Uganda - AR CAIIP-1 · PDF fileuganda community agricultural infrastructure improvement...

SCCD: G .G.

AFRICAN DEVELOPMENT FUND Language: English Original: English

UGANDA

COMMUNITY AGRICULTURAL INFRASTRUCTURE IMPROVEMENT PROGRAMME – PROJECT 1

(CAIIP-1)

APPRAISAL REPORT

AGRICULTURE AND AGRO-INDUSTRY DEPARTMENT OSAN NOVEMBER 2006

TABLE OF CONTENTS Page CURRENCY AND MEASURES, LIST OF TABLES, LIST OF ANNEXES, (i-xii) LIST OF ABBREVIATIONS, EXECUTIVE SUMMARY, PROJECT MATRIX 1. ORIGIN AND HISTORY OF THE PROJECT ..................................................................1 2. THE AGRICULTURAL AND RURAL SECTOR ............................................................2 2.1 Socio-economic Environment..................................................................................2 2.2 Structure and Performance .......................................................................................2 2.3 Land Tenure and Land Use ................................................................…………….5 2.4 Poverty Dimensions……………………………...………………….……… 5 2.5 Gender Issues .......................................................................................................... 7 2.6 Environmental Issues.............................................................................................. 8 2.7 Institutional Framework………….………………………………….…….….. 8 2.8 Sector Development Goals and Priority Policy Reforms…………………….… 9 3. THE RURAL INFRASTRUCTURE SUB-SECTOR...................................................... 10 3.1 Rural Roads and Markets ...................................................................................... 10 3.2 District Roads Improvement Strategy and Investment Plans……………...……11 3.3 Institutional Framework ........................................................................................ 12 3.4 Community Participation .......................................................................................13 3.5 Development Constraints & Opportunities .........................................................13 3.6 Development Partners' Interventions and Lessons Learnt……………………...14 4. THE PROJECT ...................................................................................................................16 4.1 Project Concept and Rationale ...............................................................................16 4.2 Project Area and Beneficiaries...............................................................................18 4.3 Strategic Context ................................................................................................... 21 4.4 Project Objective.................................................................................................... 21 4.5 Project Description ................................................................................................ 21 4.6 Production, Markets and Prices……….……………………...…………….….25 4.7 Environmental Impact and Mitigation measures ..................................................26 4.8 Project Costs........................................................................................................... 28 4.9 Sources of Financing and Expenditure Schedule................................................. 29 5. PROJECT IMPLEMENTATION ..................................................................................... 30 5.1 Executing Agency.................................................................................................. 30 5.2 Institutional Arrangements .................................................................................... 30 5.3 Supervision, Implementation and Expenditure Schedules .................................. 32 5.4 Procurement Arrangements................................................................................... 32 5.5 Disbursement Arrangements ................................................................................. 34 5.6 Monitoring and Evaluation.....................................................................................35 5.7 Financial Reporting and Auditing ........................................................................ 36 5.8 Aid Co-ordination, Harmonisation and Alignment............................................. 36

6. PROJECT SUSTAINABILITY AND RISK ………………………………………….37 6.1 Recurrent Costs ...................................................................................................... 37 6.2 Project Sustainability ............................................................................................. 37 6.3 Critical Risks and Mitigation Measures................................................................ 38 7. PROJECT BENEFITS ........................................................................................................39 7.1 Financial Analysis.................................................................................................. 39 7.2 Economic Analysis ................................................................................................ 39 7.3 Social Impact Analysis .......................................................................................... 40 8. CONCLUSIONS AND RECOMMENDATIONS .......................................................... 41 8.1 Conclusions ............................................................................................................ 41 8.2 Recommendations ..................................................................................................41

LIST OF TABLES Page 2.1 Production of Selected Food Crops (in ‘000 Tonnes) 4 4.1 Summary of Cost Estimates by Component 28 4.2 Summary of Cost Estimates by Category of Expenditure 29 4.3 Sources of Finance 29 5.1 Expenditure Schedule by Component 32 5.2 Expenditure Schedule by Source of Finance 32 5.3 Procurement Arrangements 33 LIST OF ANNEXES 1. Map of the Republic of Uganda 2. Proposed Districts for CAIIP – Project -1 3. CAIIP Project-1 Organogramme 4. Current Institutional Arrangements of the PFT 5. Current Donor Interventions in Uganda 6(a) List of Goods and Services 6(b) GoU and ADF Comparative Financing of Recurrent Costs 7. Project Implementation Schedule 8. Uganda: CAIIP Summary of Financial and Economic Analysis 9. Uganda: CAIIP Environmental and Social Management Plan 10. Uganda: CAIIP Processing Schedule 11. Uganda: Status of Agricultural Sector Audit & Project Completion Reports 12. Uganda: On-going Bank Group Interventions as at September, 2006 -------------------- This Appraisal Report was prepared by a mission comprising Messrs. Chiji OJUKWU (Chief Agricultural Economist/Mission Leader), Louis-Philippe MOUSSEAU (Senior Environmentalist), Yasser AHMAD (Financial Management Expert), Asaph NUWAGIRA (Agriculture and Rural Development Specialist, UGFO), J. Exel (Rural Energy Expert sponsored by FINESSE), and E.K. YAMOAH (Consultant/Civil Engineer) which visited Uganda in September, 2006. Enquiries should be addressed to Mr. A. BEILEH, the Division Manager, OSAN.1 and the authors.

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AFRICAN DEVELOPMENT FUND BP 323, 1002 TUNIS BELVEDERE, TUNISIA

Tel: +216 71 333 511 Fax: +216 71 351 933

PROGRAMME INFORMATION

Date: November, 2006

The information provided hereunder is intended to provide some guidance to prospective suppliers, contractors, consultants and all persons interested in the procurement of goods and works for programmes approved by the Boards of Directors of the Bank Group. More detailed information and guidance should be obtained from the Executing Agency of the Borrower. 1. COUNTRY : Uganda

2. PROJECT TITLE : Community Agricultural Infrastructure Improvement Programme – Project-1 (CAIIP-P1)

3. LOCATION : The project is located in the 26 districts of Central

and Eastern Uganda, comprising of: Sembabule, Masaka, Rakai, Lyatonde, Mpigi, Mubende, Mityana, Kiboga, Nakasongola, Kibaale, Mukono, Kayunga, Iganga, Namutumba, Butaleja, Tororo, Kamuli, Kaliro, Palissa, Budaka, Mbale, Sironko, Manafwa, Bududa, Bukwa, and Kapchorwa.

4. THE BORROWER : The Republic of Uganda 5. EXECUTING AGENCY : Ministry of Local Government: P.O. Box 70373,

Kampala, Uganda. Tel: 256-41-347338 Fax: 256-41-258-127 6. DESCRIPTION The project will be implemented over five years

and has the following three components: (a) Rural Infrastructure Improvement (b) Community Mobilisation; and (c) Programme Facilitation.

7. TOTAL COST : UA 34.20 million Foreign Cost : UA 15.00 million Local Cost : UA 19.20 million 8. BANK GROUP LOAN ADF LOAN : UA 30.00 million

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PROGRAMME INFORMATION (Cont’d) 9. OTHER SOURCES Government : UA 3.76 million Recipient Communities : UA 0.44 million 10. ESTIMATED STARTING DATE AND DURATION : 1 July 2007, for 5 years. 11. PROCUREMENT : Procurement of works under the Rural

Infrastructure component will be according to National Competitive Bidding.

12. CONSULTANCY SERVICES REQUIRED AND STAGE OF SELECTION : Consultants for the civil works design and

supervision, as well as for rural energy will be through Shortlist.

13. ENVIRONMENTAL CATEGORY : 2

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CURRENCY AND MEASURES (September, 2006)

Currency unit : Ugandan Shillings (USH.) UA 1 : USH. 2754 UA 1 : USD. 1.45949 USD 1 : USH. 1860

GOVERNMENT FISCAL YEAR July 1 - June 30

WEIGHTS AND MEASURES 1 Kilogram = 2.2 Pounds (lb) 1 Quintal = 100 kg 1 Metric tonne = 1000 kg 1 Hectare (ha) = 2.471 Acres 1 Square Kilometre = 100 ha 1 Square Mile = 259 ha 1 Square Mile = 640 Acres

DOCUMENTS IN PID

Working Paper 1: Detailed Cost Tables and Summaries Working Paper 2: Rural Energy Working Paper 3: Financial and Accounting Management

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ABBREVIATIONS AAMP Area-based Agricultural Modernization Programme ADF African Development Fund AWPB Annual Work Plan & Budget CAADP Comprehensive African Agricultural Development Programme CAIIP Community Agricultural Infrastructure Improvement Programme CDA Community Development Adviser CDO Community Development Officer DANIDA Danish International Development Agency DFID Department for International Development DLSP District Livelihood Support Programme DP Development Partners DTAC District Technical Advisory Committee DUCARIP District, Urban and Community Access Roads Investment Plan GoU Government of Uganda GDP Gross Domestic Product ha Hectare ICB International Competitive Bidding IPC Inter-Ministerial Policy Committee JARD Joint Annual Review of Decentralization LCs (1 to 5) Local Councils (Village 1 to District 5) LGSIP Local Government Sector Investment Plan MAAIF Ministry of Agriculture, Animal Industry and Fisheries MDGs Millennium Development Goals MoFPED Ministry of Finance, Planning and Economic Development MGLSD Ministry of Gender, Labour and Social Development MOLG Ministry of Local Government MTEF Medium -Term Expenditure Framework MTR Mid Term Review MoWT Ministry of Works and Transport MTTI Ministry of Trade, Tourism and Industry MWE Ministry of Water and Environment NAADS National Agricultural Advisory Services NARO National Agricultural Research Organisation NCB National Competitive Bidding NEAP National Environmental Action Plan NEMA National Environmental Management Authority NGO Non-Governmental Organisation NUSAF Northern Uganda Social Action Fund PEAP Poverty Eradication Action Plan PMA Plan for Modernisation of Agriculture PCR Project Completion Report PFT Project Facilitation Team POM Project Operations Manual PY Project Year RFR Rural Feeder Road SH Shilling SOE Statement of Expenditure SOW Supervisor of Works UA Unit of Account UJAS Uganda Joint Assistance Strategy UNDP United Nations Development Programme USAID United States Agency for International Development WB World Bank

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EXECUTIVE SUMMARY 1. PROJECT BACKGROUND 1.1 The Government of Uganda (GoU) has identified agricultural commercialization as the stepping stone for reducing poverty in rural areas through the Plan for Modernization of Agriculture (PMA). PMA is a holistic framework for eradicating poverty through multi-sectoral interventions enabling the people to improve their livelihoods in a sustainable manner. With seven pillars1, PMA is part of the Government of Uganda’s broader strategy of poverty eradication contained in the Poverty Eradication Action Plan (PEAP)2.

1.2 With financial support from the various development partners, the GoU has made considerable steps to operationalize the pillars of PMA and remarkable achievements have so far been made, thus making the country one of the most successful in terms of achieving high rates of agricultural growth and poverty reduction. One of the Bank Group’s assisted operations in Uganda which has contributed to the PMA objectives is the Area-based Agricultural Modernization Programme (AAMP), where the Bank has financed improvement in rural infrastructure with remarkable impacts. 1.3 In a Bank review of Uganda’s agriculture and rural sector carried out in 2005 with funding from the Japanese Policy and Human Resources Development Grant, a number of investment gaps were identified under the pillars of the PMA, namely Infrastructure for access to markets, Infrastructure for Agro-processing, and Environment and Natural Resources management. These were validated by a tripartite committee of the Government, the Development Partners and the Bank earlier in February 2006. A Concept Paper prepared by the Tripartite Task Force chaired by the PMA Secretariat noted funding gaps in rural infrastructure which is necessary for increasing access by producers to input and output markets. The task force noted that these gaps constitute priority areas for ADF support. 1.4 At the request of the Government of Uganda (GoU), the African Development Bank Group (the Bank) fielded a formulation/preparation mission during June/July 2006. This was followed by an appraisal mission during September, 2006. This appraisal report is the outcome of these missions which benefited from extensive consultations, stakeholders’ workshop and reviews, including inputs from development partners. The Community Agricultural Infrastructure Improvement Programme (CAIIP) derives from the 7th pillar of the PMA – Physical Infrastructure, with particular focus on improvement of rural roads and markets. The rural road improvement component will be contributing to the implementation of the country’s 10-Year District, Urban and Community Roads Investment Plan (DUCARIP), which aims to enable movement of agricultural produce from rural households level to the trading centres and onwards to further urban markets, as well as providing access to social services for the rural population. DUCARIP is estimated to cost US$441 million, which includes US$295.7 million for district roads and US$32 million for community access roads. The GoU noted that DUCARIP would require substantial funds and will place a heavy financial burden on the national budget and therefore seeks further support from its

1 The seven pillars of PMA are: 1. Research and Technology Development, 2.National Agricultural Advisory Services, 3. Agricultural Education, 4. Rural Finance, 5. Marketing & Agro-processing, 6. Sustainable use & Management of Natural Resources, 7. Physical Infrastructure. 2 Five Pillars of PEAP 1: Economic Management, 2: Enhancing Competitiveness, Production and Incomes; 3: Security, conflict-resolution and disaster-management, 4: Governance, 5: Human Resources Development.

