dwellers. Unlike most African countries dominated by one or two large cities, Nigeria has a broadly dispersed network o f cities, except for Lagos.

4. Lagos is a mega city of dominant economic importance not just for Nigeria, but West Africa as well. Lagos’ population i s larger than that of 37 individual countries in Africa. With an estimated population o f 11.14 mill ion (World Urbanization Prospects, 2003) expected to grow to over 17 million by 2015, Lagos’s population growth rate o f 4.8 percent per annum i s a remarkably high growth rate for a mega city.2 It i s the premier manufacturing and port city in West Africa, has the largest concentration o f multinationals and financial institutions o f the country, and i s home to almost 60 percent o f Nigeria’s non-oil economy.

’ 2005 World Development Indicators, CD-Rom, World Bank.

population grew at 0.3 % per annum. Shanghai’s population i s actually projected to decline over the same period at - 0.1 % (World Urbanization Prospects 2003 Revision).

Over the same period the population of Mumbai grew at 2.3 % per annum; Jakarta’s population grew at 3.1 %; and Tokyo’s

1

5, Investment needs far exceed available resources in Lagos. Despite i t s dominant economic status in Nigeria’s non-oil economy, Lagos i s a “poor city’’. I t s annual budget o f about US$650 mill ion i s small relative to the resources necessary for adequate infrastructure and service delivery for i t s people. By contrast, Delhi with a population o f 13.8 mill ion people has a budget o f US$2.6 billion; the Mumbai Municipal Corporation area with a population o f 11 mi l l ion has an annual budget o f US$1.6 billion, and Jakarta with a population o f 11 million, has a budget o f US$l.O billion, Furthermore, the poor coastal soil conditions in Lagos render infrastructure more expensive, which in turn exacerbates the limitations o f i t s small b~dget .~

6. Lagos ’ urban productivity is compromised by insuficient influstructure, inadequate cost recovery and poor information systems for urban management. Service delivery from existing limited infrastructure stock i s depleted due to negligible, systematic and routine maintenance over the past three decades. Under-investment in new municipal assets due to a lack o f resources has further exacerbated service delivery deficiencies to a large and growing population. Locally relevant data for planning, credible prioritization o f investments and programs, and monitoring the results of public expenditures does not exist. A breakdown in basic systems o f taxation and user charges during the military years has entrenched a culture o f non-payment for services. Establishing basic systems for the collection o f user charges and local taxation in Lagos will remain a substantial challenge to link cost recovery with sustainable service delivery in the years ahead.

7 . Inequality in Lagos is growing, and livability is poor. Almost 70 percent of Lagos’ population lives in slums4 in extremely poor environmental surroundings. Frequent knee-deep floods sweep raw sewage and refuse inside densely packed homes where overcrowding i s the norm. Whi le the average residential density for Lagos as a whole i s about 260 people per hectare, the population density in slums i s between 790 and 1240 people per hectare. Distortions in the housing market in Nigeria renders access to adequate and affordable housing limited, even for the middle class. Housing prices are high due to the non-availability o f long-term finance, high transaction costs for obtaining land tit les andor certificates o f occupancy, regulatory and planning controls for building and construction that constrain the efficient utilization o f land, as well as high inflation rates in the Nigerian economy. The impact o f these distortions i s exacerbated in Lagos because of its small land mass in comparison to the land mass o f other States. Slums are therefore, a consequence o f both market and government failure. To achieve any real improvement in the lives o f Lagos’ poor, s l u m upgrading i s the only realistic option, coupled with policies to address the deeper problems that allow people l i t t le choice but to live in such conditions.

8. Flooding affects livability beyond the poor neighborhoods. Regular flooding o f large parts of the city, including at higher elevations, i s the single most important infrastructure problem for Lagos,’ as these floods cause enormous damage to property and infrastructure, exacerbates traffic congestion as roads get flooded, and is a public health hazard. 43 percent o f households in metropolitan Lagos experienced flooding in their streets last year, 16 percent experienced flooding inside their homes, and more than 33 percent o f the households undertook repairs to their property

I t i s estimated that a functioning network o f drains and roads i s about US$260-270 million in the immediate term, with medium term needs estimated to be about US$520 million. A fknctioning well managed drainage network i s expected to require between US$80-90 million over the next five years, while the road network will require over US$715 million over the next five years. For water supply, expansion according to master plans i s expected to cost US$2 billion over 20 years.

Community Infrastructure Upgrading Program, SNC-Lavalin International, 1995 Apart from electricity.

2

due to damage from floods. Tackling the problems o f floods has seemed an overwhelmingly complex task so far, partly because o f the resource needs, but also due to the poor institutional capacity to develop and apply modern planning tools for the management o f a complex drainage system. Consequently, at present, there i s no technical basis to either develop a rational sequence of activities for the management o f the drainage sector, or to guide institutional reforms to enhance the efficiency of l imited available expenditures. Ad hoc interventions have been the norm.

9. Institutional and financial issues. While affordable solutions to reduce flooding can be found, ensuring sustained benefits from investments wil l require substantial institutional reform and coordination.6 A long-term down-stream solution to the 11 8 kilometers o f primary and secondary drains must be developed and implemented by the Office o f Drainage Services (ODs), so that investments by other agencies yield sustained benefits. However, in the absence o f adequate, predictable and reliable funds from general revenues for the systematic O&M o f the system by the ODs, any reduction in flooding through capital investments will be hard to sustain.

10. Poor solid waste management compounds flooding. Benefits from improvements in the drainage system will also require concurrent improvements in the solid waste management (SWM) system, as a substantial amount o f solid waste finds i ts way into the drains. It i s estimated that Lagos generates somewhere between 4,000 tons to 6,000 tons o f waste per day. Of this amount, it i s estimated that up to 90 percent i s collected from the neighborhoods but only 60 to 70 percent i s transported to the three official landfill sites. A l i t t le over 40 percent o f the collection i s done by the private operators appointed by the Ministry o f Environment (MoE), and about another 40 percent by truck pushers or informal collectors employed by individual households (refer to paragraph 61 for details).

1 1. Publicfinance and cost Recovery: In 2004, Lagos’ internally generated revenue (IGR) was about 64 percent o f the total recurrent revenue; Federal transfers accounted for the balance. Consequently Lagos remains vulnerable to the fluctuations in o i l prices. Given the on-going support of the International Development Association (IDA) for the road and water sectors7, recurrent cost implications of the additional proposed investments under th is Project, especially for public goods, i s an issue that must be addressed. In most cities, property taxes are a substantial part o f general revenues*. In Lagos, however, property tax rates have been historically very low’. Increasing the yield from this source o f revenue, therefore, i s critical for Lagos State Government (LASG) to sustain benefits from investments in drainage and solid waste. Results o f major reforms in property taxation during the f irst term o f the current administration have remained elusive, at least in part due to i ts poor implementation and administration. Increasing yield from property related charges remains a critical issue (see Annex 1 paragraphs 65-67).

Office of Drainage Services (ODS) under the Ministry o f Environment (MoE), the Public Works Bureau that reports through a Permanent Secretary to the Ministry o f Works (MOW), the newly created agency called the Drain Ducks that reports directly to the Commissioner for M O W with funds allocated through the Public Works Bureau, and with the twenty LGs, sixteen o f which are within the metropolitan area. ’ Lagos Urban Transport Project (US$lOO million) and Second national Water Sector Reform Project (Lagos’ allocation i s US$116 million). In Rio de Janerio, for example, property taxes are the second largest source o f revenue and constitute 29 % o f I G R in US cities,

property taxes account for as much as 75% of IGR in the Bombay Municipal Area, property taxes constitute 25% of IGR. In Lagos, actual collections from tenement rates in 2000 were only US$2.3 million, or 1% o f Internally Generated Revenues. In 2000, actual collection from tenement rates was 1 percent o f IGR against the potential o f 13 percent. In Rio de Janeiro property

taxes constitute 29 percent of IGR, 25 percent in Mumbai, and as much as 70 percent in cities in the United States.

3

12. Substantial progress in hdamenta l areas essential for improving urban management and service delivery, however have been made. Apart from initial steps to improve the preparation of the budget, L A S G has: (i) introduced an Electronic Banking System o f revenue collection and monitoring (EBS-RCM); (ii) implemented a computerized integrated financial management system (IFMIS); and (iii) modernized the State’s land registry and record system.

13. L A S G recognizes that infrastructure expansion i s as necessary as making available adequate resources for the maintenance of existing assets. Advancing the governance reform agenda in Lagos for integrated metropolitan development i s essential for economic growth and sustainable service delivery for poverty reduction. With no municipal administration devoted to responding to the needs o f a city, Lagos, de facto a quasi city-state, i s managed l ike a State through the State budget, civil service, and parastatal institutions. Policy and institutional reforms must therefore be implemented at the State level with appropriate accompanying measures at the LG level. This Project will provide support for on-going efforts o f LASG to improve governance and service delivery in order to enhance the productivity o f f i r m s and households in the metropolitan area.

2. Rationale for IDA involvement 14. The Project rationale derives from IDA’S experience with integrated development in large cities in China, India, Indonesia, Brazil and Pakistan. Experience highlights that cities need a sustained flow o f services to contribute to growth, not just infrastructure stock. Service delivery requires substantial institutional reforms, including the facilitation o f private sector participation. These reforms take time. The ability to support sizable investment over lengthy periods of time gives IDA the comparative advantage to both facilitate and sustain reform processes during the transition, thereby enhancing prospects for the effectiveness o f public expenditures. Another advantage i s IDA’S substantial knowledge acquired over two decades o f engagement with Lagos. Recommendations o f the Bank’s 1982 Urban Sector Review were supported by US$304.2 mill ion of infrastructure investments through three operations between 1985-1999. Since 2003, cross- sectoral analytic work and policy dialogue under the Lagos Strategy has further enhanced IDA’S knowledge to provide cohesive, multi-sectoral, and strategic support for integrated metropolitan development. This has also enabled IDA to facilitate dialogue with diverse stakeholders on key policy issues, including service delivery. The support under the Lagos Urban Transport Project (LUTP) and the Second National Urban Water Sector Reform Project (SNUWSRP) were deliberately conceived along with LMDGP, to upgrade Lagos across sub-sectors.

3. 15. This Project i s consistent with the objectives and approach o f the Country Partnership Strategy (CPS) that supports Nigeria’s NEEDS. The CPS aims to achieve the following results: (i) improved service delivery for human development; (ii) improved environment and services for non- o i l growth; and (iii) improved transparency and accountability for better governance, Lagos is one of the lead States of the CPS, and the proposed Project supports results packages (i) and (iii).

Higher level objectives to which the Project contributes

(i) Results package for improved service delivery for human development. The upgrading component will increase sustainable access to roads, drains, water, schools, and clinics for over 1 mill ion s l u m dwellers in the nine selected slums. The drainage component will reduce flooding in

4

metropolitan Lagos, particularly in Mainland, and Aj eromi-Ifelodun LGs" where the two drainage systems selected for rehabilitation lie. The S W M component will contribute to reduced flooding in metropolitan Lagos, to more effective functioning and a reduced maintenance burden o f the road network, thereby contributing to productivity enhancement o f the f i r m s and households in Lagos.

(iii) Results package for improved transparency and accountability for better governance. The governance component will result in the availability o f timely and reliable financial information to assist LASG in policy formulation and implementation; more effective expenditure control; improved cash management; improved program execution, especially in the priority sectors; results- based budgeting, targeting, expenditure and impact monitoring; and the establishment o f feedback mechanisms to the public.

B. PROJECT DESCRIPTION 1. Lending instrument The lending instrument i s a sector investment loan (SIL).

2. 16. The Project's objective i s to increase sustainable access to basic urban services through investments in critical infrastructure. Progress towards achieving the objective o f the Project will be measured through: (i) increase in the percentage o f population with access to safe water in the selected 9 slums; (ii) reduction in the percentage o f households reporting flooding in the LGs where the selected drainage basins lie; (iii) increase in the percentage o f generated garbage in Lagos that arrives for disposal at landfills; and (iv) reduced deviation between actual expenditures and the approved budget.

Project development objective and key indicators

3. Project components 17.

A: Infrastructure: US$165.35 million B: Public Governance and Capacity Building: US$5.97 million C: Urban Policy and Project Coordination: US$12.13 million

The Project includes the following components:

A Project Preparation Advance o f US$1.04 mill ion was made available.

Contingencies in the Project are US$15.49 million.

A. Infrastructure: US$165.35 million

A (i) Upgrading (US$40.15 million). This sub-component will build the capacity o f the Lagos State Urban Renewal Authority (LASURA) to assess, develop, plan, and coordinate the execution of a city-wide upgrading rogram through the execution o f the subprojects in nine o f the largest slums identified in 1995, covering 760 hectares and housing over 1.1 mi l l ion people. In addition IP

lo In these LGs, estimated to be home to 1.9 million people, 29 percent o f the households reported flooding inside their homes within the last year, while 59 percent reported flooding in the streets o f their neighborhoods.

Agege, Ajegunle, Amukoko, Badia, Iwaya, Makoko, Ilaje, Bariga, Ijeshatedontire

5

to Training (US$0.20 million) and Operating Costs (US$0.08 million), the Project will support: (i) technical assistance (TA) for LASURA to develop a city-wide upgrading program; (ii) LGs to strengthen maintenance o f tertiary infrastructure; (iii) TA for the Ministry o f Physical Planning and Urban Development (MPP&UD) to develop slum prevention policies; (iv) delivery o f an HIV/AIDS awareness campaign; (v) a Social Sustainability program to increase ownership o f upgrading investments; and (vi) Conflict Resolution.

A (ii) Drainage (US$61.38 million). This sub-component will develop a long-term technical solution to flooding. In addition to Training (US$0.20 million) and Operating Costs (US$0.04 million), th i s sub-component will support: (i) the highest priority c iv i l works investments to mitigate flooding; (ii) the establishment o f an efficient GIS database management system using satellite imagery with relevant GIS software; (iii) a rational reassessment o f drain designs to develop a prioritized construction program; (iv) a deferred maintenance program to clear the large volumes o f solid waste, silt, and vegetation which has built up over the years; (v) the development of a routine maintenance program to mitigate the extensive flooding that annually plagues the city; (vi) TA and training for the ODs; and (vii) Conflict Mitigation.

A (iii) Solid Waste Management (US$63.81 million). S W M will be unbundled to segregate collection, transfer, and disposal activities, and initiate private sector participation in transfer and disposal activities. The Project will finance: (i) civi l works for the construction o f 2 - 4 transfer stations, and the upgrading o f two landfill sites; (ii) communal depots; (iii) TA for the Lagos State Waste Management Authority (LAWMA) to develop appropriate solid waste collection routes, contract instruments for private sector collection, and contract instruments for the management and operations o f transfer stations and landfills, in addition to design, build, operate (DBO) contracts for disposal and transfer to be financed by IDA; (iv) TA for Lagos State Environmental Protection Agency (LASEPA) and M o E to enable them to better discharge their functions; and (v) evaluations of the efficiency o f the S W M system thrice during implementation.

B.

18. To support budget

preparation and expenditure management reform, and expenditure tracking in specific sectors the Project will finance: (i) an update o f the public finance legislation; (ii) consolidation o f the MTEF; (iii) improve budget execution and treasury management; (iv) consolidation o f the IFMIS for implementation by economic infrastructure and social service ministries.

B (ii) Economic Intelligence and Service Delivery (US$l. 70 million). The Project will support the Central Office o f Statistics, Lagos (COS) to (i) consolidate/institutionalize the initiative of surveys o f f i r m s and households; and (ii) enhance economic performance and service delivery monitoring.

B (iii) Leadership Enhancement Program (US$O. 30 million). Leadership training program designed for mixed cohorts, including managers and political appointees from the public sector, the business community and civ i l society.

Public Governance and Capacity Building: US$5.97 million This component will support the following:

B (i) Public Finance Management Reforms (US$3.97 million).

6

C. Urban Policy and Project Coordination: US$12.13 million 19. Under this component the Project wil l finance: (i) knowledge management to strengthen metropolitan policy dialogue, including consultations around specific infrastructure, growth, and metropolitan development issues facing Lagos; (ii) communications to inform and educate all stakeholders about the potential benefits o f LMDGP; (iii) conflict resolution; (iv) strengthening of the capacity o f Citizens’ Mediation Centers (CMC) and the Office o f the Public Defender (OPD); (v) systematic monitoring o f processes and intermediate results o f LMDGP; (vi) and operating costs o f the PCU.

4. 20. Knowledge gained from the “Lagos Strategy”12 defined reforms and investments included in LMDGP. The Project’s design also integrates lessons from the World Bank’s Operations Evaluation Department’s sector study “Improving the Lives of the Poor through Investment in Cities: An Update on the Performance of the Urban Portfolio” (2003):

(i) Building on past operations and scaling up urban poverty interventions. Three lessons from IDA-supported projects in Lagos have informed the design o f LMDGP as follows: (a) community participation i s central to the design o f the upgrading interventions proposed; (b) scaling up slum upgrading as a focused poverty intervention has been central to IDA’S dialogue with LASG, and Project investments are within an overall city-wide upgrading program; (c) granting autonomy to the solid waste authority (LAWMA) i s a core element o f the sector policy adopted by LASG for the sector. (ii) Unequivocal ownership of projects with implementation arrangements that enable coordination of metropolitan functions. Unequivocal ownership o f LMDGP interventions developed through dialogue under the Lagos Strategy i s reinforced by the inclusive implementation arrangements o f the Project as it i s overseen by a coalition o f public and private sector. The coordination of metropolitan functions i s ensured as the PCU reports directly to the Governor, as do the heads o f other utilities.

(iii) M&E and reporting on results of poverty alleviation, especially from the city to the sectorhtrategic levels. A city-wide baseline o f non-income poverty was established during Project preparation by the COS under the Lagos Ministry o f Economic Planning and Budget (MEPB). This baseline, to be updated every two years, has provided a sound foundation to target interventions; provide measurable, location specific outcomes o f interventions that can be shared with citizens through feedback mechanisms; and will enable the tracking o f poverty alleviation outcomes over time.

Lessons learned and reflected in the Project design

5. 21. Following LASG’s request to IDA in 2000 for support in multiple sectors including master planning, IDA attempted preparation o f one large multi-sectoral Project to support transport, water, drainage, sewage, housing finance, slum upgrading and urban management. This was eventually

Alternatives considered and reasons for rejection

In 2003, IDA initiated support to the Lagos State Government in its ongoing efforts to develop a Strategy for Economic Development and Poverty Reduction, with a view to identifying comprehensive reforms and investments that would contribute to growth and employment creation. A multisectoral IDA team has since partnered with a core group of leaders in Lagos drawn from the public sector, the private sector, and civil society to share information and ideas. During this time, IDA delivered formal and informal diagnostics, policy advice, and shared knowledge through participation in Lagos’ Annual Economic Summits, a forum that drew diverse stakeholders together to find joint solutions to the problems in Lagos.

7

rejected, because o f the complexity o f one large operation, and the transfer environmental risks from one component to the rest o f the Project. In 2001 a decision was taken to support Lagos through three manageable, separate, SILs (transport, water, and urban) interlinked by cross cutting sector work to support growth and poverty reduction. LUTP was approved in FY03, and support for water under SNLTWSRP in FY05. LMDGP includes the remaining elements, except sewage13 and housing finance.14 A governance component was essential to include, in order to ensure sustainability o f proposed investments.

C. IMPLEMENTATION 1. Partnership arrangements 22. The partnership between DFID and IDA and other donors i s crafted to ensure coherence in the efforts to support LASG's priorities: (i) Governance reforms: DFID will strengthen LASG's Board o f Internal Revenue (BIR), to ensure that the gains made so far on the revenue side, are not reversed. LMDGP support i s focused on the budgeting and expenditure side; (ii) Information Technology for Citizen Access: The Directorate for Citizens' Rights (CRD) under the Ministry o f Justice" offers free access for human rights and consumer protection, access to public defenders, and free citizens' mediation (see Annex 17). The CRD will be the focal point for free and quick access to grievances; and (iii) Civ i l Society Dialogue: DFID i s facilitating constructive dialogue with CSOs to mitigate against the r i sk o f implementation delays for LMDGP.

2. Institutional and implementation arrangements 23. The Project will be implemented over a period o f seven years from October 2006 to March 201 3. Reflecting the decentralized nature o f the Project, the implementation arrangements have been designed to offer a fine balance between effective overall supervision and monitoring o f activities at the Project level, as well reinforcing the management and institutional responsibilities o f individual Project components and subcomponents. Importantly, the overall arrangements have also been designed to facilitate inclusive governance.

24. Project Steering Committee (PSC). The Project i s overseen by a PSC chaired by the Governor o f Lagos State (or h i she r representative). The PSC consists o f a balanced representation from the public and private sectors. Private sector membership currently includes the Managing Director and Chief Executive o f a leading manufacturing company, Managing Director o f a leading Pharmaceutical Company, Head o f the Social and Economic Rights Center (SERAC), and the Editor o f a leading national newspaper. Members from the public sector include Commissioners o f ministries associated with the Project, one LG chairman elected to represent the six LGs involved in the s l u m upgrading component, CEOs o f public utilities, and a member o f the State House o f Assembly (SHoA). The PSC will be responsible for ensuring timely implementation o f LMDGP by the Project Coordination Unit (PCU) and convene quarterly to: (i) review progress reports prepared by the PCU, and clear the forwarding o f these reports to IDA with comments; (ii) review and approve annual work programs and budgets; (iii) ensure that agreed performance targets and time

l3 LASG issued a legislation transferring the responsibility for sewage collection and treatment to the Lagos Water Supply Company (LSWC), and sewage was therefore excluded from LMDGP. l4 Housing finance was assessed to be too difficult at this time as a result of the land and financial sector policies that affect the housing sector in Nigeria. A pilot housing finance intervention was therefore not included in LMDGP. '' DFID, the Open Society Initiative and the Ford Foundation have collaborated to enhance access o f Lagos citizens to justice.

8

l ines for activities under the different components are met; and (iv) proactively address critical issues that could hinder Project implementation.

25. A PCU headed by a competitively recruited, qualified director f rom the private sector has been established under the Office o f the Governor of Lagos State. Other full time staff include a procurement specialist, an engineer, an upgrading specialist, a communications specialist, an M&E specialist, and support staff proficient in the use of information technology, drawn from LASG’s civil service or the private sector as necessary. In addition, each Component Executing Agency (CEA) will designate a focal person to liaise systematically with the PCU. To ensure effective implementation o f LMDGP, the PCU will be responsible for: (i) overall technical management, including preparation o f engineering designs and environmental impact assessments and mitigation plans; (ii) procurement and financial management; (iii) monitoring, evaluation and reporting on progress; and (iv) coordination with CEAs.

The Project Coordination Unit (PCU).

26. The Lagos State Project Financial Management Unit (PFMU). The PFMU will deploy a full Project financial management (FM) team to the LMDGP PCU to undertake the FM responsibilities during Project implementation. The head o f this team will report primarily to the LMDGP Project Director and will have the authority, as one o f the two PFMU signatories, to s ign PCU approved payments. The Project Director will be the primary signatory o f Project accounts on the PCU side of the management team. These FM arrangements wil l be revisited six months into Project effectiveness to evaluate their performance and make necessary adjustments. Procurement will be managed by the PCU. To mitigate against the procurement risks identified in March 2005, the Recipient had put in place several key measures by February 2006: the PCU i s established under the Governor’s Office; a diverse PSC i s established to approve annual work and procurement plans; a competitively recruited Director from the private sector has assumed office, and i s authorized by the Governor to award and sign all contracts, and be responsible for contract management; all PCU staff have become familiar with IDA’S procurement procedures through learning by doing over the last year including the procurement officer who has prior experience with Bank-supported projects; and the engineering firm to prepare the detailed engineering i s required to provide continuous on- the-job training as wel l as professional procurement support to the PCU. These arrangements are detailed in the Project Implementation Manual that i s under review. Furthermore, the PCU will be equipped with “Client Connection” accessibility, to allow for streamlined procurement and disbursement procedures, and PCU staff will be re-trained annually or as needed during implementation.

27. Component Executing Agencies (CEAs). CEAs will have the primary responsibility for the execution o f the components and sub-components falling within their respective mandates, including carrying out day-to-day activities in l ine with LASG policies and broad annual work plans and budgets reviewed by the PSC. All CEAs are existing agencies (such as LASURA for Urban Upgrading, LAWMA for solid waste management). Appropriate officers to be deployed from existing departments o f CEAs will be entrusted with the execution o f Project activities. CEAs will be supported through the provision o f TA, consultancy services and staff training, as necessary.

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3. Monitoring and evaluation of outcomes/results

Risk Risk Mitigation Measure

To project development objective Commitment to reform affected by 2007 elections and/or bureaucratic stakeholders favoring the status quo o f slow implementation.

A participatory approach will be taken throughout the implementation o f the Project with all stakeholders, supported by communications.

28. The Project will support the OS in MEPB to design and develop a Monitoring and Evaluation (M&E) system that will generate information on the metropolitan level outcomes o f LMDGP as wel l as the performance o f LASG’s own programs. Selected indicators for LMDGP are drawn from a survey o f 6,000 households in the metropolitan area, completed by the OS in August 2005. This office will report on the selected metropolitan level indicators in 2007, 2009, and 201 1. The PCU will also develop an M&E system to monitor and track progress on Project components and sub-components.

Risk rating

Substantial

4. Sustainability

29. As a result of the dynamic leadership from the State Governor and key cabinet members, LASG has sustained an intense policy dialogue with IDA, and quick decisions on key issues have been taken during Project preparation.I6 Beyond this political commitment at the highest levels in Lagos, however, sustainability remains critically dependant on the availability o f adequate resources and their appropriate deployment for O&M o f municipal assets.

30. LASG has reformed the BIR to further enhance internal revenue collection. Additional steps taken by LASG to ensure financial sustainability o f investments supported by the Project include: a trend of increasing actual recurrent expenditures, excluding personnel costs for drainage over 2003, 2004 and 200517 and LASG’s commitment to sustain this level o f recurrent spending in the sub- sector in the medium term; the granting o f full operational autonomy to LAWMA within the context of LASG’s Environmental Policy (refer to Annex 1 paragraph 61-64); LASG’s agreement to provide LAWMA with adequate subsidies to cover initial losses until the incentives being put in place lead to systematic improvements in solid waste collection and fill cost recovery for collection; strengthening the monitoring capacity o f the MOE; and ongoing reforms in the State’s fiscal management system, partially supported under the Project, to improve efficiency o f budget allocations, expenditure monitoring and accountability. The communications and knowledge- sharing elements coupled with the inclusive Project implementation arrangements will strengthen demand for sustainable results.

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neffective coordination o f netropolitan finctions.

hsufficient resources to finance innual maintenance of the selected lrainage systems and the S W M system. Risk results mainly from qolatility o f o i l revenues which iffects the transfers o f resources to ;he State from the FA.

I’o Component Results Zonflicts around the locations o f infrastructure improvements not resolved proactively, could affect the timely and sequenced implementation o f activities, even with respect to improvements outside the Project area.

Private sector fails to assume design, build, and operate contracts for transfer stations and landfill site in the solid waste sector.

Public Finance management reforms are delayed because of weak ICT capacity.

To Implementation Delegation o f authority to the PCU for implementation i s not realized.

Insufficient knowledge and experience with IDA’S procurement procedures causing substantial delays in Project implementation.

LMDGP overseen by inclusive PSC with balanced representation o f private and public sector. I’he PCU i s under the Governor’s Office, where inter- ministerial coordination meetings are already systematic. Deepen LASG’s on-going program to capitalize on major recent improvements in IGR collection with additional support now coming from DFID. htroduction o f a multi-year budgeting in a medium- term fiscal framework to better prioritize and plan for expenditures, especially for the maintenance o f infrastructure and the delivery o f basic urban services. Greater PSP in the S W M sector, including more effective collection zones and contract instruments to increase efficiency o f S W M .

LASG committed to follow the principles o f the RPF for LMDGP, for any infrastructure upgrading in the metropolitan area. ESIA and RPF Framework have been prepared by LASG. A Conflict resolution mechanism i s established. Communities have been sensitized and mobilized to participate. A strong communications component i s an integral element o f the Project. To ensure that the framework within which private sector participation i s sought for the management and operations o f the landfill sites and transfer stations, IDA will facilitate inputs from the private sector on a draft framework paper, so that private sector concerns are addressed in the framework and adequate comfort measures for PSP exist, prior to requesting bids for the DBO contracts. Intensive staff training and recruitment o f young graduates when necessary. Development and close monitoring o f time table for migration from manual or semi-manual public finance systems, to businesses processes based on computerized IFMIS.

Governor’s commitment delegating the authority to award, s i g n and manage contracts to the PCU through the Project Director was provided by L A S G prior to Appraisal. The PCU oversight arrangements are inclusive. Providing procurement support i s an explicit task to be performed by engineering f i rms that support implementation, as i s the building o f procurement capacity o f the PCU. Procurement training will be provided to key staff in

Moderate

Moderate

Moderate

Substantial

L o w

Substantial

Moderate

11

the respective CEAs. Adequate F M arrangements in place, adequate supervision by IDA FMS and external audit.

FM Risk

Overall R isk rating

6. Loadcredit conditions and covenants

31. None.

Moderate

Substantial

D. APPRAISAL SUMMARY 1. Economic and financial analyses Economic analysis

32. The economic evaluation o f the infrastructure component covers three sub-components that account for US$167.35 mill ion or 92.22 percent o f the total base cost: (a) upgrading o f basic municipal infrastructure in nine selected settlements o f the 6 Local Governments (US$41.15 million, 24.59 percent); (b) solid waste management (US$63.82 million, 38.13 percent); (c) drainage upgrading o f trunk drainage in the metropolitan area (US$62.38 million, 37.27 percent). An economic analysis “with” and “without” Project was undertaken. The aggregate economic rate of return o f the infrastructure component i s 17 percent; and the net present value at 10 percent discount rate i s N17.58 milliodper ha o f investment. The main benefits o f the infrastructure component are: reduced flood damage-cleaning-up and road maintenance expenses; reduced income loss due to sickness and medical expenses; increased economic growth, and finally, reduced frequency o f de-silting of the drainage channels. The Governance component does not lend itself easily to traditional economic analysis essential to sustain benefits from infrastructure improvements through systematic and routine allocations and expenditures for operations and maintenance.

Sensitivity analysis 33. Sensitivity analysis was undertaken to evaluate the impact o f changes in costs and benefits on NPV and ERR base case estimates. A combined increase o f 20 percent in total cost and a decrease o f 20 percent in total benefits resulted in ERR o f 10 percent and NPV o f N0.4 mill ion per hectare indicating a robust outcome. The relative contribution o f each type o f benefit to the overall component was also estimated. The results o f such analyses indicate that the ERR and NPV are impacted mainly by changes in the business activities arising from improved physical environment of the Project. In the unlikely event that the private sector shows no investment response to the improved physical environment, the ERR will only be 3 percent and NPV will be N 1 1.9 mill ion per hectare indicating that a pro-business environment alongside the investment would ensure the expected economic benefit (see Annex 9 for Project Financial and Economic Analysis).

Affordability and fiscal sustainability 34. A financial analysis of LASG and LG budgets was undertaken based on historical revenue and expenditure data, as well as data on transfers to the State and LGs from the Federation Account. In the medium term, the Project i s expected to generate four types o f incremental annual expenditure liabilities for the State, including: ( i ) costs o f serving the IDA credit, including a commitment charge o f US$1.5 million; (ii) additional costs related to improved maintenance of the

12

drainage system o f US$7.0 million; (iii) costs o f government co-financing o f specific agreed Project investments o f US$0.6 million; and (iv) additional costs o f supporting the S W M system through budget subsidies to LAWMA during the transition phase to achieve full cost recovery for collection. The latter costs are estimated at US$12.0 mill ion a year. Total incremental budget costs are conservatively estimated to reach about $21.0 mill ion a year (Naira 2.75 billion) by the end o f Project implementation. This amounts to about 3 percent o f LASG’s total budget expenditures in 2005 and should be considered affordable, given recent strong growth in state revenues, which to a limited extent are a result o f high oi l prices and a consequent increase in federal transfers. Future budget sustainability i s further strengthened by recent LASG efforts to strengthen the internal revenue administration and the considerable untapped potential for revenues from property taxes.