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development partners to enable it close the shortfall. A recently concluded Uganda Country Economic Memorandum has noted that investment in the transport sector, especially on rural access and feeder roads, should be a priority for public spending in the short-medium term. The CAIIP will contribute to closing of this investment gap. IFAD has also given an indication in principle that it will finance the scaling up of CAIIP targets. 1.5 This funding of agricultural infrastructure marks a shift from traditional agricultural production oriented investment to an investment anchored on improvements in rural infrastructure as a catalyst for enhancing market competitiveness and incomes. Based on the achievements and lessons learnt from ongoing projects/programmes, this programme has been planned to cover the entire country. Project-1, which will cover 26 largely contiguous Districts in Central and Eastern Uganda out of the country’s 80 districts, is the first of a series of projects planned to address the problems raised in para 1.3 above. It will target 3 sub-counties per district. The GoU has planned to include additional districts and sub-counties as resources become available with a proposed Project-2 starting in 2008, with support from its development partners, including the Bank. The project by project approach will be continued until the entire country is covered. The project is consistent with the overall sector goal of the GoU and harmonised with the Uganda Joint Assistance Strategy (UJAS, 2005/06 – 2008/09) which is the business plan of the Development Partners (DPs) in Uganda, to which the Bank Group is an active participant. It is also consistent with NEPAD’s Comprehensive African Agricultural Development Programme (CAADP) Pillar 2 which focuses on improvement of rural infrastructure and trade-related capacities for improved market access. It supports the Millennium Development Goal of halving population under extreme poverty by 2015. 2. PURPOSE OF THE LOAN 2.1 ADF resources amounting to UA 30.00 million will be used to finance almost 87.7% of total project costs, while GoU’s contribution amounting to UA 3.76 million or 11% of total costs will finance staff salaries and allowances, and the local communities will contribute UA 0.44 million (or 1.3% of total costs) towards routine and recurrent maintenance of community access roads. 3. OBJECTIVES 3.1 The overall sector goal is to contribute to poverty reduction and economic growth in Uganda through enhanced commercialization of agriculture. The specific objectives of the project are to enhance farmers’ access to markets, attract competitive prices and increased incomes through improvements in rural infrastructures and their management by well mobilised communities. 4. DESCRIPTION 4.1 The project, which will be implemented over a five year period, has one core field component and two service components. These are (a) Rural infrastructure improvement; (b) Community mobilisation; and (c) Programme Facilitation. (a) Rural Infrastructure Improvement: (a) improvement of 3,510 km of existing community access roads linking production areas and villages with market centres; the rehabilitation of 390 km district roads so that they are passable by vehicles all year, including the routine and recurrent maintenance of 5,267 km of community access roads and 587 km of

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district roads; (b) improvement in marketplace infrastructures (78 sub-county markets – 50 entry level and 28 comprehensive level) and promotion of agro-processing and storage (52 rice hullers, 78 grain mills, 39 milk coolers, 78 cold rooms and 78 produce stores), (c) rural electrification of the marketplaces (through provision of solar energy facilities (50) and other types of rural energy (27 diesel and 1 hydro) in 78 Sub-Counties. (b) Community Mobilisation: The project will finance community mobilization activities aimed at promoting local participation in inventorization, prioritization and selection for improvement of agricultural infrastructure and their subsequent maintenance. (c) Project Facilitation: To assist the districts and the sub-counties to facilitate implementation, the project will provide supplementary support to an already existing and efficient Project Facilitation Team (PFT) in the Ministry of Local Government (MoLG) to strengthen timely output delivery. 5. PROJECT COST The total project cost is estimated at UA 34.20 million of which UA 15.00 million or (44%) is foreign exchange and UA 19.20 million (or 56%) is in local currency. 6. SOURCES OF FINANCE The Bank will provide a loan amounting to UA 30.0 million (87.7% of total project cost). The GoU will contribute UA 3.76 million (11% of total costs) and the beneficiaries will contribute UA 0.44 million (1.3% of total costs). 7. PROJECT IMPLEMENTATION The project will be implemented over five years. It will be coordinated by the MoLG, in association with the Ministry of Works and Transport (MoWT) and the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF). The National Agricultural Advisory Services (NAADS) will support community mobilization efforts. Project-1 will be implemented in 26 districts and 78 sub-counties. 8. CONCLUSIONS AND RECOMMENDATIONS Experience from the on-going projects financed by the Bank and other development partners in Uganda shows that investing in rural infrastructure, such as rural roads and markets, reduces transportation costs, induces further production and enhances incomes through access to markets and better prices. Furthermore, it has been demonstrated that value addition from agro-processing not only creates ready markets for agricultural produce but also leads to increases in household margins through improved quality and reduction in post harvest losses. Other indirect social benefits include induced commercial enterprises and settlements along improved roads and around the marketplaces. Through contribution to rural infrastructure development, the project will optimize the contribution of the agricultural sector to contribute to Uganda’s poverty reduction efforts and economic growth. It is recommended that an ADF loan not exceeding UA 30.00 million be granted to the Government of Uganda (GoU) for the purpose of implementing rural infrastructure improvement in the 26 districts of central to eastern Uganda, as described in this report.

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UGANDA COMMUNITY AGRICULTURAL INFRASTRUCTURE IMPROVEMENT PROGRAMME -PROJECT 1 (CAIIP-1)

RESULTS-BASED LOGICAL FRAMEWORK Hierarchy of Objectives

Expected Results Reach (Target Population)

Objectively Verifiable Indicator

Means of Verification

Important Assumptions (Which need to be monitored)

Sector Goal/Theme

Sector/Theme Long term outcome

Beneficiaries Verifiable Indicators and Timeframe Long term outcome

1. Contribute to poverty reduction and economic growth in Uganda through enhanced commercialization of agriculture.

1.1 Increase in National GDP 1.2 New job opportunities/new enterprises 1.3 Better prices of farm produce

Local Communities as a whole (including smallholder farmers, traders, transporters, consumers, contractors, suppliers) Population reached is 8,865,366 by end PY5 (UNHS survey)

GDP to rise from 5.2% (2003) to 7% (2013) nationally (PEAP) District roads in good condition increased from 60% to 85% by 2013 (DUCARIP) Community Access roads in good condition increased from 10% to 50% by 2013 (DUCARIP) Access to rural electricity increased from 3% in 2006 to 10% 2012 (ERT Policy)

District Statistics Household Expenditure Surveys

GOU maintains political stability, improves security and ensures constant adherence to policy.

Project Objective

Sector/Theme Medium term outcome

Beneficiaries Verifiable Indicators and Timeframe Medium term outcome

Objectives 1. To increase access to markets through infrastructure and rural roads 2. To encourage competitive prices and increased incomes through sustainable management of the rural infrastructure

1.1 Volume of staples marketed in Project area by smallholders increased 1.2 Post harvest losses reduced and quality and prices increased 1.3 Number of similar infrastructure-based projects in adjoining sub-counties/districts increased 2.1 Increase in income of rural farmers participating in project, especially women 2.2 Non-farm rural economic activities increase in number and value 2.3 Increased access for women to productivity enhancing inputs, e.g. in agro-processing side of project

Project Population; 1.76 million households reached Project area in each of the 78 participating sub-counties in the 26 Districts Women groups in project area Communities/Small-scale farmers in the project area Adjoining sub-counties

1.1 smallholders marketed staples increased by at least 20% by PY5 1.2 % marketed of Matoke and cassava rises from 15% to 20%; maize from 60% to 80%; beans from 50% to 70% by PY5. 1.3 40% reduction in post-harvest losses/damages and improved quality by PY5 1.4 Seasonal Fluctuation in food prices is reduced by PY5. 1.5 Agricultural produce marketed, as % of total production, will rise from 20% (2003) to 70% (2012) nationally and 80/90% (2012) in the project areas 1.6 Farm gate prices increased by over 20% by PY5 2.1 Increases in Household income from UGX 117,000 to UGX175,500 in project area by PY5 (20% increase PY1-PY5)

Project Progress Report and Surveys Periodic, Bi-annual, Annual and other M&E reports Market competitiveness analysis Household Expenditure Surveys Ministry of Agriculture Reports PEAP and PMA Documents

GOU continues to follow its current PEAP, PMA and Decentralization policies and assures their adequate funding.

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2.2 Household income growth rate per annum reaches 5% by PY5 2.3 Increase in number of rural non-farm enterprises in the communities by 20%

Project Outputs Short term Outcome

Sector/Theme Short term outputs

Beneficiaries Verifiable Indicators and Timeframe Short term outputs

A. Rural Infrastructure Improvement (UA 29.90 million) 1. Support to Rural road improvement 2. Support to Sub-county Market Structures 3 Rural electrification for markets B. Community Mobilization and Capacity building (UA1.97 million) C. Project Management (PFT) (UA 2.33 million)

1.1 District and Community Roads rehabilitated and maintained 2.1 Market structures constructed and maintained 2.2 Agro-processing units installed and in use 3.1 Improved infrastructure environment in markets Increased access to market information and new skills, especially for women groups 1.1 Timely and problem free implementation 1.2 Maintain operations within budget

Rural households in 26 districts of project area Farming population in project area District and community staff Communities in the 78 sub-counties of the 26 districts of project area 78 sub-counties Market Management Committees (MMCs) in charge of implementation of works

1.1 390 km of district roads and 3510 km of community access roads rehabilitated and maintained by PY5 2.1 78 Market places constructed; 50 entry level; 28 comprehensive 52 rice hullers; 78 grain mills; 39 milk coolers; 78 cold rooms and 78 produce stores 3.1 Electric power supplies installed by PY5: 50 Solar; 27 Diesel; 1 micro-hydro 3.2 Market electrification rises from nearly 0% (2006) to 25% (78 out of 317 sub counties) by end PY5 No. of women participating across the 26 districts and their division of responsibility, e.g. no. of farmers Effective service delivery; No slippage on project performance and timely audit report submissions

Socio-economic studies, M&E services, QPR, PAR, MTR. Supervision Reports Traffic and travel statistics (District Eng. Office) Studies and Surveys Uganda Bureau of Statistics M&E Services, QPR, PAR, MTR, Supervision Reports, Studies and Survey

Timely Project management at both PFT HQ and participating districts Adherence to transparent procurement and fiduciary practice Districts’ and Sub-counties’ commitment to the programme activities Staff of relevant calibre available recruited & motivated Coordinating ministries committed to project implementation through IPC

PROJECT ACTIVITIES A. Rural Infrastructure

1.1 390 km of district roads rehabilitated by

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Improvement 1. District roads rehabilitated and maintained 2. Community Access Roads rehabilitated and maintained 3. Technical Staff trained 4. Market Structures and Agro-processing facilities 5. Electrification

Road Maintenance equipment provided (shovels, diggers etc) Women labour-gangs employed Contractors and consultancy services deployed Training/capacity building encouraged as well as spill over of expertise into neighbouring communities Environmental issues better managed/coordinated Entry level market structures constructed Comprehensive level Market Infrastructure constructed Agro-processing units: Housing for Rice hullers Housing for Grain mill Produce store Housing for Milk coolers Housing for cold rooms Rice hullers Grain mills Training and capacity building Solar energy Diesel energy Hydro-energy

Rural community 1.76 million households in 78 sub-counties

PY5 1.2 Travel time reduced by about 2minutes per km 1.3 Average vehicle operating speed rises from 20km/h now to 60km/h by project end and transport costs reduced by over 20% by PY5; 38% ERR achieved per typical road improved; 36-51% reduction in VOC; 50% reduction in passenger transport costs 2.1 3510 km access roads rehabilitated by PY5 2.2 Improved access; travel time reduced by about 1 minute per km 2.3 Community access roads rise from 10% (2005) to 27% gravelled (PY5) 47% ERR attained; 50% increases in incomes 2.4 Women (50%) employed on road maintenance. At least 50% women in labour gangs for maintenance of community roads 3.1 Project area District Engineers, Planner, Supervisors, Environmental Officers and Petty Contractors trained by PY5 4.1 50 entry level markets by PY5 4.2 28 comprehensive markets by PY5 5.1 Electric power supplies installed by PY5: 50 Solar; 27 Diesel; 1 micro-hydro

NEMA’s EIA Certificate of Approval NEMA’s studies and publications NEMA publications Socio-Economic Studies, Socio-economic studies, M&E services, Annual Work plans and budgets, QPR, PAR, MTR. Supervision Reports Studies and Surveys

District and Sub-counties’ commitment to the programme activities Adherence to transparent procurement and fiduciary practices Timely provision of project operational resources to the participating districts Physical infrastructure is maintained Environmental Restoration License released by DEO upon verification of implementation of mitigation measures Women may not be able to participate fully in the labour gangs due to social and cultural impediments.

B. Community Mobilization 1. Community mobilization 2. Community Capacity Building

Workshops for: - Prioritization and maintenance of infrastructure at community level Mobilisation of community Training for petty contractors Formation of Rural infrastructure management committees at sub-county level

Rural smallholder farming community Petty contractors in the project area

75% of rural households are aware of the project Infrastructure management committees mobilized in each of 78 participating sub-counties Training/workshops for PFT 78 Training/workshops for local government staff in 26 Districts

Socio-economic studies, M&E services, Annual Work plans and budgets, QPR, PAR, MTR. Supervision Reports Studies and Surveys

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C. Project Facilitation 1.Project coordination unit

1. Sound Financial Management capacity installed 2. Baseline studies conducted 3. Participatory M&E conducted 4. Impact assessment conducted 5. Mainstreaming of environmental and social mitigation and monitoring measures in project 6. Institutional capacity of MoLG and districts strengthened

NEMA + District Env. Officer District Env. Office of 26 project districts MoLG staff

1.1 Timely submission of financial audit during project implementation 2.1 Baseline survey/studies carried out. by PY5 3.1 No slippage on project performance and timely audit report submissions 3.2 Policy, institutional and operational Action Plan on traceability systems produced and implemented throughout project duration 4.1 Impact assessments carried out covering 78 sub-counties’ rural households by PY5 5.1 Annual Environmental Audits produced and submitted without delay by PY5 5.2 Mitigation measures mainstreamed into sub-project design and contractual clauses; budget for mitigation measures clearly identified; monitoring of implementation of mitigation measures undertaken by district engineers, district env. Officers, MoLG (PFT), MoWT & NEMA 6.1 Staff trained, consultancy services provided: NEMA, rural electrification, infrastructure design 6.2 Core PFT team (MoLG) trained and conversant with project implementation

PROJECT ACTIVITIES i) Rural Roads improvement ii) Construction of Markets (Agro-processing and Storage Facilities) iii) Market Electrification iv) Community Mobilization v) Programme Management Total

Input Resources (UA Million): 19.09 9.25 1.56 1.97 2,33 34.20 Source of Funds (UA Million): ADF 30.00 GoU 3.76 Beneficiaries 0.44 Total 34.20

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1. ORIGIN AND HISTORY OF THE PROJECT 1.1 Following an Economic and Sector Work/Agriculture and Rural Sector Review undertaken by the Bank in Uganda in 2005 and concluded with a stakeholders’ consultative workshop in February 2006, a tripartite meeting of the Government of Uganda (GoU), Development Partners in the Agriculture Sector, and the Bank was held in February 2006. The purpose of the meeting was to deliberate on the outcomes of the report and to recommend immediate possible areas of Bank Group assistance to the GOU. The tripartite meeting subsequently formed a Task Force chaired by the Secretariat of the Plan for Modernisation of Agriculture (PMA) to review the report’s recommendations, consult with key stakeholders, and propose key priority areas to the GoU for the Bank’s investment under ADF-X resources in the agricultural and rural sector. The Task Force submitted its report to the Ministry of Finance, Planning and Economic Development (MoFPED) in March 2006 and recommended investment in community agricultural infrastructure where major financing gaps were found to exist. This focuses on Pillar 7 of the PMA which is development of rural physical infrastructure. A recent conference in Uganda also lamented that this Pillar of the PMA has remained largely un-funded and thus unimplemented. 1.2 Having identified priority investment activities in the agricultural and rural sector, the GoU, in May 2006, requested the Bank to finance the proposed Community Agricultural Infrastructure Improvement Programme (CAIIP), following a Concept Paper prepared by the Ministry of Local Government (MoLG). It also stems from the funding gaps identified in the country’s 10-Year District, Urban and Community Access Roads Investment Plan (DUCARIP) estimated to cost US$441 million, for which the Government seeks support of its development partners, including the Bank Group. The GoU noted that DUCARIP will require substantial funds and will place a heavy financial burden on the national budget and therefore seeks further support from development partners to enable it close the shortfall. A recently concluded Uganda Country Economic Memorandum has noted that investment in the transport sector, especially on rural access and feeder roads, should be a priority for public spending in the short-medium term. The CAIIP will contribute to closing of this investment gap. Similarly, IFAD has given an indication in principle that it will finance the scaling up of CAIIP targets. 1.3 The Bank fielded a formulation/preparation mission during June/July 2006. It later fielded an appraisal mission in September 2006 during which the activities and coverage of the programme were validated with all stakeholders, including organizing a stakeholder workshop and discussions with various central, local government officials, development partners and the private sector service providers. This appraisal report is the outcome of the various processes (see Annex 10). 1.4 The project is consistent with overall sector goal of the government and harmonised with the Uganda Joint Assistance Strategy (UJAS, 2005/06 – 2008/09) which is the business plan of the Development Partners (DPs) in Uganda, to which the Bank Group is an active participant. It is consistent with Pillar 2 of the NEPAD’s Comprehensive African Agricultural Development Programme (CAADP), which focuses on improvement of rural infrastructure and trade-related capacities for enhanced market access; and with Millennium Development Goal of halving poverty by 2015. The thrust of the project is to improve rural infrastructure facilities, including rural access roads and markets, which will enhance farmers’ access to markets and competitive prices. This will enable them to sell more quality produce thereby increasing their incomes. An indirect effect will be an induced additional production by farmers in view of better opportunities offered by the market and the emergence of other off-farm commercial enterprises and settlements along and around these facilities.

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1.5 Due to resource constraints, the Programme, as proposed by the Government, is planned to be implemented through a number of phased projects which will be implemented as resources are mobilised. The CAIIP Project-1, covering 26 largely contiguous districts, mainly in the central and eastern Uganda, is the first of such projects. The GoU has planned to include additional districts and sub-counties as resources become available with a proposed Project-2 starting in 2008, with support from its development partners, including the Bank. The project by project approach will be continued until the entire country is covered. The EU, IFAD and DANIDA have already given indications that they will collaborate with the Bank in funding Project-2, while DANIDA, IFAD and the World Bank have indicated their willingness to leverage some of their facilities and technical assistance within their on-going operations to support Project-1. 2. THE AGRICULTURE AND RURAL SECTOR 2.1 The Socio-economic Environment Location, Land Area and Population 2.1.1 Uganda is a landlocked country with a surface area of 241,000 km2, of which about 15% is water, consisting chiefly of lakes (see Map 1). Situated on the Equator, the country lies mostly at an altitude of 1,000 – 2,000 m above sea level and has favourable soil and climatic conditions for agriculture. Based on the 2002 census data, the mid – 2003 population is estimated at 26.9 million, and growing at 3.3% per annum and are overwhelmingly (87.5%) rural and young with 50.4% of the population living below the age of 15 [UNDP Human Development Report 2005]. The Economy and Rural Development 2.1.2 Uganda has emerged as one of the most consistent economic performers in Africa. As a result of the committed macro-economic management (e.g. budget controls, exchange rate stabilisation and inflation rate control) of the GOU, the country’s economy as measured by the Gross Domestic Product (GDP) has steadily grown at a rate above 5% per annum over the last seven years. Inflation has been contained at below 6% for most of the past 7 years. 2.1.3 As impressive as the recent economic achievements are, GDP per capita of US$ 240 is still only 78% of what it was in 1990 and Uganda is ranked as the 33rd poorest country in the world. Increased private-sector investment is considered critical for future economic growth, but progress on this front will depend upon private-sector confidence and the public sector’s performance in providing improved infrastructure, utilities and essential services. 2.2 Structure and Performance 2.2.1 Agriculture remains the largest sector of the economy. Over the past two decades, agriculture has performed relatively well, growing at an annual rate of 3.8%, well over population growth rate which is estimated at about 3.3%, and has been a major contributor to Uganda’s success in its poverty reduction efforts, especially during the 1990s. In 1989/90, agriculture contributed 54% to GDP, but this declined to 33% in 2003/2004 following the decline of food crop production. Food crops are still dominant contributor to agricultural growth in terms of their share of sectoral value added. For the period 2000-2005, on the average, about two-thirds of the agricultural GDP was from food crops and only 11% from

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industrial crops, livestock (13%), fisheries (6%) and forestry (5%). The continued dominance of the food crop sub-sector, combined with the fact that the poor are mainly concentrated in crop agriculture, underlines its importance for poverty reduction. Coffee remains the largest contributor to merchandise export earnings. It contributes 55–70% of merchandise export earnings, depending upon international prices. 2.2.2 Data obtained from the World Bank3 shows that relative to other countries in the region, and compared with Sub-Saharan Africa and other regions in the world, Uganda’s agricultural growth trend has been relatively robust (see box below pie-chart).

Composition of Agricultural GDP from 2000 - 2005

Agricultural Value-Added Growth Rates, 1990-2004

Uganda Tanzania Kenya Ethiopia South Asia Sub-Saharan Africa East Asia and Pacific Latin America & Caribbean

3.8 3.5 1.2 1.8 2.7 3.4 3.0 2.2

Source: World Bank (2006) 2.2.5 A wide range of food crops is cultivated. In addition to the staple plantain banana, the main food crops are maize, beans, cassava and upland rice. Table 2.1 gives production levels of major crops from 1999 to 2004. These represent estimates of total production, excluding post harvest losses which can be significant, on average 30-40% loss or damage may be experienced during storage or transport. Any intervention aimed at reducing post harvest losses, such as better transportation systems, agro-processing facilities and access to markets, will greatly enhance competitiveness and incomes. Also farmers will take advantage of any opportunity offered by competitive prices to produce more for the market. Other important crops include finger-millet, groundnuts, sorghum, sesame, mango, sweet potato, Irish potato,

3 The World Bank (2006): Uganda: Agriculture Sector Performance

2.2.3 Some 3 million smallholder families produce about 95% of total agricultural production, constitute 80% of the employed population and supply virtually all the country’s food. The country is basically self-sufficient in food. The majority of smallholders are mixed farmers; they cultivate an average of 2 hectares per family. Women provide the major proportion of the farm-labour force, producing the majority of the food and cash crops.

Food Crops 65%

Industrial Crops 11%

Fisheries6%

Forestry 5%

Livestock 13%

Source: World Bank (2006)

2.2.4 In response to the Government’s market-oriented econo-mic policies, smallholder farmers are increasingly oriented to business, especially in the southern districts as shown by: (a) the greater introduction of improved dairy cattle; (b) more intensive production systems for fruit and vegetable production, and the cultivation of traded commodities such as potatoes, maize, wheat, rice, tobacco and oilseeds; and (c) the increased attention being given to the husbandry of banana and coffee plots.

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cowpeas, and padi rice. There is a dearth of disaggregated data on crop production by districts in Uganda. With support of the development partners, the Uganda Bureau of Statistics (UBOS) has begun to design a plan for agriculture sector data collection.

Table 2.1 Production of Selected Food Crops (in ’000 Tonnes)

Year Plantain Banana

Maize Rice Beans Cassava Irish Potato Sweet Potato

1999 8,949 1,053 95 401 4,8675 449 2,354 2000 9,428 1,098 109 420 4,966 478 2,398 2001 9,732 1,174 114 511 5,265 508 2,512 2002 9,888 1,217 120 535 5,373 546 2.592 2003 (E) 9,605 1,207 109 481 5,450 557 2,610 2004 (P) 9,900 1,350 140 545 5,500 573 2,650

Source: ADB - Agriculture and Rural Sector Review (2006) 2.2.6 It is estimated that only 5 million out of 17 million hectares of potentially arable land is presently being cultivated. This suggests that the scope exists for increased production through further area expansion and productivity increases, since crop and livestock yields are still low. Potential for growth exists in both traditional and non-traditional export commodities/crops in which Uganda has some comparative advantage, although levels of production for the domestic market need to be consistent with the growth in population and disposable income. 2.2.7 Prices of both agricultural inputs and outputs are market determined. The private sector handles most of the agricultural input supply, with the exception of veterinary services. Artificial insemination, provision of fish fry and distribution of seeds of improved crop varieties are provided, at least partly, by the public sector or through NGOs and development partners’ (DPs) programmes. Though the private sector is yet to be actively engaged in the agro-inputs industry, high value export crops with established export systems (coffee, tea and horticultural crops) are supported by vertically integrated processors who encourage the use and supply of agrochemical inputs and rely on private sector retailers. 2.2.8 Though marketing is now a private sector led activity, transportation constraints still hinder the development of an efficient marketing system. The lack of road access to many rural communities makes it extremely difficult for farmers to market their production. This limits farmer productivity, contributes to farmer apathy with regard to technical innovations and results in the high transaction costs faced by traders when conducting business in rural areas. The prices farmers receive are thereby reduced. Farmers lack reliable and up-to-date information on market prices, and so are largely unaware of potentially profitable market opportunities. The absence of credit facilities for small scale farmers has made it more difficult for them to expand their production or to invest in post harvest storage and marketing opportunities. 2.2.9 Agriculture in Uganda is increasingly shifting from subsistence to a commercial orientation suggesting that the PMA process and its associated rural development strategies are working and producing results. This is significant as it reflects the growing success of the government strategy of promoting commercial agriculture – the explicit objective of its multi-sectoral policy framework of the PMA. According to the World Bank’s (June 2006) Agricultural Sector Performance Review for Uganda, there are three dimensions of this transformation namely: i) increased monetization of agriculture where at present, about 58% of Uganda’s agricultural output and 46% of traditional food output is marketed; ii) a shift to the production of higher valued crops where some traditional “low value crops” such as

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cassava and sweet potatoes have been important contributors to sector growth since 1997/98; and iii) the diversification of export of agricultural commodities where non-coffee exports have shown a steady increase from 1995 at an annual rate of about 10% a year. 2.3 Land Tenure and Land Use 2.3.1 Four different types of land tenure systems exist. These are customary land tenure system, communal land tenure system, mailo land tenure system, and leasehold land tenure system. Customary land tenure system is the most widespread. Communal land tenure system occurs particularly in areas where there is still plenty of land. The mailo land tenure system originated from the 1900 Buganda Agreement with the British through which about 46% of the most productive land in the Buganda Kingdom was allocated freehold to the Kabaka (King), other members of the royal family, principal chiefs and clan leaders. The rest remained public land. 2.3.2 The leasehold land tenure system applies to most parts of Uganda. The land user leases land from an individual owner or the Government (in the case of public land) and pays rent for a period of time (49, 60, 99 and 199 years). 2.3.3 A fairly comprehensive Land Act was enacted by Parliament in 1998, but this still remains to be implemented to bring about the desired changes in land tenure systems, land policy and land registration as well as land administration. In this respect, the constraints of the land tenure systems that are not conducive to the emergence of land markets persist. Women are particularly disadvantaged as their access to land remains indirect, largely determined by their relationship to men as daughters, wives or sisters. In addition to this, lack of a centralised land registry results in major difficulties in getting title deeds especially in rural areas. The full implementation of the Land Act and sensitization of the communities, including women and the landless, will ease these problems. The Bank, in association with other development partners, will engage the GoU in dialogue towards facilitating implementation of the Land Act in line with the PMA objectives. 2.3.4 Uganda can be divided into four major agro-ecological zones, namely: high altitude zone; pastoral dry to semi-arid rangeland zone; northern/eastern short-grasslands zone; and southern/western tall-grasslands zone. This has an influence on land husbandry practices, including soil and water conservation measures. The major farming systems largely depend on the ecological suitability of an area and farmers’ preferences. Despite the slow implementation of the Land Act, access to land is not seen as a limiting factor to smallholder agriculture and community-driven initiatives in Uganda. Evidence collected at appraisal shows that most grounds for market places are already acquired by the local government authorities, though a few are rented from individuals. 2.4 Poverty Dimensions 2.4.1 Poverty reduction remains a very serious developmental challenge in Uganda. While, Government macroeconomic and institutional reforms have promoted strong economic growth with an annual average rate of growth well over 5% per annum in the past decade, a large portion of the population remains poor. Uganda ranks 33rd poorest country in the world (144th out of 177) in terms of its human development index and 29th (poorest) in terms of GDP per capita [UNDP Human Development Report 2005].