35. The current total costs of operating the S W M system in Lagos are estimated to be in the range o f US$28 million.’* S W M in Nigeria i s constitutionally a LG function. Given the dependence of Lagos LGs on federation transfers, and the significant operational and environmental benefits from a consolidated approach in the metropolitan area, centralizing management to a metropolitan authority and financing the system centrally, with financing through the State withholding and pooling the federal transfers to LGs, i s the most efficient and sustainable way forward. In 2004 the total transfers to LGs amounted to US$171.47 million,” exceeding total costs o f waste management by more than 6 times. Medium-term projections suggest that future costs o f S W M in Lagos could reach US$40 mi l l ion a year. These incremental costs should be covered by gradual increases in collections o f user fees, as well as by transitional subsidies from the state budget, as the system transforms towards full cost recovery for collection.

2. Technical

36. Rational sequencing o f sectoral interventions to reduce routine flooding as well as the threat o f disease for the people of Lagos, particularly the poor, informs the technical rationale for the investments proposed under the Project. Governance related activities are included to ensure sustainable service delivery from existing and proposed municipal assets. For drainage, investments in deferred maintenance in conjunction with reconstruction o f critical portions o f the network will significantly reduce flooding. This wil l be followed by a routine and disciplined annual maintenance program contracted out to the private sector. Initiating private sector management o f transfer stations and the landfill site, thereby expanding PSP arrangements in SWM, is the new institutional innovation and justification for support for SWM. The use o f transfer stations will increase transport efficiency, and the upgrading o f dump sites to transfer stations will improve the environmental conditions. The design o f the upgrading intervention aims to refine the technical, financial, and institutional framework for a city-wide program that can be executed with none or minimal disruption; and enable selectivity o f lumpy investments to trigger incremental improvements in the infrastructure stock o f LGs over time.

3. Fiduciary

37. Procurement. In the past, procurement capacity in the public sector in the country was weak as identified in the 2000 CPAR and 2004 Lagos SPAR. Since then, substantial progress has been made, both at the Federal and Lagos State level to improve the capacity. In Lagos, an IDF Grant i s supporting implementation o f a three year procurement reform program in line with the

Naira 3.7 billion, using exchange rate o f Naira 132.1 to US$ l .OO. Naira 22.6 billion, using exchange rate o f Naira 13 1.8 to U S $ l . O O (December 2004).

13

recommendations o f the LSPAR. Until these reforms are in place, the global risk o f doing business both in Nigeria and Lagos wil l remain high. Since IDA’S assessment o f Project level procurement r isk as high in March 2005, the Recipient has completed implementation o f key measures so that the Project level r i sk is now assessed as moderate. These include among others, establishment o f a fully staffed PCU under the Governor’s Office; the establishment o f a PSC with high profile c iv i l society representation; a competitively recruited engineer from the private sector to head the PCU with the delegated authority from the Governor to manage all procurement and s ign contracts within five days o f clearance by IDA; full-time deployment from the parent ministry o f the Procurement Officer, who has experience with previous IDA projects; completion o f the PIM that includes a chapter on procurement as well as adaptation o f the generic procurement manual for LMDGP; on- going computerization o f store records; and substantial procurement knowledge acquired by PCU staff through learning by doing through execution o f activities financed by the project preparation advance and the PHRD Grant. Additionally, the engineering firm that i s expected to be mobilized before Board presentation will provide continuous on-the-job training and procurement support to the PCU. To further reduce Project level procurement risk, the PCU will acquire contract management training and become proficient in the use o f a computerized contract management module.

38. Financial Management. Upon request from LASG, IDA completed an assessment o f financial accountability in 200420 which stated that the main elements o f government FM systems are present in Lagos State and that the LASG has taken some steps to improve FM systems. I t concluded, however, that the financial accountability system is weak and that there i s a r isk that financial records do not present an accurate record o f transactions. Given such an environment, strong controls are necessary to prevent wrongfbl use o f public funds. The Federal Ministry o f Finance and all the SGs in Nigeria agreed2’ to establish a PFMU in the Offices o f each State’s Accountant-General’s Office, thereby centralizing maintenance o f special accounts and other accounts for donor supported projects, while also providing substantial economies o f scale for multiple operations within one State. The Lagos PFMU will deploy a full Project FM team to the PCU offices to undertake the FM responsibilities during Project implementation. The overall level of control risk from a FM perspective i s considered moderate, as inherent r isks are offset by the adoption o f robust FM arrangements satisfactory to IDA. Financial reporting includes monthly reports for the PCU, quarterly Financial Monitoring Reports (FMRs) and annual audited financial statements for the Project (details o f these arrangements are included in h e x 7).

4. Social

39. Deepening poverty and environmental degradation are the most significant social issues in Lagos. This Project aims to establish a road map for systematic investments in infrastructure and improve the absorptive capacity o f LASG for sound investments, particularly in the poorest areas. It establishes a framework for targeted interventions for measurable results, and institutionalizes the broad city-wide consultative processes that LASG initiated in 2000. The main social development outcomes o f this Project will be strategic investments in the poorest areas, transparency in neighborhood investments; empowerment o f the poorest through intensive community development in leadership and open communications; and a strategy for scaling up such initiatives in Lagos.

2o Lagos State Financial Accountability Assessment (SFAA), March 2004. 2‘ Past FM arrangements that resulted in the proliferation o f special accounts, stretched limited resources, and the inefficiency and ineffective control systems did not counter the high inherent risk o f misuse o f public funds.

14

40. LMDGP wil l support revival o f metropolitan level consultative mechanisms which bring together LGs, L A S G agencies, traditional leaders, CDAs, academics, and urban practitioners around urban issues. The design and decision-making process for both these mechanisms will be integrated into the communications and feedback mechanisms. The intensive consultation and participation for the upgrading component wil l be reinforced by the use o f neighborhood-level monitoring, competitive community incentives to add benefits to infrastructure investments, newsletters for slum-dwellers, as well as community report cards and other bottom-up communication strategies.

41. Investments were determined by s l u m dwellers and CSOs. Implementation will include direct measures to increase the voice and participation o f community members. LASURA will scale up this strategy across the city’s poorest areas. NGOs in Lagos are preparing budget-tracking proposals and community report cards. Working with strong neighborhood associations and CSOs, the Project will experiment with a s lum dwellers “development marketplace” (refer to Annex 4 paragraph 86 (vi) for details).

42. A system for quantitative monitoring o f service delivery results has been established and will be strengthened during implementation; a social development team combining LASURA and LG slum workers with TA will implement and monitor the various social sustainability initiatives.

5. Environment 43. The environmental category o f this Project i s B and i t will not f h d activities that would affect the environment adversely. Infrastructure investments and institutional reforms are expected to significantly improve environmental conditions by reducing the incidence o f flooding, both in metropolitan Lagos, as well as in the selected nine slums. An Environmental and Social Impact Assessment (ESIA) disclosed in-country on June 20, 2005, as well as in the Bank’s Infoshop has: (i) established a mechanism to determine and estimate the future potential environmental and social impacts of the activities to be undertaken under the Project; (ii) defined mitigation measures; and (iii) established institutional arrangements for monitoring. The ESIA covers upgrading o f tertiary infrastructure in the nine slums; improvements in existing drains and SWM, including dumpsite monitoring wells for groundwater and landfill gases. Specific EIAs will be undertaken concurrently with engineering studies that will identify activities related to the infrastructure drainage and will be disclosed to the public six months before start o f physical c iv i l works. While not anticipating involuntary resettlement under the upgrading component, drainage activities may require relocation. A Resettlement Policy Framework (RPF) has been agreed upon with the Recipient, and disclosed in-country and in the Bank’s Infoshop on June 20, 2005. Furthermore, LASG has agreed to harmonize i ts own resettlement policies with those o f IDA, and apply them for all o f Lagos. Key stakeholders are LASG’s MEPB, MoE, MpP&UD, LASURA, Ministry o f Justice, MoF, LAWMA and LASEPA. Key non-governmental stakeholders are residents o f Lagos. Project impacts on the environment will be monitored during implementation using indicators that reflect the objectives and results of the Project. Responsibility for the implementation o f the Environmental Management Plan resides with the PCU.

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6. Safeguard policies

Safeguard Policies Triggered by the Project Yes No

Natural Habitats (OPBP 4.04) Pest Management (Q&@) Cultural Property (OPN 11.03, being revised as OP 4.11) Involuntary Resettlement (OPBP 4.12) Indigenous Peoples (OD 4.20, being revised as OP 4.10) Forests (OPBP 4.36) Safety o f Dams (OPBP 4.37) Projects in Disputed Areas (OPBP/GP 7.60)* Projects on International Waterways (OP/BP/GP 7.50)

Environmental Assessment (OPBP/GP 4.01) [XI [I

7. Policy Exceptions and Readiness

44. readiness for implementation.

The Project requires no exceptions from Bank policies, and meets the Regional criteria for

' By supporting theproposedproject, the Bank does not intend to prejudice thejnal determination of the parties' claims on the disputed areas

16

Annex 1: Country and Sector or Program Background

NIGERIA: Lagos Metropolitan Development and Governance Project

45. population o f 136.5 million, growing at a rate o f 3 percent annuallJ2, i t i s the most populous country in Sub Saharan Africa, and the largest in West Africa.

Geography andpopulation. Nigeria has a land area o f 924,000 sq. km. With an estimated

46. Economic conditions. With a GDP o f about US$58.3 bil l ion (2003), the second largest economy in Sub-Saharan Africa, Nigeria i s the world’s sixth largest exporter o f oil. With earnings from o i l constituting 75 percent o f government revenues, 95 percent o f export earnings, and 30 percent o f GDP, Nigeria has been unable to escape the damaging macroeconomic effects o f i t s o i l resources. As a result, economic growth has been stunted, averaging about 1.6 percent during the 1980s and 199Os, and 2.3 percent over three decades until 2004. Some o f the key factors responsible for the poor growth performance of the last decades, are: weak public finance management (PFM) systems; lack o f a sustainable fiscal framework to manage the volatility o f o i l revenues; inadequate budget formulation; poor expenditure prioritization; an absence o f accountability mechanisms for public fimds within the budget execution process; poor expenditure control; and inadequate financing o f core public services. Much o f Nigeria’s considerable economic base currently l ies idle, capacity utilization in industry i s around 50 percent.

47. Recent developments. Over the last three years, the Federal Government o f Nigeria (FGN) has begun to undertake significant economic and financial management (FM) reforms geared to reducing poverty as outlined in the country’s National Economic, Empowerment and Development Strategy (NEEDS). The NEEDS places an emphasis on changing the way the Government works through improved efficiency, transparency, and strengthened anti-corruption activities. The key elements of the strategy include improving the budgetary planning process, maintaining an oil-price based fiscal rule, adopting a Medium Term Expenditure Framework (MTEF), making public procurement transparent, efficient, open and competitive, strengthening the budget office, and ensuring better collaboration between the executive and the legislature on the budget.

48. Substantial challenges remain. Unless there i s significant improvement in non-oil non- government private economy, a huge section o f the population will continue to be deprived o f economic opportunities. Nigeria has considerable potential to become a vibrant economy and an important growth pole for sub-Saharan Africa.

49. Overview of the organization of Government. Nigeria is a federation o f 36 States, a Federal Capital Territory (FCT) and 774 Local Government (LG) areas. Most o f the powers accorded to the States in the Constitution are exercised concurrently with the Federal Government, and few powers are assigned exclusively to States. Whi le LG functions are specified in the Constitution, they can exercise their authority only in accordance with enabling legislation passed by their res ective States. LGs are, therefore, subject to varying degrees of oversight and control in the States! State

22 2005 World Development Indicators, CD-Rom, World Bank. 23 The fimctions o f LGs include the construction and maintenance of local roads, sewage facilities, markets, motor parks, local revenue collection, and registration of births/marriage/death. LGs are also mandated to participate with the state governments in the provision o f primary, adult and vocational education, the development of agriculture and natural resources other than exploitation of minerals, the provision and maintenance of primary health care and others as may be appropriated by the State.

17

Governors are directly elected for four year terms, while LG chairmen and council members are elected for three year terms.

50. Revenue sharing. Under the current revenue sharing formula, equality o f States, internal revenue generation, land mass, type o f terrain and population density are the criteria established in Nigeria’s Constitution for the distribution o f the “Federation Account” (FA); however, the debate over the allocation of federal revenues to create a new framework for revenue sharing is underway in Nigeria.24 Ineffective arrangements for inter-governmental collaboration have been, and continue to be a major short-coming o f Nigeria’s federal system.

51. Urbanization characteristics in Nigeria. Nigeria’s urbanization rate o f 5.5 percent per annum25 i s one o f highest in the world, and it will cross the 50 percent urbanization mark by 2007. I t s urban population i s the largest o f any low income country, except India. Urbanization in Nigeria has not been accompanied by economic growth, and this i s consistent with the phenomenon o f “urbanization without growth in Africa" as urbanization in usually accompanied by growth.26 There has been highly volatile growth in the economy over the last three decades o f just over 3 percent per annum on average till 2004. With a GDP o f US$58.3 bi l l ion in 2003,27 growth has been barely enough to keep up with the growth in population. Per capita income has actually declined, from about US$780 in 1980 to US$390 in 2004. By 2020, 53.9 percent o f Nigeria’s poor, as defined by income poverty, will be living in urban areas. This figure, however, does not capture non-income dimension of poverty in the urban context. Poor environmental conditions in high density settlements deprived of basic municipal services can be a serious public health r i sk with substantial social and economic ramifications. About 19 Nigerian cities have populations exceeding 1 million, and about 40 cities have a population o f about 0.5 million. Major cities are growing at rates between 10-15 percent, and medium size cities are growing at 7 percent to 10 percent per annum. Unlike most African countries dominated by one or two large cities, Nigeria therefore has a broadly dispersed network of cities, except for Lagos.

52. Lagos is a mega city of dominant economic importance not just for Nigeria but West Africa as well. Lagos, a coastal city-state and the former capital o f Nigeria, has an estimated population of 1 1.14 million, expected to be over 17 mill ion by 201 5.28 Other estimates2’ place Lagos’ current population at about 15 million, and project i t to reach 25 mi l l ion by 2015. Although i ts annual population growth rate o f around 6 percent per year over the last decade appears to be declining, i ts average growth rate over 2000-2015 o f 4.8 percent, i s much higher than the average growth rates for other mega cities.30

24 At present 48.5% of the FA i s allocated to the federal government, 24.0% to the States, 20.0% to the LGs, and 7.5% for “special projects.” Value added tax, not mentioned in the Constitution, i s collected by the Federal Government and distributed as follows: SGs 50%; LGs 30%; and Federal Government 20%. Each State has a State Joint LG Account into which all allocation from the FA to LGs i s paid. The amount in this account i s distributed among LGs in a State as prescribed by the SHoA. ’’ 2005 World Development Indicators, CD-Rom, World Bank. 26 “Cities in Transition: A Strategic View o f Urban and Local Government Issues”, World Bank, 2000. 27 At current prices, World Bank Group Strategy, Report # 32412-NG, June 2,2005 28 World Urbanization Prospects, 2003 revision. 29 United Nations estimates indicate that by 2000 the total for Lagos agglomeration had reached 13.4 million people, and i s projected to reach over 20 million by 2010 making i t the world’s third largest city (Mega Cities, The European Space Agency’s Contribution to a Better Understanding o f Global Challenge, Edited by Lothar Beckel, 2001). 30 Over the same period, the population of Mumbai grew at 2.3% per annum; Jakarta’s population grew at 3.1%; and Tokyo’s population grew at 0.3 % per annum. Shanghai’s population i s actually projected to decline over the same period at - 0.1% (World Urbanization Prospects 2003 Revision).

18

53. With a population larger than that of thirty-seven individual African countries3’, Lagos i s home to more than 10 percent o f Nigeria’s urban population. I t i s the premier manufacturing city in West Africa, and the country’s principal non-petroleum port, handling some 15.4 mill ion tons annually, or about 52 percent of the national total, excluding petroleum exports. It has the largest concentration o f multinational companies, i s home to 250 o f Nigeria’s financial institutions, and has about 60 percent o f Nigeria’s non-oil economy located there.

54. Lagos ’ investment needs far exceed available resources. Despite i t s dominant status in Nigeria’s non-oil economy, Lagos i s a “poor Over the last five years, Lagos’ internally generated revenues (IGR) have grown by 21.7 percent per annum in real terms, indicating the significance and strength of the revenue mobilization efforts o f the current administration. In 2004, the IGR accounted for 64 percent o f total recurrent revenue while Federal transfers accounted for the balance o f 36 percent. Despite these efforts, however, Lagos’ annual budget o f about US$650 mi l l ion i s small relative to i t s needs. By contrast, Delhi with a population o f 13.8 mi l l ion people has a budget o f US$2.6 billion; the Mumbai Municipal Corporation area with a population o f 11 mill ion has an annual budget o f US$1.6 billion, and Jakarta with a population o f 11 million, has a budget of US$l.O billion. Furthermore, the poor coastal soil conditions in Lagos render infrastructure more expensive, which in turn exacerbates the limitations o f i t s small budget.

5 5. Lagos ’ urban productivity is compromised by insuficient infrastructure, poor information systems, and inadequate cost recovery for Operations and Maintenance ( O M ) . Cumulative infrastructure deficiencies from nearly three decades o f neglect due to a lack o f maintenance o f existing infrastructure, coupled with under-investment in new municipal assets, has resulted in large service delivery deficiencies for the people o f Lagos. This has led to constrained productivity o f f i rms and households, growing inequality, and poor livability. Available investment resources are inadequate to deliver services to a large and growing population. I t i s estimated that about US$260 mill ion i s needed in the immediate term for roads and drains, and about US$520 mi l l ion over the medium term. A fimctioning well managed drainage network i s expected to require about US$80 mill ion over the next five years. Expansion o f water supply according to master plans i s expected to cost US$2 bil l ion over 20 years. The road network will require over US$715 mill ion over the next five years.

56. Reliable locally relevant data for informed planning and decision-making to credibly prioritize and target expenditures from limited resources does not exist. There i s l i t t le capacity to collect relevant information and analytic methods to identify, evaluate and prioritize policy, and develop programs for improved service delivery. Consequently, public investments are not subject to rigorous social and economic analysis. The provision o f services cannot be linked closer to cost recovery through taxes, user charges or other levies without information systems. This makes it difficult to reverse the culture o f non-payment for government services that has become entrenched in Lagos (and Nigeria), following years o f failed promises during the military years, and the breakdown in basic systems for taxation and user charges due to corruption and patronage. Institutions have become weak, and the technical and management sk i l ls in the public sector have

3’ The 17 countries that have populations larger than Lagos State are Algeria, Egypt, Morocco, Angola, Congo Dem., Ethiopia, Kenya, Madagascar, Mozambique, South Africa, Sudan, Tanzania, Uganda, Zimbabwe, Cameroon, Cote d’Ivoire, and Ghana. 32 “Poor” as defined by the State Government budget being small, even when compared to cities o f comparable size in developing countries.

19

been eroded. The institutional and organizational environment i s rendered more complex than other metropolitan areas of comparable size, as Lagos i s managed l ike a State, and the government o f the metropolis i s not organized along service delivery lines, as are other large metropolitan cities.

57. Livability is poor and there is growing inequality in Lagos. While the average residential density for Lagos i s about 260 people per hectare, the population density in poor urban neighborhoods i s between 790 people per hectare to 1240 people per hectare. It i s estimated that almost 70 percent of Lagos’ population lives in slums characterized by extremely poor environmental conditions, including knee deep flooding inside homes that lasts four to five hours, sweeping raw sewage and refuse inside. Despite this, the population growth rate in slums was 8.9 percent per annum between 1995-2002. There i s therefore severe overcrowding in the slum areas, while under-utilized land continues to be the norm in the rest o f Lagos. High housing prices have resulted in the exclusion o f even the middle class from access to adequate and affordable housing. House prices in Nigeria, and consequently in Lagos, are inflated due to severe distortions in the housing market caused by the non-availability o f long-term finance, high transaction costs for obtaining land titles andor certificates o f occupancy, regulatory and planning controls that constrain the efficient utilization o f land, and high inflation rates in Nigeria’s economy. Slums in Lagos are a stark manifestation of the consequences o f both market and government failure, particularly with respect to affordable land and shelter. Given the size o f the population in slums, slum upgrading i s the only realistic option for improving the lives o f the poor, coupled with policies for preventing the development o f s lums in the future. A realistic city-wide upgrading program for existing slums would require a 15 to 20 year time horizon, and could absorb US$ l85 mi l l ion by 2020. However, an upgrading program alone could not guarantee the benefits from investments in upgrading, unless the flooding problems in Lagos are tackled. For city-wide upgrading, a methodical sequence o f upgrading investments in slums will need to be developed in conjunction with a long term technical solution to flooding.

58. Flooding affects livability beyond the poor neighborhoods. Flooding in all o f Lagos i s a major issue, because the existing drainage network i s neither functional, nor complete. 43 percent of the households in Lagos experienced flooding in their streets over the last year, and 16 percent reported flooding inside their homes - more than 33 percent o f the households undertook repairs from damage caused by floods. In some years the flooding conditions have become extreme and life threatening, The combination o f heavy rainfall, constrictions within the drainage systems and high tides during heavy rains, have made drainage problems appear intractable and overwhelming for the government, more so in an environment o f severely constrained financing.

59. Mitigation o f flooding due to high tides through the construction o f a very extensive seawall and pumping regime i s not a financially feasible option. The impact o f constrictions in the drainage systems can be mitigated through a rational reassessment o f the drain designs and by undertaking prioritized construction programs. These constrictions are largely due to inadequate original designs, particularly culvert cross sectional areas, improperly executed construction, infkequent and inadequate maintenance routines, and inadequate solid waste management which results in illegal dumping o f waste in drains. Partly as a consequence o f this, and partly due to the lack o f coordination amongst the various agencies that invest in drainage, maintenance o f the drainage system has evolved into an approach o f emergency responses to critical situations during periods of

20

heavy rains. This approach has helped alleviate the “hotspots” within the city, but has diminished the potential benefits from investments in drainage over the past thirty years.

60. Sustaining the benefits from a routine maintenance program once the outstanding backlog of maintenance i s addressed through a “deferred maintenance program”, will require institutional coordination in the planning and management o f the network between the fol lowing agencies that make investments in the sector: Office o f Drainage Services (ODs), reporting through a Permanent Secretary to the Ministry o f Environment (MoE); the Public Works Bureau that reports through a Permanent Secretary to the Ministry o f Works (MOW); the newly created agency called the Drain Ducks that reports directly to the Commissioner for Works with funds allocated through the Public Works Bureau; and the twenty LGs, sixteen o f which are within the metropolitan area. There are 118 kilometers o f primary and secondary drains that are the responsibility o f the ODs, and additional hundreds of kilometers o f tertiary drains associated with the road network that are the responsibility o f the MOW. Sustaining benefits o f investments in the drainage system wil l require the availability o f adequate, predictable and reliable funds from general revenues, both for investment purposes as wel l as for the operation and maintenance (O&M) o f the drainage facilities,

6 1. Flooding is compounded by inadequate solid waste management. Improvements in the drainage system will also require concurrent improvements in the solid waste management (SWM) system, as a substantial amount o f solid waste has found i t s way into the drainage system. I t i s estimated that Lagos generates between 4,000 tons to 6,000 tons per day. 42 percent i s collected by the private operators appointed by the MoE, and 39 percent by truck pushers or informal collectors employed by individual households. 11 percent is dumped in unauthorized areas, 4.2 percent disposed within neighborhoods, 1 percent in government bins, and 2.1 percent dispose in “other” ways.33 Although Local Governments (LGs) in Nigeria have the constitutional mandate for solid waste in Nigeria, L G s in Lagos have delegated their responsibility to a metropolitan entity to realize economies o f scale in the sector since 1991. The Lagos Waste Management Authority (LAWMA) has, since then, the statutory mandate for metropolitan collection, transfer, treatment and disposal o f solid waste, as we l l as the responsibility for related cost recovery. Although intended to operate as an independent parastatal, LAWMA has never been able to discharge i t s role, or develop cost recovery mechanisms due to: .

.

. Lack of recognition o f its autonomy as illustrated by the abolition o f its Governing Council at which time LAWMA started reporting to the MoE. Unfunded mandates which required LAWMA to render services to LGs without providing means for receipts o f adequate and timely compensation. L A W M A ’ s failure to charge appropriate tariffs to industrial and commercial customers.

62. To address the short-comings o f the past and establish clear and accountable institutional arrangements in the S W M sector, L A S G has: (i) updated L A W M A ’ s Edict to reflect current State policies; (ii) will establish LAWMA’s Board to reflect city-wide membership and ownership, including LGs, c iv i l society, and private sector (as stipulated in the Edict); (iii) formalized arrangements with LGs with regard to centralized deduction at the State level from the transfers LGs receive from the FA, for M S W services that LGs will contract out to LAWMA in l ine with the LG’s Constitutional mandate for M S W - this deduction will go directly into a dedicated account for

33 Household Survey, Office o f Statistics, MEPB, 2005.

21

LAWMA; and (iv) developed a performance contract between L A S G and LAWMA, spelling out objectives, roles, responsibilities and finding within the framework o f multi-year work programs.

63. The Government has experimented with different options for collection o f waste, including the involvement o f private sector operators since 1977. A recent development was the MoE signing memorandums o f understanding with private operatdrs for collection, and the appointment o f a private firm for computerized billing and collection o f fees, and also to develop a computerized system for tracking waste receipts at disposal sites and transfer stations. Whi le the main areas o f the c i ty appear clean, financial sustainability o f the system is o f concern, as the system i s supported by annual State subventions o f US$15.6 million.

64. Average S W M services in Lagos today cost about US$6 per capita per year, and the recurrent costs o f the system are about US$3 per capita per year. Over the next 20 years, even with more environmentally safe disposal and with the rationalization o f collection costs through transfer stations, costs are estimated to increase to approximately US$9 per capita per year total, and about US$6 per capita per year in recurrent costs, mainly due to the need to develop a new disposal site much further out o f metropolitan Lagos. To address the service level needs projected for 10 years from now, total costs are expected to reach about US$lOO mi l l ion annually. In principle, collection services in the solid waste sub-sector can be profitable through user fees, but transfer and disposal often require financial support from the government.

65. Cost recovery and sustuinubility. Both capital needs as well as the concomitant recurrent cost needs to sustain services from investments in Lagos are high. In the economic infrastructure sectors, IDA i s already supporting L A S G in the roadtransport and water sectors. Recurrent cost implications o f these ongoing and proposed large investments on the budget o f the State and LGs, especially for those investments that are public goods, and for which cost recovery through user charges is not an option, i s a significant issue. Hard choices will be necessary, on both the revenue and expenditure side. Most well-managed cities do not have the resources for capital works after asset O&M expenditures. Credit-worthy cities resort to borrowing from domestic or foreign lenders while others have to rely on donor aid, which i s dif f icult to get for cities unwilling to undertake tough reforms. In Lagos, establishing basic systems for the collection o f user charges and local taxation i s a substantial challenge that will need to be addressed to link cost recovery to sustainable service delivery in the years to come. Aggressive efforts to sustain services from investments that are public goods will require allocations f rom general revenues for the recurrent costs o f O&M to sustain benefits o f capital investments. In most we l l managed cities, property taxes constitute a substantial share o f the IGR. This i s not the case in Lagos. In 2000, for example, actual collections from tenement rates was only 1 percent o f IGR (US$2.3 million), against the potential f rom this source at that time, of 13 percent (US$30.0 potential). In Rio de Janeiro, for example, property taxes are the second largest source o f revenue and constitute 29 percent o f IGR; 25 percent o f the revenues o f the Mumbai Municipal Corporation are derived from property taxes; in U S cities, property taxes account for as much as 75 percent o f internally generated revenues.

66. Attempt to reform property taxation in Lagos. In 1997, Lagos collected less than 5 percent of billable land related revenues, LGs less than 25 percent. By 2000 the LGs were collecting less than 8 percent, with much lost through “leakage” due to poor financial controls. T o increase i ts IGR, simplify the existing complex regime o f taxes and levies related to land and building that

22

essentially constitute property taxes, and move the process o f this taxation outside the influence of Government personnel, LASG passed the Land U s e Charge (LUC) Law in 2001. The LUC Law (#11) consolidated all property and land based rates and charges payable under the Land Rates Law, the Neighborhood Improvement Charge Law, and the Tenement Rates Law34 in Lagos, into a Land Based Charge, called property Land Use Charge (LUC). The State promised LGs that they would receive from the L U C five times the tenement rates collected by the LGs in 1999, i.e. Naira 1 bil l ion against the collection o f Naira 0.2 billion.

67. L U C collections, however, did not materialize. The introduction o f the LUC led to protracted negotiations with commercial property owners in the Organized Private Sector (OPS), as it started out being levied largely on commercial properties, and was not, at the time o f i ts introduction, applicable to all properties in all LGs o f Lagos. Only 4 percent o f the ratable properties, or 10,000 o f the 250,000 ratable properties were covered by the LUC. The resulting impasse between LASG and the OPS led to LASG agreeing that the L U C would not be reviewed for 7 years, i.e. til l 2008. The properties that are not covered under the L U C have tenement rates levied by their respective LGs. I t seems that the demarcation o f properties falling under L U C i s not very clear: although LASG sends a l i s t o f properties on which L U C has been collected, there i s no formal split o f the State’s valuation ro l l which defines the properties for L U C and tenement rates respectively. This has undermined the tenement rate system in Lagos. In the meantime, LASG’s Valuation Office has brought all valuation rolls up-to-date. LGs could levy rates in consonance with the rates being applied under the LUC - 0.375 Naira for commercial properties and 0.125 Naira for other properties, The introduction o f the LUC, and the process o f i t s implementation, has reduced the potential yield from th is revenue source for both LGs and LASG.

68. State and Local Governance. The sections above highlight the tremendous challenges that LASG faces in terms o f the provision o f adequate infrastructure and service delivery. The Government recognizes that while increasing the volume o f spending for new investments, maintenance, and operating costs i s necessary, this must be accompanied by substantive policy and institutional reforms in the management o f the State economy, from planning and budgeting, to execution, monitoring and ex-post evaluation o f development activities. More generally, advancing the governance reform agenda in Lagos i s critical for the provision o f basic services to the population.

69. Nigeria’s 1999 Constitution gave increased responsibilities to sub-national governments in the delivery o f economic and social services. However, because o f areas o f concurrent responsibilities, there continues to be confbsion and often intense debate over which tier of government, Federal or State, i s best placed to deal with various areas o f policy, and what implications resolution o f this would have on resource sharing. Additionally, while the functions of the LGs are indicated in the Fourth Schedule o f the Constitution, LGs can exercise their responsibilities only in accordance with enabling legislation passed by the States. This built-in State oversight and control over LGs has also generated different interpretations o f the Constitution regarding the number, organization and functioning o f LGs in the States, including in Lagos where it was felt that the high density o f an urban population would justify a larger number of administrative districts than the twenty LGs listed in the Constitution.

34 States in Nigeria are entitled to Ground Rents or Neighborhood Improvement Charges. LGs are entitled to collect Tenement Rates.