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2.4.2 The proportion of the population living below the poverty line declined rapidly from 56% in 1992 to 38% in 2003, as a result of high and broad-based economic growth. However, recent household data from the 2002/03 Uganda National Household Survey suggests that this decline has not been linear and that income poverty increased in both rural and urban areas from 34% in 1999/00 to 38% in 2002/03. The reasons for the recent increase in poverty include slightly reduced and changing pattern of growth, weak agricultural prices and sector growth, and rising inequality. The North remained the worst affected region (63% in poverty), while poverty increased fastest in the East (from 35% to 46%). 2.4.3 According to the 2002/03 Uganda National Household Survey, poverty is largely a rural phenomenon, with 96% of the country’s poor living in the countryside and 39% of the rural population living under the absolute poverty line. A recent report indicates that poverty is lower amongst those in non-agriculture wage employment (21%) than amongst those who depend on agriculture (49%). The agriculture sector continues to play a crucial role in reducing poverty as it provides more than two-thirds of total income and is of particular importance for lower-income groups. Approximately 84% of rural households are self-employed, depending primarily on agriculture for their livelihoods. This provides justification for the Government’s policy of improving rural livelihoods through agriculture-led economic growth. It was further noted that between 1999/2000 and 2002/03, the proportion of farming households below the poverty line rose from 39% to 49%. Women make up the majority of the rural poor and female as well as child-headed households are becoming increasingly common due to HIV/AIDS. However, according to the World Bank recent report, there is an inverse relationship between poverty rate and agricultural growth. The data for 1992/93 which shows high poverty rate corresponds to a particularly bad year for agricultural production, whereas the year 1999/00 which saw a decline in poverty rate was a particularly very good year of production with an average growth rate of 6% per year for food crops. This therefore justifies greater public spending in the agriculture sector. 2.4.4 Social conditions in Uganda are aptly described in the United Nations Development Programme’s (UNDP) Human Development Report4. Modest progress has been achieved by Uganda in the area of human and social development. For the eighteen year period (1985- 2003) Uganda’s Human Development Index rose (except for the drop in 1990) from 0.412 (1985) to 0.508 (2003). The UNDP noted that access to water and sanitation has improved both in rural and urban areas (national average rose from 44% in 1990 to 56% in 2002), and illiteracy is declining mainly because of the universal primary school education programme. In 2003, life expectancy at birth was 47 years for Uganda, whereas it was 46 for Sub-Saharan Africa. Infant mortality (per 1,000 live births) was 81 for Uganda and 88 for Sub-Saharan Africa. Illiteracy (% of population age 15+) at 31 was less than the 38 for Sub- Saharan Africa. Finally, gross enrolment (% of school-age population) was 74 for Uganda whereas it was 50 for Sub-Saharan Africa. It was 132 for males and 124 for females and the corresponding figures for Sub-Saharan Africa were 85 and 71 respectively. 2.4.5 Some health issues that characterise the sector include water borne diseases particularly in areas under irrigation. Lack of sanitation and childcare facilities compound farmers' problems. Tuberculosis (TB death rate: 6.2%) and HIV/AIDS (prevalence rate: 6.2%) continue to be the leading cause of morbidity and mortality among the Ugandan population. Recent figures put the rate of HIV/AIDS infection at a national average of 6% of the population, with varying degrees in various districts. Furthermore, mental illness accounts

4 UNDP , Human Development Report, (2005)

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for about 12.3% of diseases in the country. These have grave ramifications for agricultural productivity. 2.4.6 The Government is strongly committed to eradicating poverty by enabling the poor to participate in the process of economic growth, with the private sector assigned a pivotal development role. Under its Poverty Eradication Action Plan (PEAP), the Government aims to increase the incomes of the poor and improve their quality of life by providing basic services. Public expenditure is to be focused on increasing economic opportunities, particularly in agriculture, thereby targeting the poor through investment in infrastructure, agricultural research and extension, and health and education services. Public services are to become more responsive to local requirements and be provided within an increasingly decentralized administrative and decision making framework. The top priority for poverty reduction is thus to raise agricultural productivity, reduce volatility in agriculture growth and thus enhance incomes earned from agriculture. 2.5 Gender Issues 2.5.1 As a result of increased awareness of gender issues in Uganda, both PEAP and PMA recognise that women constitute a significant category of actors in this sector and advocate a gender-focused approach in all intervention programmes. The policy framework for the National Agricultural Advisory Services (NAADS) also underscores the need to eradicate poverty of the rural population and especially women. The poverty and gender issues outlined as relevant to NAADS activities include the need to support changes to enhance opportunities for different categories of people. Thus there is in general adequate recognition that although both male and female farmers in rural areas are faced with severe poverty and food insecurity, women, who form about 51% of the total Ugandan population, experience poverty more than men. Other factors that exacerbate women’s poverty are the unequal gender division of labour, lack of access to financial services, low social status and unequal participation in decision making at all levels. Underemployment, defined as working on economic activities for less than 40 hours a week, is widespread, affecting 65% of adults, including 75% of women and 55% of men. Efforts should be made through development programmes to involve greater percentage of women in economic and income generating activities. 2.5.2 Given that women contribute most of the agricultural labour, they face some specific constraints. These include: i) the rudimentary nature of women’s productive tools such as the hand hoe, which limits output: (ii) paucity of labour saving technologies to reduce drudgery; (iii) the lack of processing and storage facilities that result in considerable post harvest losses; (iv) seasonal gluts which have adverse impacts on prices resulting in unfair returns on labour and other inputs; v) limited marketing outlets; vi) distant markets; and vii) lack of access to appropriate transport facilities which restricts the amount of goods marketed. Although women play major role in agricultural production, evidence shows that in over 60% of the households, their husbands undertake the marketing of agricultural produce and thus expropriate the incomes. Affirmative actions will be necessary to ensure that women have access to incentives arising from development initiatives. 2.5.3 Although women still face barriers to participation, the process of decentralisation has opened up opportunities for them to influence the direction of development in their communities. The Ministry for Gender, Labour and Social Development (MGLSD) has appointed Gender Officers in several districts. Given that collaboration with other sectors is paramount to achieving the objectives of PMA, District Gender Officers are an important resource for the agricultural sector, and play an influential role in mainstreaming gender

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issues in the development of the agriculture and rural sector. This is in line with the MoWT’s Policy Statement on Gender and HIV/AIDS, the World Bank’s Strategy Document on Gender mainstreaming into transport sector prepared within the scope of its Road Sector Program Support (RSPS), and the MoWT’s Gender, HIV/AIDS and Occupational Health and Workplace Safety Guidelines for District Road Works. 2.5.4 Notwithstanding these positive developments, there are still major cultural and social stumbling blocks remaining, in particular, the lack of both gender awareness and sensitivity at the micro level. Whereas several gender sensitization programmes have been executed at central government level, district officers, including agricultural extension officers and community development officers, still lack gender competence as few gender-training programmes have been implemented at the district level. Furthermore, progress in this area is hampered by the fact that most district plans have no gender related activities and budgets. 2.6 Environmental Issues The high rate of population growth, inappropriate agricultural practices and the increasing demand for fuel wood have aggravated the rate of deforestation and general environmental degradation in Uganda. The loss of forest cover, if not checked, will diminish the capacity of the country to achieve sustainable agricultural production. In some parts of the country, there has been substantial degradation of river banks which has led to the silting of parts of rivers and streams. This situation has periodically caused flash floods during periods of heavy rainfall. Use of agricultural chemicals is not currently a threat to the environment in the programme area. The use of chemicals is confined to tobacco, cotton, coffee, and cattle dipping but, even in these applications, it is very limited. Although Uganda has elaborate forestry and environmental policies and regulations, lack of resources has made it difficult for the government to fully implement these policies and regulations.

2.7 Institutional Framework 2.7.1 The enactment of the 1997 Local Government Act devolves considerable authority and responsibility for administration and development activities to elected local councils in the 80 districts. The Ministry of Local Government (MoLG) is the government agency with overall responsibility for the district administrations. It also has a coordinating role to play in ensuring effective delivery of services from key sector ministries whose activities impact on balanced development at the district and down stream local administrations (see para 2.1.2). 2.7.2 The MoFPED is responsible for preparation of the national budget and the Medium Term Expenditure Framework (MTEF) ceilings. The budget preparation process entails a virtually continual dialogue between the MoLG and the MoFPED. MoFPED is also routinely involved in the checking and verification of project and programme expenditures of district and local level development activities. 2.7.3 By the nature of decentralisation, all other Central Government Ministries and most parastatal agencies also have interest in District and downstream activities, since much of their work is performed at the level of Villages, Parishes and Sub-counties. The MoLG is responsible for oversight of District administrations and also encompasses the working of the Local Government Finance Commission (LGFC). As decentralisation has matured, the MoLG direct role in administration of local government matters has strategically reduced, but it continues to give guidance and advice to the local authorities. It also assists with coordination and liaison on District activities and particularly the various decentralisation

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support and development projects, determination, in consultation with the MoFPED, of the formulas for allocation of District funds, and the planning, budgeting, monitoring and evaluation (M&E) and training functions for district support. Despite strenuous efforts to adopt a workable M&E system, the MoLG in the current circumstances, continues to perform its monitoring and evaluation functions on an ad-hoc basis. 2.7.4 The Ministry of Water and Environment (MWE) is responsible for policies and plans including: the National Environmental Act, which places the onus for environment and natural resources management on Local Administrations, with oversight by the National Environment Management Authority (NEMA). The Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) is responsible for activities in agricultural development, particularly through the NAADS extension and the NARO research capability. The NAADS Secretariat has been playing active roles in mobilisation of the local community for enterprises promotion and has rolled out in majority of the districts and sub-counties. It has developed systems for mobilisation, as well as for service delivery through service providers on demand driven basis. The Ministry of Works and Transport (MoWT) has responsibility for roads (national, district and community roads) rehabilitation and maintenance development, working closely with the District Engineers. The Ministry of Gender, Labour and Social Development (MGLSD) is in charge of community development and, for ensuring coverage of gender issues in service delivery, while MTTI covers topics of commercial and marketing interest.

2.8 Sector Development Goals and Priority Policy Reforms 2.8.1 Poverty Eradication Action Plan (PEAP): The Plan developed in 1997, revised in 2000 and updated in 2004, is a national manifesto mirrored in the Millennium Development Goals. It aims to reduce the percentage of the population living in absolute poverty from the present 66% to less than 10%, and the percentage living in relative poverty from 86% to 30 % by 2017. Government aims to increase the incomes of the poor and improve their quality of life by providing basic services. Public expenditure is to be focused on increasing economic opportunities, particularly in agriculture, thereby targeting the poor through investment in infrastructure, agricultural research and extension, and health and education services. Public services are also to become more responsive to local requirements and be provided within an increasingly decentralized administrative and decision-making framework. The top priority is, thus, to raise incomes earned from agriculture. 2.8.2 Plan for the Modernisation of Agriculture (PMA): The PMA (1999) emerged from the PEAP as a framework for eradicating poverty through multi-sectoral interventions. The PMA vision for agricultural sector “is a profitable, competitive, dynamic and sustainable agricultural and agro-industrial sector”. Its goal is to eradicate poverty, ensure food security and create gainful employment. The objective of the PMA is “to transform subsistence agriculture to commercial agriculture”. The PMA comprises 7 Pillars: (1) Research and technology development, (2) Advisory service delivery, (3) Agricultural education, (4) Access to rural finance, (5) Agro-processing and marketing, (6) Sustainable Natural Resources utilisation and management, and (7) Physical infrastructure. These are being operationalised through various support by Development Partners. NAADS has also in 2004 produced a Plan for Zonal Agricultural Production, Agro-processing and Marketing, which is targeting regional trade and exports. 2.8.3 In response to the PEAP, Sector Investment Plans (SIPs), including important ones for the agriculture and rural development, roads, social development sectors and local government have been developed to ensure that priority areas are clearly highlighted and the

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necessary interventions appropriately resourced. The Government has also recognised the importance of community empowerment at all stages of development and is committed to full community involvement in provision of services and in identification of opportunities for poverty mitigation. A major policy development is that of the consolidation and entrenchment by the MoFPED of a more comprehensive version of the Medium Term Expenditure Framework (MTEF) as a key budgetary control instrument. Sectoral ceilings have been established to exert financial discipline over spending units, and to ensure appropriate resource allocations and macro-economic management. 2.8.4 Decentralisation Policy: The Government Policy Framework Paper on decentralisation was published in October 1997. Much of the resource allocation for government services and development activities is now at the district level. In contribution to upgrading the services available at sub-county level, the GoU has pledged to support deployment of graduate agriculturists in each sub-county. The GoU, working closely with the DPs, has recently launched the Local Government Sector Investment Plan (LGSIP), with Strategy 6, focusing on Local Economic Development. 3. THE RURAL INFRASTRUCTURE SUB-SECTOR 3.1 Rural Roads and Markets 3.1.1 Uganda’s road transport system comprises a classified national road network of about 10,800 km of main roads (tarmac and gravel) for which the Ministry of Works and Transport has overall responsibility. About 4,860 km of urban roads (tarmac and gravel/dirt) falls under the jurisdiction of the urban councils. The 80 district councils are responsible for 26,750 km of district roads (generally gravel and dirt), and there are about 35,000 – 45,000 km of community access roads and tracks (generally dirt/earth) in the sub-counties. The district roads and the community/access roads and tracks make up the rural road network. Routine and periodic maintenance on the district roads is carried out by the districts, while the sub-county administration, in conjunction with the communities, maintains the community roads. 3.1.2 National roads connect major towns and districts with one another and Uganda to the neighbouring countries. District roads, on the other hand, connect rural areas to major trading centres or to the national road network. Community access roads provide the nearest access facility to the rural communities. They are the small links in the road network, which enable movement of produce from the farm/rural household level to the rural markets/trading centres and onward to further urban markets. According to the Agriculture and Rural Sector Review undertaken by the Bank Group in 2005, the national road network has attained a considerable improvement with national roads in a fair condition improving from 6% to 75% and district roads from 15% to 65%, between 1990 to 2005, respectively. However, rural areas, where the majority of Uganda’s agricultural production takes place, are still underserved with only 10% of community access roads reported to be in good/fair condition in 2005. For sustainable agricultural development to take place, it becomes imperative that more concerted efforts are made to increase the volume of community access roads that are in good condition. 3.1.3 Rural Markets: Many rural markets operate on a weekly or bi-weekly basis, but lack facilities, including storage facilities, value addition facilities, and an organised marketplace from where farmers can conduct their daily trade businesses, including access to price and other necessary market information. Proper physical agricultural market structures are important in promoting rural trade and reducing the losses of perishable goods and inputs.

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Local Government (LG) agencies are responsible for organizing and regulating periodic market days with adequate space, cleansing and toilet facilities and an effective public health and trade inspection system. Many sub-counties have substandard arrangements and few have permanent covered areas in a good state of repair. Public investments in the construction or rehabilitation of market structures have resulted in increased levels of attendance and the building of lock-up shops in response to the growth in business. The formation, training and functioning of market infrastructure management committees is now a prerequisite of any such investment to avoid a repetition of the past pattern of rapid deterioration of new and improved public structures. The committees have to develop a business plan to demonstrate how the structures can be made sustainable and self-financing. The markets are leased out to private market operators who pay rents to the local government authorities. The revenues are shared at a ratio of 65:35 by the sub-counties and concerned districts respectively. The revenues are used to maintain the markets and for providing needed security. 3.1.4 Rural Energy: The 10-year Energy for Rural Transformation (ERT) aims to increase rural access to electricity from 1% in 2002 to 10% in 2012, using private sector-led delivery mechanisms. At present the electrification coverage stands at 3%. The ERT process has strong links to agricultural production and processing, in addition to giving the population an alternative to charcoal use for cooking. The use of solar energy is becoming very popular even among rural people in Uganda.

3.2 District Roads Improvement Strategy and Investment Plans

3.2.1 In 1992, the GoU developed a Rural District Road Rehabilitation and Maintenance Strategy. The main objectives of the programme were to rehabilitate the rural feeder roads to pre-determined standards and to sustain maintenance, as well as to increase access to potential productive areas, social and administrative centres. It was also meant to evolve an effective and efficient institutional framework for the rehabilitation and maintenance of rural roads. Key strategies include the decentralisation of Government services to local level. The programme has since received significant financial support from development partners. The programme and strategy were subsequently reviewed in 1997. 3.2.2 The 1997 Local Governments Act transferred the responsibility for all district roads maintenance to the local governments, while the GoU Poverty Alleviation Programme (1998) placed top priority on rehabilitation and maintenance of district, urban and community access roads (DUCAR). The 1999 Feeder Roads Rehabilitation and Maintenance Strategy is a review and update of the 1992/97 strategy. Under the PMA, improvement in rural road network is seen as a vehicle to provide better access to markets, storage and processing facilities. 3.2.3 In 2006, the Government produced the 3rd draft of the 10-year District, Urban and Community Access Roads Improvement Plan (DUCARIP), which is an off-shoot of the Strategy for Rural District Roads Rehabilitation and Maintenance. In accordance with the DUCARIP, for district and community access roads, improving accessibility will be the guiding principle, irrespective of the level of traffic. The aim should be to render these roads accessible and passable to motorised vehicles most of the year, particularly in harvesting seasons.

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3.3 Institutional Framework

3.3.1 The governance system in Uganda has two levels, namely, the Central and Local Governments. The Central Government is primarily charged with formulating policies and regulatory issues while local governments implement national and local policies and deliver services within their area of jurisdiction. Districts are administered through a 5-tier arrangement of LCs: Village (LC-1), Parish (LC-2), Sub-county (LC-3), County (LC-4), and District (LC –5). The key operational levels are at LC-5, LC-3 and LC-1, but increasingly recently also at LC-2, through the Parish Development Committee (PDC). Though the Decentralisation Policy was officially launched in 1992, the enactment of the 1997 Local Government Act devolves considerable authority and responsibility for administration and development activities to elected local councils in 80 districts. The Council is the supreme political authority in local government and has legislative and executive powers. The Ministry of Local Government (MoLG) is the government agency with overall responsibility for the district administrations. 3.3.2 As noted in para 3.2.2, the responsibility for all unclassified district (feeder) and community (access) roads, i.e. design, construction, maintenance, including procurement of works, goods and services, lies with the district administration. The MoLG is the executing agency for the successful Area-based Agricultural Modernisation Programme, which the Bank Group co-finances with IFAD. It set up a Project Facilitation Team (PFT), with key staff. Though seconded from the various line ministries, these officers receive responsibility allowances from IFAD’s funding. This has acted as a good incentive and accounts for the successes recorded by the Programme (Details of AAMP’s modus operandum are given in Annex 4).

3.3.3 For matters regarding the district road network, the MoWT with its District and Urban Roads (DUR) Division remains the supervising institution. The MoWT also gives guidelines for annual budgeting of routine and periodic road maintenance and selection/qualification of contractors. The MoWT further provides the districts with standard designs, work manuals, technical specifications and formats for general and special conditions of contract. Finally, the MoWT monitors the activities of the districts, the status of the network and of the districts’ resources, including providing road equipment to the districts. 3.3.4 Each district has a Technical Service Unit or a Works Department, which includes a Roads Section entrusted with the upkeep of the district’s road network. The Works Department is headed by the Supervisor of Works (SOW), and other staff consisting on the average, of five technical persons (of which three are road inspectors), nine operators/drivers and four office staff. The capacity for contract administration and implementation is variable but for normal day-to-day routine activities, the SOW’s capability and staffing is sufficient. 3.3.5 The National Environmental Management Authority (NEMA) is the principal agency responsible for planning, monitoring and coordination of environmental management issues in Uganda. The Environmental Impact Assessment Regulations (1998) and the Guidelines for Environmental Impact Assessment in Uganda (1997) have operationalized the EIA process in Uganda. Responsibility for the implementation of the environmental management issues remains the responsibility of relevant line ministries. The Local Government Act provides for the system of local governments, which is based on the District for the enforcement of the National Environmental Act. The Second Schedule of the Local Government Act prescribes specific institutional and operational responsibilities to Districts in relation to environmental and natural resources management.

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3.4 Community Participation Uganda has a rich tradition of community based development activities. Historically, communities have been able to mobilise local resources in order to build social amenities or self-help projects. In some cases, the recent policy of decentralisation and the focus on governance on the basis of accountability and transparency has created new opportunities for communities to participate in development programmes that affect their lives. At present, a conducive environment that facilitates the participation of NGOs, CBOs and other members of the civil society in a variety of development activities in general and the delivery of basic social services in particular, has been created. As a result, a large number of NGOs are involved in the delivery of basic services throughout the country. NAADS has been mobilising farmers and communities for agricultural commercialisation and export crop development. The Ministry of Gender, Labour and Social Development (MGLSD) through its Community Development Officers and the District Mobilization Officers have also been mobilising the communities through training, gender sensitization and workshops, often supported by various development partners. Any initiative will leverage on these modalities.

3.5 Development Constraints and Opportunities

3.5.1 Capacity Related: There are a substantial number of well trained petty contractors in labour based activities in the country. The Mt. Elgon Training College in Mbale is a main rural institution for training of district engineers, contractors and other technical officers. However, during simultaneous implementation of the rehabilitation of both community roads, and district roads in addition to their activities on road maintenance in their respective districts, the capacity of the district engineers and technicians to cope may be stretched. Equally, under this scenario, the capacity and capability of contractors in the rural areas may not be sufficient for the work to be executed. This will give opportunities for contractors from other parts of the country and/or from neighbouring countries to participate in road works. Increased roads activities in the districts will enhance further development of a private construction industry. New small enterprises could be established, for instance, to fabricate concrete culvert pipes or to excavate and transport gravel material used for the surfacing of the roads. Some district administrations who lack experience in pre-/post-qualification of contractors and in transparent contract administration and accounting will also benefit from capacity building as part of project activities. 3.5.2 Marketing Related: In general, marketing constraints include low farm-gate prices and lack of buyers for produce. Existing transport and distribution systems are capable of handling products which do not have specialized needs, such as cooling, refrigeration, or rapid movement to avoid product losses. The limited availability of processing facilities constitutes a major constraint on short-term growth. Investments in processing will be made by the private sector if they are profitable, and if there is sufficient certainty that this profit will be realised. 3.5.3 Limited value addition (through agro-processing) takes place at the farm-gate/village level in Uganda. There are therefore high post-harvest losses, seasonal market glut, low prices and low net returns to smallholders of food (and sometimes cash) crops. Demonstrating the efficacy, efficiency and economic profitability of agro-processing, produce storage and proper handling and preservation techniques will help to develop and expand use of agro-processing facilities, enhance product quality thereby adding value and improving the competitiveness of Uganda agriculture. Improving rural market infrastructure,

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including provision of rural energy in marketplaces will encourage both sellers and buyers from distant areas to catalyze the private sector. 3.5.4 Rural Roads: The lack of road access to many rural communities makes it extremely difficult for farmers to market their production. This limits farmer productivity, contributes to farmer apathy with regard to technical innovations and results in the high transaction costs faced by traders when conducting business in rural areas. The prices farmers receive are thereby reduced.

3.6 Development Partners’ Interventions and Lessons Learnt 3.6.1 Development Partners Interventions: Apart from the Bank Group, a number of Development Partners are active in the rural infrastructure sub-sector, though most of these complement rather than duplicate efforts. For on-going operations, the detail is given in Annex 5. For rural roads these include EU, DANIDA, IFAD, and the World Bank. While IFAD is financing rural markets, the EU, CIDA, GTZ, GEF, and the World Bank are supporting rural energy. In addition, the United States Agency for International Development (USAID) through Africare, an NGO, is improving rural roads in the district of Kabale in collaboration with the district authorities and communities. It plans to construct 120 km of new district roads. Under the Smallholder Tea Rehabilitation Programme, the European Union (EU) is financing yearly about Euro 0.5 million emergency repairs of coffee and tea roads in Bushenyi, Kabarole and Rukungiri districts. The World Bank approved a USD 91 million loan in support of the Road Development Programme. The Austrian Development Co-operation also has a three-year District Development Programme in Southwest Uganda covering the districts of Kabale, Kisoro, Ntungamo and Rukungiri. The focus is water and roads construction; while the United Kingdom Department for International Development (DFID) had undertaken trunk roads rehabilitation works in six districts, including Bundibugyo, Kabarole and Kasese.

3.6.2 Some DPs have also included rural infrastructure activities in their pipelines. For example, the proposed IFAD-financed Agricultural Marketing and Agro-Processing Support Programme is focusing on the software aspects of marketing, essentially, connecting people to the markets through capacity building, market information, business development, etc. Also the IFAD’s proposed Districts Livelihoods Support Programme is focusing on a range of agricultural production activities and some physical infrastructure. The World Bank is planning a Local Government Development Programme Phase 3 and the Energy for Rural Transformation Programme Phase 2, DANIDA (mainly with preferred support in northern Uganda), is planning a bridging programme planned for 2007 – 09, while the EU (mainly on the northern corridors) is considering an EDF-10 for 2008. 3.6.3 The Bank Group is financing a number of on-going agriculture sector projects in Uganda, some of which have infrastructure components. These include the Northwest Smallholder Agricultural Development Project (UA 17.6 million, with over 50% infrastructure component), the Area-Based Agriculture Modernisation Project – Roads Component (UA 9.7 million), the Fisheries Development Project (UA 22 million), the National Livestock Productivity Improvement Project (UA 26.53 million); the Farm Income Enhancement and Forest Conservation Project (UA 51.15 million), the Roads Maintenance and Upgrading (UA 15.00 million) and Road Sector Support Programme (UA 28.50 million). 3.6.4 According to a recent draft Country Portfolio Review Report (CPRR, 2006) produced by the Uganda Field Office (UGFO), Bank-supported public sector projects in Uganda are generally expected to achieve their development objectives, but are experiencing slow start-

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ups, subsequent implementation delays and low disbursement rates. However, both Development Objective (DO = 2.44) and Implementation Progress (IP = 2.12) remain satisfactory for the agriculture sector portfolio. Not withstanding the overall satisfactory portfolio performance in Uganda, the CPPR noted a number of factors that continue to affect the performance of on-going public sector ADF-supported projects. They include delays in Parliamentary ratification of loans, inadequate and/or slow staffing of some PIUs by the Government, delayed accountability for project funds, irregular and inadequate GoU counterpart funding for projects, unsatisfactory performance of credit components of agriculture and rural development operations, and low morale following poor remuneration of project staff in most projects. 3.6.5 Lessons Learnt: Lessons learned from ADB agricultural portfolio and those of other Development Partners (DPs) in Uganda include: (i) broad client involvement (including members of parliament) in priority setting; (ii) project planning, implementation and monitoring is essential for effective, sustainable and result-oriented agricultural and rural development programmes; (iii) decentralisation of the procurement of works is needed to ensure the selection of a capable contractor at a competitive cost; (iv) start-up delays were often associated with inadequate staff familiarity with Bank’s procurement procedures, financial management, accounting, and operating procedures required by DPs; (v) selection of qualified and committed programme staff and technical assistance specialists is crucial for the successful implementation of programme activities; (vi) the burden of counterpart funding can be reduced by leveraging with existing programmes and other donor supported; and (vii) involvement of development partners from the outset of project design elicits buy-in and support for a new intervention. Furthermore, there is a need to train district accountants on financial management and control systems to enable them to fully account for advances made to the districts. 3.6.6 Some of the Bank-funded projects suffered some delays before attaining disbursement effectiveness. These delays stem from the length of time it takes for the Ugandan Parliament to ratify the loans. There were also delays following from recruitment of consultants to design the rural infrastructure components of the projects. Disbursement cash flows were delayed as districts took longer than necessary time to justify advances made to them. The draft 2006 CPRR observed that the Bank’s recent and on-going investments in rural, peri-urban and other roads in Uganda are crucial in reducing transaction costs, improving bulking rates and facilitating the flow of marketable goods, information and new technologies in and out of rural areas, where most agricultural activities take place. The mid-term review report of the Area-based Agricultural Modernisation Programme (AAMP) noted substantial impact of rural infrastructure such as rural access roads and markets on prices of key commodities, on income of smaller farmers and in creating social amenities. However, experience has shown that substantial levels of funding are required for rural infrastructure, such as feeder roads, communications, commodity collection and storage facilities, and rural electrification, to make meaningful and sustained impacts in reducing transaction costs, developing market linkages, improving efficiency and providing capacity for processing. These remain priorities for the Government of Uganda towards attaining its objective of poverty reduction. The design of new Bank initiatives will have to take these experiences into consideration in other to maximise development effectiveness on the ground. 3.6.7 The Bank is already responding to lessons of experience both in current portfolio management and in the design of new operations. For example, it is making serious efforts to mitigate against delays for future projects. It has entered into dialogue with the Ministry of Finance to agree on an optimum period for parliamentary ratification of loans in line with

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subsisting Bank’s regulations on loan cancellations. The MoWT is now working alongside consultants in swiftly designing infrastructure works such as was the case at the Northwest Smallholder Agricultural Development Project. District accountants are receiving trainings in financial and accounting management to accelerate disbursement flows. Regular workshops are now combined with frequent project supervisions, with adequate skill mix. Bank’s response time for no objection has shortened drastically. Capacity of PCU staff is being strengthened through recruitment of key national experts. UGFO is organising regular PCU-Bank Review workshops. As can be seen in Chapters 4 and 5, the design of the proposed Project-1 is built on these lessons and best practices, as well as taking into account the experiences of other development partners working in Uganda. It essentially derives its approach from AAMP’s experiences so far. 4. THE PROJECT 4.1 Project Concept and Rationale 4.1.1 The project seeks to improve rural agricultural infrastructure through rehabilitation of district feeder and community access roads which will link farmers to functional markets, equipped with adequate facilities, including stalls, slabs, stores, agro-processing facilities, water and sanitation and rural energy. These marketplaces become rural centres of commercial interchange and social interactions, and growth points around which other private enterprises will emerge. These will create the needed market for farmers that will enable them to sell more of their produce at competitive prices. With reduced transport costs and post harvest losses, they will achieve higher margins and incomes. This will in turn induce additional production. Various Government ministries and agencies, including the PMA, NAADS, MoWT, MoFPED, MAAIF, MoLG and the district/sub-county officials fully participated at all stages of the project conceptualisation and design, starting from the sector studies, the PMA Task Force that identified the project and the various stakeholders’ workshops that reviewed the project proposal. 4.1.2 The majority of the households in Uganda live in rural areas and this is where most of the agricultural activities take place. A minority of households that live close to urban centres obtain higher farm gate prices due to their close proximity to the market. On the other hand, remote households receive a much lower price for their products, and hence, may need to market more of their agricultural output, usually to middlemen, to generate sufficient income to meet their non-food consumption needs. Current estimates indicate that for cereals and beans, farm gate prices are about 20% lower than at the market place, indicating a high transport cost element. At the same time, greater market access raises prices received by farmers by about 20-40%. Furthermore, the existence of market and competitive prices offers farmers opportunities to produce more for the market, thus raising their incomes and livelihoods. 4.1.3 Most of rural Uganda lacks appropriate market infrastructure, including storage facilities, value addition facilities, and an organised marketplace from where farmers can conduct their daily or weekly trading, including access to price and other necessary market information. Proper physical market structures are important in promoting rural trade and reducing the losses of perishable goods (which in many cases can be as high as 40% of farmers total outputs, see para 2.2.5), and preserving quality. Overall, improvement in rural agricultural infrastructure will promote commercialisation, increase competitiveness and enhance incomes. Investment in physical infrastructures supporting agriculture derives from the success recorded