23

70. Directly related to the reading o f the Constitution, there i s the issue o f resource allocation from the FA, the poo l into which o i l and all VAT revenues are paid prior to distribution to the three tiers o f government. Under the current formula, the Federal Government receives 54.68 percent, State governments 24.70 percent, and LGs 20.62 percent o f distributable proceeds. In addition, o i l producing States receive an additional “derivation” allocation. Due to this automatic passage o f o i l revenues to States, fluctuations in international o i l prices have resulted in large swings in State finances, leading to irregular volumes o f spending for infrastructure maintenance and social services over the years. Despite LASG’s stronger capacity to generate IGR compared to other states of Nigeria, Lagos has to rely on transfers from the FA, and remains vulnerable to o i l revenue fluctuations (refer Annex 9).

71. An important governance feature specific to Lagos i s that i t is a quasi city-state because o f i t s limited land area and urbanization characteristics. Unlike most large metropolitan cities around the world, Lagos does not benefit from a municipal administration entirely devoted to responding to the needs o f a city. I t i s managed by the State administration through the State budget and the State c iv i l service and parastatals. As a consequence, policy and institutional reforms necessary to improve the provision o f economic infrastructure and social services have to be implemented at the State government level with appropriate accompanying measures in LGs.

72. Until recently, public finance management in Lagos, as in other states o f Nigeria, has largely followed the traditional model o f incremental annual budgeting, driven by stated needs o f MDAs, regardless o f credible revenue potential. As a result, budgets have remained unrealistic with large discrepancies between budgeted amounts and performance on both the revenue and the expenditure sides. The cash budget has tended to supplant the statutory approved appropriated budget. In addition, manual or semi-automated operating systems have caused weak expenditure controls, and delays in the production o f annual accounts and statutory audit reports.

73. In a number o f States, this situation has started to change since Nigeria returned to civilian and multiparty rule in 1999. In Lagos, three major reforms have been undertaken: (i) the Electronic Banking System of Revenue Collection and Monitoring (EBS-RCM); (ii) the introduction o f a computerized integrated financial management system (IFMIS) which has enabled the clearing o f backlog in the production o f State accounts, the elimination o f fictitious names from payroll, and timely budget preparation since 2003; (iii) and the modernization o f the land registry and record system, a key element both for proper land management as well as for Wher improvements in revenue mobilization from land related taxes. In addition, initial steps have been taken to improve the preparation o f the budget, including a clearer budget calendar, the sensitization of staff in the central and sector ministries to the principles o f medium term expenditure framework (MTEF) which Lagos has decided to apply to budgeting. The Bank’s dialogue with Lagos on Public Finance Management (PFM) issues was intensified in the context o f the preparation and discussion o f the State Financial Accountability Assessment (SFAA) and the State Procurement Assessment Report (SPAR) in 2003/2004.

74. In spite o f the above, much remains to be done to ensure that the management o f financial resources meets the requirements of fiscal stability, proper planning and resource allocation according to credibly articulated development priorities, and effective actual spending. The legacy of incremental dual budgeting driven by the level o f resources from the FA on the one hand and

24

constrained by a large wage bill on the other, is still affecting PFM in Lagos adversely. In addition, revenue uncertainty resulting from fluctuations in transfers from the FA, tend to consolidate the practice o f “cash budgeting” with a non-transparent re-making o f a legally approved budget. The implications are particularly severe for the maintenance and development o f economic and social infrastructure.

75. help reinforce the capacity o f L A S G in policy analysis and service delivery monitoring, in order to enhance the productivity of firms and households in the metropolitan area.

In addition to supporting PFM reforms at the State level and in selected LGs, the Project will

25

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies NIGERIA: Lagos Metropolitan Development and Governance Project

Sustainability Uncertain

Likely

Likely

Unlikely

Unlikely

Unlikely

ID Impact Modest

Modest

Negligible

Modest

Modest

Modest

243 1) Public Sector Management Adjustment

Unsatisfactory

Infrastructure Development Fund Project (Ln. 2925) Lagos Drainage and Sanitation Project (Cr. 25 17) Oyo State Urban Project (Ln. 2719; Cr. 3238)

26

Unsatisfactory

Satisfactory

Unsatisfactory

Ongoing Projects

Lagos Urban Transport Project (Cr. 3720)

Latest Supervision (ISR) Ratings Outcome Sustainability ID Impact Implementation Development Progress (IP) Objective (DO) Moderately Moderately Likely Satisfactorv Satisfactorv

Second National Urban Water Sector Reform Project (Cr. 4086) Community-Based Urban Development Project (Cr.

Satisfactory Satisfactory Likely

Moderately Unsatisfactory Unlikely Unsatisfactory

Annex 3: Results Framework and Monitoring NIGERIA: Lagos Metropolitan Development and Governance Project

Results Framework

PDO To increase sustainable access to basic services through investments in critical urban infrastructure.

Intermediate Results One per Component

Component One: Upgrading infrastructure in 9 slums 1.1. The number o f kilometers o f new roads paved in the 9 slums.

1.2. The number o f new boreholes in the 9 selected slums.

Component Two: Drainage 2.1. Kilometers o f drains cleaned in Eastern Lagos.

2.2. Kilometers o f drains rehabilitated and reconstructed in the two selected drainage channels.

Component Three: Solid Waste 3.1 Collection: Percentage increase in garbage collected by PSP operators managed by LAWMA. 3.2. Transfer Stations: Percentage o f garbage piles in metropolitan Lagos, removed. 3.3. Landfill: Percentage of solid waste disposed in managed landfills.

Outcome Indicators 1. Increase in the percentage of

population with access to safe water in selected slums.

2. Reduction in the percentage o f households reporting flooding in the LGs where the selected drainage basins lie. Increase in the percentage o f generated garbage in Lagos that arrives for disposal at the landfills.

4. Percentage o f households with tarred roads in front o f their house in the 9 selected slums. Results Indicators for Each

3.

Component Part A: INFRASTRUCTURE

Component One:

Households reporting access to tarred roads in 9 slums.

Households reporting access to water boreholes.

Component Two : % Households reporting reduced flooding o f streets in the metropolitan area35.

% Households reporting in-house flooding in Ajeromi Ifelodun and Mainland L G s ~ ~ .

Component Three: Increase in amount o f refuse deposited in the land fill sites37.

Use of Outcome Information To draw lessons to improve institutional performance in delivering services.

1.

2. L A S G uses information to report back to citizens o n government performance.

Use of Results Monitoring

Component One: Assess and plan for a city-wide upgrading program for slums in Lagos.

Component Two: Evaluate effectiveness o f drain rehabilitation program at EOP.

Component Three: Evaluate the efficiency o f the refuse collection system.

35 43% of the households in the metropolitan area reported flooding o f their streets in 2005. 36 25% and 33% o f the households in Ajeromi Ifelodun and Mainland LGs reported flooding inside their homes in 2005. 37 Waste brought to disposal sites in Lagos estimated to be 2500 tons per day in 2006 (IDA’S Appraisal estimates)

27

Component Four 4.1. M&E: Strengthened performance monitoring system in LASG.

4.2. Public Finance Management Reforms

4.3. Increased credibility of the budget

4.4. Introduction o f multi-year perspective in fiscal planning, expenditure pol icy and budgeting.

4.5. Deployment and effective utilization o f the computerized IFMIS .

Public Governance & Capacity Component Four Collection o f information, analysis, and reporting on outcomes o f key LASG programs.

Percentage o f budget allocations to Ministries o f Works, Environment, Health, Education, Physical Planning.

% o f deviation o f actual revenue and spending from approved budget aggregate figures. % deviation o f actual spending from approved budget allocations in infrastructure sectors.

Establishment o f medium-term fiscal plan and institutionalization o f multi-year budgeting as a key element o f LASG’s MTEF, and preparation o f medium-term expenditure programs in selected MDAs.

Rolling out the system to the selected MDAs, and establishment o f a full disaster recovery center.

Component Four Regular publication and dissemination o f data and performance monitoring results and their use in policy formulation. Annual report upon approval o f the budget by SHoA.

Annual report upon transmission o f State annual accounts to the Auditor General.

Semi-annual reports by MEPB widely circulated within the L A S administration.

Semi-annual reports by MEPB widely within LASG’s administration.

28

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Annex 4: Detailed Project Description

NIGERIA: Lagos Metropolitan Development and Governance Project

76. The Project’s objective i s to increase sustainable access to basic urban services through investments in critical infrastructure. The Project includes the following three components:

A: Infrastructure: US$165.35 million A (i): Upgrading A (ii): Solid Waste A (iii): Drainage

B: Public Governance: US$5.97 million B fi): Public Finance Management Reform (US$3.97 million) B (ii): Economic Intelligence and Service Delivery Monitoring (US$l. 70 million) B (iii): Leadership Enhancement (US$O. 03 million)

C: Urban Policy and Project Coordination: US$12.13 million A Project Preparation Advance o f US$1.04 mill ion was made available.

Contingencies in the Project are US$15.49 million.

A: Infrastructure: US$l65.35 million 77. The objective o f the support for infkastructure i s to increase sustainable access to basic services through investments in critical basic infrastructure. This will be achieved through investments under three subcomponents: (i) urban upgrading; (ii) drainage; and (iii) solid waste management.

A 1: Upgrading: US$40.15 million 78. Background. In 1983, with support from UNDP, Lagos identified 42 un-serviced or under-serviced settlements for upgrading covering about 1,622 hectares. Using some 36 indicators reflecting access to basic economic and social infrastructure services, the study ranked them in order o f priority areas for intervention. A reassessment in 1995 under the IDA-supported Lagos Sanitation and Drainage Project (LSDP, CR2517) noted enormous growth in these areas since 1984 - annual population growth rates were estimated to be about 7.5 percent. The 1995 study modified the ranking criteria and methodology used in the earlier study, re-ranked the 42 blighted areas by adding a weighting factor for area and population, and recommended a four year annual upgrading program for nine slums, with a pilot demonstration intervention in about 25 hectares46 o f Badia.

46 The Badia area was selected by the consultants as a “demonstration project”, and a pilot was designed to provide water, sealed roads, secondary drains, toilet blocks complete with tiled showers, a health clinic, a primary school, street lighting and solid waste disposal facilities. Implementation was completed in 1999. An evaluation completed in 2002/03 highlights that roads and drains provided by the project have been very beneficial for the communities, as have been the school and clinic. Other investments, however, for example those made in toilet blocks, street lighting and solid waste disposal facilities, which absorbed 23% of the resources, have not been so beneficial. These investments were planned to satisfy needs of the communities as perceived by planners, but had not been demanded by the community.

32

79. Piloting and lessons learned. The LSDP supported the upgrading program for Badia to demonstrate the feasibility o f undertaking basic infrastructure interventions designed to allow greater coverage with limited resources. The pilot intervention demonstrated to the leadership in Lagos that significant improvements in people’s l ives are possible with small per capita investments, if done correctly. Subsequently in 2002, with support from the Norwegian Government, the Lagos Urban Renewal Authority (LASURA) undertook an impact evaluation study o f the intervention in Badia to draw lessons for future interventions in upgrading. The key lessons learned were: (i) Designing demand responsive upgrading proposals should be a key objective for

upgrading. Communicating and ensuring a common understanding o f “demand responsive” design among state agencies, LGs and consultants i s essential. Without this, decision-makers usually prepare and implement proposals based on perceived needs, undermining the likelihood o f using limited and ever shrinking public resources in the most effective and sustainable manner.

(ii) Instituting a work culture that systematically aims to develop demand responsive approaches to public investments in upgrading may require an incentive and reward mechanism built into the program’s design. If the human resource needs for designing demand-responsive upgrading proposals i s underestimated and inadequately funded, upgrading objectives are not likely to be met.

(iii) Project teams that prepare upgrading proposals for the blighted areas will be ineffective in facilitating sustainable investments in the absence o f appropriate power-sharing in the decision-making process from the LGs and community representatives designated by the community.

(iv) Since the design, implementation and management o f an upgrading program requires a different skill mix than that needed in a traditional public works executing agency, LASURA will need to enhance its capacity for multi-disciplinary work by building teamwork and capacity among Local Government Authority Community Development Officers and a group o f LASURA staff in the “External Intervention” Department who have participated in the consultant studies that defined this component. Technical assistance will be brought aboard to increase the cohesion, training and effectiveness o f this team.

(v) Given the different hierarchies o f agencies and actors that will be involved in upgrading, an organizational and behavioral culture must be instituted that fosters open, transparent and fearless communication, intensively sharing information among themselves and, above all, with the communities being affected.

(vi) Effective supervision to ensure the technical quality o f works i s in compliance with technical specifications i s critical to enable investments to yield benefits.

80. The evaluation o f the demonstration Project seems to have been instrumental in making the leadership aware o f the significant potential for poverty reduction and environmental improvements that exists with upgrading. The State’s request to IDA for support to develop a city-wide program for upgrading i s the result o f this demonstration and the thinking that followed.

33

8 1. Characteristics of the selected slums. Nine o f the largest o f the 42 identified slums have been selected for support under LMDGP. With Norwegian support, LASURA undertook a quantitative assessment o f socio-economic characteristics o f the slums, and o f community priorities. A sample survey o f 1,164 households in these nine areas highlighted the following key socio-economic and physical characteristics, and identified community priorities for upgrading:

i) The total population o f the nine settlements was estimated to have grown by some 65 percent over the seven year period between 1995-2002, at an average annual rate o f almost 8 percent.47

ii) Of a total estimated population o f 945,000 in 2002, there were some 158,000 households, giving an average household size o f six persons. O f these households, 65 percent were tenants; 82 percent share bathroom facilities; 65 percent share cooking facilities. The average dwelling size was a single room.

iii) The average monthly expenditure o f the households in these s lums was 16,092 Naira (US$123) while the self-reported average household income was 22,164 Naira (US$170), just under US$1 per day per person. Almost 20 percent o f a household's monthly expenditure was on transport. Housing represented 6 percent o f expenditures, education 12 percent, health 6 percent, food 52 percent, and energy 6.5 percent. The resources spent on each o f these items seemed consistent across slums, though spending on education showed significant variation. iv) A simultaneous assessment o f existing community expenditure and the willingness to pay for services indicates that communities spent a considerable share o f their income on basic services, and would be willing to pay for improved services, providing a good basis for designing service provision and cost recovery programs. This includes water, solid waste removal, neighborhood security and upgrades in education.

v) Only 32 percent o f the households were served by tarred roads.

vi) Fifty-seven percent o f households experienced flooding in their streets and courtyards during the rainy season, while some 32 percent experienced flooding inside their house. Of the latter, about 36 percent experienced ankle-deep flooding, 52 percent experience knee-deep water, and 13 percent say the floods get waist-deep. Flood waters are a black mix o f run-off, overflowing sewage from backed-up drains, and swamp water.

vii) Sixty-five percent o f households were dependent on water vendors for their supplies, while 25 percent were dependent on boreholes. 5 percent had access to a public standpipe, 4 percent to a standpipe in the yard, and only 1 percent had a direct house connection.

viii) Fi f ty percent o f households had access to pit latrines only, while 36 percent were dependent on pour flush toilets. Only 7 percent had access to a W C connected to a septic tank, and another 6 percent had no toilet facilities.

ix) Sixty-eight percent o f households were dependent on a private truck pusher for disposal services, while 19 percent dumped their garbage in the street and 18 dumped it

47 March 2004 Staff estimates based on LASURA study by Stoveland Consultants, 2002.

34

in some open area. Only 1 percent had access to a community bin or a bin outside their house.

x) An average o f 84 percent o f households had electricity services in their house, but only 5 percent indicated that the service was reliable.

xi) Drainage, by far, was the highest priority for most communities, followed by roads.

82. Consultative Planning Process. AAer the surveys, with additional support from the Norwegian Government, LASURA undertook preparation for upgrading the nine surveyed slums. Applying the lessons from Badia, and with a view to building the capacity o f State and LG agency staff in consultative planning, an intense participatory process to identify community needs and priorities was undertaken. To elicit demand from communities, a lanning figure o f US$30,000 per hectare, derived from upgrading experience in Nigeria and elsewhere, was used to enable communities to choose which investments would be included in subprojects for their area. Communities were also confronted with capital cost contributions and O&M implications for different infrastructure and service levels, presented to them graphically through pictures and base maps. This iterative process was hrther informed by a quantitative assessment o f priorities, which also established a baseline for monitoring impacts. LG engineers and planners then turned the community’s l i s t o f demands into coherent plans. These plans were shared with the State, LGs, and the communities to ensure that a clear and shared understanding exists amongst all the stakeholders on the following: (i) what budget portion for on-site improvements will finance different sectors o f investment; (ii) the expected level o f service from each sector; (iii) cost recovery levels and mechanisms; (iv) how the process o f implementation will be managed; and (v) the roles and responsibilities o f the actors involved.

8 3

83. A total o f 83 stakeholder consultative meetings, 19 community level meetings, 16 working sessions with LGs, and two urban forums in addition to meetings with senior State officials were held before the subproject proposals were finalized. These proposals reflect a compromise between community preferences, feasible options in terms o f availability o f land and financial constraints, and, importantly, the adoption o f standards that exist in areas contiguous to the s l u m area, i.e. the LG standards. Multisectoral investment packages include: streets, footpaths, foot bridges and walkways; water supply; drainage; schools; health centers; public sanitation facilities; market stalls; electricity transformers; street lighting; community centers; postal stations; fish smoking facilities; a floating jetty with petrol station for fishing boats; and box culverts.

84. The subprojects for each s l u m will be reconfirmed prior to preparation o f final engineering and bid documents. Given the need for proper engineering and the variation

48 Nigeria has a long history o f implementing urban upgrading projects. The Bauchi State Urban Project (1978-1983) financed investments in roads, water, drainage, street lighting in neighborhoods, incremental housing improvements and solid waste management in two cities o f the State. The Community Improvement Program under the Oyo State Urban Project (1992-1996) financed roads, drains, solid waste management, school and health center buildings, and rehabilitated existing water lines. The Federal Ministry o f Works and Housing has undertaken the implementation of pilot urban upgrading projects in fourteen States, investing in the improvements o f roads, drains, water supply and market improvement.

35

in soil conditions, and the fact that the unit costs o f upgrading in Badia was US$44,500 per hectare, a maximum planning ceiling o f th is f igure i s appropriate, except when soil conditions demand more for some construction. Infrastructure will be developed to appropriate standards within budget limits for the 760 hectares that the nine slums cover, to allow greater coverage with limited resources. A higher budget envelope than the planning figure, wil l enable adequate engineering and construction using high quality materials, thereby off-setting maintenance cost. Such an approach will enable sound estimation o f a city wide upgrading program, so that larger public sector investments are able to leverage incremental improvements over time.

85. Mechanisms to create social sustainability will be a vital aspect o f the program, to ensure local ownership, take advantage o f the high energy in community associations, and build commitment to long-term conservation o f constructed facilities so that the investments do not need to be repeated every few years and LASURA can go on to the upgrading o f the rest o f the city’s slums. A seven-part social sustainability program wil l support but also test what citizens can do to keep the government’s investments through the Project operating properly and yielding benefits to the people they are intended to serve. Social sustainability wil l be built by (a) continuing the intensive program of consultations wi th broad public opinion in the nine slums; (b) publishing a Project newsletter that provides thorough Project communication from and to all parties; (c) enabling the communities to continue the process, begun during preparation, o f selecting, reconfirming, and monitoring the within-slum investment programs, and providing labor for them; (d) adding voluntary contributions o f sub-project activities around the investments, by community “add-ons” including school materials, health programs, maintenance services, road furniture, and other elements; (e) competing through such add-ons for “bonus” subprojects based on the volume and quality o f their own “add-ons; (0 generating “community report cards” rating service improvements in years 4 and 7 of the Project on a baseline survey in year 1; and (g) winning small grants for small community-oriented projects through an upgrading version o f what the World Bank does through “development marketplaces.”

86. Objectives. Following up on initiatives already taken by LASURA, support for upgrading will build LASURA’s capacity to develop, plan, and coordinate the execution of a city-wide upgrading program and ensure its sustainability. This component wil l finance the following:

(i) US$37.67 million - Upgrading civil works (OS$34.245 million), design and supervision consultancy (US$3.425million): Upgrading o f nine selected slums that cover 760 hectares, are home to over 1.1 mi l l ion people, and come under the administrative boundaries o f 6 LGs. Infrastructure investments proposed by the community are as follows: Rehabilitation o f roads within existing right o f way: 44.8 km; 67 water boreholes; 11.4 km extension o f water distribution lines; rehabilitation o f 13 and construction o f 5 schools; rehabilitation o f 4 and construction o f 6 health centers; 54.4 km. o f street lighting; 13 public sanitation facilities with baths; upgrading o f 4 markets; and 13 electric transformers. For the communities on the lagoon, the Project wil l finance f ish smoking facilities; walk bridge and walkways; f ish storage cold rooms; jetty with petrol station; and fire

36

engine (on boat); and dredging o f blocked drainage systems coordinated with the Office o f Drainage Services and the drainage component.

US$0.30 million - Support to 6 LGs: Assistance to LGs to adequately plan, execute and monitor maintenance o f the settlements, prior to and after upgrading. This includes support to LG community development officers to liaise with the affected communities, CDAs, traditional leaders, and community based organizations.

US$0.30 million - Technical assistance to LASURA including M&E to enable assessment o f upgrading needs and the financial and institutional viability o f city- wide upgrading, using the updated satellite imagery being acquired; and to undertake monitoring and evaluation o f processes during implementation.

US$O.O5 million HIVAIDS awareness campaign will be delivered by the LGs on and around Project sites, coordinated and monitored by the PCU. The PCU will facilitate support from the State Action Committee on AIDS (SACA), and the Local Action Committee for Aids (LACA).

US$0.30 million - Technical Assistance to MPP&UD to undertake an urban design study on land, development density, growth and undertake land market analysis, to develop a strategy to accommodate population and firm growth, and policies for the prevention o f future slums. The study, closely coordinated with the planning study to be undertaken under the Lagos Urban Transport Project (LUTP), wil l undertake an in-depth assessment o f the impacts o f current land use planning practices, on moderate and low income groups. I t will analyze in depth, the economic, environmental and social effects with respect to productivity and expansion o f firms, housing, transport, and infrastructure investment back-log. I t will develop a medium term strategy to address deficiencies related to urban development, and identify stakeholder groups for specific measures and activities, to address the challenges o f land management facing Lagos, particularly given the finding from the two studies recently completed by MEPB: 80 percent o f the businesses would wish to expand within Lagos, with only 11 percent willing to relocate from Lagos; and 81 percent o f the households determined to stay where they are, even if rents increase.

US$1.25 million - Social Sustainability Program to increase ownership o f facilities constructed under the upgrading program, to manage the community processes described above, and to provide funds for six “extra” subprojects to be built in the nine slums as competitively earned awards for strong community programs o f adding on soft additions (outreach, equipment, safety and health programs, management committee training, etc.) to the construction programs. It also includes support to LGs to provide small grants for the “development marketplace” program, to help monitor Project progress, to generate materials for Project newsletters, and to replicate actions within other slums in the same LGs.

(vii) US$0.20 million - Training for Urban Upgrading: This will be used to complement the capacity building efforts being undertaken with technical assistance above. Appropriate training courses in Nigeria and outside o f Nigeria

(ii)

(iii)

(iv)

(v)

(vi)

37

will be considered in order to better prepare the key technical and managerial staff of LASURA to hlfill the objective o f their Office.

US$O. 084 million - Operating Costs (viii)

A2: Drainage (US$61.38 million) 87. Background. At least three drainage master plans have been prepared over the past 30 years, that o f 1974 covering the eastern portion o f mainland Lagos, that o f 1988 covering Lagos Island, and that o f 1999 covering the western parts o f Lagos mainland. Many o f the recommendations o f the 1974 and 1988 reports have been implemented through major civil works contracts over the years, thereby reducing the effects o f heavy rains.

88. The total length o f primary and secondary drainage channels on the Lagos mainland i s 118 kilometers, much o f which has been channeled over the past 30 years. The western side o f Lagos mainland i s where a lot o f new development i s taking place, most o f the proposals for new construction o f drainage infrastructure pertain to this area. These areas are typically reclaimed swamp and marsh areas and present major technical problems for providing good drainage o f the areas. The majority o f the population o f Lagos lives within the boundaries o f the 6 drainage basins within the Eastern sections o f the mainland. The primary areas o f flooding problems, affecting the most people, are in the Eastern sections o f the mainland as well. Flooding i s a persistent and costly problem in Lagos, and hndamental to improving environmental degradation and poor living conditions, particularly in the poor communities in low lying areas. Improved drainage services wil l benefit the bulk o f the population, primarily in old Lagos, estimated to be about 8 million.

89. Objectives. The Project will support the design and engineering o f a comprehensive program which would provide for the rehabilitation, reconstruction, new construction, and routine maintenance for the city-wide drainage network; develop a long-term technical solution to flooding; finance the highest priority c iv i l works investments to mitigate flooding; and technical assistance to strengthen the ODS to sustain the investments in drainage infrastructure.

To achieve the above objectives, this component will finance the following activities:

(9

(ii)

US$3.0 million - First Year’s Rehabilitation Program. During the f irst year o f the Project, while the engineering designs are being developed, the cleaning and rehabilitation o f 25km to 30km o f drainage channels directly impacting (downstream) some o f the nine slum areas slated for upgrading will be contracted out. Rehabilitation i s defined as restoring the originally designed cross sectional area and vertical alignment (slope) with the possibility o f improving the channel lining.

US$20.0 million - Deferred Maintenance Program. The f irst year’s investment program will also include the commencement o f “deferred maintenance” contracts to clear the entire drainage network. Over the past few decades, inadequate maintenance financing has been allocated to the Drainage Department

38

(now ODs) resulting in a huge backlog o f solids that now needs to be removed from the drainage network. Regardless o f how well functioning the original network may have been, this accumulation o f solids now decreases the hydraulic characteristics of the network exacerbating the flooding occurrences in particular areas of the city. For these investments in the deferred maintenance clearing program to be justifiable and economically prudent, Lagos State must guarantee that annual budgets for the ODS wil l be consistently budgeted and allocated such that a l l drains in Lagos can be cleared at least once every 3 years. If this budgetary principle i s not strictly adhered to, the accumulations will build up again necessitating additional financially lumpy deferred maintenance budgets every 5-7 years. Incidences o f flooding will continue to increase year by year if the annual maintenance program i s not followed.

US$30.0 million - Two Basins Comprehensive Rehabilitation/Reconstruction. The longer term solutions to the severe drainage problems will begin with a fuller understanding and analysis o f the hydraulics o f each o f the drainage basins which would then lead to the design o f improvements in the drainage networks. This manner o f analysis and design, followed by implementation o f work would subsequently lead to a reduced incidence o f flooding in the areas where investments are made. At least two o f the six drainage basins on the eastern side of Lagos mainland will be analyzed in th is detailed manner, mapped (using satellite imagery and GIS software), and hydraulically modeled to reveal the major constricting structures or channel characteristics which are impeding the peak drainage performance o f the network. In many cases, culverts have been constructed across drainage channels which have not been properly sized to accommodate the assumed storm events. The major investments in the rehabilitation and reconstruction o f the 2-3 basin networks will derive their rationale from this hydraulic modeling, and design revision will be made using the same software. Once 2-3 basins are successfully reconstructed at the key points in the systems, the remaining basins can then be addressed with additional financing. US$5.94 million - Consultancy Services. Consultants will be hired by LASG to (a) facilitate the design and supervision o f all c iv i l works contracts under this component, (b) set up the GIS and hydraulic modeling/design o f the two drainage basins o f focus, and (c) provide technical assistance within the Office o f Drainage Services to build the technical and professional capacity within the Office for proactive mitigation against the r isks o f flooding in the future.

US$0.20 million - Demarcation (& Communication). As the longer term rehabilitation and reconstruction program moves forward, there will be a need for communities to understand that for the sake o f the public good, some houses andor businesses would need to be relocated. This will be communicated through the LGs and the community leadership with clear and transparent demarcations o f the alignments o f the drainage works in question. All resettlement will be done in keeping with the approved resettlement policy framework.

(iii)

(iv)

(v)

39

(vi)

(vii)

(viii)

A 3: 90.

US$0.20 million - Training. This will be used to complement the capacity building efforts to be undertaken with technical assistance described in (iv) above. Appropriate training courses in Nigeria and outside o f Nigeria will be considered in order to better prepare the key technical and managerial staff o f the ODS to fulfill the objective o f that Office.

US$O.O4 million - HIV/AIDS awareness campaign. ODS will execute an appropriate AIDS Information, Education and Communications Campaign along the drainage channels where construction i s to take place. The campaign will be conducted within the framework o f activities determined by the National Action Committee on AIDS (NACA) and the State Action Committee on AIDS (SACA).

US$O. 04 million - Operating Costs

Solid Waste Management (US$63.81 million) Background. The 1991 Edict related to solid waste management in Lagos

provided for the establishment o f the Lagos State Waste Management Authority (LAWMA). Delegated by LGs to manage solid waste in LG areas, LAWMA was assigned the responsibility for all solid waste, including from industrial and commercial establishments. Over the years, there have been many ad-hoc interventions by the State Government, including limited involvement o f the private sector in the collection o f solid waste. Consequently, operational inefficiencies and a lack o f financial resources have reduced the operational effectiveness o f the service delivery.

91. As o f May 2005, LASG appointed a new management team for LAWMA with a mandate to bring about thorough improvements in sector management and the delivery o f solid waste services to the citizens o f Lagos. The overall goal o f solid waste management in Lagos i s to improve upon the deficiencies o f the past and to collect, sort, and dispose of solid waste generated by all population groups, commercial, and industrial establishments in an environmentally and socially satisfactory manner using the most economically sustainable means available. The private sector has begun playing an increasingly significant role in the sector and LASG envisages an even greater role for the private sector to more effectively address the huge requirements o f the sector. Over the past 18 months LASG has given contracts to private f i r m s to collect solid waste within a good portion o f the city and along i t s major highways, and improvements in collection are visible.

92. Currently, Lagos generates between 4,000 tons to 6,000 tons o f waste per day. Forty-two percent o f the households have their garbage collected by the private operators appointed by the Government, and 39 percent by truck pushers or informal collectors, 11 percent dump their garbage in unauthorized areas, 4 percent dump it within their compound, 1 percent deposit i t in garbage bins provided by the Government, and 3% report using “other” means.49 About half the garbage collected in Lagos, arrives at the three official dumpsites. There are therefore huge pi les o f solid waste building up within

49 2005 Household Survey by the Office o f Statistics, MEPB.

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the city l imits as can easily be seen when driving through the city. These piles are located where the proposed transfer stations will be designed and located.

93. Objective. LASG unbundled the sector by enabling private sector participation (PSP) in solid waste collection, to improve collection. The Project supports LASG to extend the PSP efforts to the transfer and disposal of solid waste, by tendering a design, build, and operate contract for the transfer and disposal o f the solid waste.

The Project will support the following activities:

US$4.0 million - Transfer Stations Construction (2 nos.). Currently there are no formal engineered transfer stations in the city, but rather transfer points (see the map in Annex 15). These transfer points are large mountains o f burning/ shouldering garbage which can be up to 10-15 meters high. This accumulated waste will be transported to the disposal sites as one o f the f irst efforts under this subcomponent. Adequately engineered and constructed transfer stations will then be built on two o f these sites. These two transfer stations will be managed and operated by’LAWMA directly. These will complement the other 2 transfer stations being constructed under the design, build, operate and transfer (DBOT) contract - see below.

US$4.0 million - Upgrading of One Landfill. There are presently three landfills being used by Lagos. Two o f these three sites will be upgraded in a manner that enables recycling o f materials by both the formal and informal sectors - many low income people depend on the incomes they currently derive from the recycling o f materials under difficult and dangerous working conditions. This investment will complement the upgrading o f the largest landfill (Olushosun) under the DBOT contract. Upgrading o f these two sites to landfills will enable LAWMA to utilize these sites for an additional 10 years, giving it more time to develop longer-term disposal plans. The third site that i s currently being used as a landfill may be converted to a transfer station.

US$2.0 million - Clearance of the Backlog of Refuse Heaps in Lagos. What are now termed “transfer points” in Lagos have turned into storage points resulting in large mountains o f refuse accumulating at some of these sites. These pose serious public health problems to the surrounding communities. This will be the first activity undertaken under this component.

US$l. 25 million - Communal Transfer Depots. LAWMA has in place, a program for constructing small transfer depots in s l u m areas where solid waste collection i s done by cart pushers or other local collection initiatives, and brought to a neighborhood or community transfer point. LAWMA i s responsible for managing transfer o f th is solid waste to the closest landfill. The Project will support the construction o f twenty five communal depots.

US$42.0 million - Design, Build, Operate, Contract. This is the foundation o f th is component, private sector S W M f i rms will bid on the design, construction, and operation o f 2 critical transfer stations and the Olushosun landfill for a period O f 4 years.

41

US$6.0 million - Carbon Finance Works at Landfills. In conjunction with the conventional upgrading of the landfills, the Project wil l support the capture o f methane emitted by landfills, to be utilized as a source o f usable energy. The investments will include a landfill gas collection system with vertical wells, flaring equipment and electricity generators. The majority o f the collected gas will be combusted by the gas engine, whereas the remaining landfill gas will be combusted in the back-up flaring, where no energy recovery takes place, The produced electricity wil l be sold to industry in the vicinity o f the landfill. The sold electricity wil l substitute electricity from fossil fie1 and thereby produce emissions reduction (ER). The produced electricity will displace electricity from local diesel generators and/or electricity from the public power grid. The stream o f income to LAWMA from carbon credits for a reduction o f green house gases, will contribute to financial sustainability o f the sector.

US$2.0 million - Rehabilitation of existing LAWMA SWM Vehicles. In order for LAWMA to operate in the transitional phase o f the Project, i.e. before the design, build, and operate contract commences, there will be a need for LAWMA to operate with existing equipment. Much o f this equipment needs to be repaired. The Project will provide support during the transition, including leasing arrangements for equipment.

US$1.47 million - Consultancy Services. The Project wil l support the consultancy costs o f engineering design and supervision services to ensure adequate design and supervision, as well as the cost o f Technical assistance to LAWMA. US$0.20 million - Training. The Project will support capacity building activities for LAWMA, LASEPA, and MoE.

US$0.42 million - Operating Costs for the SWM Component. Operating costs for LAWMA.

Public Governance and Capacity Building: US$5.97 million Under Part B o f the Project, IDA will support key public finance management

reforms, and the strengthening o f state statistical systems. A Governance Technical Coordination Committee (GTCC), chaired by a Permanent Secretary level official o f the MEPB, has been established to facilitate the coordination o f activities under this component.

B (i) 95. reforms in four areas including:

(a): Updating Public Finance Legislation (b): Consolidating the MTEF Approach (c): Improving Budget Execution and Treasury Management (d): Consolidating the IFMIS

Public Finance Management Reforms (US$3.97 million)

The Project will help the LASG carry forward public finance management

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(a) Updating Public Finance Legislation (US$O. 075 million)

96. Objectives. This sub-component wil l help (i) ensure that public finance reforms are built on solid regulatory foundations by supporting the State in updating their organic public finance laws and financial regulations; (ii) enable a more predictable budget preparation and execution process, and higher standards o f transparency and fiscal reporting; and (iii) provide an opportunity for L S to re-examine the roles and responsibilities of both l ine and central management agencies, the accountability o f vote holders, rules on debt and the creation o f special h d s , and the treasury functions o f the Accountant-General.

Activities will include:

(i) Completing the review o f existing finance management legislations and regulations in light o f the principles o f modem public financial management, and the expected roles, responsibilities, powers, functions and penalties o f organizations and individuals.

(ii) Preparing modern finance management legislations and regulations, including the drafting o f an organic finance law and financial instructions. For consistency and cost effectiveness reasons, the development o f the modem financial legislation in L S will proceed in coordination with the work underway at the federal level and in several other states. In particular, the draft organic finance law wil l be designed to make room for any implications o f the Fiscal Responsibility Act to be adopted at the federal level that the state will deem warranted.

(iii) Printing and wide dissemination o f the new finance laws and regulations.

(iv) Organizing a series o f sensitization seminars on public finance reforms, both inside and outside the public sector.

(v) Preparing handbooks and training managers and staff on the new laws and regulations.

This sub-component will be implemented under the technical coordination o f the Ministry o f Finance.

97. Expected results/performance indicators. N o later than two years following Project effectiveness, the LASG and the State House o f Assembly (SHoA) will have enacted a new organic finance law. The law will cover budgeting, financial management, and control, to create a modem statutory framework which provides for accuracy, comprehensiveness, transparency, and accountability in the management o f public finances. A major effort to train staff and disseminate the new laws and regulations will have been made within and outside the public sector, and staff trained. Dissemination activities wil l include a minimum o f (i) two seminars for members o f the SHoA; (ii) four seminars for the business community; (iii) two seminars for representatives o f c iv i l society organizations (CSOs); and (iv) three seminars for Local Government officials.

43

(b) Consolidating the Medium-Term Expenditure Framework Approach (US$O. 4 7 million)

98. Objectives. The objectives o f this sub-component are to (i) strengthen State Government capacity to make and implement budgets which are fiscally sustainable, adequately b d priority programs and eliminate wasteful spending, and (ii) increase LASG’s ability to contribute to Nigeria’s fiscal and monetary policy objectives. In this connection, when enacted, the fiscal responsibility law under preparation will require higher standards o f fiscal management and transparency at the federal level. This, in turn, will mandate a corresponding improvement in budget management capacity by the states.

The Project will help LASG develop and institutionalize multi-year budgeting as a key element o f i t s budget cycle. This will include:

Instituting a multi-year MTEF as the basis for annual budget preparation and execution, providing a three year perspective for aggregate revenue and expenditure, both recurrent and capital. State fiscal objectives could include (a) targets for the current account and overall fiscal balance; (b) debt to revenue ratio and sustainable debt service to revenue ratio; and (c) consistency o f the budget and financial management practices with the requirements o f any fiscal responsibility law passed at the national and state levels. The first year o f the MTEF will present the elements o f the annual budget to be adopted by the SHoA, and the MTEF will be published as part o f each year’s budget documentation. I t wil l provide indicative sectoral ceilings for the outer years to facilitate strategic planning in the ministries. Efforts will be made to better integrate the preparation o f the two parts o f the budget, recurrent and capital, and improve the capacity o f Ministr ies Departments and Agencies (MDAs) to prepare sound sector strategies and development programs, and appropriately appraised projects.

(ii) Requiring eight selected pilot MDAs responsible for economic and social infrastructure and services to produce medium term expenditure programs revised annually, formally adopted by the State Executive Council and presented to the SHoA (MOE, MpP&UD, MOW, Ministry o f Transport, Ministry o f Health, Ministry o f Education, Ministry o f Science and Technology, and the Lands Bureau).

(iii) Building the necessary capacity for MTEF via the training o f an adequate group o f budget and finance staff from the central ministries and the l ine MDAs, and acquisition o f necessary tools and techniques to enable the formulation o f improved policies, identification o f priorities, the setting o f fiscal objectives, and the development o f revenue projections and costs estimates in a medium-term fiscal horizon. This includes the preparation o f medium term expenditure programs for selected ministries.

(iv) Developing adequate annual call circulars, which indicate state priorities and annual expenditure ceilings for each ministry over the duration o f the MTEF,

44

and thereby encourage a process o f budget restructuring as between the wage bill and non-wage O&M, and between current and capital spending.

(v) Revising a budget preparation calendar to allow adequate time for consultation on budget priorities and preparation and scrutiny o f spending proposals in the context o f a three-year fiscal policy horizon.

(vi) Strengthening internal processes and the capacity o f staff for the analysis and screening o f capital expenditure proposals.

(vii) Organizing training for central ministries and managers and staff o f MDAs in budget preparation and execution, and sensitization seminars for members o f the SHoA.

99. To facilitate the effective implementation o f th is sub-component, LASG will benefit from the services o f foreign andor local consultants who will provide the necessary guidance and training to the relevant teams in the central and sector ministries. This component wil l be implemented under the technical coordination o f the MEPB.

100. Expected resultsberjormance indicators. (i) improved fiscal policy formulation and implementation by instituting a medium term budget framework as part o f the regular economic management process; (ii) state budget allocations that reflect the stated policy priorities; (iii) robust medium term expenditure programs for selected ministries; (iv) better budget execution through more predictable cash releases, leading to more effective service delivery; and (v) improved state debt profile. Budgets based on multi-year MTEF will be presented to the SHoA starting with the 2008 budget.

(4 Improving Budget Execution and Treasury Management: (US$O. 075 million)

101. Objectives. This sub-component seeks to (i) provide a system o f accounting that reflects accurately and in accordance with recognized accounting standards, the flow o f transactions and the year-end stock o f financial resources o f the State Government in a timely manner and serves as a key instrument in the formulation and implementation o f State Government policies; and (ii) reinstate effective expenditure control by overhauling existing processes such as commitment controls and payment authorizatiodapproval; and (iii) improve the cash management system and procedures.

Activities will include:

(i) Implant of a modern accounting and financial reporting system based on the Standard Chart o f Accounts (SCoA) being developed for all the States by a national technical committee including representatives o f the states and the FGN. The SCoA will be properly coded, and conceived with the capacity to reflect hc t i ons , agencies, programs, and items o f expenditure.

(ii) Review of current arrangements (in theory and in practice) and the establishment o f appropriate mechanisms and procedures for effective expenditure control, including the preparation o f new operating manuals as needed. This will involve key aspects o f expenditure control: checking for budget appropriations; prior commitments;

45

verification for receipt o f goods and services; and improvement o f reporting formats. At the same time, in l ine with the principle o f budget execution under a MTEF, an effort will be made to introduce budget execution procedures and processes which give more responsibilities to the pilot MDAs responsible for economic infrastructure and social services.

(iii) Increase in fiscal transparency, including (i) improved reporting by MDAs to the MF and the MEBP on budget execution; (ii) publication by the MF/MBP o f aggregate budget implementation reports on a quarterly basis; and (iii) improved financial reporting on the transactions o f the State Government as a whole, based on formats for quarterly progress reporting and annual performance reporting in l ine with the requirements o f the Federation Account Allocation Committee. The computerized financial information system described below i s designed to facilitate the preparation o f these reports.

(iv) Improve cash management through (i) strengthening revenue and expenditure forecasting; (ii) implementation o f a cash management system based on quarterly cash plans, with monthly spending programs, that identifies and matches the flows of revenues with those o f disbursements and provides explicit contingency plans; and (iii) a substantial reduction in a number o f state bank accounts; and (iv) execution o f appropriate training for central ministries and MDAs managers and staff on accounting standards, budget execution, and reporting.

102. To facilitate the effective implementation o f th is sub-component, the LASG will benefit from the services o f foreign and/or local consultants who will provide the necessary guidance and training to the relevant teams in the central and sector ministries. This sub-component will be implemented under the technical coordination o f the Office of the Accountant General (OAGS).

103. Expected results/performance indicators. An important result will be the availability o f timely and reliable financial information to assist the State Government in developing and implementing policy, assist the MDAs in the management o f their portfolios, and support for the State Assembly in exercising i t s oversight responsibility. Other results wil l include more effective expenditure control, improved cash management, smoother execution o f Project and programs, especially in the priority infrastructure and social sectors, and reduced deviation between budgeted and executed levels o f expenditures.

(d) Consolidating the Integrated Financial Management Information System: (US$3.35

104. Objective. The objective o f this sub-component i s to support the deployment and effective utilization o f the IFMIS with the view to (i) facilitate the implementation o f the MTEF and the expenditure management and treasury reforms indicated in the components described above; and (ii) strengthen the capacity o f selected M D A s to utilize modern work methods and business processing systems to enhance their efficiency in service delivery. By focusing on making the IFMIS h l ly operational, the scope o f the

million)

46

component is limited to a subset o f the wider program to be carried out under the next phase o f the State Government’s Global Computerization Project (GCP).

Under the leadership o f the OAGS, the Project wil l support the following activities:

A comprehensive review o f the implementation to date to provide detailed advice on the completion o f the consolidation phase o f the IFMIS.

Final fimctional testing by the OAGS to ensure the full integration o f all the modules required to support financial management and reporting.

Full implementation o f the Consolidated Fund, the OAGS, Budget Office, Debt Management Office and MoF on the IFMIS.

Establishment o f the system control and administration functions in the OAGS.

Development o f a roll-out plan to all MDAs and establishment o f the implementation team in the OAGS.

Establishment o f backup and recovery systems.

Short term advisors and consultants will provide technical support for the implementation of this sub-component and for formal independent review o f i t s achievements.

106. Expected results/performance indicators. A main outcome o f this component will be to provide LASG with an information system and technology infrastructure that supports the achievement o f i t s economic and financial policy objectives effectively, while meeting the requirement o f modem and transparent business processes in the management of public financial resources. Results to be monitored will include the completion o f the automation o f government financial systems, adoption o f best practice standards, efficient processing of transactions, improved control, and timely production of accurate state annual accounts and financial reporting.

B(ii) Economic Intelligence and Service Delivery Monitoring (US$l. 70 million) 107. Objective. Capitalizing on initiatives taken by the LASG over the last years, the Project wil l help institutionalize the monitoring o f economic performance and service delivery in LASG. The PCU will facilitate systematic dissemination o f the results to the public, to create demand for better service delivery.

(a) Consolidating the$rms and household surveys initiative (US$l. 10 million)

108. The COS completed two sets o f surveys in 2005, f iom which baseline indicators are drawn at the metropolitan level: (i) a survey o f 4,000 businesses covering all sizes of f i rms and spectrums o f the economy; and (ii) a survey o f 6,000 households in the metropolitan area of Lagos, establishing a baseline for service delivery. The Project will support the COS in MEPB to (i) design a monitoring and evaluation system that will capture performance o f LASG’s programs, and (ii) initiate implementation o f this system. To report on the selected service delivery indicators, the COS will update the information

47

necessary through additional household surveys in 2007, 2009, and 2011. This would allow tracking of changes in core public service delivery, including in sectors such as drainage and waste management that are getting direct support under the Project.

The COS will undertake the following activities:

(i) Survey offirms (US$0.25 million): (i) Dissemination o f the 2005 survey results o f economic activity in Lagos, and (ii) a repeat o f the survey in 2008.

(ii) Household survey (US$O. 70 million): (i) Dissemination o f the 2005 household survey findings; (ii) desegregation o f findings by LG and the development o f poverty maps by LG; (iii) repeat o f the surveys in 2007,2009, and 201 1.

(iii) Designing the monitoring system (US$O. I 5 million): (i) Developing a system of monitoring indicators for economic performance and service delivery; (ii) Adopting a new reporting format for MDAs on their performance; (iii) Publishing a state performance report to reflect progress towards the objectives o f the Lagos State Economic Empowerment and Development Strategy (SEEDS).

109. Expected results/performance indicators. These two sets o f data collection, analysis and dissemination are expected to result in the development and periodic updating o f poverty maps using non-income measures o f poverty (lack o f access to basic economic infrastructure services such as water, electricity, sanitation, and access to health and education), and provide more robust analysis for policy making at State and LG levels. They will also help both levels o f government develop prioritized location specific interventions, and to monitor the impact o f their programs and expenditures. I t i s expected that the f i rst state performance report would be produced by 2008 and would contribute to the update and revisions o f Lagos SEEDS and other strategic documents.

(b) Enhancing economic performance and service delivery monitoring (US$O. 60 million)

110. economic performance and public service delivery including:

The Project will support new initiatives of the L A S G in i ts effort to better monitor

(i) Computation ofa State GDP (US$0.20 million). To improve economic and budget management, LASG plans to pilot computation o f state level GDP as an integrated measure o f economic performance. This i s viewed as a comprehensive program, which aims at simultaneous improvement in quality o f various household and business surveys, upgrading in the quality o f information on public sector performance, and their integration. To that end, the COS will work in close coordination with the Federal Office of Statistics.

(ii) Public expenditure tracking and impact analysis in selected sectors, such as education and health (US$0.20 million). The Project will help LASG to pilot expenditure tracking surveys in order to identify potential leakage o f public fimds and respectively to inform management decisions on better budget targeting, reporting and accountability. This will be done in coordination with the MEPB and the MoF.

48

(iii) Improved public access to information on state’s performance and service delivery (US$0.20 million). The Project wil l support LASG’s efforts to strengthen i ts capacity for dissemination o f results that are monitored. The Government i s committed to expanding coverage o f the state web portal, and provide for a regular and timely web posting o f key performance information, including the results o f budget execution, results o f various private and public sector surveys, and other relevant monitoring exercises.

1 1 1. The effective implementation o f this sub-component will benefit from the services of foreign and local consultants who will provide the necessary guidance and lessons on best international practice in performance monitoring. The above activities will be coordinated with related federal initiatives to improve monitoring, such as Oversight o f Public Expenditure under NEEDS (OPEN).

1 12. Performance indicators. The performance indicators for th is sub-component will include (i) computation and publication o f the State’s GDP; (ii) piloting a tracking survey in one of social sectors and subsequent incorporation o f such surveys in the regular budget cycle; (iii) regular posting o f budget execution and survey data with LASG’s web portal, and (iv) expanded coverage o f the state portal, including information on government policy and performance in key social and infrastructure sectors.

B (iii) Leadership Enhancement Program: (US$0.30 million)

113. The Project wil l finance leadership training programs designed for mixed cohorts, including managers and political appointees from the public sector, the business community, and the civil society.

C: Urban Policy and Project Coordination: US$12.13 million This component will support the following activities:

(i) Urban Policy (US$0.25 million). To support city-wide consultative forums around specific metropolitan growth and poverty related issues, the Project will support workshops focused on specific issues in consultation with the PSC and with prior clearance from IDA. Activities under this subcomponent could include research; symposiums; workshops; the sponsoring of, and participation in, learning events; hosting of technical specialists around specific issues; and participation and consultation needs that may arise during implementation. (ii) Communications (US$3.0 million). The objective o f the communications component i s to build stakeholder ownership o f the Project, encourage participation and cooperation, and facilitate the building o f trust amongst stakeholders in the capacity o f the Project to positively impact their lives. Through informing and educating all stakeholders about the Project, its components, implementation processes and potential benefits to the residents o f Lagos, the component aims to promote good urban governance, accountability and transparency practices in LASG operations, and motivate the replication and scaling up o f activities in other areas o f the State. To achieve these objectives, the communications strategy will be refined and implemented by the PCU in partnership with the information and communications departments o f the LASG. It i s

49

designed to primarily address the Information, Education and Communications (IEC) needs o f L A S G during preparation and implementation phases o f the Project. On a secondary level, the strategy also aims to address the internal needs o f LASG as i t progresses its institutionalization o f good governance and accountability in urban management (Annex 8).

(iii) Conflict Resolution (USU.0 million). This component will support the timely preparation and execution of resettlement and rehabilitation action plans, and mitigation in compliance with the Resettlement Policy Framework (RPF).

(iv) Strengthening Citizens ’ Mediation Centers (CMCs) and the Ofice of the Public Defender (OPD) (USU.50 million). Since the Project will utilize the services o f CMCs and may be the services of the OPD to support communities around Project areas, th is component will support strengthening the capacity o f CMCs and OPD including the following: (a) capacity building for mediators and staff including development and facilitation o f training programs on, among other things, mediation, conflict resolution and resettlement issues; (b) carrying out public awareness activities for poor communities to inform them about the services and availability o f CMCs and the OPD; (c) provision o f office support including acquisition o f books, materials, vehicles, office supplies and equipment; and (d) the rehabilitation o f office space, and the provision o f maintenance costs and office rent.

(v) Monitoring & Evaluation TA (US$0.40 million). The PCU will be responsible for developing M&E systems ensuring that the Project results monitoring indicators are integrated into the monitoring and evaluation systems. The PCU will facilitate the production o f annualhemi-annual reports on activities under the LMDGP, which will provide the basis for the supervision review meetings. The report will consolidate the linkages between the financial reports, procurement reports, activity updates, outputs, and results. IDA will finance the services o f a locally recruited M&E Specialist for which a budget provision o f 36 person-months has been made in the Project.

(vi) Operating Costs (US8I.68 million). This component will support the establishment and operation o f the PCU, including competitively recruiting a Project Director from the private sector, consultants for the duration o f the Project, strengthening the PCU’s capacity through the provision o f expertise in procurement, financial management, monitoring and evaluation as necessary, as well as in the development and implementation of the IEC campaign.

50

Annex 5: Project Costs NIGERIA: Lagos Metropolitan Development and Governance Project

A. INFRASTRUCTURE I

Urban UDslrading

Civil Works FAgege b Ajegunle b Amu koko b Badia b lwaya WMakoko b llaje b Bariga b ljeshatedo / ltire

b HIV Awareness Campaign b Design & Supervision .Technical Assistance to LASURA .Technical Assistance to MPP&UD

Consultancy Services - Design & Supervision

Social Sustainability Program b T A to LASURA: Coordination of Outreach Team and M&E b Bonus Upgrading Projects (6) in Year 4 and Year 7 b Development Marketplace Awards b Community Report Cards, Transparency Promotion

Support to Six Local Governments

Training for Urban Upgrading

Operating Costs for Upgrading

Civil Works .Transfer Stations (2 nos) .Upgrading of Landfill (1 nos) .Clearance of Backlog of Refuse Heaps in Lagos .Communal Depots (25 nos)

Design, Build, Operate Contract for 2 TS + 1 Landfill

Carbon Finance Works at Landfills

Rehabilitation of SWM Vehicles & Critical New Vehicles

Institutional Support - Goods .LAWMA b LASEPA b MoE

Consultancy Services b HIV Awareness Campaign

40,154,000

34,245,000 2,430,000 9,360,000 1,845,000 5,940,000 3,105,000 3,240,000 2,610,000 2,880,000 2,835,000

4,075,000 50,000

3,425,000 300,000 300,000

1,250,000 350,000 400,000 300,000 200,000

300,000

200,000

84,000

63,817,000

11,250,000 4,000,000 4,000,000 2,000,000 1,250,000

42,000,000

6,000,000

2,000,000

850,000 500,000 150,000 200,000

1,475,000 50,000

10,589,000

6,849,000 486,000

1,872,000 369,000

1,188,000 621,000 648,000 522,000 576,000 567,000

3,100,000 0

2,740,000 180,000 180,000

520,000 210,000 160,000 150,000

0

60,000

60,000

0

48,790,000

6,850,000 2,400,000 2,400,000 1,800,000

250,000

33,600,000

5,400,000

1,400,000

340,000 200,000 60,000 80,000

1,140,000 0

29,565,000

27,396,000 1,944,000 7,488,000 1,476,000 4,752,000 2,484,000 2,592,000 2,088,000 2,304,000 2,268,000

975,000 50,000

685,000 120,000 120,000

730,000 140,000 240,000 150,000 200,000

240,000

140,000

84,000

15,027,000

4,400,000 1,600,000 1,600,000

200,000 1,000,000

8,400,000

600,000

600,000

51 0,000 300,000 90,000

120,000

335,000 50,000

51

b Design & Supervision ,Technical Assistance to LAWMA

Training for SWM

Operating Costs for SWM

Drainage

Civil Works b First Year‘s Investment Program b Deferred Maintenance Program .Two Basins Rehabilitation / Reconstruction

Mechanical Equipment for SWAT Drainage Response

Consultancy Services b HIV Awareness Campaign b Modeling and Design of drainage network b Design & Supervision .Technical Assistance for Office of Drainage Services

Demarcation (a Communications)

Training

Operating Costs for Drainage

‘ I COMPONENTS

a ~

I r i > F * -

Public Finance Mananement Reforms

b Updating Public Finance Legislation .Consolidating MTEF Approach b Improving Budget Execution and Treasury Management .Consolidating the IFMlS

Economic Intelligence and Service Deliverv Monitoring

b Firm and Household Surveys b Economic Performance and Service Delivery Monitoring

Leadership Enhancement Program

Operating Costs for Public Governance and Capacity Building ($90,000 for three sub-components in three accounts embedded in figures above)

Urban Policv Dialogue

‘300;OOO

200,000

42,000

61,382,000

53,000,000 3,000,000

20,000,000 30,000,000

2,000,000

5,940,000 40,000

300,000 5,300,000

300,000

200,000

200,000

42,000

3,976,000

75,000 476,000

75,000 3,350,ooa

I ,700,ooa

i,ioo,ooa 600,ooa

300,ooa

400,ooa

250,000

240,000

60,000

0

47,580,000

41,800,000 1,800,000

16,000,000 24,000,000

1,000,000

4,720,000 0

240,000 4,240,000

240,000

0

60,000

0

2,200,300

25,000 142,800 22,500

2,010,000

680,000

440,000 240,ooa

I 50,000

240,ooa

50,000

225,000 60,000

140,000

42,000

13,802,000

I1,200,000 1,200,000 4,000,000 6,000,000

1,000,000

1,220,000 40,000 60,000

1,060,000 60,000

200,000

140,000

42,000

1,775,700

50,000 333,200 52,500

1,340,000

1,020,000

660,000 360,000

150,000

160,000

200,000

52

." -

~ -_--- ~ -- Support to Conflict Mediation Centers 1,500,000

53

Annex 6: Implementation Arrangements NIGERIA: Lagos Metropolitan Development and Governance Project

114. from October 6,2006 to March 29,2013.

Implementation period. The Project wil l be executed over a period o f seven years,

1 1 5. coordination and implementation arrangements have been designed to:

Project Coordination and Implementation Arrangements. The Project

(i) Strengthen the coalition that LASG has developed with the private sector and NGOs in recent years, in the formulation and implementation o f development policies. (ii) Facilitate the effective coordination o f metropolitan functions and service provider agencies from the public and the private sectors. (iii) Empower the existing MDAs for the execution o f the Project as opposed to creating parallel structures outside o f current government structures and provide methodological support, operational assistance, and staff ski l ls development as necessary. (iv) Provide the appropriate balance between ensuring, on the one hand, effective Project implementation, coordination and monitoring o f Project activities; and on the other, management responsibility in the execution o f the various sectoral activities with the respective executing MDAs.

116. Steering Committee (PSC), a PCU and Component Executing Agencies (CEAs).

The Project coordination arrangements will operate at three levels: a Project

117. The Project will be overseen by a PSC chaired by the Governor o f Lagos (or h isher representative) in h ishe r capacity as the Chief Executive o f Lagos. The PSC will consist o f a balanced representation from the public and private sectors. Private sector members thus far include the Managing Director and Chief Executive o f a leading multinational company, the Managing Director of a leading Pharmaceutical company, Head o f the Social and Economic Rights Action Center (SERAC), and the editor o f a leading national newspaper. Members from the public sector include Commissioners o f principal ministries associated with the Project, one LG chairman elected to represent the six LGs involved in the slum upgrading component, and CEOs o f public utilities, and a member o f the SHoA. The PSC will be responsible for ensuring timely implementation o f LMDGP by the PCU and the CEAs. The PSC will convene quarterly to: (i) review progress reports prepared by the PCU, and clear the forwarding o f these reports to IDA with comments; (ii) approve annual work programs, budgets, and procurement plans; (iii) ex-post assess performance o f the PCU through review o f activity reports; (iv) proactively address critical issues that could hinder the implementation o f the Project; (v) shield the PCU from undue political interference to ensure that the PCU i s empowered to perform; and (vi) support the PCU management in ensuring staff performance. The Director o f the PCU, described below, wil l act as the secretary to the PSC.

Project Steering Committee (PSC).

54

118. The Project Coordination Unit. A PCU headed by a competitively recruited, qualified director from the private sector has been established under the Office o f the Executive Governor of Lagos. Other full time staff include a procurement specialist, an engineer, an upgrading specialist, a communications specialist, a M&E specialist, mapped focal staff for environmental and legal issues, and support staff with proficiency in IT, drawn from LASG’s civil service or the private sector as necessary. Ensuring the effective implementation o f the Project guided by the PSC, the PCU will be responsible for the overall Project, and serve as a resource and support unit for Component Execution Agencies (CEAs). The PCU wil l guide, support, and coordinate the activities to be carried out by the various CEAs under the different MDAs. Specific Project implementation tasks to be centralized in the PCU include work program development, procurement processing, budgeting and processing o f disbursements, facilitating urban policy consultations, communications, conflict resolution and reporting on Project activities.

119. The PCU will be responsible for: (i) overall technical management, including preparation o f engineering designs and environmental impact assessments and mitigation plans; (ii) procurement and financial management; (ii) monitoring, evaluation and reporting on progress; and (iii) coordination with CEAs.

120. LASG will make available suitable office facilities, office equipment and stationary for the proper functioning o f the PCU for the entire duration o f the Project. The Project will assist with funding o f the operating costs o f Project implementation.

121. The CEAs will have the primary responsibility for the execution o f the Project components and sub-components falling within their respective institutional mandates, including carrying out day-to-day activities in l ine with LASG policies and works plans approved by the PSC. All the CEAs are existing agencies: LASURA (Urban Upgrading) in partnerships with LG Units (community development officer and engineer), LAWMA (Solid Waste Management), Office o f Drainage Services (Drainage), MEPB, MoF, Accountant General’s Office (Public Governance and Capacity Building). Each CEA will identify a focal interlocutor o f i t s agency for the PCU, who will work closely with the PCU throughout the implementation period, attending meetings at the PCU as and when needed, and being responsible for (i) preparation o f work programs, procurement plans, budgets, and the submission o f such programs and plans o f their components to the PCU for integration with the overall Project implementation plans; (ii) preparation and submission o f quarterly progress reports to the PCU in a format agreed with the Project Director for their component; and (iii) more generally, ensuring the effective implementation o f the activities assigned to each CEA, in collaboration with other relevant officers in the LASG public sector. The CEAs will not have to create new structures for the implementation o f the Project but entrust that responsibility to existing departments and divisions according to their roles and functions within the organizational structure o f the CEA. The strengthening o f the institutional capacity o f the CEAs will be supported in the context o f Project execution through the provision of technical assistance, consultancy services and staff training, as necessary.

Component Executing Agencies (CEAs).

55

122. Special Implementation arrangements. The Project provides for special implementation arrangements for the Urban Upgrading component and activities under the Public Governance and Capacity Building components.

a) Urban Upgrading and Local Government administration. Six LGs are home to the nine slums selected for upgrading. Each LG will designate an Engineer and a Community Development Officer to be the core technical interlocutors for the implementation of the upgrading programs to be executed by LASURA. LASURA will work with the core technical interlocutors and liaise with community development associations and traditional leadership. The objective will be to facilitate the full ownership o f work programs and investments by the community .

b) Coordination of Public Governance and Capacity Building activities. To ensure proper coordination o f public governance reforms targeted by the Project, the MEPB wil l have the overall responsibility o f executing the Governance component, and chair a Governance Technical Coordination Committee (GTCC) where all agencies involved in the implementation o f the component will be represented. To facilitate the work o f the GTCC and the day-to-day monitoring o f Project activities, an official o f the rank o f a Permanent Secretary in MEPB will be designated as the Coordinator for the Governance component. He/she will be assisted by a full time economistloperations officer and support staff as needed.

123. Financing. The total Project cost i s US$200.00 mill ion o f which IDA will finance 100 percent o f all costs, except local goods, o f which LASG will pay 5 percent and IDA 95 percent. LASG’s contribution represents 0.125 percent o f the total Project cost. These counterpart funds wil l be paid once a year to cover LASG contributions for a period o f twelve months. IDA credit proceeds will be on-lent by the Federal Government of Nigeria to the Lagos State Government under a Subsidiary Credit Agreement between the two tiers o f government, with terms and conditions acceptable to IDA.