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from the on-going AAMP which is being jointly financed by the Bank Group and IFAD in Western Uganda. The choice of the districts has been dictated by the need to spread the development initiatives, successfully implemented under the AAMP, to the Central, Eastern and Northern districts of the country. A systematic project-wise expansion of districts has been adopted in response to availability of funds. 4.1.4 The contribution of rural infrastructures to total as well as factor productivity is well known. Evidence from the AAMP’s mid term review shows that villages that have better infrastructural facilities have more agricultural production, more marketed surplus and the farmers enjoy higher income. Also improved roads and water and sanitation facilities lead to improved school enrolment, improved household health, improved nutrition and enhanced value of agricultural production through agro-processing.5 Unfortunately, according to the MoWT, only about 10% of the 30,000 km of community access roads countrywide are in good/fair condition. 4.1.5 There is demonstrable potential for increasing community capability and self reliance; improving the productivity, profitability and sustainability of the primary production systems on which nearly all of the population depend upon for their livelihood. Considering the scale and scope of continuing need levels for grassroots poverty reduction and given the constraints of funding and resource availability that currently apply, a fundamental part of the rationale would therefore be for the project to selectively provide the means to activate those sub-counties that have the potential for crucial community uplift, economic growth and rural transformation. 4.1.6 The design of CAIIP has followed closely after the AAMP, but focuses mainly on rural infrastructure. Like the AAMP, the design of the CAIIP is consistent with national policies and approaches regarding the decentralization of authority to district and sub-county councils, and will be expanded in a systematic project-wise approach to cover more districts. Also as with AAMP, it will rely on using existing national organs rather than creating parallel structures. It also draws from the capacity that exists in the MoLG, MoWT and NAADS in implementing most of the project activities, and thus reducing overhead costs and the burden of counterpart funding from the GoU. It also follows the NAADS approach which calls for adequate participation of Districts and Sub-Counties and stresses co-ordination and linkages amongst all stakeholders. Consequently, the strategy is (i) to facilitate upstream and downstream linkages between central government and the district and local councils in facilitating resource flow towards delivery of infrastructure services for the benefit of the community-based rural producers; (ii) to ensure that selected infrastructure projects are linked directly to agricultural production, processing and marketing points; (iii) to strengthen the management, planning and technical capacity of local government within a transparent consultative framework of local governance and community mobilization; and (iv) to provide for the effective management of maintenance of the infrastructure, its monitoring and supervision through active participation at the community level. 4.1.7 The six broad considerations in the design of the project are: (a) the facilitation and enhancement of the impact of infrastructural development on agricultural modernization and commercialisation; (b) the demonstration of the technical efficiency and economic profitability of agro-processing and produce storage to minimise post-harvest losses and seasonal market glut thereby adding value and improving competitiveness of Uganda 5See Fishbein (2001) Rural Infrastructure in Africa: Policy Directions Africa Region Working Paper Series No. 18 and Lebo J and D. Schelling (2001) Design and Appraisal of Rural Transport Infrastructure World Bank Technical Paper No. 496.

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agriculture; (c) the incorporation of funding for agricultural infrastructure investments within the districts’ annual work programme and budgets (AWP/Bs), with the districts and sub-counties deciding what investments to make on the basis of the requirements of community level interest groups; (d) the strengthening of the management, planning and technical capacity of the districts within a transparent consultative framework of local governance; (e) the need to take environmental concerns into account in the design of interventions and incorporate mitigation measures where necessary; and (f) the provision for the effective monitoring / supervision of the series of district – related activities. 4.1.8 Specific Design Considerations and Options Rejected: The improvement of district roads and community-based access routes is the short-term priority to supply intermediate transport by the GoU (see para 1.3). For rural electrification, the focus will be on promotion of solar/diesel energy for supporting market structures, as opposed to extension of grid from the existing national network, given inadequacy of power supplies and rationing. Phasing of the programme was considered more appropriate than covering the whole country in one operation with limited resources. Project-1 has not included Western and North-western Uganda because they are currently being covered by AAMP and the Northwest Smallholder Agricultural Development Projects respectively. However, the facilities being provided will complement the production activities of the Bank-financed Farm Income Enhancement and Forest Conservation Project and the National Livestock Productivity Improvement Project. To avoid duplication and ensure complementarity, the Project is primarily focused on Pillar 7 of the PMA (Physical Infrastructure) as IFAD’s assistance will cover Pillar 5 (Marketing and Agro-Processing) which relates to the software aspect of the operations (see para 3.6.2). Finally, civil works design and supervision will employ both private sector consultants and use of MoWT and District Engineers, to minimise the take off time in relation to the recruitment of design consultants, and to also take advantage of capacity within the national systems to minimise costs of consultancy. The MoWT will commence the design and work closely with the consultants, when recruited. The project has not included water for production as this is well covered by other projects financed by the Bank, such as the National Livestock Productivity Improvement Project and the Farm Income Enhancement and Forest Conservation Project. The Bank is also financing the Rural Microfinance Support Project (RMSP) and there is therefore no consideration to include a credit component. The design considered and rejected an integrated rural development approach with production and infrastructure, and settled for investment in agricultural infrastructure as an engine of growth and potential driver for the sector.

4.2 Project Area and Beneficiaries 4.2.1 The proposed project is targeted to cover 26 districts in Central and Eastern Uganda (see Map, Annex 1). This is about 27% of total Uganda’s land area. The districts are Sembabule, Masaka, Rakai, Lyantode, Mpigi, Mubende, Mityana, Kiboga, Nakasongola, Kibaale, Mukono, Kayunga, Iganga, Namutumba, Butaleja, Tororo, Kamuli, Kaliro, Pallisa, Budaka, Mbale, Sironko, Manafwa, Bududa, Bukwa and Kapchorwa. The total population, based on extrapolations from the 2002 census, is about 8.8 million, belonging to 1.76 million households (about 35 percent of the national population). The average size of rural households is five, with agriculture the dominant occupation. 4.2.2 The MoLG’s original Concept Paper had earlier proposed 39 districts for the Programme’s coverage, from the Central, East and North of Uganda. However, it was found imperative to propose a project whose resource envelope would create a significant development impact and not spread itself too thinly. On the advice of the Ministry of Local

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Government, it was agreed with the GoU that 26 of the 39 districts be selected for Project 1, with interventions focused in three sub-counties of each district. In addition to the resource issue, this decision is also based on the need to avoid duplication or overlap with existing and proposed interventions supported by other Development Partners, mainly IFAD, the World Bank, the EU, and Danida. It was also noted that Western and North-Western Uganda are already being covered using support from the Bank Group and an operation co-financed with IFAD. Project 2, envisaged to start in 2008, will extend to districts in Northern Uganda, as well as deepen interventions in additional sub-counties under Project-1 (Annex 2). Thus Gulu, Kilak, Kitgum, Pader, Lira, Dokolo, and Amolator districts will be assessed for intervention under Project 2, in addition to districts that form the Teso area of Eastern Uganda (i.e. Soroti, Katakwi, Kumi, Kaberamaido, Amuria and Bukedea), and other sub-counties as may be added during the formulation of Project 2. 4.2.3 While the choice of the districts has been based on geographical contiguity and balanced development, selection of the sub-counties will be based on growth potentials (level of existing enterprises with potential market exposure), NAADS presence (meaning existing level of mobilization and awareness and response to enterprises being promoted), and other associated economic rather than social considerations (entrepreneurship, presence of private sector activities, existing level of self-help activities, etc). In those districts where NAADS has not yet rolled out, the economic and growth potentials of the sub-counties will be the over-riding factors. The detailed criteria will be spelt out in the Project Operations Manual (POM) which will be developed by the PFT prior to full implementation. The choice of the districts is also governed by the desire to forge synergy with other Development Partners’ (DPs’) efforts in the rural development field. For example, IFAD is also preparing a District Livelihoods Support Project (DLSP) in Uganda with some level of physical infrastructure activities, and collaboration by the two institutions will ensure that efforts are not duplicated. There is an informal agreement between the two institutions and senior officials of MoLG and MPFPED to ensure that the two projects be implemented in contiguous but not the same districts. 4.2.4 The project area is characterized by flat-topped hills with most of the rivers flowing into Lake Victoria. As in most parts of the country, the seasons are fairly well marked – as rainy and dry seasons. Most of the beneficiaries derive their livelihoods from a mixture of livestock keeping and cultivation, or agro-pastoralism. The major challenges these people face among others include i) inadequate provision of, and demand for, social services and infrastructure; and ii) poor environmental health conditions. According to the UNHS 1999/2000 survey for Iganga, Kamuli and Mbale districts, which are typical of the project area, household size had been on the increase for over the previous 8 years and the population below 15 years of age constituted over 50% of the total population, implying high dependency ratio. Most of the household heads were males in the age range of 26 to 49 years, but women assumed headship as their age advanced. Close to 50% of the people require medical attention at any point in time with malaria cited as the major cause of half of the sicknesses. Though nearly 80% of the pregnant women are attended to by trained medical staff during antenatal care, but they either seek the services of traditional birth attendants or are not cared for due to the constraints in the transport facilitation of trained medical staff at the time of delivery. 4.2.5 A household survey undertaken in 2003 and covering the eastern, western and central regions of Uganda indicate that the most widely grown crops are beans (grown by 76% of farmers), maize (75%), matoke (67%), sweet potato (52%), and cassava (48%). Coffee is grown by 31% of the sample and other industrial crops by 8.4%. In terms of area, cereals are

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grown on average on 22% of the farm area, bananas on 25%, legumes on 19%, and roots on 18%. On average, 10% of farms grow cash crops. Vegetables and fruits are grown by few households among those surveyed (15% for both) and command a small share of the farm area (3%). 4.2.6 As a result, a large percentage of farmers participate in the market although they receive low prices compared to final prices in the marketing chain of their produce. Overall, about 77% of the households report selling at least a part of their produce, with the percentage particularly high for vegetables (96%), cash crops (91%) and fruits (85%). The high percentage of even staples (close to 80%) suggests that households may be reacting to a strong demand for staples, perhaps from local and urban centres, that provides the incentive for farmers to concentrate on these crops. The proportion of output marketed varies by type of crop. As may be expected, the proportion of cash crop output marketed is highest, with almost 100% of coffee and over 90% of vanilla marketed. Very high proportions of some other crops, including vegetables (such as onions and tomatoes) and rice, are also marketed (ranging from 70 – 90%). The proportions of staples such as matoke and cassava are much lower at about 15%; the proportion of maize marketed is about 26%. Data collected at appraisal show that in Kapchorwa district, 60% of maize, 100% of wheat, 50% of beans, 80% of sunflower, and 70% of Irish Potatoes outputs are marketed respectively. In Pallisa district, 95% of rice, 85% of maize, 80% of ground nuts, 100% of cotton, 70% of millet, 80% of groundnut outputs are also marketed. Data collected in Iganga district also indicate that 80% of maize, 90% of upland rice, 60% of beans, 90% of groundnuts and 40% of cassava outputs are marketed. There are also significant agricultural output losses due to inappropriate post harvest handling and lack of value addition. Most losses (up to 30%) occur due to heavy rains during the harvesting period, post harvest pests and diseases, poor drying facilities, and poor storage techniques. Any support, such as investment in rural infrastructure, energy and processing, that will reduce post harvest losses, improve quality of produce, ensure that farmers produce reach the markets timely and avail farmers with reduced transport costs, is strategic to the Government’s priorities for poverty reduction. 4.2.7 Government’s 2004 survey on Human Poverty Index (HPI) showed that on a scale of 0% - low deprivation - to 100% – high deprivation-, the project area of central and eastern region registered a HPI of 36.1% as compared to a national average of 36.0%. The study further showed that 96% of the poor are in rural areas where 85% of the population lives, indicating that poverty remains largely a rural set-back. In the limited 1999/2000 UNHS survey referred to above, monthly household income ranged between UGS98,100 and UGS 117,000 mainly from crop farming, an occupation undertaken more by women than men. Over half the income was spent on food and beverages followed by about 15% on rent, fuel and power. The 2004 survey revealed that in the project area, about 79%-82% of the children travelled a distance of less than 3 km to school as compared to a national average of 83.5% and payments for school requirements were not affordable for 71% of rural households and 66% in urban areas. The project, when completed, will help the beneficiaries, who are the rural communities as a whole, and especially women, to have access to input and outputs markets and add value to their produce through agro-processing and storage opportunities. The rural people will also benefit from access to better producer prices by selling at the markets rather than at farm gate and the subsequent monetization of the local economy. The private sector, including traders, entrepreneurs, service providers, contractors and suppliers of labour will also benefit from the project. The Northern Zone, as well as some of the sub-counties not reached under Project-1, will be covered as part of the proposed Project-2.