124. Monitoring and Evaluation. Section C.2, Implementation, Monitoring and Evaluation o f Outcomeshtesults.

M&E procedures and reports are described in

125. Project Implementation Manual (PIM). A detailed PIM has been prepared by LASG, and it will be finalized by June 30, 2006. I t will be updated from time to time in agreement with IDA to guide execution o f each component and the implementation o f the Project as a whole. The P I M has set forth all operational and procedural steps regarding reviews and approvals o f specific activities, flow o f information, detailed description o f the functions o f Project management and implementing bodies, procurement and FM arrangements, reporting requirements, and procedures for amendment to the PIM.

126. Procurement Arrangements. All goods, works and services financed under the Credit would be procured in accordance with appropriate IDA procurement Guidelines. IDA’S Standard Bidding Document for Goods and Works, and Standard Request for Proposals for Consultants as well as standard evaluation forms will be used throughout Project implementation. Although the staff member from LASG assigned to the PCU as

56

the Procurement Officer for LMDGP has prior experience with procurement under IDA- supported projects, the Project will engage an engineering consultant firm with an experienced team member as a Procurement Specialist. The engineering consultant firm i s required to provide continuous procurement training to al l staff o f the PCU, and support a l l procurement activities under LMDGP. The PCU will be equipped with the “Client Connection” soflware and accessibility, to allow for streamlined procurement and disbursement procedures.

127. Financial Management (FM) Arrangements. FM services for LMDGP will be provided by the PFMU established under the Accountant General’s Off ice in Ministry o f Finance. The Lagos PFMU will deploy a hll Project FM team to the P C U offices to undertake the FM responsibilities required during implementation o f the Project, in terms of an agreed Memorandum o f Financial Management Services (to be agreed before Project effectiveness) and further supported by a FM procedure manual, which will specify in sufficient detail the operational procedures, controls and sanctions to ensure effective and efficient FM for LMDGP. The Head o f the deployed Project FM team will report primarily to the LMDGP Project Director and will be authorized to countersign (as one of two PFMU signatories) with the Project Director, approved payments. The FM staffing requirement will be revisited as the need arises. The PFMU performance will be reviewed after six months o f Project effectiveness.

128. Engineering Design Services and execution of Works. The detailed engineering designs for works will be carried out by private consultants based o n detailed terms o f reference, and works will be contracted out, based o n detailed technical specifications, to private contractors.

57

Annex 7: Financial Management and Disbursement Arrangements

NIGERIA: Lagos Metropolitan Development and Governance Project

Summary of the Financial Management Assessment 129. Objective of the FM System. The Financial Management System (FMS) will support the PCU in deploying Project resources to produce required outputs, with due attention to economy, efficiency and effectiveness. It must be capable o f producing timely, understandable, relevant and reliable financial information to enable the implementing units to plan, coordinate, monitor and appraise the Project's overall progress towards achieving i ts objectives, while ensuring that b d s provided will be used for their intended purposes.

130. Financial Management Arrangements. A Project Steering Committee (PSC) will be responsible for ensuring timely implementation o f LMDGP by the PCU, established under the Office of the Executive Governor o f Lagos State. The PCU will be responsible for: (i) overall technical management, including preparation o f engineering designs and environmental impact assessments and mitigation plans; (ii) procurement and financial management (FM); (iii) communications, monitoring, evaluation and reporting on progress; and (iv) coordination with component executing agencies (CEAs).

13 1. Lagos State Government Project Financial Management Unit (Lagos PFMU). The Lagos PFMU will provide FM support services for the PCU in accordance with the terms of an agreed Memorandum o f Financial Management Services to be entered into between Lagos PFMU and the PCU in form and substance satisfactory to IDA. This Memorandum will be supported by a Financial Management Procedure Manual which will specify in sufficient detail the operational procedures, controls and sanctions to ensure effective and efficient FM for LMDGP.

132. Key accountabilities o f the Lagos PFMU are to ensure effective and efficient control systems (including internal auditing) for Project funds, budgeting, cash management, accounting, financial reporting and arranging external auditing as required by IDA. The PFMU will deploy a full Project FM team to the PCU offices to undertake related FM responsibilities required during Project implementation. They will support day-to-day financial operations as described in a FM procedure manual for the PCU in terms of budgeting, cash management, procurement, commitments, expenditures, and other transaction processing. The FM team will carry out these responsibilities under the day-to-day supervision o f the Head the PCU. The FM team will additionally continue to report on human resources and professional matters to the Head o f the Lagos PFMU. The FM team will provide financial reporting to the Head o f the PCU and the Head of the Lagos PFMU. Financial reporting includes monthly reports for the PCU, quarterly Financial Monitoring Reports (FMRs) and annual financial statements for the Project. Internal audit services will also be provided by the Internal Audit Unit (IAU) of the Lagos PFMU. The IAU will carry out a systematic review, appraisal and reporting o f the adequacy o f the systems o f managerial, financial, operational and budgetary control and their reliability in practice. All financial personnel will be sufficiently trained in Bank

58

procedures, computer applications and financial management skills. The performance o f the PFMU on Project FM will be assessed after six months o f Project effectiveness.

Risk Analysis 133. Inherent Risks. Recent diagnostic studies, including the Lagos State Financial Accountability Assessment (SFAA, March 2004), stated that the main elements o f government FM systems are present in Lagos State, as LASG has already taken significant steps to improve i t s FM systems. A computer based FM system has been procured and i s being installed to improve the State’s budgeting, accounting, and financial reporting arrangements. Procedures have been developed and implemented to improve the effectiveness of tax revenue collection and monitoring, and these efforts have begun to show marked results. Additional qualified FM staff have been recruited. Furthermore, accounts that were in arrears for several years under the Military have been brought up to date. The SFAA noted however, that some critical aspects o f FM such as weak financial accountability systems and the risk that financial records do not present an accurate record of transactions s t i l l need to be addressed. Given such an environment, strong controls are necessary to prevent wrongful use o f public funds. Past FM arrangements that resulted in the proliferation o f designated accounts, stretched limited resources, inefficiency and ineffective control systems did not counter the identified high inherent r i sk to public funds. After due consultations between the Bank and the Federal Ministry o f Finance on the one hand, and the Federal Ministry o f Finance and the SGs on the other, the Federal Ministry of Finance directed each State to establish a PFMU in the Office of i t s Accountant-General. The PFMUs support centralized maintenance o f a designated account and other required bank accounts for every IDA-assisted Project, and provide FM services (cash management, fund requisitions, payment processing, accounting, internal control and audit and financial reporting) to each Project implementation unit, on the basis o f a Memorandum o f Understanding. This arrangement can be regarded as a form of country FM system in use. In the case o f LMDGP, the Lagos PFMU will provide the required FM support services under the arrangements outlined above.

134. Control Risks. The overall control r i sk f lom a FM perspective i s considered moderate; the high inherent r isk i s offset by (a) the fact that the Lagos PFMU has a number of professionally qualified Project accountants and internal auditors who are trained in IDA procedures and have a good appreciation o f the use o f computers; (b) a more robust internal control system made possible by the PFMU arrangement, which allows for segregation of functions; and (c) sound financial procedures and systems in which the PFMU staff have been trained.

Financial Management Systems 135. Financial Procedures Manual (FPM). A generic FPM has been prepared by IDA for Project FM uni ts in Nigeria. This includes institutional arrangements; a general format o f chart o f accounts; adoption o f basic accounting procedures; planning and budgeting, including cash-flow management; procurement procedures for goods, works and services; disbursements; banking activities; staff, wages and salaries; fixed assets register; financial reporting, auditing; legal covenants and records management. This

59

F P M has recently being revised and updated by the Federal Ministry o f Finance. Amendments to this manual by the Lagos PFMU to support issues specific to the Project, such as delegations, commitment control and authorization procedures, chart o f accounts, FMR and formats for the Annual Financial Statements, will be completed by Board date. The FPM will form part of the Memorandum o f Financial Management Services and be agreed with the PCU.

Funds Flow and Banking Arrangements

136. The overall Project finding will be from the IDA Credit and government counterpart funding. IDA will disburse the Credit through a Designated Account, which will be managed by the PFMU.

137. To facilitate disbursements for eligible expenditures for goods and services, the flow-of-fhds mechanism i s designed on the following principles: (a) the PFMU controls, accounts and reports for all Project finds, as part o f i t s FM services to the PCU; (b) bottlenecks in the use and transfer of finds are governed through an agreed Memorandum of Financial Management Services, supported by an adequate FPM; and (c) implementation transparency and accountability.

138. The following bank accounts will be opened and maintained by the PFMU:

i) A Designated Account in US Dollars to which the initial deposit and replenishments from IDA will be remitted. The PFMU in consultation with the PCU will open a Designated Account (DA) in a commercial bank, acceptable to the Bank, to cover part o f IDA’S share o f eligible expenditures to be managed and administered by the PFMU. The total authorized allocation o f the Designated Account wil l be US$15 million.

ii) A Current (US$ Interest) Account in a bank to which interests on the Designated Account wil l be credited.

iii) A Current (Draw-down) Account in Naira in a bank to which draw-downs from the Designated Account wil l be credited once or twice per month in respect o f incurred eligible expenditures. Following the immediate payments in respect o f those eligible expenditures, the balance on th is account should be zero.

iv) A Current (Project) Account in Naira in a bank to which Counterpart Funds will be deposited.

v) A Current (Naira Interest) Account in Naira in a bank to which interest on Counterpart Funds will be credited.

vi) Where needed, CEAs wil l maintain a Naira bank account that will cover the budgeted operating costs for not more than a quarter related to their components. This wil l be run on an imprest (petty cash) basis requiring reporting o f actual expenditures to the PCU and PFMU prior to replenishment.

60

139. Detailed banking arrangements, including control procedures over all bank transactions (e.g. check signatories, transfers, etc.) wil l be documented by the PFMU in the FPM. All bank accounts wil l be reconciled with bank statements on a monthly basis by the PFMU. The bank reconciliation statements wil l be reviewed by designated officials, and identified differences will be expeditiously investigated.

140. LMDGP will also have an IDA Ledger Loan Account (based in Washington) in U S DollarslNairdSDR to keep track o f draw-downs from the IDA credit. The account will show (a) deposits made into a bank by IDA, (b) drawn-downs by the Project, (c) direct payments by IDA, and (d) opening and closing balances. IDA will provide details of direct payments to the PFMU, to enable accurate recording and reporting of all Project expenses to the PCU, PSC, FMF and IDA.

Funds Flow

Government Budget

Project (Naira) Counterpart Funds

Naira Draw Down Account

m Accounts

Disbursement Arrangements

141. By effectiveness, the Project will use the transaction-based disbursement procedures (as described in the World Bank Disbursement Handbook), i.e. direct payment, reimbursement, and special commitments.

142. The PFMU will maintain a cumulative record o f draw-downs from the Credit that will be reconciled monthly with the Disbursement Summary provided by the Bank and the IDA Ledger Loan Account. The PFMU will be responsible for preparing and submitting Withdrawal Applications to IDA to replenish the Designated Account. The Withdrawal Applications will be supported by a bank statement and a reconciliation o f the Designated Account, and other appropriate supporting documents for expenditures as may be required, until such time as the Recipient may choose to convert to report-based disbursements. Detailed disbursement procedures will be documented in the FPM.

143. To the extent possible, all o f IDA’S share o f expenditures should be paid through the Designated Account and all disbursements will be channeled through the Designated Account.

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144. When Project implementation begins, the quarterly FMRs produced by the Project wil l be reviewed. Where the reports are adequate and produced on a timely basis, and the Recipient requests conversion to report-based disbursements, a review will be undertaken by the Task Team Leader (TTL) to determine if the Project i s eligible. The adoption o f report-based disbursements by the Project will enable it to move away from time- consuming voucher-by-voucher (transaction-based) disbursement methods to quarterly disbursements to the Project’s Designated Account, based on FMRs. The format o f the quarterly FMR was discussed during negotiations and will be attached to the disbursement letter.

Minimum Value of Applications 145. The minimum value o f applications for reimbursement, direct payment and special commitment i s 20 percent o f the balance in the Designated Account at the time o f application.

Reporting on Use of Loan Proceeds 146. The supporting documentation for reporting eligible expenditures paid from the Designated Account and for reimbursements should be a summary report o f the Statement o f Expenditures (SOE), together with records evidencing eligible expenditures for payments against contracts valued at U S $ l mil l ion for works, US$500,000 for goods, US$200,000 for consulting firms, US$lOO,OOO for individual consultants, and a l i s t o f payments against contracts that are subject to the IDA’S prior review. All supporting documentation for SOEs will be retained at the PFMU and the PCU, and must be made available for review by periodic IDA review missions and external auditors.

147. evidencing eligible expenditures (copies o f receipts, supplier’s invoices, etc.).

The supporting documentation for requests for direct payment should be records

Counterpart Funding 148. mobilization o f the counterpart funds needed for Project implementation.

The Government must make all necessary arrangements to ensure the timely

Disbursements by categovy 149. Credit proceeds. The allocations for each expenditure category are in Table 7.1 below:

The table below sets out the expenditure categories to be financed out o f the

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(2) Works

(3) Consultants' Services

and 95% of local expenditures

72,160,000 100%

13,930,000 100%

(4) Training 1,020,000 100%

Planning and Budgeting 150. Cash budget preparation will reflect financial projections or forecasts for the l i fe o f the Project (analyzed by year) and will be prepared on an annual basis. On an annual basis, PFMU in collaboration with the PCU will prepare the cash budget for the coming period based on the work program. The cash budget should include figures for the year, analyzed by quarter. The cash budget for each quarter will reflect the detailed specifications for Project activities, schedules (including procurement plan), and expenditure on Project activities scheduled respectively for the quarter. (Guidance on the preparation o f budgets i s available in IDA'S publication titled "Financial Monitoring Reports: Guidelines to Borrowers"). The annual cash budget will be sent to the Task Team Leader at least two months before the beginning o f the Project fiscal year. Detailed procedures for planning and budgeting will be documented in the FPM.

(5) Operating Costs

(6) Resettlement Payments

(7) R e h n d o f Project Preparation Advance

Fixed Assets and Contracts Registers 15 1. A Fixed Assets Register will be prepared, regularly updated and checked by the PFMU. A Contracts Register wil l also be maintained in respect o f all contracts with consultants and suppliers. Additionally, quarterly Contract Status Reports will be prepared. Control procedures over fixed assets and contracts with consultants and supplierdvendors for the State will be documented in the FPM.

1,530,000 100%

2,770,000 100%

730,000 Amount payable pursuant to Section 2.07 o f the General Conditions

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(8) Unallocated

TOTAL AMOUNT

10,660,000

138,100,000

I n formation systems 152. The FGN’s MoF has engaged a consultant to develop and implement a computerized financial management system for FM, and to train staff in the use o f the system. The system has been developed and installed in the Lagos PFMU, and relevant staff has been trained in i ts use. Additional staff posted to the PFMU to manage this Project will also be trained in the use o f the system.

Reporting and Monitoring 153. Project implementation. The reports wil l be submitted to the PCU, PSC, FMF and IDA.

Monthly, quarterly and annual reports wil l be prepared to allow monitoring o f

154. the aforementioned: 0 A bank Reconciliation Statement for each bank account; 0 Monthly Statement o f Cash Position for Project funds from all sources, taking into

consideration significant reconciling items; 0 A monthly Statement o f Expenditure (SOE) classified by Project components,

disbursement categories, and comparison with budgets, or a variance analysis; and 0 Statement o f Sources and Uses o f Funds (by Credit Category/Activity showing IDA

and Counterpart Funds separately);

On a monthly basis, the PFMU will prepare and submit the following reports to

155. The following financial monitoring reports wil l be prepared by the PFMU in collaboration with the PCU on a quarterly basis, and submitted to IDA, PSC and the FMF: 0 Financial Reports which include a Statement showing for the period and cumulatively

(Project l i f e and year to date) inflows by sources and outflows by main expenditure classifications; beginning and ending cash balances o f the Project; and supporting schedules comparing actual and planned expenditures. The reports will also include cash forecast for the next two quarters. Physical progress reports, which include narrative information and output indicators (agreed during Project preparation) linking financial information with physical progress, and highlight issues that require attention. Procurement reports, which provide information on the procurement o f goods, works, and related services, and the selection o f consultants, and on compliance with agreed procurement methods. The reports will compare procurement performance against the plan agreed at negotiations or subsequently updated, and highlight key procurement issues such as staffing and building the capacity o f the Recipient’s staff. SOE Withdrawal Schedule listing individual withdrawal applications relating to disbursements by SOE method, by reference number, date and amount.

0

0

0

156. include the following: 0

The annual Project financial statements submitted to IDA, PSC, and the FMF will

A Statement of Sources and Uses o f Funds (by Credit Categoryhy Activity showing IDA and Counterpart Funds separately);

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0 Statement of Cash Position for Project Funds from all sources; 0 Statements reconciling the balances on the various bank accounts (including IDA

Designated Account) to the bank balances shown on the Statement o f Sources and Uses o f fkds;

0 SOE Withdrawal Schedules listing individual withdrawal applications relating to disbursements by the SOE Method, by reference number, date and amount;

0 Notes to the Financial Statements.

157. Indicative formats for the reports are outlined in the IDA publication Financial Monitoring Reports: Guidelines to Borrowers-Quarterly FMRs.

Accounting Policies and Procedures 158. IDA and Counterpart Funds will be accounted for by the Project on a cash basis. This will be augmented with appropriate records and procedures to track commitments and to safeguard assets. Also, accounting records will be maintained in dual currencies (i.e. Naira and U S dollars).

159. quarterly and annual financial Statements, including information on the following: 0 Total Project expenditures; 0 Total financial contribution; 0 Total expenditure on each Project component/activity; and 0 Analysis o f that total expenditure into c iv i l works, various categories o f goods,

training, consultants and other procurement and disbursement categories.

The Chart o f Accounts wil l facilitate the preparation o f relevant monthly,

160. Accounting Standards.

Annual financial Statements will be prepared in accordance with International

Audit Arrangements 161. Project activities, records and accounts will be reviewed and subjected to internal audit by appropriately qualified internal auditors in the PFMU, headed by a coordinator who i s a professionally qualified internal auditor. Regular internal audit reports will be submitted to the Head o f the PCU, Head o f the PFMU, the PSC, IDA and the State Accountant General.

Internal Audit.

162. External Audit. Audited Project Financial Statements for the Project will be submitted to IDA within six months after year-end. Under the PFMU arrangement, qualified external auditors have been appointed based on Terms o f Reference acceptable to IDA to perform audits of all IDA supported Projects in the State. The contract o f this auditor has been extended to cover the LMDGP Project.

163. Besides expressing an opinion on the Project Financial Statements in accordance with International Standards o f Auditing, the auditors will be required to comment on whether counterpart funds have been provided regularly and used in accordance with the financing agreement.

65

164. In addition to the audit report, the external auditors wil l be expected to prepare Management Letters giving observations and comments, and providing recommendations for improvements in accounting records, systems, controls and compliance with financial covenants in the IDA agreement.

165. The following activities have been completed by the PCUPFMU:

0 The generic FPM has been amended by the PFMU to support issues specific to the Project, such as delegations, commitment control and authorization procedures, chart o f accounts, FMR and formats for the Annual Financial Statements, and amendments will be completed by Board date.

0 Designated Account and Draw Down Account Bank accounts have been opened and IDA has been advised o f authorized bank and has received signatories /specimen signatures.

0 Relevant Project staff have been trained in IDA FM, procurement and disbursement procedures.

Supervision Plan 166. Supervision activities will include a review o f quarterly FMRs; review o f annual audited financial statements and Management Letters as well as timely follow-up o f issues arising during implementation; annual SOE reviews; participation in Project supervision missions as appropriate; and updating the FM rating in the Implementation Status Report (ISR). First FM supervision mission will be undertaken no later than six months following Project effectiveness.

66

Annex 8: Procurement Arrangements NIGERIA: Lagos Metropolitan Development and Governance Project

A. General

167. Procurement for the proposed Project would be carried out in accordance with the World Bank’s “Guidelines: Procurement Under IBRD Loans and IDA Credits” dated May 2004; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated May 2004, and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Credit, the different procurement methods for the selection o f consultants, the need for pre-qualification, estimated costs, prior review requirements, as well as the time f iame are agreed between the Recipient and IDA, are stated in the Procurement Plan that was finalized and agreed during Negotiations. The Procurement Plan will be updated at least annually, or as required, to reflect the actual Project implementation needs and improvements in institutional capacity.

168. The procurement procedures and the Bank’s Standard Bidding Documents (SBDs) to be used for each procurement method, as well as model contracts for works and goods procured, are presented in the Lagos Metropolitan Development and Governance Project Implementation Manual (PIM). The PIM, which includes a chapter on procurement, has been prepared and i s under review by the Recipient and IDA, and will be finalized by June 30,2006.

169. Procurement of Works. Works procured under this Project would include: cleaning o f existing trunk drainage channels to enhance their carrying capacity, reconstruction of select trunk drains, construction o f street foot paths, foot bridges and walkways, water supply, schools, health centers, public postal stations, f ish smoking facilities, community centers, box culverts etc. Procurement will be carried out using the Bank’s Standard Bidding Documents (SBD) for all International Competitive Bidding (ICB) contracts. For Solid Waste Management Contracts, the Bank’s Standard Design Built and Operate (DBO) document will be used. The procurement process therefore will start with the prequalification of Bidders in accordance with the provisions o f paragraphs 2.9 and 2.10 of the Guidelines. Minor c iv i l works estimated to cost less than US$50,000 equivalent per contract, which are labor intensive, spread over time, and which do not lend themselves to grouping and therefore are unlikely to attract foreign bidders. Such works may be procured under shopping procedures as detailed in paragraph 3.5 o f the “Guidelines: Procurement under IBRD Loans and IDA Credits” May, 2004 and June 9, 2000 Memorandum “Guidance on Shopping” issued by the Bank.

0 Over the first eighteen months o f Project implementation, the estimated cost for procurement using shopping i s US$50,000.

0 Over the seven year life of the Project, the estimated cost o f shopping i s not expected to exceed US$300,000 (0.15 percent o f overall Project costs)

0 Over the first eighteen months o f Project implementation Civ i l Works procurement packages are estimated to cost US$27.34 million. During this period,

67

US$26.64 mill ion (or 97.4 percent) o f these Civ i l Works packages will be procured through ICB procedures and subject to prior review by the Bank.

170. Procurement of Goods. Goods procured under this Project would include vehicles, computers and accessories, software, communication and office equipment, transformers, generators, etc. Goods procurement will be done using the Bank's SBD for all ICB and National SBD designed on the basis o f Bank Standard Bidding Documents. Procurement for readily available off-the-shelf goods that cannot be grouped, or standard specification commodities for individual contracts o f less than US$50,000 equivalent, may be procured under shopping procedures as detailed in paragraph 3.5 o f the "Guidelines: Procurement under IBRD Loans and IDA Credits" May, 2004, and the Guidance on Shopping Memorandum" issued by IDA, June 9,2000.

0 During the first eighteen months o f Project implementation, o f the US$5.89 mi l l ion worth o f estimated Goods procurement packages, US$5 .OS mill ion (or 86.2 percent o f the estimated value o f Goods) is to be procured using ICB procedures, with the remainder to be procured using N C B procedures acceptable to IDA.

17 1. Selection of Consultants. Consultancy services which include Technical Assistance (TA) for preparation o f the drainage management plan, engineering designs, supervision o f works, planning and feasibility studies, interlined studies for economic intelligence, baseline studies for quantitative monitoring, external audits etc, wil l be selected using Request for Expressions o f Interest, short-lists and the Bank's Standard Requests for Proposal, where required by the Bank's Guidelines.

172. Short-lists o f consultants for services estimated to cost less than US$200,000 equivalent per contract, may be composed entirely o f national consultants in accordance with the provisions o f paragraphs 2.7 through 2.8 o f the Consultant Guidelines. Specialized studies, data collection and M&E related to monitoring socioeconomic impacts at local or metropolitan levels, may be undertaken by research institutes or universities that have unique qualifications for specialized consulting assignments with specific knowledge o f Lagos or the slums o f Lagos.

During the f i rst eighteen months o f Project implementation, o f an estimated US$6.05 mill ion to be spent on TA and consultancies, US$5.35 mill ion (or 89 percent of the estimated consultancy expenditures) will be procured using QCBS procedures and be subject to IDA'S prior review.

0 During the f irst eighteen months o f Project implementation, US$0.38 mill ion (or 6.2 percent of the consultancy expenditures) will be spent using IC, and the remainder US$0.28 mill ion using the CQ method o f selection. Thus, over 90 percent o f the procurement packages will be subject to IDA'S prior review.

0

173. Operating Costs. The operating costs shall include: contractual staff salaries; travel expenditures and other travel-related allowances with prior clearance from IDA; equipment rental and maintenance; vehicle operation, maintenance and repair; office rental and maintenance; materials and supplies; utilities and communication expenses;

68

and bank charges. Where grouping o f items or long-term contracts for maintenance are possible, this will be so carried out in l ine with the procurement procedures in the Project Implementation Manual.

During the l i fe time o f the Project, Operating Costs are estimated to be US$1.94 million, or 1.05 percent o f total baseline cost o f the Project. As long as these contracts exceed the prior review threshold, contracts will be prior reviewed.

0

B. Assessment of the agency’s capacity to implement procurement 174. Procurement risks at the Country level. For project in Nigeria in general, the key issues and r isks concerning procurement during implementation o f projects include: (i) a lack o f appropriate regulation (bidding documents, Standard Evaluation formats, etc.); (ii) a lack o f PIM including Procurement and Financial Management Manuals; (iii) frequent change o f staff mid-stream; (iv) lack o f adequate record keeping; (v) lack o f procurement planning; (vi) inadequate contract management systems and techniques that are common in the public sector; and (vii) frequent and undue political interference in procurement decisions.

175. Procurement risks at the Lagos State level. For Lagos State, IDA completed the State Procurement Assessment Report two years ago. Implementation o f the reforms identified in the assessment i s being supported by an IDF Grant since December 2005. The grant i s managed by the Permanent Secretary in the Office o f the Executive Governor. Reforms wil l be monitored using the key monitoring indicators developed by the OECDDAC and the World Bank Working Group for the AFR Observatory for progress of procurement. These reforms that will take time to implement and change “global” procurement practices at the State level, are:

0 Development o f a Procurement Law for Lagos State. 0 Reorganization o f Lagos State’s public procurement fhct ion, including the

replacement o f the State Tender Board with newly organized Ministerial, Departmental and Parastatal Tender Boards. Development o f a professional cadre o f procurement specialists. State-wide awareness campaigns at the Local Government and State levels to develop consensus around the content o f the new procurement procedures. Establishment o f a complaint’s mechanism.

0

0

0

176. Procurement risk at the Project level as of March 2005. At the Project level, a formal procurement assessment for the capacity o f the LMDGP Project Coordination Unit (PCU) was undertaken during IDA’S February-March 2005 pre-appraisal mission. The PCU at that time was just being established, and reporting lines o f the PCU were blurred between sectoral ministries and the Office o f the Governor. A Project Steering Committee (PSC) had not been formally established. At that time, the Procurement r isk assessment for LMDGP was rated high.

177. Procurement risk at the Project level as of February 2006. Since then and almost a year later, a review o f the earlier procurement assessment was undertaken during the Appraisal o f LMDGP in February 2006. This was done by the Country Office Procurement Specialist in accordance with Procurement Services Policy Group (OPCPR)

69

guidelines dated August 11, 1998. The assessment reviewed the organizational structure for implementing the Project, institutional arrangements, and the capacity o f the Project’s procurement staff. I t highlighted that several key measures had already been put in place by the Recipient.

e

e

e

e

e

e

e

e

e

e

e

The PCU i s firmly established under the Office o f the Executive Governor, demonstrating commitment to this Project at the highest level in the State. This has clarified reporting lines for the PCU. Since the Governor i s elected by direct vote, he i s de-facto l ike the mayor o f a large city and accountable to the citizens. If there i s commitment at the highest levels for this Project, the r i sk o f political interference that could delay delivery o f results, i s much reduced with the PCU located under the Office o f the Governor. A PSC had been established, and provides for high profile private sector and civil society oversight o f this Project. It includes an editor o f a leading national newspaper, highly prominent private sector leaders, and a local NGO well known for i t s advocacy for human rights and social justice. A competitively recruited engineer from the private sector has assumed his duties as the Project Director o f the PCU, and the Governor has given the Director the authorization to s ign all contracts within five days o f clearance by IDA. The Procurement Officer nominated to the PCU, with experience in previous Bank operations, has been deployed full-time to the PCU from his parent ministry. The Officer has become familiar with the new procurement guidelines. All professional staff o f the PCU have gained substantial familiarity with Bank procurement procedures over the last year, through a process o f “learning by doing”. The PCU prepared a procurement plan for the f irst eighteen months o f Project implementation and this was found acceptable by IDA during Negotiations. I t i s attached as Appendix 1 to this Annex. Recruitment o f an engineering firm with a procurement specialist i s underway, and will be completed by the PCU by June 15,2006. This consulting firm’s terms of reference include the provision o f continuous on-the job training and procurement support to the PCU. The firm i s expected to be mobilized before this Project i s presented to the Bank’s Board. The Recipient has completed the Project Implementation Manual which includes a chapter on Procurement, and i s currently under review by both the Recipient and IDA. This will be finalized by June 30,2006. The generic Procurement manual for projects in Nigeria shared with the PCU a year ago, has been adapted for LMDGP and was reviewed and found acceptable by IDA. Procurement training for all PCU staff and the focal staff member from the Solid Waste Authority for th is Project, i s being financed f iom the Project Preparation Advance. Training i s to take place between June 5-16,2006 at the Lagos Business School. An electronic filing system for project records and computerization o f store records and other assets i s underway.

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178. As highlighted in the preceding paragraph, the LASG has put in place key measures in the last twelve months. Consequently the project procurement risk has now been assessed as moderate, although the global risk o f doing business in Nigeria and Lagos remains high.

179. Beyond the measures already taken, the PCU will acquire contract management training and procure the necessary tools, including appropriate software modules, to enhance the contract management capacity for project management. The PCU will be equipped with “Client Connection” accessibility on or before June 30, 2006, to allow for streamlined procurement and disbursement procedures.

C. Procurement Plan 180. The Recipient has developed a procurement plan for Project implementation which provides the basis for procurement methods. This plan was agreed upon between the Recipient and IDA during Negotiations. This plan will be available in the Project’s database and at the Bank’s external website” upon approval o f the project by the Bank’s Board. This plan will be updated in agreement with IDA annually, or as required, to reflect the actual Project implementation needs and changes in institutional capacity.

18 1. Publication of Results and Debriefing: On-line publication o f contract awards (DG Market, UN Development Business, and/or Client Connection) i s required for all ICB, NCB, Direct Contracting and the Selection o f Consultants for contracts exceeding a value of US$0.20 million. A list o f pre-qualified bidders shall be published where prequalification has taken place. With regard to ICB, and large-value consulting contracts, the Recipient shall publish contract awards as soon as IDA has issued i ts ‘no objection’. With regard to Direct Contracting and NCB, publication o f contract awards could be in aggregate on a quarterly basis in local news papers.

182. All consultants competing for an assignment involving the submission o f separate technical and financial proposals, irrespective o f the assignment’s estimated contract value, will be informed o f the result o f the technical evaluation (number o f points that each firm received), before opening o f the financial proposals. The PCU wil l offer debriefings to unsuccessful bidders and consultants in the event that the individual firms request such a debriefing.

D. Frequency of Procurement Supervision 183. In addition to a large percentage o f the IDA prior review contracts, based on the capacity assessment o f the PCU, two supervision missions will be conducted to carry out a post-review o f procurement. In the f irst 18 months o f Project implementation, an Independent Procurement Review will be conducted. Findings and recommendations from the review will be shared and discussed with the Project Steering Committee (PSC), Project Coordinating Unit (PCU) and the Component Executing Agencies with a view to

S o h ~ : / / w e b . w o r l d b ~ k . o r ~ S I T E / E X T E ~ ~ ~ R O ~ C T S ~ R O C ~ M E N T / O , , p a g e P K : S 4 2 7 1 -theSitePK: 84266 ,oo.html

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speedy implementation o f recommended action plans that will be monitored closely b y IDA.

E. Details of the Procurement Arrangements Involving International Competition

184. The details o f Project activities for the f i rst 18 months o f implementation are as listed in the procurement plan attached as Appendix I. The plan was discussed and agreed upon with IDA during negotiations.

Expenditure Category

1. Works

2. Goods

3. Services

Contract Value Procurement Contracts subject to Threshold Method prior review

(US$ thousands)

1,000 or more ICB Al l Below 1,000 NCB None Below 100 Shopping None 500 or more ICB All Below 500 NCB None Below 50 Shopping none

Finns

100 or more Less than 100 Individuals

200 or more Less than 200

IC All IC None

QCBS CQ, Other

All None

72

Appendix 1 to Annex 8: Procurement Plan

NIGERIA: Lagos Metropolitan Development and Governance Project

3 1 4 1 5 1 6 1 7 1 8

Goods: Procurement Packages with Methods and Time Schedule

9 1 1 2 I 2a

2,023,000

1,200,000

ICB No Yes Prior Oct-06 Feb-07

ICB No Yes Prior Dec-06 Apr-07

1 Operational Vehicles

3 Computers& Accessories

5 Ofice Furniture

1

1 D%aMining) 1 TOTAL GOODS

9 Utiliv Sewers & Storage area Network

One o f the NCB packages (E

2 Plants 1 I I I I I I

1,160,000 ICB No Yes Prior Oct-06 Feb-07 I I I I I I

320,800 I NCB I No I NIA I Post 1 Oct-06 I Dec-06

100,000 NCB No N/A Post Oct-06 Dec-06

I I I I I I

5,892,800

ding Documents and Evaluation Report), preferably the largest package, wil l be prior reviewed by-IDA 6 set a quality example for other NCB packages to follow

73

Works: Procurement Packages with Methods and Time Schedule

The NCB Package

2

- . ,- . -, - - - w r b e procured with the help o f close implementation support by IDA

I

Construction o f Boreholes construction/ Rehabilitation o f Schools and Clinics Construction o f Communal Waste Depots Clearing o f Waste Backlog in the Metro$lis(series) Construction o f Waste Transfer Stations(2Nos) Upgrading o f Landfills(2 Nos) Deferred Maintenance o f Drainage Channels in Eastern and Western Sections Reconstruction of Drainage Channels Construction o f Fish Smoking Facility TOTAL WORKS

74

Consultants with Selection Methods and T ime Schedule

Prior

Prior

Prior

1 Ref. No.

1

Oct-06 Ju-08

Oct-06 Sep-07

Jan-07 Sep-09

8

Prior

Post

Post

Post

Post

Post

9

Jan-07 Jun-0;

Mar-07 sep-0;

Sep-06 Mar-0:

Sep-06 N0v-01

Jan-07 Mu-O~

NOV-06 May4

10

11

12

13

14

15

2 Description of Assignment

Integrated Supervision o f Civil Works Investment in Drainage, Solid Waste Management and Slum Upgrading

Hydraulic Modeling and drainage studies on the selected drainage basins and technical Assistance to ODS Carbon Finance Strategies and implementation o f Action plan (Consultancy Services)

Urban Upgrading: Engineering Detail design and supervision o f Civil Works in the Slum Areas Drainage: Engineering Design and supervision o f Civil works in respect of defemd maintenance o f drainage channels Consultancv Services for MTEF ( International)

Consultancy Services for MTEF ( Local )

Comprehensive Review of IFMIS implementation to date (International)

Information, Communication and Education Strategies and Implementation (Consultancy Services) Consultancy Services for RPF implementation

Consultant to LASURA to update statistics on investment

Land Acquisition and Resettlement Imulementation (Consultancy Services) Consultancv Services for Development o f Poverty Maps by LG

Updating Public Finance Legislation

Improving Budget Execution and Treasury management (Foreign)

3 Estimated cost (US$ equivalent)

650.000

2,500,000

350,000

950.000

500,000

400,000

35,000

50,000

80,000

80,000

45,000

45,000

30,000

30,000

40,000

4 Selection

QCBS

QCBS

QCBS

QCBS

QCBS

QCBS

IC

IC

CQ

CQ

IC

IC

IC

IC

IC

Prior Oct-06 Dec-08 I I I I I

Prior I Jan-07 I MU-09

I I

NOV-06 May-0

Dec-0

75

16

17

18

76

Improving Budget Execution 20,000 IC Post Mar-07 Au~-07 and Treasury management (Local)

Public Expenditure Tracking 80,000 IC Post Aug-07 Feb-08 (International) Computation of State GDP 120,000 CQ Post Aug-07 Feb-08 (International)

TOTAL CONSULTANCY 6,005,000

Annex 9: Financial and Economic Analysis

NIGERIA: Lagos Metropolitan Development and Governance Project

A. Financial Analysis

185, To validate that investments proposed under the Lagos Metropolitan Development and Governance Project (LMDGP) are sustainable and financially viable, an analysis o f recent budget trends and medium term fiscal projections was undertaken. This included integration o f incremental costs to the budget o f LASG associated with the Project, reviewed against broad trends in resource availability as well as Lagos’ debt burden.

186. Availability of Financial Data: The historical data on revenue and expenditure for Lagos State Government (LASG) for 2001-04 was extracted from LASG budgets and additional submissions from the Lagos State Accountant General’s Office and Debt Management Office. The trends in local government expenditures were analyzed based on the consolidated data on transfers from the Federation Account to LGs in Lagos. The Federal transfers constitute about 90 percent o f total local government revenues in Nigeria. The budget data for 2004 were used as a basis for projections.

187. Use o f Data: The data were used as the basis for developing projections for 2006- 2010. The basic objective o f this exercise i s to assess that the Project i s affordable by LASG and the LGs. The data has been analyzed to determine the rates o f growth in the principal elements o f revenue and expenditure in real terms, using the CPI deflator.

SG and LG Finance in Nigeria

188. Transfers from the Federal Government. Revenue and tax powers in Nigeria are highly centralized, with major taxes being collected by the Federal Government and shared amongst the three government tiers.

189. The most important taxes collected by Federal Government include company income, petroleum profits and value added taxes (VAT), import and excise duties, revenues from crude o i l sales, royalties and tax on petroleum products. All these revenues, except VAT, are paid into the Federation Account for distribution based on a stable and transparent formula. In addition, there are special sharing arrangements for VAT, also formula-based.

190. The current vertical allocation o f the Federation Account (FA) proceeds is: (i) Federal government 52.7 percent, (ii) State Governments 26.7 percent, and (iii) Local governments 20.6 percent. The formula for horizontal allocation mainly relies on measures of state equity, population, and geographical mass. Although local revenue effort i s supposed to be included, it i s not featured in practice. The formula reflects, only to a limited extent, the differentiation in the costs o f service delivery across the country.

191. The primary revenue source for the FA i s o i l and gas extraction. Excessive dependence o f Nigerian fiscal system on o i l revenues represents the key fiscal r i sk for the

77

national economy, as well as for individual states. However, within the Nigerian Federation, Lagos i s the least exposed to this risk due to the high degree o f diversification o f the State's economy. In 2004, transfers from the FA amounted to only 32 percent o f total state budget revenues, while Internally Generated Revenues (IGR) made up 45 percent, and V A T 15 percent o f the t ~ t a l . ~ '

192. Internally Generated Revenues. The most important source o f internal revenue in Lagos is the personal income tax levied on individual residents in the state. The tax i s collected from individuals employed in the formal sector through withholding at source, and through direct assessment o f other taxpayers. The other sources o f revenues include fines and fees, licenses, earnings and sales o f assets, interest and dividends.

193. Internal revenues o f LGs are insignificant, and LGs are heavily dependent on transfers from both the FA and the State. This heavy dependence on transfers acts as a disincentive for LGs to expand their own tax base. States and LGs are responsible for their tax collection and monitoring, while the tax setting i s determined at the Federal level.

194. In November, 2003, LASG increased the number o f LGs from 20 to 57. The FG did not accept this decision and as a result, i t deferred the release o f Federation Account's finds to all LGs based in Lagos state. This created major cash flow problems for LGs and adversely affected their ability to provide basic services to residents. However, by late 2005 the conflict was resolved and regular (monthly) disbursement o f federal transfers to LGs was resumed.

195. Land Use Charge and Tenement Rates. Tenement rates or property tax has the greatest potential for revenue generation at the LG level, but actual collection has been very low so far. The Land Use Charge Law (Law No. 11) was passed in 2001 by LASG to consolidate all property and land based taxes and charges payable under various legislations into a Land Based Charge, called Property Land Use Charge (LUC). The plan was to centralize administration o f the charges at the state level, significantly improve their administration, and introduce sharing arrangements with LGs with respect to utilization o f LUC proceeds.

196. This strategy has so far been only partially implemented. L U C i s levied only on a limited number of commercial properties in Lagos State. The properties that are not covered under the LUC are still taxed with tenement rates by respective LGs. I t seems the demarcation o f properties falling under the L U C charge or tenement rate remains ambiguous. Moreover, the lack o f transparency o f collection and distribution o f L U C has undermined the tenement rate system.

197. However, the LASG Valuation Office has made a substantial effort to bring all valuation rolls up-to-date, which should help LGs increase their revenue from tenement rates. At the same time, as a part o f i t s revenue mobilization strategy, the LASG i s committed to re-launch i ts original plan to improve L U C collection, as the potential yield

Remaining revenue items included grants and miscellaneous revenues.

78

from this source could be substantial in the medium-term. Better administration o f land use charges, therefore, remains critical for increased revenues, and essential to sustain service delivery from the drainage and solid waste sectors.

Analysis of the LASG budget performance and budget projections

198. LASG’s budget performance improved considerably in 2003-2005. Total revenues grew at an average real rate o f more than 10 percent over this period, reflecting in part, high international o i l prices and increased federal transfers, but more importantly, substantial increase in IGR as total IGR collections in real terms more than doubled between 2002 and 2005. On the expenditure side, LASG demonstrated fiscal restraint and did not incur any new significant At the same time, there has been a considerable increase in expenditures for public investments, from Naira 6 bil l ion (US$49.0 million) in 2002, to about Naira 20 bil l ion (US$l50.0 million) in 2005.

199. The overall state debt burden i s considered to be sustainable in the medium term. By the end o f 2004, the overall debt burden o f LASG has been rather significant, but it did decline drastically since then, primarily due to the debt relief Nigeria received from the Paris Club. At the end o f 2004, the main contractual debts o f LASG included (i) debts to IBRD/IDA o f about U S 1 2 0 million, (ii) debts to the Paris Club o f about US$145 mi l l iod3, and (iii) domestic bonds with total expected repayments (including interest) equal to Naira 22.4 bil l ion (US$170 million).54 Thus total debts amounted to about US$435 mi l l ion or 81 percent o f total budget revenues.

200. The Paris Club debts wil l be fblly removed from the books by mid 2006 as a result o f the comprehensive debt reduction agreement signed by the Nigerian Government. This debt reduction will be funded from the windfall o i l revenues accumulated in 2004-05 and will not affect the current or fbture cash flow o f LASG. The remaining annual debt service payments on outstanding IDMIBRD loans are currently within the US$20 mill ion range. In 2005, the total state spending on debt service (including domestic bond repayment) amounted to about Naira 9.5 bil l ion (US$70.0 million) or 11 percent o f total State Government expenditures. This ratio i s expected to decline below 7.5 percent by 2009. By the end o f 2006 the outstanding debt-to-revenue ratio i s expected to decline to below 29 percent. In addition to the debt relief, the improvement in debt profile was driven by (i) ongoing scheduled repayment o f both domestic and IDA debts, and (ii) improved revenue performance as mentioned above.

201. sustainability of LASG:

In the medium term, the following factors are expected to M e r enhance fiscal

0 Improved macroeconomic management o f the Nigerian economy and consequently better prospects for stronger economic growth. Average growth rates are expected to stay at 5-6 percent over the medium term. This reflects

52 Except two new IDA credits as described below. 53 Excluding arrears which are estimated at about US150 million. 54 The bonds were issued in 2002 to consolidate various government domestic debts outstanding at that time. The bond in repaid by 2009 in monthly installments. The average annual payment amounts to about U S 4 2 million.

79

0

0

202. 0

e

0

203.

expectations at this time that world market prices for o i l remain high. More importantly, however, it reflects stronger confidence in the Nigerian economy, deriving from the ongoing macroeconomic and structural reforms. Due to i ts strategic role in the national economy, LASG i s expected to be a key beneficiary of growth o f the overall economy.

Further real appreciation of the national currency, which would reduce relative costs o f IDA borrowing, denominated in foreign currency.

Tax administration and fiscal management reforms initiated by LASG, which are aimed at the expansion o f the local tax base and improved efficiency in expenditure management. The current level o f state and local tax burden is quite modest and provides considerable room for improved tax collection.

Key risks to fiscal sustainability are the following: A potential drop in world o i l prices would reduce LASG’s capacity to finance critical investments. This risk i s largely mitigated by the Nigerian Government’s strategy o f making reserve provisions and accumulating considerable savings that would be distributed amongst all tiers o f government in the event o f a fall in o i l prices.

Existence o f substantial state budget arrears, including pension arrears, which remain hidden government liabilities.

Insufficient fiscal transparency, including poor public access to budget information, which undermines public control over efficient management o f state finance. The main assumptions used for developing fiscal projections, largely

conservative, were as follows: 0 Real economic growth will increase by 5 percent a year, while federal

government transfers and VAT revenues will grow at the rate which i s equal to the growth rate in the economy.

IGR will grow fbrther by 15 percent in real terms in 2006 as a result o f the ongoing reorganization o f BIR and will continue to grow at 6-7 percent a year, i.e. at a rate higher than economic growth.

Within this revenue envelop, payroll costs are expected to grow somewhat below the growth rate, while overheads, and especially capital spending, will grow at a rate which i s higher than the growth rate. Total debt service costs on external credits would remain low (below 0.5 percent o f total expenditures), reflecting the impact of the Paris Club agreement, and a highly concessional nature o f the new IDA borrowing.

0

0

New IDA Credits 204. In 2004-05 LASG signed two new credit agreements with IDA aimed to support government efforts to upgrade metropolitan infrastructure: (i) Lagos Urban Transport ( U S $ l O O million), and (ii) Second National Urban Water Sector Reform Project (Lagos’s share i s US$116 million). Jointly with the LMDGP, these credits will provide the state

80

with more than U S 4 0 0 mill ion over 2005-2012 on highly concessional terms. It i s estimated that average annual disbursements under these new loans will be close to US$60 million, which by the end o f 2010 would bring the total amount o f foreign debt disbursed to about U S 3 4 0 million. However, given projected revenue trends and full repayment o f domestic bond by that time, the overall debt-to-revenue ratio should remain below 30 percent, i.e. below the threshold o f 40 percent proposed in the Fiscal Responsibility Bill. Nonetheless, LASG should avoid any new additional significant borrowing, even at concessional terms, at least until the effects o f these latest major investment credits are fully realized through improved private sector performance. In other words, new borrowing should be delayed until additional public and private investments would be able to generate a substantially higher level o f IGR to create additional fiscal space for state borrowing.

Impact of the Project on State Budget 205. Over the medium term, the Project i s expected to generate four types o f incremental annual expenditure liabilities for LASG, including: (i) costs o f servicing the IDA credit, including the commitment charge o f about US$1.5 million; (ii) additional costs related to improved maintenance o f drainage system o f US$7 million; (iii) costs o f government co-financing o f specific agreed Project investments o f US$0.6 million; and (iv) additional costs o f supporting the solid waste management (SWM) system, through budget subsidies to LAWMA, during the transition phase to achieve full cost recovery for MSW collection. The latter costs are conservatively estimated at US$12 mill ion a year.

206. Total incremental budget costs are conservatively estimated to reach about U S 2 1 mill ion a year (Naira 2.75 billion) by the end o f Project implementation. This amounts to about 3 percent o f LASG’s total budget expenditures in 2005, and should be considered affordable against the background o f recent strong growth in state revenues (average real growth in 2004-05 exceeded 10 percent per annum), driven only partly by high o i l prices and respective increases in federal transfers. Future budget sustainability i s further strengthened by recent government efforts to both strengthen the internal revenue administration, as well as maximize the potential for additional revenues from land and property related taxes.

207. The current total costs o f operating the SWM system in Lagos are estimated in the range o f Naira 3.7 bil l ion a year ( U S 2 8 million). S W M in Nigeria, i s constitutionally a local government responsibility. In Lagos, given the dependence o f LGs on FA transfers, as well as the metropolitan character o f the mega-city, the most efficient way to manage waste i s through centralization: (i) centralized management o f the collection, particularly disposal, to maximize the economies o f scale so that collection can become not just self financing but generate profits for the transfer and disposal end o f SWM; and (ii) centralized financing o f the system at the State level, with FA transfers to LGs withheld by the State for direct payment for S W M services to a centralized entity. In 2004, the total FA transfers to LGs amounted to Naira 22.6 bil l ion (about US$173 million), which exceeded total costs o f waste management by more than 6 times. Medium term projections suggest that future costs o f S W M in Lagos could reach U S 4 0 mi l l ion a year. These incremental costs should be covered by gradual increases in the collection o f user

81

fees, as well as by budget subsidies which would be reduced in time as new institutional arrangements lead to high cost recovery in the sector than i s the case today.

2003 2004 2005 2006 2007 2008 2009 201 0 Domestic bond, Nr bn 26.6 22.4 16.4 11 6.4 2.5 0 0 Foreign debts total, Nr bn 47.0 35.3 36.9 21 .o 27.0 33.7 42.6 50.8 TOTAL state debt, Nr bn 73.6 57.7 53.3 32.0 33.4 36.2 42.6 50.8

as % of budget revenuer 140.9 81.5 57.9 28.5 26.2 25.4 26.9 29.0 growth rate 1.04 1.08 1.18 1.19

Foreign total, US$ 365.3 264.9 278 158 200 244 304 363 IDA+ IBRD 136.5 119.9 103 88 75 64 54 43 Paris Club, w/o arr 228.8 145 145 0 0 0 0 0 new IDA disbursements 30 70 125 180 250 320

Total Gov Revenues 52,257 70,822 92,149 112,164 127,407 142,593 158,086 175,267 Ex rate 128.7 133.4 132.9 133 135 138 140 140

208. Overall, the analysis suggests that the Project i s affordable for LASG, based on the key assumptions used in financial projections. LASG i s capable o f remaining in balance throughout the projection period. At the same time, to minimize Project risks, LASG has to (i) move aggressively with the BIR reforms; (ii) keep i ts payroll expenditure under control; (iii) make additional efforts to advance reforms in the areas o f budget management modernization, transparency and accountability; and (iv) take steps to resolve issues around the Land Use Charge in consultation with the organized private sector and LGs. LASG should refrain from new significant additional borrowing until it sees a strong expansion in private sector activities in IGR collections.

Extra spending on drainage Extra spending on waste managm Co-financing Grand Total --extra costs, US$ Total Nr mn

Memo: Disbursement, mn $

7 7 7 7 7 7 7 7 12 12 12 12 12 12 12 12

0.635 0.635 0.635 0.635 0.635 0.635 0.635 0.635 20.66 20.735 20.835 20.935 21.035 21.11 21.135 21.135

2,685.8 2,695.6 2,708.6 2,721.6 2,734.6 2,744.3 2,747.6 2,747.6

10 30 40 40 40 30 10

Table 9.2. Additional Project Costs

2006 2007 2008 2009 2010 2011 2012 2013

Commitment charges Interest payments Total debt service, mn $

0.95 0.8 0.6 0.4 0.2 0.05 0 0 0.075 0.3 0.6 0.9 1.2 1.425 1.5 1.5 1.025 I .I 1.2 1.3 1.4 1.475 1.5 1.5

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Table 9.3. Budget projections, 2006-2010, Million Naira

175,287 1.06

103,542 1.06

47,335 1.05

24,390 1.05

173,332 1.06

130,968 1.06

36,742 1.04

86,796 1.06

7,430 1.15

42,364 1.06

1,935

2001 2002 2003 2004 2005 2008 2007 2008 2009 2010

I Domestic Debt repavment, Bonds 888 3,525 4,270 6,025 5,320 4,615 3,912 2,470 Source: IDA’S estimates based on the data f rom LASG.

1. Total Revenue real growth

real growth Internally Generated Rev.

Miscellaneous revenues Grants

Federal Govt.Transfem real growth

VAT allocation real growth

2. Total Expenditures real growth

Total Recurrent Expenditure real growth

real growth Payroll Cost

1 E E d C o s t real growth

Subventions and misc spending I Debt Service External

real growth Capital Expenditure

real growth Deficit

Financing I New borrowing, domestic I

39,821

18,134

1,075 2,571

13,991

6,050

44,131

40,213

9,000

1,155 26,508

3,550

3,918

-4,310

7,261 7,261

41,831 0.92

18,294 I .oo

2,478 748

13,757 0.86

8,554 0.95

59,405 1.18

53,333

12,914

2,062 34,990

1,405 1,962

8,072 1.36

-17,574

13,042 13,930

52,257 1.10

26,298 1.26

1,235 4

16,060 1.02

8,880 1.16

51,126 0.75

42,608 0.70

13,262 0.90 960

24,481 0.61 960

2,945 1.32

8,518 1.23

1,131

-3,525 0

70,822 1.18

32,095 1.06

1,897 3,854

22,639 1.22

10,337 1.04

63,645 1.08

48,719 0.99

16,040 1.05

1,290 27,217

0.97 1,279 2,893 0.85

14,928 1.52

7,177

-4,270 0

92,149 1.08

50,000 1.30

2,000 1,000

28,000 0.96

13,149 1.06

86,202 1.13

68,500 1.14

20,000 1.04

43,000 1.32

3,500 1.01

19,702 1.10

5,948

-6,025

112,184 1.08

64,975 1.15

31,143 1.06

16,047 1.08

100,266 1.09

80,885 1.08

24,408 1.08

52.477 1.08

4,000 1.01

25,381 1.14

5,899

-5,320

127,407 1 .06

74,390 1.07

34,989 1.05

18,028 1.05

123,212 1.08

93,339 1.08

27,684 1.06

61,204 1.09

4,451 1.04

29,873 1.10

4,195

-4,615

142,593 1.06

83,584 1.06

38,943 1.05

20,066 1.05

140,173 1.07

105,974 1.07

30.812 1.05

70,067 1.08

5,096 1.08

34,198 1.08

2,420

-3,912

158,086 1.06

93,030 1.06

42,934 1.05

22,122 1.05

155,847 1.06

1 17,784 1.06

33,646 1.04

77,984 1.06

6,153 1.15

38,063 1.06

2,240

-2,470

B. Economic Analysiss5 209. The project has the following components:

Infrastructure: US$l65.35 million 0 Upgrading (US$40.15 million, 24.2%) 0 Solid Waste (US$63.82 million, 38.5%).

Drainage (US$61.38 million, 37.1%)

Public Governance and Capacity Building: US$5.9 7 million B (i): Public Finance Management Reform (US$3.97 million) B (ii): Economic Intelligence and Service Delivery Monitoring (US$l. 70 million) B (iii): Leadership Enhancement (US$O. 03 million)

C: Urban Policy and Project Coordination: US$12.13 million

Upgrading (US$40.15 million)

210. This section deals with the economic appraisal o f the upgrading sub-component o f the infrastructure component. The upgrading o f high density urban settlements lacking in basic infrastructure (adequately paved roads, potable water, drainage, and street lighting) and social services (schools, clinics, community

55 All Naira amounts in the Economic Analysis section o f the PAD are from surveys done by LASURA with technical support from Stoveland Consult in 2002.

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buildings and facilities), are generally occupied by lower income groups. The identification and prioritization o f community investment interventions was undertaken in 9 o f the largest slums out o f 42 that had been identified in 1995. These 9 slums l ie in 6 LGs o f Lagos State, and have an estimated total population o f about 1.1 million. They occupy about 765 hectares, 60% o f which i s prone to flooding. Per hectare planned investment i s around US$53,790 plus contingencies.

21 1. It i s premised that establishing partnerships between LASG, LGs, and beneficiaries o f upgrading in would enhance the cost-effectiveness o f the planned investments, as the interaction will lead to geographically targeted public expenditures that are responsive to needs, priorities and demands o f the communities. The significant on-site investments will improve the physical environment and the quality o f life within the settlements, and would also result in increasing economic activities leading to economic growth in the upgraded areas, higher labor productivity and enhanced welfare o f the people. The secondary benefits o f improved property tax base will have potential to generate more public resources for better financing of operations and maintenance, thereby increasing the potential for sustainability o f the infrastructure and the benefits derived from it.

212. Systematic analyses o f the slums in Lagos dates back to a 1984 UNDP study. Employing some 36 indicators, which mainly reflected access to basic infrastructural and social services, the UN study identified forty two (42) settlements and ranked them in descending order o f priority, “1” being the most severely deprived area. The analysis o f the 42 areas was updated in 1995 in a study for the Lagos State Urban Renewal Board (LASURB) by SNC Lavalin, known as the Lavalin Report.56 This report confirmed the existence o f the 42 settlements and described their physical, environmental and socio-economic characteristics. The report also sought to again rank the areas in terms o f priority, t h i s time using revised criteria which also took account o f settlement area (size) and population. Out o f these 42 slums, 9 slums that together accounted for almost half the total area identified for upgrading, were selected for inclusion under this Project. Summary data on the nine settlements are presented in Table 9.4 below.

Table 9.4: Basic attributes of selected areas

Rank

56 Lagos State Renewal Board, Community Infrastructure Upgrading Program, September 1995, SNC Lavalin International INC, in association with SNC Lavalin Nigeria Ltd. Th is study was funded under the Bank Assisted Lagos Drainage and Sanitation Project (CR25 17).

84

Density j Percent ! (persons/ j Populatio I Percent

i n ' Area !

....... ......... .......... I--' h%! i j

! i ! ....... 1 .

7s/, ............ 1. OSS.." .......... "i .- ................ l - . ~ " ....

................ 1.1

I 8% i

1242 I 100% 1 100% Source: Stoveland 2002 and Lavalin 1995.

2 13. Assessment of the Scale of Upgrading Needs in Lagos. LASG officials estimate that some 70 percent of the urban population, and a similarly high percentage o f the urban poor, live in areas which lack basic services, As a result o f poor environmental conditions water born disease such as malaria, hepatitis and intestinal diseases are r i fe. While reliable statistics do not exist, i t i s generally believed that these areas are growing very fast as a result o f in migration as well as natural increase in population. Significant sections o f these low income areas are severely deprived. Many are subject to severe flooding during the rainy season, flooding in which sewage, drainage and surface water enters many houses, sometimes up to waist high.

214. Selection of Slums. In 2002 the Bank supported Lagos State Urban Renewal Board (LASURB) in undertaking a review o f the Lavalin Report. T h i s review was conducted with the help o f Norwegian consultants: Messrs Stoveland C~nsu l t .~ ' The Stoveland report^,'^ together with the earlier work undertaken by Lavalin, provide the foundation for current initiatives. Based on criteria provided by IDA, each State identified settlements or communities within the city which lack (i) basic essential municipal services so that the communities l ive in r i s k y and environmentally degraded conditions, and (ii) communities with population density o f not less than 200 people per hectare. These criteria ensured that the settlements selected would be poor, and that a large number o f people would benefit from on-site project investments.

2 15, Water and electricity. Infrastructure constraints for residents in Lagos exist in the form o f inadequate access to piped water supply and electricity. As a result, households spend more on buying water from the vendors and spending on generators. For instance, with respect to access to water supply, the survey in 2002 shows that 64% o f the surveyed households buy water from vendors, 25% get water from boreholes, 5% from standpipes. Among the households that use vendors, 59% get water from private neighborhood tap, 35% from mobile vendors and rest from vendor for Lagos State Water Corporation (LSWC) standpipe or others. Only 15 households in the entire sample o f over 1000 households have private house connections. Average monthly expenditures on water were about 1000 Naira (US$7.80), and given that the supply i s dominated by vendors and from boreholes, about 75% report satisfaction with respect to reliability and quality. Only 0.7% o f the households are equipped with electricity but 83% o f the respondents are satisfied with their electricity supply. About 97% o f the households use kerosene for cooking and spend N616 per month.

216. Sanitation. With respect to human waste/excreta disposal, 46% use pit latrines, 37% pour-flush, and 6.5% have no toilet facility. A significant number o f households in Badia (19%) and Bariga (26%) do not have any kind o f toilet facility. In 77% o f the cases, the toilet i s in the compound. 9.6 households share one toilet, and average monthly expenditure on sanitation i s about 114 Naira (US$0.88) but households in Ilaje (N 268) and Bariga (N 178) pay much higher. Ha l f o f the surveyed households pay to use the toilet. However, there i s extensive defecation in open spaces, and hal f the people who use toilets express satisfaction with sanitation while 90% prefer a toilet inside the compound. With respect to solid waste

'' Lagos State Government, Lagos Metropolitan Development Project, May 2002 Stoveland Consult, Kristiansand, Noway (Outputs, 1-3).

There are several documents done under this study.

85

disposal, bout 84% dispose o f their solid waste by dumping ground in the neighborhood and 16% use truck pushers/private refuse collectors. 80% o f the surveyed respondents are satisfied with their solid waste disposal.

217. Flooding. More than half o f the households experience flooding outside their homes, while a fifth o f the people suffer flooding inside their homes with refuse and raw sewage being swept in. Floods are on an average knee deep both inside and outside the house, last over five hours, cause immense economic hardship and are a severe health hazard.

21 8. Household expenditure. The average monthly expenditure o f the households i s 16,092 Naira while the self-reported average household income i s Naira 22,164, so there i s a potential for monthly savings. Almost 20 percent o f a household’s monthly expenditure i s on transport. Housing represents 6 percent o f expenditures, education 12 percent, health 6 percent, food 52 percent, and energy 6.5 percent. The resources spent on each o f these items appear consistent across slums though spending on education shows significant variation. Mean expenditure o f flood related repair i s Naira 8,500.

Table 9.5: SDending on consumDtion items (Share o f total exDenditure)

219. in Ajedunle and Ijeshatedo have TV. Motorbike, telephone and AC are most exclusive asset items.

More than 85 percent o f all slum households have TV and more than 90 percent o f slum respondents

220. An overwhelming majority, 95 percent on the households in the nine slums pay for some services, primarily for water and schools. Only 27 percent pay for drainage and 3 percent for roads. However, 77 percent o f the interviewed residents are willing to pay for improved storm water drainage with the average amount o f 89 Naira per month.

22 1, Prioritization of Community Demands. Socio-economic surveys conducted by Stoveland Consult identified community priorities (as opposed to individual household priorities) as perceived by households. It i s evident that drainage i s the most important priority - it i s ranked f i rst in Ajegunle, Ilaje, Agege, and It ire followed by roads which ranks second in three slums.