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4.3 Strategic Context 4.3.1 The project activities are in line with Pillar 2 of the PEAP (Enhancing Competitiveness, Production and Incomes); the Rural Development Strategy (RDS) of MoFPED with special emphasis on market access for agricultural produce; Strategies of the Ministry of Works and Transport as outlined in its District, Urban and Community Access Roads Investment Plan (DUCARIP), and the Local Government Sector Investment Plan (LGSIP Investment Strategy 6, Local Economic Development). The project activities also lend support to the NAADS’ Plan for Zonal Agricultural Production, Agro-Processing and Marketing, which encourages production for the export market. It is a complement to the proposed model for the Sub-county Development Programme, which aims to implement the RDS objectives comprehensively in one sub-county for each of the 80 districts in Uganda. Additionally, the investments are in line with the new Electricity Act (1999) and the Government’s Rural Electrification Strategy and Plan (2001) in encouraging private sector participation and energy supply for rural transformation through support for basic social services. 4.3.2 The project is consistent with the UN Millennium Development Goal 1 of halving population under extreme poverty by 2015; Pillar 2 of the NEPAD’s Comprehensive African Agricultural Development Programme (CAADP) which focuses on improvement of rural infrastructure and trade-related capacities for improved market access. It supports, in particular, the shift in emphasis to infrastructure and agro-processing, which are the key activities of the project. It will encourage ownership, results and outcomes, and the use of national systems as much as possible in delivering results. In line with Aid Harmonisation and Alignment, the project seeks to create effective collaboration with other development partners, as already started through the tripartite meetings, the technical support from the World Bank’s Rural energy Project and IFAD’s funding of the AAMP’s Project facilitation Team (PFT) up to 2008, as well as use of Danida’s training facilities at Mt. Elgon. The Project is consistent with the overall sector goal and strategies of the Government (PEAP, PMA, DUCARIP, LGSIP, etc) and harmonised with the Uganda Joint Assistance Strategy (UJAS, 2005/06 to 2008/09), which is the business plan of the Development Partners in Uganda, to which the Bank group is an active participant (see Cover Note to UJAS ADF/BD/WP/2005/130). It is in line with the Bank Group’s Strategy on Poverty Reduction. It is also aligned to the Bank’s Agriculture and Rural Development Policy (of empowering the rural population to improve their productivity and real incomes in an equitable and environmental sustainable manner), and the Gender Policy (in agro-processing and marketing, women friendly technologies, access to agricultural extension).

4.4 Project Objective

The overall sector goal is to contribute to poverty reduction and economic growth in Uganda through enhanced commercialisation of agriculture The specific objectives of the project are to enhance farmers’ access to markets, attract competitive prices and increased incomes through investments in rural infrastructures and their sustainable management by well mobilised communities. 4.5 Project Description 4.5.1 The project consists of one core field component and two service components, with the following outputs. These are:

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(a) Rural Infrastructure Improvement comprising; (i) 390 km of district roads rehabilitated; 3,510 km of community access roads rehabilitated; annual routine and recurrent maintenance of 587 km of district roads and 5,267 km of community access roads; (ii) construction of 78 functional marketplaces (50 entry level and 28 comprehensive level marketplaces) and promotion of agro-processing in 78 sub-counties (78 produce stores, 78 cold rooms, 52 rice hullers, 78 grain mills, 39 milk coolers); and (iii) supply and maintenance of electricity in the marketplaces (50 solar, 27 diesel and 1 micro-hydro). (b) Community Mobilisation, through local participation in prioritization and maintenance of the physical infrastructures; and (c) Programme Facilitation, including supplementary support for the existing Project Facilitation Team (PFT), monitoring and evaluation; and financial management activities Detailed Description of Activities and Components:

A. RURAL INFRASTRUCTURE IMPROVEMENT A.1 Rural Roads Improvement: 4.5.2 The project will rehabilitate 390 km of district roads (15 km per district) and 3,510 km of Community access roads (135 km per district) to all weather gravelled roads. Currently virtually no maintenance is carried out on the existing community access roads. The investment will thus include the annual routine and recurrent maintenance of these roads once improved, leading to a cumulative maintenance target of 587 km of district roads and 5,267 km of community access roads. The community access roads will particularly link homesteads to farms and sub county markets. The method of construction will be by equipment or labour-based methods following standards set by the MoWT. Maintenance, however, will be undertaken by local communities using labour-based methods in line with the Government’s strategy for the development and maintenance of the District Urban and Community Access Roads (DUCAR). The communities will be sensitized to ensure that they engage at least 50% women among the labour gangs to help to generate some cash incomes for up-keep of their households. The project will fund labour requirements for maintenance over and above the 50% statutory contributions of the communities. The communities will be made aware, not only of the benefits but also of their obligations, towards the new investments and the need for their maintenance. The MoWT will be facilitated by the Project to undertake at least 30% of the designs of the road works to facilitate early take off prior to engagement of design consultants for the rest of the road works. This percentage will be reviewed during implementation. 4.5.3 Having identified investments eligible for funding after prioritization and inventorization using the existing AAMP’s model for economic analysis and prioritization of district roads, the district local government will i) include the costs of infrastructure investments in the AWP/B; ii) make adequate arrangements to ensure that the infrastructure can be operated and maintained over the long-term; iii) draw up tender documents for work to be contracted out; and iv) supervise all ongoing infrastructure-related contracts financed under the programme. The District Engineering Departments will have overall responsibility for the community roads and will prepare the designs and also supervise construction. When a particular district has no capacity for design work, the job will be contracted out. The consultancy services, apart from the procurement of the consultant firm, will consist of engineering design, tendering, construction supervision of civil works and training. Guidance

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and on the job training will be provided by the Infrastructure Engineers in the PFT. Given that available funds will cover only 15 km of roads per district, prioritization for district roads will be undertaken during PY1 for all the districts. Selection of community access roads will be limited to community prioritization only. 4.5.4 The alignment of the district roads will generally follow the existing ones requiring only short horizontal adjustments without any major changes. The selected roads will be designed according to the standards of the Ministry of Works and Transport (MoWT) in Uganda. A carriageway width of 5.5 m from shoulder to shoulder will be adopted with a design speed of 70 kph in the flat terrain open country and 50 kph through hilly terrain and established villages. Improvements to horizontal and vertical alignments will be made where necessary to meet the desirable geometric criteria to satisfy traffic safety requirements. A uniform gravel pavement layer of 0.10m adhering to the specifications of the MoWT will be applied for the entire road surface. The road foundations will be protected by side drains. Most of the drainage structures will be in the form of concrete pipe culverts and bridges and these together with side drains will be constructed along the whole stretch of the road. 4.5.5 With regards to the rehabilitation of the community based roads, the focus will be on roads that are impassable due to poor road condition, damaged or non-existent drainage structures, bridges and culverts, and/or which suffer perennial blockages during the wet seasons. The alignment of the proposed community access roads for rehabilitation will generally follow the existing ones requiring only short horizontal adjustments without any major changes. The community access roads shall be constructed by contract using either equipment based methods or labour intensive methods and in accordance with the standards of the Ministry of Works and Transport (MoWT). A carriageway width of 4.5m from shoulder to shoulder will be adopted for the rehabilitation of existing community access roads, while for new roads that need to be constructed, the width shall be 3.6m from shoulder to shoulder. There will be spot regravelling with a uniform gravel wearing course of 0.10m along the stretches on the road where gravelling is required as determined at the design stage and adhering to the specifications of the MoWT. The surface cross-section design camber shall be 7% and will be applicable for the entire road surface. The road foundations will be protected by side drains. Almost all the drainage structures will be in the form of concrete pipe culverts and these together with side drains will be constructed along the whole stretch of the road. A.2 Marketplace Improvement 4.5.6 The Project will improve one marketplace per sub-county or a total of 78 market places. The selection will be based on established linkage to existing and potential economic activities. The infrastructure will include stalls, shades, limited produce storage, cold rooms and some agro-processing and packaging units, mainly for demonstration. These will include rice hullers/millers, fruit and grain millers. The promotion of these facilities in the market places will encourage the grass-roots communities and the private sector to take advantage of the opportunities to invest in and sustainably manage these infrastructures. The proposal will aim to provide an integrated market structure equipped with agro-processing facilities, fencing for security and ramps for disabled access. Furthermore, the markets would be equipped with adequate latrines, solid waste disposal depots, guttering, and a borehole for the provision of water to the market and the ablution blocks. Fire fighting equipment would be provided and personnel appropriately trained. The market will be provided with electricity for light and agro-processing (see para 4.5.8 below).

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4.5.7 The project will strengthen the existing market management committees (MMCs) whose responsibility is to ensure law and order in the marketplaces. Following existing procedures (see para 3.1.3), the Districts, in collaboration with the MMCs, will tender out the operation of the marketplaces to private operators. Ownership will remain with the districts and the local communities. The sub-counties will give an undertaking to the MoLG that, as from PY3, they will use the market revenues primarily for the maintenance of the market infrastructures. Though existing marketplaces are situated on district lands, there exist possibilities that some of the lands might belong to individuals or be in dispute. In all cases, prior to improvement of the selected marketplace, the district/sub-county will provide the PFT with a letter of comfort/documentation/land lease as evidence of legal ownership of the land. The PFT will ensure that adequate compensation is made to land owners in the event of any land expropriation for the purpose of marketplace development. Bank missions will routinely assess that these provisions are followed. The markets will act as growth centres and provide opportunities for other non-farm enterprises and businesses to spring up. This will in turn enhance increased revenues from the market places. A.3 Rural Electrification

4.5.8 The project will demonstrate and promote the potential of using a mixture of solar energy, hydro-power and diesel generators for power supply across the 78 target market places. This will ensure a reliable, affordable and sustainable electricity supply for basic services provided in marketplaces. It will also promote the growth of the local energy industry by their expanding the distribution network of the service providers into rural areas. The Project assists with two kinds of energy investments. The first investment supports “Entry Level Electricity Packages” which are for relatively small and remote marketplaces. For these marketplaces with a limited energy demand, solar based energy systems are the least cost and more reliable solution. It is estimated that 50 of the marketplaces will require this entry level package. The second investment supports “Comprehensive Electricity Packages” which are for larger marketplaces. The power will either be provided by diesel-generator or micro-hydro options. It is estimated that 28 of the market places will require this package (27 diesel and 1 micro-hydro). The sub-component will also support design and supervision activities. This will include technical design of energy packages; preparation of bid documents; assistance in evaluation of proposals; monitoring of installation and operation; and facilitation for expansion of rural energy service providers. The installation of the marketplace electrification will be contracted out and the contractors will be expected to operate the facility for the first three years. Contractors will be encouraged to open service and sales outlets for commercial operation. After three years, the responsibility to operate and maintain the energy systems will be handed over to the sub-counties. This time is to allow for stability and learning process for the operation and maintenance of the systems. It will be integrated to the overall sub-county plans for management of the marketplaces through the market management committees. The cost of running the markets, including the operation and maintenance for the rural energy will come from the marketplace revenues. The World Bank-assisted Energy for Rural Transformation (ERT) Programme staff in the districts will provide technical supervision for the energy sub-component of CAIIP. B. COMMUNITY MOBILIZATION 4.5.9 The project will finance community mobilization activities to make small rural farm holders, interest groups and communities aware of the programme. This will enable them to participate actively in the inventorization, prioritization, selection and implementation of their choice of local area infrastructure interventions. This will also assist to establish the

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necessary structures that will ensure the maintenance and sustainability of their investments. NAADS will adopt its existing systems and approaches for agricultural enterprise promotions to undertake community mobilization for rural infrastructure improvement. It will work closely with the Districts in selecting the three sub-counties to be included in the project. Among the criteria for selection will be NAADS presence in the sub-county (evidence of on-going mobilization, promotion of crop enterprises, presence of service providers); capacity to manage and account for project resources; and potential for economic growth (entrepreneurship, private sector presence, presence of contractors). 4.5.10 Community mobilization will be sensitive to gender issues. The project will finance gender sensitization, which will also involve men, including husbands, and the issue of income expropriation will be among the themes. Community Development Workers already working in the districts will also be involved in community mobilisation activities, which will include training for prioritization and sensitization workshops. The Community Mobilization Officers will work closely with NAADS and the Local Governments in mobilization and sensitization efforts. In areas where NAADS is yet to roll out, the same principle will apply but mobilization will be led by the Community Mobilization Officers pending the roll out of NAADS. These officers will be trained at the DANIDA-financed Mt. Elgon Training Institute in order to catalyse the involvement of gender issues within the scope of project activities, as well as to increase women’s participation and support for affirmative action in decision making process. Mobilization will target farmers groups, women groups and community appointed road maintenance gangs (of which at least 50% will be women).

C. PROJECT MANAGEMENT

4.5.11 The ongoing AAMP has a Project Facilitation Team (PFT), whose costs are being

financed by IFAD (see Annex 4). The PFT is one of the best performing PCUs in Uganda. This structure will be used to manage the project. However, CAIIP’s structure will be adapted to fit in with its implementation plan. The project will therefore not create any parallel structures. However, in order to facilitate supervision and technical support in all the 26 districts, a small Zonal Office will be established at Mbale to oversee districts in Eastern Uganda. The Mbale District authority has agreed to allocate adequate office space to the project. The districts in Central Uganda will be supervised from the AAMP Office in Kampala. To ensure continuity, CAIIP P-1 will inherit the PFT obligations of financing the cost of the PFT when IFAD’s support for AAMP closes in 2008. AAMP activities are winding down and there will be adequate PFT capacity to take up the CAIIP-P1 responsibilities. In addition, CAIIP-P1 will finance incremental operational costs associated with its activities. 4.6 Production, Market and Prices 4.6.1 The direct outputs of the project will be the rural roads, markets and agro-processing facilities and energy in marketplaces that will be created. The direct effects of road improvement will be reduction in transit time and transport unpredictability, while investment in promotion of agro-processing will reduce post-harvest losses (often over 30% of total production) and improve quality of produce. Thus the volume of production that is available for market in good condition will be increased. Producer surplus will increase as a result of combined effects of higher farm gate prices and benefits due to lower input (transport) costs. Farmers’ net savings from reduction in transport costs and the real farm gate prices will create an opportunity for incremental production, especially from previously uncultivated land. This is an induced production or an indirect effect triggered by project investments in transport infrastructure.

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While quantification is possible, any attempt at this point will only be speculative. Project Monitoring and Evaluation officers will collect data on production increases during implementation. Evidence shows that investments in infrastructure such as district roads lower transport costs (up to 100%) and travel time (2 minutes savings per km) which will lead to improvements in market for agricultural inputs and outputs and extra labour for other chores, especially for women involved in marketing. Also the value of tea leaves, for example is known to increase substantially if it is transported fresh to the factory processing plant soon after harvesting, because good access roads exist. Freshly cut flowers will also maintain value if transported to their destination in time which would not be possible where access roads are poor. 4.6.2 Apart from improvement in district and community–access roads, the project will also provide market structures, agro-processing and storage facilities. Good storage facilities at the markets for unsold meat and vegetables and coolers for milk will ensure that farmers’ produce do not perish. All these incentives are expected to lead to higher production, better producer prices for beneficiaries, but this will depend on the individual demand elasticity of the various commodities being produced in the region. Larger exports to other home markets may also increase supply and depress local market prices in these areas. However, farmers exporting to Kampala and other major districts are expected to enjoy increased market prices and incomes. Farmers selling at marketplaces will also enjoy better producer prices than farmers selling at farm gate. The promotion of processing facilities through the private sector will also reduce post-harvest losses and improve quality of produce. 4.6.3 Transport costs are important determinants of marketing margins. These are a large proportion of the total marketing costs in Uganda. Lowering high marketing margins not only lowers retail prices but also raises farm gate prices. Current estimates indicate that for cereals and beans, farm gate prices are 17-20% lower than at the market place, indicating a high transport cost element. At the same time, high market access raises prices received by farmers by about 20-40%. AAMP studies show increases in banana prices from as low as UGS 800-1,200 to UGS 3,500 following road improvement in most of the districts. These results are expected to be replicated in the project area, as the project will increase access to markets and enable farmers to access better prices. Households on the average spend 58% of their total per capita on food, while a very large proportion of income at the margin is also spent on food reflecting a continuing need to raise food productivity to lower real prices for broad welfare impacts. Proximity of some of the districts to the border areas will increase demands for beans and cereals and this will increase the share of export prices reaching farmers. In general, improved roads and markets will decrease marketing costs, lower transaction costs, raise productivity for food and increase competitiveness.