Economic Evaluation Methodology

222. International experience with slum upgrading shows that every US$1 invested by the public sector in slums leverages US$7 of private inve~tment,’~ indicating that one o f the main benefits arising from slum upgrading i s from enhanced private sector economic activity due to an improved physical environment. The post-construction evaluation o f the demonstration upgrading intervention in Badia in 25 hectares under a

59 “Infrastructure Provision for the Urban Poor: Assessing the Needs and Identifying the Alternatives”, Christopher Banes, John Kalbermatten, and Piet Nanhan, TWU-OR 8, General Operational Review, Informal May 1996.

86

previous IDA supported project, has also affirmed that s l u m upgrading program in water supply, roads, drainage, sanitation, solid waste, street lighting, schools and clinics in Lagos, would leverage s imi lar private sector investment response as in other regions o f the world, but, under certain conditions: community participation to ensure community priority, local and state government partnership, attention to quality in implementation.

223. The experience from Badia provides additional local parameters against which to test the economic evaluation o f LMDGP. The intervention in Badia was undertaken between M a y 1997 and M a y 1999. I ts evaluation was done in 2001 and summarized in a report6' The report provided the shortcomings and strengths o f the approach used in designing and implementing such project in Lagos. Further, as part o f the economic appraisal of LMDGP, the Badia demonstration project was again reviewed in 2005 during pre- Appraisal o f LMDGP. T h i s review confirmed that the main benefit o f investments in slum upgrading i s its impact on economic growth due to the favorable environment created which stimulates private sector activity. In Badia, a total o f 61 business activities were started by the private sector in those areas where public investment had improved the physical environment. The present economic evaluation assumes that lessons learnt during the Pilot phase are applied in the design and implementation o f this component.

Investment cost

224. The proposed investment cost o f urban upgrading i s on the average US$53,790 per hectare. I t i s constrained by availability o f funds, partly to elicit economic demand for proposed investments during the design stage, and partly to select lumpy investments under th i s Project to encourage incremental upgrading by public and private entities. The expectation i s that the investments will bring about improvements in the lives o f about 1,400 people improve conditions for about 280 households per hectare o f slum area upgraded.

Main benefit of slum upgrading

225. The main benefits o f the Upgrading sub-components o f the LMDP are:

(i) (ii) (iii) Increased economic growth

Reduced flood damage-cleaning-up and road maintenance expenses. Reduced income loss due to sickness and medical expenses

226. Reducedflood damage-cleaning-up and road maintenance expenses. The analysis indicates that both direct and indirect damage takes place to private houses, household goods and public infrastructure arising from storm water flooding and tidal floods from the nearby lagoon. Assessment o f damages due to this routine flooding was based on sample o f households identified in the Stoveland reports as affected either by storm rain flooding or by tidal water flowing into the canal upstream. Based on historical data, about 60 percent o f the households in the slums experienced flooding. It i s estimated that on an average a household living in flooded areas have cleaning up expense and repairs ranging from N2,000 to N18,OOO per household per year. In the upgrading area the lower o f the two cleaning up costs i s assumed for estimating the benefit at 60 percent o f the households.

227. The lack o f drainage also adversely impacted the road network. The Public Works Department had estimated that under the climatic conditions o f Lagos, up to 10 percent o f the road asset i s lost per year due the inadequate drainage. With drainage, current average estimated maintenance costs are 3.7 percent of planned road investment.

228. Medical expenses and income losses. A major expected benefit o f the LMDGP i s the reduction in the incidence o f sickness due to a decrease in the prevalence o f disease. Increased incidence o f water born diseases are associated with poor storm water drains, environmental air pollution due to uncollected waste and dust, water and sanitation services and a lack o f hygiene. Reduction in the prevalence o f these diseases

6o Stoveland 2002.

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would result in losses o f fewer working and school days due to sickness, and may result in lower household medical expenses.

229. In 1997, when the Badia demonstration project was initiated in Apapa LG, there was no health centre. The upgrading provided two health centers; a third privately owned health center now exists. The Oljowon PHC61 i s one o f the three in the area. I t provides services to about 100 children per day on Tuesdays and Thursdays for Naira 20 per visit . About 30 to 40 outpatients receive treatment every day also for Naira 20 per visit . There are two to three babies delivered every week for which fees charged are Naira 500 per delivery. These costs do not include the cost o f medicines. The clinic has 18 staff, 7 nurses, 8 health aides and 3 community health officers. According to the clinic records, the major sources o f sickness are due to water born disease and the general condition o f the environment. Since the improvement o f water supply and improvement in the environment, the frequency o f incidents o f water borne disease has significantly decreased in Badia. T h e average total cost annual household medical expenses before the intervention would be Naira 1000. I t i s estimated that an improved environment could save households 25 percent o f the total cost i.e. saving o f Naira 250 per household after upgrading.

230. Income losses due to sicknesses are also significant. On the average, at least 4 working days are lost per year per capita due to sicknesses. An average household size o f 5 people, would lose 20 days in a year. Assuming that only 25 percent o f the days lost are due to waterborne diseases (excluding malaria), with an average household income o f Naira l6,000/month/household, the total income lost per household per year (300 days) will be Naira 2800 per year. About 50 percent will be saved do to an improved environment.

23 1. Increased Economic Growth. The improved amenities due to upgrading create a favorable business environment. During pre-Appraisal o f the Project, six years since the demonstration project was completed, the field review revealed significant business start up after upgrading. The improved paved roads and drainage has made the area attractive - over 61 new businesses consisting o f retails, photo shops, welders, food program, furniture shops, tailors, nursery, rental properties, public facilities, flour mil ls, salon and restaurants along these roads have come up. These enterprises are assumed to provide Naira 260 per day over 300 days a week in wages and profits.

232. Results of Economic Analysis of the Urban Upgrading. The economic rate o f return o f infrastructure investments under the urban upgrading sub component i s 21 percent; and the net present value at 10 percent discount rate i s Naira 4.5 mil l ion per hectare.

233. Sensitivity Analysis of the Urban Upgrading. Sensitivity analysis was undertaken to evaluate the impact o f changes in costs and benefits on NPV and ERR base case estimates. A combined increase o f 20 percent in total costs and a decrease o f 20 percent in total benefits resulted in ERR o f 7 percent and NPV o f (Naira 0.1.6 million). Also the relative contribution o f each type o f benefits to the overall component was estimated. The results o f such analyses indicate that the ERR and NPV are impacted mainly by changes in the business activities arising f iom improved physical environment o f the project, indicating that along side the investment, a pro-business environment would ensure the expected economic benefit.

Drainage and Solid Waste sub-components (US$126.2 mill ion)

234. In addition to the sizable population living in slums, the people o f Lagos suffer from major infrastructure problems which significantly affect the economic efficiency o f the urban economy, as well as the social well-being of i t s people. In particular, the drainage system i s inadequate and very badly

6' A visit to the clinic highlighted a substantial negligence o f the building since it was constructed. These include non-working fans, toilets, etc. Under LMDGP every contractor should be required to visit the Badia pilot project to ensure that quality o f works i s improved.

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maintained, leading to widespread flooding in the rainy season, deterioration o f urban roads and unsanitary conditions in many low income areas almost all year round. Solid waste disposal and environmental management i s most inadequate.

235. The main road systems are highly congested and poorly maintained. The result o f all these constraints i s that businesses costs have been estimated to be some 30 percent higher than they need be because o f inadequate infrastructure and public services. LMDGP also attempts to reduce the cost o f doing business through public sector investment in drainage and solid waste management system.

236. Drainage sub-component (US$62.38m). Regular flooding o f large parts o f the city, including at higher elevations, i s the single most important infrastructure recurrent problem for the city, as the flooding causes enormous damage to property and infrastructure. US$20.0 mill ion o f the total investment for sub- component i s allocated in the first year for dredging o f 11 8 km o f length o f the channel in Lagos. The 773 hecatares under Ajeromi Ifelodum and Mainland LGs, are home to a total estimated population of 0.66 million. In these LGs, rehabilitation and reconstruction o f about 16.06km drainage works are planned at a cost US$32.3 million. With improved drainage, about 137 km o f Federal and State road network, with replacement value o f over US$70 million, would have expected l i fe o f 20 years with regular resurfacing every seven years and annual maintenance. However, under rainfall conditions o f Lagos, coupled with poor drainage, the economic l i f e o f the road asset would significantly shorten. With the implementation of the planned investments, incidence o f flooding inside houses and flooding on streets will be substantially reduced in the selected LGs resulting in reduced clean-up expenses o f households and businesses affected by flooding. The incidence o f siclcness due to poor environmental condition will be reduced. The improved environment i s l ikely to contribute to higher productivity, economic growth and property value.

237. Solid Waste sub-component (US$63.82m). Currently, Lagos generates between 4,000 tons to 6,000 tons of waste per day. Forty-two percent o f the households have their garbage collected by the private operators appointed by the Government, and 39 percent by truck pushers or informal collectors, 11 percent dump their garbage in unauthorized areas, 4 percent dump it within their compound, 1 percent deposit it in garbage bins provided by the Government, and 3 percent report using “other” m e a d 2 . About half the garbage collected in Lagos, arrives at the three official dumpsites. There are therefore huge piles o f solid waste building up within the city limits as can easily be seen when driving through the city. These piles are located where the proposed transfer stations will be designed and located. Thus, an inadequate solid waste management (SWM) system contributes to frequent flooding and frequent dredging. The improvements in S W M system would lead to effective drainage system operation.

Economic Evaluation Methodology

238. Engineering investigations o f the drainage and solid waste sub-components will be start before the Project i s presented to the Board. In the absence o f the detailed information that the engineering studies would provide, the economic rate o f return and net present value estimates for the drainage and solid waste subcomponents are based on average investment cost per hectare and expected average benefits per hectare. The approach i s therefore similar in that it i s based on per hectare investment. However, the benefits of the investments in solid waste are taken into account. Both the solid waste disposal and drainage improvements are expected to have direct benefits for the population living in the two LGs where the drainage systems for reconstruction are located - Ajeromi Ifelodum and Mainland. Coupled with the cleaning o f the entire drainage system in the eastern part of Lagos, there will be system wide impact for the rest o f the population in the metropolitan area. However, it i s the former and not the latter benefits that are taken into account in estimating the benefit o f the project, indicating the resulting economic rate o f return i s l ikely to underestimate the benefit o f the investment.

‘* 2005 Household Survey by the Central Office o f Statistics, Lagos, MEPB.

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Investment cost

239. Since only two of the six drainage systems in eastern Lagos are included for reconstruction under LMDGP due to a lack o f resources in the Project, the average resource allocation i s US$163,260 per hectare. The estimated population density i s about 1,400 people per hectare or about 280 households per hectare.

Main Benefits

240. summarized as follows:

The main benefits of the Drainage and Solid Waste Subcomponents o f the LMDGP can be

(i) (ii) (iii) Increased economic growth, and (iv)

Reduced cleaning up and damage repair costs as well as a reduced road maintenance expenses. Reduced income losses for households due to sickness and medical expenses

Reduced frequency o f de-silting o f the drainage channels.

241. Other benefits such as savings in travel time due to reduced impact o f storm water flooding o f the road network, and savings in vehicle operating costs due to use o f longer alternative routes during flooding are not included. Th is indicates that the estimated economic rate o f return for the drainage and solid waste subcomponents i s l ikely to be more conservative.

242. Reducedjlood damage, and a reduction in expenditures on maintenance. An estimated 137 km o f Federal and State road network with replacement cost o f some US$70 mi l l ion road asset i s exposed to regular flood damage in the two selected LGs. 55 percent o f the households in Ajeromi Ifeldom LG and 64 percent o f the households in Mainland LG reported flooding in the streets in the past year. As noted above, the Public Work Department had estimated that under the climatic conditions o f Lagos, up to 10 percent o f the road asset i s lost per year due to lack o f adequate drainage. Without proper drainage, current l i fe expectancy of 20 years i s significantly shortened. Where there i s proper drainage, average maintenance cost estimate i s 3.7 percent o f planned road investment and resurfacing cost i s about 10 percent o f the investment cost.

243. Reduced clean-up expenditure burden on households. Based on the recent household survey data collected by MEPB’s COS in 2005, 25 percent o f the households in Ajeromi Ifeldom LG and 33 percent o f the households in Mainland LG experienced incidents o f flooding inside their homes. I t i s estimated that on an average a household living in flooded areas incur expense for cleaning and repairs ranging from Naira 2,000 to Naira 18,000 per household per year, or an average o f Naira 8500 per household per year. The average cleaning up cost used in the ERR and NPV estimates i s N5,100.

244. Medical expenses and income losses. A major benefit o f the LMDGP i s expected to be a reduction in the incidence o f sickness due to a decrease in the prevalence o f disease. Reduction in the prevalence o f these diseases would result in losses o f fewer working and school days due to sickness, and may result in lower household medical expenses. Although a review o f expenditures o f the households indicates a higher amount of expenditure, Naira 6,565 to Naira 14,000 per year per household on health, for this analysis only a saving of Naira 250 per household per year i s assumed as in the case o f the urban upgrading subcomponent.

245. Income losses due to sicknesses. Income losses for households due to sickness are also significant, On the average at least 4 days are lost per year per capita due to sicknesses. An average household with 5 members would lose 20 days in a year. Assuming due to waterborne diseases (excluding malaria) to account for only 25 percent of the days lost, with average household income o f Naira 16,000/monthihouseho1dy total income lost per household per year (300 days) will be Naira 2800 per year. About 50 percent o f these expenditures will be saved do to an improved environment.

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246. Economic Growth. The improved amenities and environment due to trunk infrastructure improvements in drainage and solid waste management, are expected to create a favorable business environment. At pre-Appraisal a field review of the developments in Badia was undertaken. As noted earlier, six years after the demonstration upgrading project was completed, the review revealed significant business start up (2.2 economic establishments per hectare). It i s estimated that each enterprise established in response to improved physical environment as a result o f public investment in infrastructure will generate about Naira 260 per day in wages and profits.

247. De-silting of the drainage channels. The lack o f solid waste management system also adversely impacted the drainage operations requiring frequent de-silting. The average cost o f de-silting every three years o f the order Naira 1.35 mil l ion per km.

Results of economic analysis of solid waste and drainage sub-components

248. percent discount rate i s Naira 12.8 mill ion per hectare.

The economic rate of return o f infrastructure component i s 16 percent; and the net present value at 10

Sensitivity analysis

249. Sensitivity analysis was undertaken to evaluate the impact o f changes in costs and benefits on NPV and ERR base case estimates. A combined increase o f 20 percent in total cost and a decrease o f 20 percent in total benefits resulted in ERR o f 10 percent and NPV o f N O . l mil l ion per hectare indicating a robust outcome. Also the relative contribution o f each type o f benefits to the overall component was estimated. The results o f such analyses indicate that the ERR and NPV are impacted mainly by changes in the business activities arising fiom improved physical environment o f the project, indicating that along side the investment a pro-business environment would ensure the expected economic benefit.

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Annex 10: Safeguard Policy Issues

NIGERIA: Lagos Metropolitan Development and Governance Project

Potential Long Term Impacts

250. No adverse long-term impacts are anticipated and none were identified in the Environmental and Social Impact Assessment (ESIA) report.

This Project falls into Environmental Category B.

Project Location and Salient Physical Characteristics Relevant to the Safeguard Analysis

25 1, The activities under infrastructure investments for upgrading 9 slums will entail c iv i l works in upgrading sub-projects in: Agege, Ajegunle, Amukoko, Badia , Iwaya, Makoko, Ilaje, Bariga, Ij eshatedo/Itire.

252. The rehabilitation works in these s l u m areas will be in the following sectors: water supply, roads, footpaths, drainage, power reticulation, private and public sanitation facilities, solid waste management, markets, street lighting, recreational facilities, schools, clinics, community facilities, etc. The final agreement with the communities on the investment packages for the nine upgrading areas and their designs would be completed within the first 9 months o f Project implementation, with construction to begin in month 15 o f the Project. All o f the s l u m upgrading civ i l works will have an Environmental and Social Impact Assessment (ESIA) integrated into the engineering design scope o f work.

253. As for solid waste, detailed engineering designs for two to three transfer stations and upgrading o f the existing landfill sites will be contracted out to consultants. ESIA's for these civ i l works elements will be a specific component o f the consultants' scope o f work.

254. Concerning drainage, a comprehensive hydraulic model (sitting on top o f the drainage GIS layer) will be developed before any serious rehabilitation works are designed for network improvements in two of the six drainage systems in the eastern part o f Lagos. For the f irst year program, an initial cleaning and drainage channel reshaping, to original design cross sections and vertical slopes o f drains will be contracted out as c iv i l works. These were the primary focus o f the Project specific ESIA carried out for the LMDGP.

255. The ESIA report adopted for th is Project contains an " Analysis o f Alternatives " section, and concludes that the Project as presently designed adequately addresses i ts development objectives, without creating irreversible adverse impacts on the bio-physical and social environment.

256. The report further maintains that the 'do nothing' scenario implies that the current state of drainage deterioration will continue to such a deplorable condition that it would become unsafe for the general public. I t wil l also result in higher incidence o f outbreak o f diseases, leading to high mortality rates. Residents o f these low-income s l u m areas that are deprived o f basic services will also be denied reliable facilities. Therefore, the 'do nothing' alternative would worsen the present situation in the proposed intervention sites and exacerbate poverty.

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Measures taken by the Recipient to address safeguard issues:

257. Resettlement Pol icy Framework (FWF) were prepared by LASG.

During Project preparation, an Environmental and Social Impact Assessment (ESIA) and a

258. The main features o f the ESIA are: (i) an outline o f the potential environmental and social impacts o f the Project (particularly the drainage component and the c iv i l works associated with the nine slum upgrading areas); (ii) the mitigation measures required; (iii) the management responsibilities, for both implementation and monitoring; and (iv) the cost associated with its implementation. Institutional strengthening will be provided to component executing agencies and participating government agencies to build capacity for identification, monitoring, and managing social and environmental impacts associated with LMDGP.

259. The P C U will be responsible for the implementation o f the ESIA and FWF recommendations at the SG and LG levels. In addition, the P C U wil l be responsible for the implementation o f the EMP and the environmental monitoring plan. Consultants wil l be engaged to prepare resettlement action plans as and when necessary.

260. An environment officer from LASEPA has been mapped to the PCU. This officer wil l be given adequate and specialized training under the Project, and will be complemented with short- term national environmental and social safeguards consultants as and when the need arises.

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Annex 11 : Project Preparation and Supervision NIGERIA: Lagos Metropolitan Development and Governance Project

Planned Actual PCN review July 3 1,2002 August 28,2002 Initial PID to InfoShop N/A* Initial ISDS to InfoShop N/A* Appraisal January 16,2006 January 24,2006 Negotiations January 30,2006 February 25,2006 BoardRVP approval July 6,2006 Planned date o f effectiveness Planned date o f mid-term review Planned closing date September 30,2013 *Preparation was put on hold after concept stage (2002-2005).

October 7, 2006 January 11,2010

Key institutions responsible for preparation of the project: LASG Ministry o f Economic Planning and Budget (MEPB) LASG Ministry o f Finance (MoF) LASG Ministry o f Physical Planning (Lagos State Urban Renewal Authority) LASG Ministry o f Environment (Office o f Drainage Services) Lagos State Waste Management Authority (LAWMA).

Bank staff and consultants who worked on the Project included:

Task Team Deepali Tewari Task Team Leader AFTU2

Name Title Unit

Manga Kuoh Co-Task Team Leader (Governance) AFTPR Joseph Gadek Sr. Sanitary Engineer AFTU2 Lev Freinkman Sr. Country Economist AFTP3 Kirtan C. Sahoo Environmental Specialist (Carbon Finance) ENVCF Hisham Abdo Kahin Counsel LEGAF Chau-Ching Shen Sr. Finance Officer LOAG2

Afi-ka Olojoba Sr. Environmental Specialist AFTS3 Chudi Okafor Sr. Social Development Specialist AFTS3 Bay0 Awosemusi Sr. Procurement Specialist AFTPC Mary Asanato Procurement Specialist AFTPC Gert van der Linde Lead Financial Management Specialist AFTFM Adenike Oyeyiola Sr. Financial Management Specialist AFTFM Dan Aronson Consultant (Social Scientist) AFTU2 Chii Akporji Communications Officer, Cities Alliance TUDCA Sudeshna Banerjee Young Professional AFTUl Ephrem Asebe Consultant, Economist AFTU2 Kim Pimenta Information Analyst ISGCR Virginie Bocard Information Analyst ISGCR Maya El-Azzazi Program Assistant AFTU2

Sandra Cointreau Solid Waste Management Advisor TUDUR

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Mary Zackius-Shittu Team Assistant AFc12 Modupe Olorunfemi Team Assistant AFc12

Robert Buckley Advisor, Urban Housing TUDUR Peer Reviewers

Lance Morrell Lead Operations Officer AFTUl

Bank funds expended to date on Project preparation: 1. Bank resources: Prior Fiscal Years: US$420,104; Current Fiscal Year US$418,997.78 2. Trust funds: US$82,000 (TF040164) 3. Total: $921,101.78

Estimated Approval and Supervision costs: 1, Remaining costs to approval: 0 2. Estimated annual supervision cost: US$250,000

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Annex 12: Social Issues and Stakeholder Participation

NIGERIA: Lagos Metropolitan Development and Governance Project

Introduction

261. The social developmental challenges that face Lagos State include both inequality and deprivation. Rapid urban migration, pervasive government mismanagement stemming from the national level, and the aging o f Lagos urban infrastructure have led to a legacy o f mismanagement and the degradation of housing stock, institutions and social capital. The slums are mostly in the oldest settled areas of mainland Lagos, and especially in marshy areas and areas near the lagoons, They are crowded one and two-story warrens o f virtually unregulated housing on ad hoc streets and alleys, More than 75 percent o f the people l ive in one room households, with a density o f 4.6 persons per room. Eight to ten families live in one house structure, sharing common cooking and sanitation facilities, with about 40 people competing for the use o f one unimproved latrine in the mornings before school or work. More than hal f the workers work in construction, skilled crafts, factories, fishing or trading, with petty trading being the most dominant form o f self-employment. Most are renters, with home ownership being high only among the fishing communities along the lagoon, where wooden houses are built on st i l ts and there are no toilet facilities. Diarrhea, hepatitis, typhoid, cholera and malaria are the most common diseases, and 66 percent o f the diseases affecting children under the age o f five are related to poor water quality and lack o f access to sanitation. Poorly constructed, clogged drains mean that more than half the households experience flooding outside their homes during the rainy season, while about one fifth suffers flooding inside their homes with refuse and raw sewage being swept in. Floods are on an average knee deep both inside and outside the house, last over five hours, cause immense economic hardship, and are a severe health hazard.

262. Dismal statistics represent the outcomes o f social, economic and institutional processes. The long preparation process for this Project has enabled the gathering o f extensive knowledge o f these processes, and the mechanisms through which they impinge upon households and communities, informed the design and operational relevance in the Project. Participatory and consultative mechanisms have involved representatives f rom public, private, non-governmental, co-operative and community actors, including representatives from groups living in slums. The Project has also applied the lessons from the earlier Bank assisted Lagos Sanitation and Drainage Project, which carried out a pi lot urban upgrading program in the blighted Badia community by building o n the capacity o f State and LG agency staff in consultative planning, through an intense participatory process to identify community needs and priorities. This annex outlines how the community needs have been assessed and sets out the Project responses to the issues facing urban upgrading.

Social Aspects and Effective Demand Driven Responses 263. Surveys and workshops conducted during Project preparation addressed the following social factors: demographic characteristics o f the s l u m population, poverty and gender issues, educational levels and patterns o f employment, income levels and distribution, housing conditions and levels of access to social services and infrastructure, and affordability and willingness to pay for services. The upgrading subprojects were developed in response to the expressed demand o f the beneficiaries in the following nine slums: Agege, Ajegunle, Amukoko, Badia, Iwaya, Makoko, Ilaje, Bariga,

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IjeshatedoAtire. These slums were selected because a 1995 comprehensive study o f living conditions in Lagos identified them as the largest s l u m areas. The nine cover an area o f 760 hectares and have a current population estimated at over 1.1 mill ion people. The nine communities expressed needs and priorities that have been packaged into multi-sectoral investment programs: streets, footpaths, foot bridges and walkways; water supply; drainage; schools; health centers; public sanitation facilities; market stalls; electricity transformers; street lighting; community centers; postal stations; fish smoking facilities; floating jetty with petrol station; and box culverts. As designed, the upgrading packages have largely avoided the need for any involuntary resettlement, because most of the investment i s in rehabilitation, and unoccupied community sites have been identified for nearly all the new construction. A Resettlement Policy Framework has been prepared to provide the basis for resettlement in this as in the other Project components, should any need for displacement be unavoidable.

Benefits and Beneficiaries 264. I t i s estimated that more than 1.1 mill ion people live in the nine Project areas which will benefit from improved water supply; improved solid waste management; better sewerage facilities; improved drainage; and improved health and living conditions. The s l u m upgrading will also substantially improve the public health condition and lives o f women and children, who constitute the majority beneficiary population. I t i s to be emphasized that the s l u m areas included in the Project are not Local Government Areas (LGAs), because Lagos LGAs typically have varied neighborhoods in terms of socio-economic status, age o f infrastructure, and vulnerability to flooding and other nuisances. The slum areas chosen are those parts o f LGAs which have the most physical challenges.

Beneficiary Participation in Preparation 265. In designing this Project, a stakeholder participation approach for selecting subprojects in the s lums was applied. Discussions were held with local government and state officials to ascertain existing problems, constraints, and local development priorities. Surveys o f households identified both physical conditions o f dwellings and the socio-economic circumstances o f the households within them. Focus o f group discussions with the private sector, officials o f the drainage department, and community leaders and extensive consultations with NGOs aggregated the priorities o f beneficiaries, and communities' capacity and willingness to pay for services, which was a critical input in the design methodology and a likely implementation challenge. Three consultative workshops were also held with civil society organizations, organized around sector themes (environment and physical planning, accountability and governance, and micro-enterprise development) to develop recommendations for the design o f a participation plan; review the investment proposals; and indicate the need for associated policy reform measures. These consultations were specially designed to assess the situation o f the urban poor in s l u m areas. The findings assisted the Project teams to know how the affected communities fit into the larger citywide situation o f poverty. The findings also suggested the ability o f individuals in these communities to mobilize non-monetary assets such as social capital, protect existing assets and build on those assets for their well being. Research and community development staff who participated in these surveys and consultations have been retained in place by the LGA service and by LASURA to bring their experience to the implementation phase o f the Project.

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266. To elicit economic demand from communities, a planning figure o f US$30,000 per hectare, derived from upgrading experience in Nigeria and elsewhere, was used to enable communities to make choices o f what investments would be included in a program for their area, within a budget envelope. Communities were also confronted with capital cost contributions and O&M implications for different infrastructure and service levels presented to them graphically through pictures and base maps. This iterative process was further informed by a quantitative assessment o f priorities, which also established a base line for monitoring impacts. LG engineers and planners then turned the community’s l ist o f demands into coherent plans. N o less than 83 stakeholder consultative meetings, 19 community level meetings, 16 working sessions with LGs, and 2 urban forums in addition to meetings with senior State officials were held before the subproject proposals were finalized. These proposals reflect a compromise between community preferences, feasible options in terms of availability o f land, technical requirements and financial constraints, and, notably, the adoption of standards that exist in areas contiguous to the slum area, i.e. the LG standards.

Beneficiary Participation in Implementation 267. The Project includes provisions for the continued participation o f beneficiaries and community groups in implementation. It i s generally recognized that such grassroots participation i s vital to the sustainability o f the investment. There will be a series o f consultative workshops with organized private sector, staff, and civil society as well as participation from LGs, state agencies, traditional leaders, CDAs, academics, and urban practitioners to hrther define the roles and fhctional mechanisms for participation for a much needed broad debate on policy issues that affect all stakeholders in the metropolitan area. Such forums are targeted to policy and academic audiences and are positive steps in the State Government’s effort to engage citizens in developmental dialogue. A diagnosis o f civic engagement in Lagos was completed by IDA during the Lagos Strategy process, and this will inform the deepening o f both these mechanisms, as appropriate. Starting with a strong “community focus,” and a strategy o f bottom up planning with hll participation o f all stakeholders at community level, the Project then moved upward to review collaboration at local and State Government levels. The services developed are what people want and which they are willing to pay for; and the primary approach used in the upgrading include providing basic infrastructure and facilities without demolishing existing settlements or relocating the people. The Project also ensured that the gender issues are incorporated in the planning and implementation, and that women are involved in decision making so that their interests and that o f their children would be guaranteed in the implementation o f the Project.

268. The roles and responsibilities o f all stakeholders within the Project are clearly defined. Each community i s expected to play a central role in making the services sustainable. The Project will utilize existing structures within the community to handle some aspects o f the Project such as consensus building, and maintenance.

Coordination of Inputs 269. The Community Technical Committee (CTC), made up o f community leaders, women, youth, traditional rulers, Community Development Association, NGOs and a representative o f the private sector will be the focal point o f contact between the community and the Project. The main focus will be ensuring that the community i s kept wel l abreast o f all Project related information in a

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timely manner, to enable the Project to achieve i ts objectives. The CTC i s specifically expected to carry out the following:

Carry out information, education and communication activities with the Local Government Project Unit. Ensure that adequate information i s disseminated to communities affected by the Project, including the specifications and budgets for each subproject. Attend ‘Procurement Committee’ meetings that discuss projects from their area and inform the community accordingly. Ensure that the P U follows through agreements on ‘procurement matters. Report on the progress and state o f completion o f contracts. Mobilize the community prior to the implementation o f subproject preparation, ensuring the participation o f women and marginalized groups in the community. Facilitate community public meetings, through a simple democratic process with a view o f sharing all Project related information and reporting on progress, and eliciting any community concerns with any aspect o f the Project for prompt communication to the PSC, PCU and IDA. Be available to meet with members at all times to hear and resolve any issues that may arise during preparation and implementation, including expediting meetings with other members of the PU, if necessary. Link to the conflict resolution mechanism in the Ministry o f Justice if disputes or complaints cannot be resolved within the community or with Project authorities. Ensure that all quarterly PU reports are shared with the community in an agreed upon public place, for example, in the local school, or LG office. Inform the rest o f the community about the date, time and venue o f the opening o f financial bids after technical evaluations are over, so that interested members o f community can be present.

Challenges and Opportunities 270. A growing body o f evidence i s showing the linkages between empowerment and improved Project performance, better governance, and growth that i s more pro-poor. Empowering poor women and men requires the removal o f formal and informal institutional barriers that limit their choices and prevent them from taking action to improve their well being. Since social, cultural, political, and economic conditions vary, and institutions are context-specific, reform strategies must vary with the context. The design o f empowerment strategies in the social mobilization process for the LMDGP will therefore focus on four key elements in order to change the nature o f relationships and linkages of poor people and their organizations. These four elements are:

Access to Information. Information i s power. Informed citizens are better equipped to take advantage o f opportunity, access services, exercise their rights, and hold state and non-state actors accountable. Critical areas where information i s most important include information about rules and rights regarding basic services, financial services and markets. As part o f i t s systematic communication strategy, the PCU will prepare on a monthly basis, a simple and comprehensible monthly newsletter which will be distributed electronically to a l i s t o f

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NGOs, and translated in Yoruba or another local language for distribution to the CDAs, and for posting by the Project Units in a public place in the LG offices.

Inclusion/Participation. Inclusion o f poor people and other excluded groups in decision making is critical to ensure that limited resources build on local knowledge and priorities, and build commitment to change. However, sustaining inclusion and informed participation requires changing the rules so as to create space for people to debate issues and participation in local priority setting, budget formation, and delivery o f basic services. Public access to information on contracts and schedules will change prior practices, and the community spirit, mobilization, and watchfbl monitoring by CDAs and CTCs will mark a new openness to popular consultation for infrastructure operations in Nigeria.

0 Accountability. Accountability refers to the ability to call state officials, public employees or private actors making them accountable for their policies, actions, and use o f finds. States, Local Governments and Communities must have horizontal or internal accountability mechanisms, and must also be accountable to their citizens and clients for their performance. Therefore, monitoring performance o f the social development outcomes o f th is Project will be undertaken by an independent consultant. Local Organizational Capacity. Local organizational capacity refers to the ability o f people to work together, to organize themselves, and to mobilize resources to solve problems o f common interest. Organized communities are more likely to have their voices heard and their demands met. In order to undertake these roles, CTC would undertake capacity building training in the following areas: computer training, workshops and seminars on planning, and monitoring and evaluation etc.

Mechanisms to Create Social Sustainability. Sustainability will be a vital aspect o f the program to ensure local ownership, take advantage o f the high energy in community associations, and build commitment to long-term conservation o f constructed facilities so that the investments do not need to be repeated every few years and LASURA can go on to the upgrading o f the rest o f the city’s slums. A seven-part social sustainability program will support but also test what citizens can do to keep the government’s investments through the Project operating properly and yielding benefits to the people they are intended to serve. Social sustainability will be built by (a) continuing the intensive program o f consultations with broad public opinion in the nine slums; (b) publishing a Project newsletter that provides thorough Project communication from and to all parties; (c) enabling the communities to continue the process, begun during preparation, o f selecting, reconfirming, and monitoring the within-slum investment programs, and providing labor for them; (d) adding voluntary contributions o f sub-project activities around the investments, by community “add-ons” including school materials, health programs, maintenance services, road hrniture, and other elements; (e) competing through such add-ons for “bonus” subprojects based on the volume and quality o f their own “add-ons; (f) generating “community report cards” rating service improvements in years 4 and 7 o f the Project on a baseline survey in year 1; and (g) winning small grants for small community-oriented projects through an upgrading version o f what the World Bank does through “development marketplaces.”

0

0

0

100

HIV/AIDS Outreach Program

271, The upgrading program includes support for an HIV/AIDS education and outreach program. These activities will be coordinated and monitored by the PCU with the assistance o f the State Action Committee on AIDS (SACA); the L A C A representatives in the LGAs and community leaders in slum sites. The outreach program will be designed to address the needs o f the local population in the Project area, Project and support staff, and personnel from construction and maintenance contractors.

Environment, Health and Safety Measures

272. All contracts for drainage, road rehabilitation and maintenance works would be required to address environmental, health and safety issues such as providing for the proper management and disposal o f waste materials, oil, lubricants and fuel, and adoption and use o f proper health and safety measures for construction workers. It wil l also include information on the need for staff to participate in the Project sponsored HIV/AIDS awareness program.

Materials Available to the PCU 273. A handbook or toolkit for upgrading in Lagos was developed by the Development Control Department o f the Lagos State Urban and Regional Planning Board with help from the Norwegian Government to address implementation challenges. The toolkit systematically explains the methodology for the preparation o f local area plans. It i s a tool for local government planners and community development officers, and provides guidance for enlisting the participation o f communities in demand led upgrading. The toolkit will be shared with the State, LGs, and the communities to ensure that there i s a clear and shared understanding amongst all the stakeholders on how the process o f implementation will be managed, and the roles and responsibilities o f the actors involved.

274. A number of studies, some o f which are supported by the Bank, informed the preparation o f the Project. These reports or case studies are available in electronic form as reference materials. It i s also expected that capacity building and trainings materials would be complemented by field experience.

Lessons Learned from Upgrading Projects

275. Project include the following:

Specific lessons learned about upgrading projects from around the world and reflected in this

(i) Mechanisms for coordination between various stakeholders are a prerequisite for effective implementation. (ii) Project ownership by the beneficiary community i s an essential prerequisite that can be achieved only by effective community empowerment politically (through participatory decision-making), economically (through communities playing a role in O&M on infrastructure), and socially (through community meetings with government by trained facilitators from the community).

101

(iii) Schemes based on community participation take time, and the timing o f community participation in decision-making i s critical for effectiveness (i.e. at which stage communities participate and to what degree). (iv) Arrangements to support marginally destitute groups need to be identified to avoid flight from the community and squatting elsewhere. (v) Schemes where "network" infrastructure i s provided in difficult conditions require careful planning and management. (vi) Experienced civil works contractors and experienced supervision consultants with local knowledge should be engaged; lowest cost options for upgrading infrastructure should be sought to allow greater coverage with limited resources. (vii) Attention must be given to the subsequent operation and maintenance arrangements for upgraded infrastructure by the responsible agencies; robust mechanisms for monitoring progress and measuring impact should be established starting with greater efforts to determine baseline data. If services provided are affordable, communities appreciate the implications o f choice o f service, and wil l contribute or 'tax' members to pay for improvements if necessary, in order to meet their own needs.

Conclusions 276. IDA'S policy dialogue and support in Lagos i s focused on the development and implementation o f a cohesive strategy to achieve three inter-linked objectives: reduce poverty, induce local economic growth, and improve urban management. Specific activities undertaken to achieve these objectives, will be linked by the underlying principles o f improving governance, building transparency and accountability, and enhancing performance. The LMDGP focus on urban upgrading and urban management will test, refine, and establish a mechanism for upgrading, This will support appropriate, affordable, demand-driven investments in basic municipal infrastructure, so that Lagos can realistically provide essential services in all i t s s lums in the near and middle term h ture .

102

Annex 13: Documents in Project File

NIGERIA: Lagos Metropolitan Development and Governance Project

1. Review o f State and LG Finances 2. Report o f State and LG relations in Lagos 3. Civic Engagement in Lagos 4. Survey Instruments for Firm Surveys 5. Findings from Firm Level Surveys (Preliminary Report, AFTU2) 6. The Performance o f Nigerian Firms in Lagos 7. Survey Instrument for the metropolitan Household Survey for the State-wide M&E system 8. Summary Service Delivery Charts (Maps) for all social and economic infrastructure sectors

by LG prepared by the Central Office o f Statistics, Lagos

Upgrading

9. Evaluation of Badia 10.3 LASURA Reports (Planning Report on 9 slums; Upgrading Tool-Kit; Upgrading Program

1 1, Survey instrument for the baseline study in 9 slums. 12. Consolidated Mission Report on Upgrading 13. Sector Policy Note on Upgrading

Development) done by Stoveland.

Drainage

14. Sector Policy Note on Drainage 15. Baseline indicators o f flooding for each LG area in Lagos

Solid Waste

16. Baseline indicators on solid waste management for each LG area in Lagos 17. Sector Policy Note 18. Revised LAWMA Law (Final Draft May 3 1,2006) 19. Service Agreement between LAWMA and LGs (Final Draft May 3 1,2006) 20. Performance Contract between LASG and LAWMA (Final Draft May 3 1,2006) 21. Carbon Finance Project Document

103

Annex 14: Statement of Loans and Credits

NIGERIA: Lagos Metropolitan Development and Governance Project

Original Amount in US$ Millions

Difference between expected and actual

disbursements

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

PO88150 2005 PO86716 2005 PO71075 2004

PO71817 2004 PO83082 2004 PO63622 2004 PO69892 2004 PO71494 2003 PO80295 2003 PO74963 2003 PO70290 2002 PO72018 2002 PO70291 2002 PO69901 2002 PO70293 2001 PO69086 2001

PO65301 2000

Economic Reform and Governance Project 0.00 139.99 0.00 0.00 0.00 142.36 0.00 0.00 Sustainable Mngt. Mineral Resources 0.00 120.00 0.00 0.00 0.00 122.09 0.00 0.00 NG-Urb Water Sector Reform 1 SIL 0.00 120.00 0.00 0.00 0.00 123.13 8.22 0.00 (FY04) NG: Local Empowerment & Env.Mgt Proj. 0.00 0.00 0.00 8.00 0.00 7.75 1.90 0.25

NG-MSME 0.00 32.00 0.00 0.00 0.00 34.22 3.05 0.00 NG:Fadama I1 0.00 100.00 0.00 0.00 0.00 96.53 6.76 0.00 NG Local Empowerment & Envir.Mgmt. 0.00 70.00 0.00 0.00 0.00 78.08 4.48 -0.30 Universal Basic Ed. 0.00 101.00 0.00 0.00 0.00 113.72 73.34 0.00 Polio Eradication 0.00 28.70 0.00 0.00 0.00 1.33 10.71 0.00 NG Lagos Urban Transport Project 0.00 100.00 0.00 0.00 0.00 101.03 24.32 18.11 2nd Health Systems Dev. 0.00 127.01 0.00 0.00 0.00 136.07 55.60 5.40

NG Transmission Development Project 0.00 100.00 0.00 0.00 0.00 95.46 65.92 44.61

HIV/AIDS Prog. Dev. 0.00 90.30 0.00 0.00 0.00 88.73 38.52 -4.71

Community Based Urban Development 0.00 110.00 0.00 0.00 0.00 128.80 58.19 33.15

PRIVATIZATION SUPPORT PROJECT 0.00 114.29 0.00 0.00 0.00 108.09 53.89 0.00 Corn.-based Poverty Reduction SIL 0.00 60.00 0.00 0.00 0.00 39.57 13.32 7.82

ECON.MGMT.CAP.BLDG. 0.00 20.00 0.00 0.00 0.00 5.96 -2.59 0.00

Total: 0.00 1,433.29 0.00 8.00 0.00 1,422.92 415.63 104.33

NIGERIA STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f U S Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1998 AEF Ansbby 0.10 0.00 0.00 0.00 0.10 0.00 0.00 0.00 1999 AEF Global Fabri 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00

1999 1999 2000 1997 2000 1997 1995 1994 2003

AEF Hercules AEF Hygeia AEF Oha Motors AEF Radmed AEF SafetyCenter AEF Telipoint AEF Vinfesen Abuja Intl

Adamac

1.30

0.00 0.84 0.04 0.50 0.08 1 .oo 1.75

25.00

0.00 0.19 0.00

0.00 0.06 0.00 0.00 0.71 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 1.30 0.00 0.00 0.00 0.84 0.00 0.04 0.00 0.50 0.00 0.08 0.00 1 .oo 0.00 1.75

15.00 11.56

0.00

0.19 0.00

0.00 0.06 0.00 0.00 0.71 0.00

0.00

0.00

0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 6.94

1 04

2000 2000 2001 2000 2000 1992 2000/04 2000 198 1 /88 2002 2001 2004

CAPE FUND Citibank (Nig)

Delta Contractor Diamond Bank

FSB FSDH

GTB IBTC Ikeja Hotel NTEF

UBA UPDC Hotels Ltd

0.00 6.44 15.00 10.00 8.40 0.00 20.00 20.00 0.00 20.00 0.00 11 .oo

7.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10.50 0.00 0.86 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.25 0.00 0.00 0.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00 0.00

0.00 6.44 0.20

10.00 8.40 0.00

20.00 20.00 0.00 0.00 0.00 0.00

7.09 0.00 0.00 0.00 0.00 0.86 0.00 0.00 0.25 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 6.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total portfolio: 141.77 9.57 20.50 15.00 82.53 9.16 6.00 6.94

Approvals Pending Commitment

FY Approval Company Loan EsuitY Quasi Partic.

2005 Accion Nigeria 0.00 0.00 0.00 0.00 2005 Zenith Bank 0.03 0.01 0.00 0.00

Total pending commitment: 0.03 0.01 0.00 0.00

105

Annex 15: Country at a Glance

NIGERIA: Lagos Metropolitan Development and Governance Project

1984 1994 2004 f?% of GDP) Agriculture 378 28.6 26.4 16.6 Industry 27.6 50.2 49.4 56.9

Manufacturhg 7 8; 4.9 4.0 .. 344 212 24.2 26.5

collswmptim expendltwe 709 65.1 43.9 38.1 ~eneral goVr rn consumptron expen&.ire 17.6 143 23.7 22.2 lnlpwts ofgads and sewices 130 408 41.2 37.2

Current a m n t balancelWP Intererst paynenWDP TOM debtlGDP Tml debt seluioekqofts PreseNt value af deWGDP P m t value of debUexW

Gmwth#fc;zpitalandGDP(UI)

do

20

-F -GDP

3.6 4.4

63.1 32.7

148494 1994-04

GDP 5.0 3.4 GDP pes capita 2.0 0.8 Expds of goods and services 3 9 1.6

Nigeria

139 6 400 55.9

2.4 2.6

47 45 96 29 60 67

119 132 107

1994

23.7 19.6 41 8 20.6 11.6

-6.8 4.5

1398 19.5

2003

10.7 8 0

31.9

Sub- Sehafan

Africa

719 600 432

2.2 1 .o

37 46

101

58 65 6

102 88

2003 58.3 23.6 49.7 32.4 21.5

-2.4 0.7

60.0 5.7

58.1 f17.1

2004

6.0 3.5 3.1

LOW- income

2,338 510

2,164

1.8 2.1

31 58 79 44 75 61 w

101 &%

Mo4

72.1 22.3 54.6 39.7 27.3

4.8

20041-08

6.5 4.2 8.1

Life erpectancy

T GNI Grcrss per PtiMrY mpih enrollment

L

I

Indebt

-Nigeria l - Llwvincolnegrorry,

198694

4.5 3.6 4.7 7.4

4 . 7 4.0

13.4 -3.2

199404

4.3 2.2 2.9 3.8 -6.9 15.Y 12.6 8.8

2503 m4

6.5 6.5 22.4 4.6 6.2 6.9 6.9

37.5 3.2 14.9 3.3 -7.0 10.6 11.6 2.3

I I Growth of exports and impork 1%)

106

Annex 16: Letter of Sector Policy

NIGERIA: Lagos Metropolitan Development and Governance Project

' . . . .

fanuan/ 12, 2006

The Country t)irectrx, The World Bdiik, Abuja Offire, Nigeria.

LAGOS STATE SECTOR POLICY NOTES ON LAGOS MIE~KEQP-OLIJAA - OEVELOPMENT~- AND GOVERNANCE PROJECFJLMDCP)

The LMDGP Pre-Appraisal M iss ions stating the timetable for project processing and conditions for appraisal gives rnc hop? and assurance of a fulfil lrd task.

It is pertinent t o iliention that one of the cardinal provisions of the Nigeria Constitution OC 1999 i s that the sewrity and the welfare of the peopir hha!I be Ihe primary purpose of Government. M y Ccweriwlent uiiderstands the relevant provisions of the couiitry's Const4ru:mn imposing upon US dn obligation to enact and t-nt0rr.e ttppropriate legisldtion aimed at rendering the environnrent more conducive io ths protection of human dignity and the strengthenrng of the c*apaicity, rhyrecially those of vulnerable groups.

Thrcwgh the sector policy notes, designed to ameliorate poveny and suffering among tlte less privileged, my administration has 'lei tionstrattx$ different ways to address peculiar social problems and social exclusiotis 3 s amplified in the s l u m areas. The sector policies for the three mdin compunents to wit; Slum Upgriiding, Drainage and Solid Waste Managernenr dre presevted in respective notes.

! must strcss dt !!lis juncture the need to respond r ' r a r e effectluely tu t!ie nerds of these communities. I h;. rt'qmrlst! i s J I O ~ r-rniy a:, J matter ut

107

urgency, but also as a matter of sustained and unshakabis commitment rbrrough the yean ahead.

I have no doubt in my mind that th is project will recard ~esoundiirg SUCCESS and that the envisaged wcces of this inKerventian will serve as a standard for replication in the other slum area5

I make this cornmilwent with a deterrniiiatiorj to capturn the uniqw opprtunitk this partnership offers, to ~rnptwe. thc quality of the lives ul our getspk, and liberate them frrom the devastating effec& of powr~y.

108

Annex 17: Conflict Resolution NIGERIA: Lagos Metropolitan Development and Governance Project

Background

277, With the transition to civilian ru le in 1999, a significant reform was undertaken by the Lagos State Government transforming the de facto ministry o f “law and order” to a ministry o f “justice”. Reinforced by a resolve for the transformation o f officers as government legal advisors to legal counselors o f the people, LASG aimed to provide an effective system o f legal services for the very poor. I t established a cost effective alternate dispute resolution forum for citizens coupled with the need to decongest courts making them accessible, simple, effective, fair and fast. Lagos established a Directorate for Citizen’s Rights (CRD), the f i rs t o f its kind in Nigeria. Conceived as a department to collaborate with civ i l society, the private bar and other interested parties, i t implements policies designed to provide greater access to justice for the financially and otherwise disadvantaged and vulnerable groups o f society.

278. The CRD now plays an active role as a service provider to the electorate in several critical areas o f the administration o f justice. Two philosophical tenets underpin the creation o f this Directorate: (i) just as the government provides for or subsidizes education or health, i t should similarly subsidize access to justice for those who cannot afford it; and (ii) the state must collaborate and network with non-governmental agencies concerned with human rights and access to justice issues for the very poor. This approach i s intended to produce a critical mass o f those services sufficient to make an impact on the existing situation.

279. The CRD already has a vast network o f relationships through i t s Consumer Protection Unit, Human Rights Violation Unit, Publication Unit Citizens’ Mediation Centre and Office o f the Public Defender. I t s network also includes NGOs, Community Development Associations, the private sector, market associations, landlord and tenant associations, the legal community and government agencies and the Nigerian Police. Relationships with these various stakeholders are assiduously maintained.

280. The CRD has five sub-units: (i) The Office o f Public Defender; (ii) The Human Rights Protection Unit; (iii) The Consumer Protection Unit; (iv) The Justice Now publication unit, a publication designed to educate the public on the justice system administration and their rights; and (iv) the Citizen’s Mediation Centre (CMC).

281. Since i ts establishment in 1999, over the last five years, the alternative dispute resolution mechanism has had remarkable success. The CMC has mediated 32,000 disputes within and between communities, inter-ethnic disputes, government/private citizen disputes, commercial disputes, family disputes, individual disputes, land disputes, landlord and tenant disputes, and institutional disputes. N o formal process would have been able to achieve such a high degree o f success. The protocols are less stringent, the process more fluid allowing for self-representation, use of native dialects, and most importantly, the outcome is usually a win-win one, based on mutuality and consensus. With thirty six trained and certified mediators located in six offices in Lagos, the CMC has built public trust with i ts free services and impartial management o f disputes. I t s greatest attractions for the public are i t s impartiality and speed o f resolution, even in disputes involving individuals and the government.

109

282. Activities o f the Directorate o f Citizen's Rights in Lagos, particularly the CMC, have become o f great interest to Attorney Generals o f other States in Nigeria who agreed at their 58th professional body meeting in October 2003 to establish similar Directorates in their States.

Resolution of Conflict and Complaints Concerning LDMGP 283. Implementation o f LMDGP will pose significant social challenges, particularly with respect to managing the conflicts that are likely to arise due to the communities, institutions, businesses and individual members o f the public who might be affected by the Project, despite the Project being predicated on the fundamental principle o f eliminating or at least minimizing involuntary resettlement or dislocation. Whi le the encroachment into the six drainage basins over the years has not impeded the natural drainage, what i s o f concern i s the number o f people who would likely experience flooding in the one in ten year flood levels. Enforcement measures to prevent future squatting in drainage basins would need to be established, along with educating people on the likely consequences o f being flooded inside their homes.

284. For the f i rs t year o f works in drainage, investments have been explicitly selected to avoid resettlement, while the entire upgrading intervention was designed to avoid resettlement in consultation with beneficiary communities. For subsequent years o f drainage works supported by the Project, minimizing the right o f way requirement for cleaning o f channels will be an explicit factor in the technology choices for routine maintenance. Nevertheless, i t would be unrealistic to presume, from the nature o f development in drainage channels, both legal and illegal, that there would not be some relocation that could raise anxiety levels amongst citizens, and create tensions that could ultimately lead to conflict. There would be temporary relocation in some cases, and it i s possible that some upgrading o f the drainage network would require permanent relocation, thus leading to issues o f compensation and resettlement. The efficient management o f such potential conflict i s paramount to the success o f the Project, and ultimately to resolving the long term flooding problems that plague the citizens o f Lagos. Strong information management and dissemination on a continuous and inclusive basis, and Alternative Dispute Resolution (ADR) structures would substantially reduce most o f the tensions, anxieties, and resistance usually associated with a Project on this scale.

285. The measures set forth in the Resettlement Policy Framework and the individual Resettlement Action Plan for the various affected areas are developed to mitigate against any negative impacts on people and livelihoods, and to appropriately compensate affected people. People who feel they are affected by the Project and are unsatisfied with the compensation process or have complaints against Project activities, will have full access to the Citizen's Mediation Centers (CMCs) under the Lagos State Ministry o f Justice. CMCs will appoint a focal-point for this Project to develop their response capacity and serve as a long-term liaison.

286. Upon receiving a complaint o f an individual or group o f individuals, the CMCs will immediately issue an invitation letter to the respective agency through the CMC's focal-point to the PCU, who, along with the respective agency, will review the complaint and determine eligibility based on the RPF and RAP principles and action plans, and start the mitigation andor compensation process if a favorable outcome i s reached. If not, then the respective agency would send i ts representative to the CMC to appear before a mediator and go through the mediation

110

process and settle the issue amicably. For these purposes, each executing agency will appoint a focal point for responding to the respective agency in the CMCs hearings. The P C U and implementing agencies have al l provided their commitment to fully respond to and honor the CMC process and adhere to the recommendation o f the mediators.

287. If the mediation process fails, then the affected individual or group o f individual may exercise their rights o f pursuing remedies through the court system. The Office o f Public Defender (OPD) wil l provide the required legal services to the affected people including free legal representation.

111

Annex 18: Information Education and Communications

NIGERIA: Lagos Metropolitan Development and Governance Project Introduction :

288. Progress towards achievement o f Project objectives will be greatly facilitated by the development and implementation of a IEC strategy, with the objective o f motivating stakeholders in Lagos to contribute towards the broader development goals o f LASG - improving livability in Lagos. The IEC will therefore focus on the broader development agenda o f the State Government, as well as the specific components and sub-components o f LMDGP.

Objectives of I n formation Education and Communications (IEC) Strategy:

289.

w

w

w

The IEC strategy aims to: Inform and educate all stakeholders on the LMDGP, i t s components and subcomponents, the implementation processes involved in each case, impacts on the lives o f the citizens of Lagos state, and implications for economic growth and poverty alleviation for the State in the medium to long term; Build stakeholder buy-in and ownership o f the Project, and trust in i ts capacity to positively impact citizens’ lives; Encourage active participation o f stakeholders in Project implementation; Promote good urban governance, accountability and transparency o f practices in local governments and in LASG; Promote stronger public/private sector partnerships; Promote a stakeholders culture o f sustainability and maintenance; Motivate a scaling-up o f activities in targeted slums as well as in slums throughout the State.

Implementation Processes 290. A vigorous mix o f hard and soft IEC tools and products will be developed and deployed to facilitate achievement o f expected outcomes o f the Project and i t s components at different stages o f implementation. The IEC campaign wil l be coordinated by the PCU, in partnership with the Component Executing Agencies and other relevant stakeholders as necessary, and with input from the World Bank whenever required. Given the importance o f this h c t i o n to public awareness, ownership and implementation o f the Project, an IEC focal-point will be established within the PCU, reporting directly to the Project Director. This focal-point can be an IEC Consultant who will work primarily with a small team o f communications specialists with requisite s k i l l sets from the CEAs - LASURA, LAWMA, ODs, MEPB, with support from LG Chairman and community development officers to facilitate implementation o f the strategy.

Audience, Key Messages, and Tools 291. The proposed products, tools and activities to be deployed in the course o f the campaign are itemized in the working matrixes developed for each Project component, and are included in the Project Implementation Manual. Major tools for the global campaign and constants for the l i fe of the Project include: (i) Project website; (ii) Newsletter; (iii) Fact sheets; (iv) Brochures (updated and revised as needed); (v) Community communications infrastructure such as town hall meetings, Obas and Baale’s palaces, town criers, community newsletters, etc.; (v) Radio/TV Airtime - on Radio Lagos, Lagos TV, EKO FM, etc.; (vi) Motorized public service announcement facilities; and (vii) Stakeholder Consultations, workshops, seminars, conferences, etc.

112

To ensure broad access and dissemination, these activities will be in English, Yoruba, and Pidgin.

Implementation Schedule 292. The strategy will be executed over the seven year duration o f the Project. It will commence with a rigorous launch program aimed at positioning LMDGP and i ts major components at the center o f State and local government news. This wil l be simultaneous with a series o f IEC campaigns customized to the particular needs o f the Project.

Monitoring and Results Measurement 293. Monitoring mechanisms will be included in the IEC campaign to determine awareness levels o f the Project by stakeholders, and progress towards sustainable behavioral change. Success indicators will be drawn from periodic baseline surveys o f stakeholders and feedback from printed material, re-print demand and frequency, community report cards, TViRadio ratings, and general performance evaluation reports.

Risks and Challenges to IEC Campaign 294.

m Perceived risks and challenges to a results-driven IEC component include: The multi-sectoral nature o f the Project, with i ts components and sub-components and ramifications for a variety o f stakeholders. The integration o f a corporate LMDGP IEC strategy with a specific component and sub-component strategy will be a challenge. The diversity of target audience groups with varying needs and expectations, economically, ethnically, linguistically, or politically. Implementation arrangements for the IEC campaign, involving representatives o f four component execution agencies, LG officials, community development associations, organized private sector, in addition to the PCU and the State House o f Assembly, all with different sk i l l levels, communications cultures and approaches, will be a challenge. Political: unforeseen fallout o f the upcoming gubernatorial and presidential elections in 2007.

.

IEC for Infrastructure Components 295. Urban Upgrading. The communities have already identified and agreed on the urban upgrading works to be undertaken. The IEC campaign will essentially encompass an awareness and sensitization program for the communities to be impacted by the c iv i l upgrading works, encouraging their participation (for example, through ensuring drawing manual labor f iom the pool of sk i l l sets in the community or monitoring implementation o f works). The campaign will penetrate all strata o f the s l u m community including schools, where competitions for the best comic book designs o f selected activities will be undertaken to create a sense o f responsibility for works maintenance in youths. Editorial focus for the print and web publications will be on the s l u m residents themselves, celebrating best practices, and serving as platforms for capturing their thoughts and concerns regarding the activities and the impact on their lives.

296. Drainage. The initial segment o f the IEC campaign will involve information and sensitization o f Lagos state residents on the drainage problems which have plagued the State for several years, along with causes, effects and efforts underway for a long-term, sustainable solution to the problem. This will essentially be executed statewide using all mass information media outlets

113

including Radio Lagos and Lagos TV. The informatiodenlightenment campaign will also breakdown the technical details of the ongoing efforts at mitigating the drainage problems such as the engineering designs and modeling processes for two o f the six drainage basins, and the deferred maintenance program, to engender a high degree o f understanding and appreciation o f the technical inputs, The campaign wil l also target one expected area o f resistance to the Project - the owners of homes o f businesses that will have to be resettled as a result o f the construction works - to enlighten them to the social safety nets available to them as a result o f the demarcations and construction, in addition to other programs available to help mitigate their plight. Traditional and community leaders, in addition to other relevant channels will play significant roles in this respect.

297. Solid Wuste: The IEC will inform and educate on the basics o f solid waste management, on the construction o f transfer stations, and the potential long-term socio-economic impact on the communities and Lagos State as a whole; landfill upgrading, the anticipated benefits from carbon finance, and the need to cooperate with the State to generate revenue through taxes and fees to sustain the services after the Project closes. Target audiences include Lagos State residents, the organized private sector; the informal sector, particularly the manual waste collectors whose livelihoods need to be guaranteed by the Project; and officials and staff o f LAWMA, LASEPA, and MoE who will undergo capacity enhancement training.

114

MAP SECTION

MURTALAMUHAMMED

AIRPORT

OJOOJO

IJAIYE-IJAIYE-IFAKOIFAKO

AGEGEAGEGE

ALIMOSHOALIMOSHO

APAPAAPAPA

IKORODUIKORODU

ETI-OSAETI-OSA

AMUWO-ODOFINAMUWO-ODOFIN

IKEJAIKEJA

KOSHOFEKOSHOFE

OSHODI-OSHODI-ISOLOISOLO

MUSHINMUSHIN

SURULERESURULERE LAGOSLAGOSMAINLANDMAINLAND

LAGOSLAGOS ISLAND ISLAND

SHOMOLUSHOMOLU

AJEROMIAJEROMIIFELODUNIFELODUN

MakokoMakoko

IwayaIwaya

IlajeIlaje

BarigaBariga

AmukokoAmukoko

Ijeshatedo/Ijeshatedo/ItireItire

AgegeAgege

BadiaBadiaAjegunleAjegunle

Badagry Channel

OlushosunOlushosunLandfillLandfill

Abule EgbaAbule EgbaLandfillLandfill

SolousSolousLandfillLandfill

Simpson TLSSimpson TLS

MariniMariniOshodi TLSOshodi TLS

Taba TLSTaba TLS

AchapoAchapoTLSTLS

Ishasi TLSIshasi TLS

Oba OgunjiOba OgunjiTLSTLS

Amukoko DrainAmukoko Drain

Iwaya / Makoko ChannelIwaya / Makoko Channel

Bale/OkoyaBale/Okoya

ChannelChannel

System 5 OutfallSystem 5 Outfall

OJO

IJAIYE-IFAKO

AGEGE

ALIMOSHO

APAPA

IKORODU

ETI-OSA

AMUWO-ODOFIN

IKEJA

KOSHOFE

OSHODI-ISOLO

MUSHIN

SURULERE LAGOSMAINLAND

LAGOS ISLAND

SHOMOLU

AJEROMIIFELODUN

OlushosunLandfill

Abule EgbaLandfill

SolousLandfill

Simpson TLS

MariniOshodi TLS

Taba TLS

AchapoTLS

Ishasi TLS

Oba OgunjiTLS

Iju

Ipodo Ikeja

Olusosun

Shogunle

Oworonsoki

Somolu

LawansonIkate

Aiyetoro

Lagos Island

Ijora Oloye

MarineBeach Obalende

Okobaba

Maroko

Otto

Alli Oromoko

Sari Iganmu

Olaleye-Iponri

Abule Ijesha

Mushin Idiaraba

Onigbongbo

Osodi MarketArea

EgbeBolorunpelu

Ejigbo

OguduVillage

OgbaWest

Agidingbi

AlausaVillage

Oregun

IkoroduMile 12

Market Area

OrileAgege

Ipaja

Makoko

Iwaya

Ilaje

Bariga

Amukoko

Ijeshatedo/Itire

Agege

BadiaAjegunle

Amukoko Drain

Iwaya / Makoko Channel

Bale/Okoya

Channel

System 5 Outfall

Badagry Channel

LAGOS LAGOON

AT L A N T I C O C E A N

Okun River

320'310'

640'

630'

640'

320'310'

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

NIGERIA

METROPOLITAN DEVELOPMENT AND GOVERNANCE PROJECT

LOCAL DISTRIBUTOR ROADS

MAIN ROADS

LOCAL GOVERNMENT BOUNDARIES

LAGOS METROPOLITAN AREA BOUNDARY

INFRASTRUCTURE COMPONENT:

UPGRADING SLUMS

TRANSFER STATION

DRAINAGE CHANNELS

LAND FILL

OTHER PLANNED LANDFILLS(NOT IN PROJECT)

SLUMS (NOT IN PROJECT)

IBRD 34469

MA

RCH

2006

0 1 2 3 4 5

KILOMETERS

0° 10°

10° 10°

0° 10°

M A L IN I G E R

C H A D

CENTRALAFRICANREPUBLIC

C A M E R O O N

BENIN

TO

GO

EQUATORIAL GUINEA

SÃO TOMÉ& PRÍNCIPE GABON CONGO

AbujaNiger

Benue

Gu l f o f Gu inea

BURKINA

FASO

G H A N AArea ofmain map

N I G E R I A