4.7 Environmental Impact and Mitigation Measures 4.7.1 The Project is classified as Category 2. Within the framework of the harmonization and alignment process underlying the Paris Declaration, the Project will ensure; 1) compliance with all Ugandan legal requirements, including the National Environment Act (1995), the Guidelines for Environmental Impact Assessment (GEIAU, 1997) and the Environmental Impact Assessment Regulations (1998); 2) use of the Ugandan’s EIA country system for scaling-up the development impacts, increasing country ownership and building institutional capacity of the MoLG, the MoWT, NEMA and the targeted 26 districts. 4.7.2 Positive environmental impacts: The improvement of the district and community access roads will lead to improved transportation services, which in turn will result in better access to health centres and improved delivery of social services. Road improvement will

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lead to an increase in the volume of trade and commercial activities in the targeted districts and sub-counties since the current state of the roads discourage traders because of the high transport costs, vehicle operation and maintenance costs and the length of time it takes to reach commercial centres. From a gender perspective, a number of women are involved in the marketing of small quantities of farm produce at urban and market centres and along sub-project roads. Some women are also involved in selling cooked foodstuffs and local brew in the marketplaces. The improvement of the roads and markets will positively affect the structure and volume of business undertaken by women, including their participation in road maintenance gangs which will increase their disposable incomes. The project will result in better hygiene and secure energy source for the marketplaces. 4.7.3 Potential negative environmental impact Rehabilitation of the districts and community access roads could potentially have impacts at different levels. The impacts on public health are associated with air and noise pollution, occupational health and safety, STD/AIDS, (rural road construction increase the risk of HIV transmission by linking low and high prevalence areas, such as villages where risk is lower and cities where the prevalence is higher through influx of labour during construction and truck drivers during operational phase) and the disposal of solid, liquid and sanitary wastes. Disturbance to the public will also occur during construction and operation phases. The expected increase in the number of vehicles plying the roads as a result of their improvements and higher traffic speeds will increase the danger to non-motorised traffic and livestock and trigger safety issues. As project activities will be based on existing roads right-of-way, there are likely to be minimal negative impact. Rehabilitation of the existing, and construction of new, swamp crossings will have impacts of similar magnitude on the wetlands systems, mainly in the form of sediment loading. Increased run-off, erosion of embankments with resulting wetland/river sedimentation, induced deforestation and loss of water catchments areas are potential impacts during the operational phase. However, no potential long-term and cumulative impacts are anticipated. 4.7.4 Mitigation and enhancement measures: In accordance with the sub-projects identified through a consultative process at the district and sub-counties level, and reflected in the Project’s Annual Work Plan (AWP), an Environmental and Social Impact Review will be undertaken. NEMA will review and, if satisfied, provide a Certificate of Approval of EIA for the AWP to MoLG with conditions of approval. The mitigation measures identified for each sub-project will then be incorporated into the Engineers’ Drawings, Specifications and Bill of Quantities (BOQ) of the Bid Documents. In addition, environmental remediation and sensitization measures at the sub-county level by the DEO will be provided. In order to enhance the environmental management capacities during the project life and ensure effective integration and monitoring of the proposed mitigation measures, the District Engineers and Environmental Officers, the Supervising Engineer, Road Inspector, Gender Officer, Community Development Officer of the 26 targeted districts will be trained at the Mount Elgon Labour-based Training Centre (MELTC) in Mbale District. This training will strengthen the mainstreaming of cross-cutting issues during the planning phase of the District Development Plans and its related Road Plans. 4.7.5 Monitoring, consultation, and institutional measures: NEMA shall be responsible for oversight, implementation and compliance with the Uganda’s EIA legal and regulatory requirements. However, in accordance with the principles of the decentralisation framework in Uganda, and with financial support from the Project, the District Engineer (DE) and Environment Officer (DEO) will monitor the implementation of the mitigation measures on a daily basis. Contractors, in accordance with the environmental and social provisions in their contracts, will be accountable for the implementation of the mitigation measures. In the

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schedule of works, Contractors will include all proposed mitigation measures proposed in the BOQs, and the Supervising Engineers will ensure that the schedules and monitoring plans are complied with. 4.7.6 Implementation schedule, cost estimate and reporting procedures: The measures outlined in the ESMF will be implemented following the same project schedule as all activities are mainstreamed into the project design. Achievements or problems will be reported in the project quarterly/annual progress reports and should be timely addressed by the project management and the Bank. The costs of mainstreaming the environmental mitigation and monitoring measures into the project, including potential resettlement issues, have been fully costed (See Annex 9 and Detailed Cost Tables). In addition, the Project will finance NEMA to undertake a baseline study on the current level of compliance of agricultural produce with environmental, sanitary and phyto-sanitary requirements for the export market. 4.8 Project Costs 4.8.1 The total project cost over the five-year period, including price contingencies (6% domestic and 2.5% foreign), but excluding duties and taxes, are estimated at UA 34.20 million. This includes foreign exchange component amounting to UA 15 million (or 44% of total costs) and local cost amounting to UA 19.2 million or 56% of total costs. The unit costs of roads and marketplaces are based on current contracts for similar works in both the AMMP and the Northwest Smallholder Agricultural Development Project. The high local cost content is associated with the large investments in civil works which are mainly of the local cost structure (sand, cement, labour, gravel materials, etc). Summaries of cost estimates by components and by category of expenditure are in Tables 4.1 and 4.2 respectively.

Table 4.1: Summary of Cost Estimates by Component (‘000)

Local

(USH ‘000)

Foreign

Total

Local

(UA ‘000)

Foreign

Total

% Foreign

Exchange

A. RURAL INFASTRUCTURE IMPROVEMENT

Rural Roads Improvements 23,739,516.4 16,784,671.3 40,524,187.7 8,620.4 6,094.9 14,715.3 41 Markets 10,695,579.2 10,131,712.8 20,827,292.0 3,883.8 3,679.1 7,562.9 49 Rural Electrification 538,172.0 3,154,881.7 3,693,053.7 195.4 1,145.6 1,341.0 85 Subtotal RURAL INFASTRUCTU RE IMPROVEMENT

34,973,267.6 30,071,265.8 65,044,533.4 12,699.6 10,919.6 23,619.2 46

B. COMMUNITY MOBILIZATION Community Mobilization 3,263,736.4 1,307,610.6 4,571,347.0 1,185.1 474.8 1,660.0 29 Subtotal COMMUNITY MOBILIZATION 3,263,736.4 1,307,610.6 4,571,347.0 1,185.1 474.8 1,660.0 29 C. PROJECT CO-ORDINATION & FACILITATION

Project Coordinating Unit 1,558,101.0 3,871,261.0 5,429,362.0 565.8 1,405.7 1,971.5 71 Subtotal PROJECT CO-ORDINATION&FACILITATION

1,558,101.0 3,871,261.0 5,429,362.0 565.8 1,405.7 1,971.5 71

Total BASELINE COSTS 39,795,105.0 35,250,137.4 75,045,242.4 14,450.6 12,800.2 27,250.7 47 Physical Contingencies 2,892,401.6 2,934,363.5 5,826,765.1 1,050.3 1,065.5 2,115.8 50 Price Contingencies 10,196,614.2 3,095,496.6 13,292,110.7 3,702.6 1,124.0 4,826.7 23 Total PROJECT COSTS 52,884,120.8 41,279,997.4 94,164,118.2 19,203.5 14,989.8 34,193.3 44

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Table 4.2: Summary of Cost Estimates by Category of Expenditure (‘000)

% (USH ‘000) (UA‘000) Foreign Local Foreign Total Local Foreign_ Total Exchange I. Investment Costs A. Civil Works 25,619,952.0 17,079,968.0 42,699,920.0 9,303.2 6,202.1 15,505.4 40 B. Vehicles 74,400.0 669,600.0 744,000.0 27.0 243.1 270.2 90 C. Motorcycles 17,186.0 154,674.0 171,860.0 6.2 56.2 62.4 90 D. Equipment 897,088.7 8,168,708.3 9,065,797.0 325.8 2,966.3 3,292.0 90 E. Materials and Input 31,200.0 46,800.0 78,000.0 11.3 17.0 28.3 60 F. Technical Assist./Consultants 254,448.0 1,812,864.0 2,067,312.0 92.4 658.3 750.7 88 G. Audit Services - 250,000.0 250,000.0 - 90.8 90.8 100 H. Training and Capacity Building 1,047,952.0 1,571,928.0 2,619,880.0 380.5 570.8 951.3 60 I. Cross-Cutting Issues 649,853.8 433,235.9 1,083,809.7 236.0 157.3 393.3 40 J. Design Studies and Supervision 695,775.0 2,088,475.0 2,784,250.0 252.7 758.4 1,011.0 75 Total Investment Costs 29,287,855.5 32,276,253.2 61,564,108.7 10,635.1 11,720.3 22,355.4 52 II. Recurrent Costs A. Salaries and Allowance 8,223,060.0 - 8,223,060.0 2,986.0 - 2,986.0 - B. Civil Works Maintenance 542,880.0 361,920.0 904,800.0 197.1 131.4 328.6 40 C. Vehicle & Equipment Maint 292,407.5 438,611.2 731,018.7 106.2 159.3 265.5 60 D. General Operating Expenses 1,448,902.0 2,173,353.0 3,622,255.0 526.1 789.2 1,315.3 60 Total Recurrent Costs 10,507,249.5 2,973,884.2 13,481,133.7 3,815.4 1,079.9 4,895.3 22 Total BASELINE COSTS 39,795,105.0 35,250,137.4 75,045,242.4 14,450.6 12,800.2 27,250.7 47 Physical Contingencies 2,892,401.6 2,934,363.5 5,826,765.1 1,050.3 1,065.5 2,115.8 50 Price Contingencies 10,196,614.2 3,095,496.6 13,292,110.7 3,702.6 1,124.0 4,826.7 23 Total PROJECT COSTS 52,884,120.8 41,279,994.4 94,164,118.2 19,203.5 14,989.8 34,193.3 44

4.9 Sources of Financing and Expenditure Schedule

The Project will be financed with an ADF loan amounting to UA 30 million or 87.7% of total project cost. This will finance most of the project activities, except for local staff costs and allowances. The Government of Uganda (GoU) will contribute UA 3.76 million or 11% of total costs, mainly salaries and allowances of project staff, while the local communities who are main beneficiaries will contribute UA 0.44 million or 1.3% of total costs, mainly towards community access roads maintenance. In addition, the Communities will take over the management and operation of the marketplaces and facilities after three years. The GoU will also finance all taxes and duties associated with the project activities or grant the project the necessary waiver as tenable by the laws of Uganda. The sources of financing of the programme as a whole are as shown in Table 4.3. The list of goods and services is given in Annex 6(a).

Table 4.3

Sources of Finance

USH '000 UA '000 % Total

Source F.E Local Currency

Total F.E Local Currency

Total

ADF 41,279,997.4 41,336,441.2 82,616,438.6 14,989.8 15,010.3 30,000.0 87.7

GOU - 10,348,237.7 10,348,237.7 - 3,757.7 3,757.7 11.0

Beneficiaries - 1,199,441.9 1,199,441.9 - 435.5 435.5 1.3

Total 41,279,997.4 52,884,120.8 94,164,118.2 14,989.8 19,203.5 34,193.3 100

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5. PROJECT IMPLEMENTATION 5.1 Executing Agency

The Ministry of Local Government (MoLG) is the Executing Agency. However actual

project implementation will be undertaken at the district and sub-county levels. The project will be implemented within the framework established by the Government for decentralized administration and development. MoLG is hosting the AAMP whose successfully established and well experienced PFT structure will be adapted to implement the project. 5.2 Institutional Arrangements

5.2.1 The Inter-ministerial Policy Committee (IPC) which already exists and is chaired by the

Permanent Secretary of MoLG will continue to provide policy oversight over implementation. It comprises the Permanent Secretaries of Ministry of Finance, Planning and Economic Development (MoFPED); Ministry of Works and Transport (MoWT); Ministry of Agriculture Animal Industry and Fishery (MAAIF); the Ministry of Gender, Labour and Social Development (MGLSD), Ministry of Water and Environment (MWE); Ministry of Tourism, Trade and Industry (MTTI). It will also include the Director PMA, the Executive Directors of NEMA and NAADS in an expanded IPC, for the purposes of overseeing compliance with environmental issues and the PMA process. In addition, the IPC will have the authority to co-opt district and sub-county officials, as the need arises, during implementation.

5.2.2 CAIIP will be implemented within the existing PFT structure. The project will therefore not create any parallel structures but will work within the framework of AAMP. Its staff at Kampala/Mbarara will cover the Central Zone. However, in order to facilitate supervision and technical support in all the 26 districts, a small Zonal Office will be established at Mbale to oversee districts in Eastern Uganda. The Mbale District Authority has agreed to allocate adequate office space to the project. To ensure continuity, CAIIP-1 will inherit most of the PFT’s existing staff and take over the cost obligations when AAMP closes in 2008. However, the PFT will be strengthened by recruitment of two Infrastructure Engineers, one at Kampala and the other at Mbale, one Community Mobilization Specialist at Mbale, one Rural Energy Expert at Kampala and one M&E Officer and one Zonal Accountant, both at Mbale.

5.2.3 Programme implementation will take place simultaneously at the District and Sub-County Local Governments under the guidance of the PFT. Each district will assign a Programme Support Officer (PSO) who will coordinate the implementation and technical supervision of the project, including gender sensitization , training and monitoring and evaluation in the respective districts. Also it will assign a Financial Officer who will ensure that ledgers are kept up to date at district level, reconciliations are regularly done for audit purposes and funds are properly accounted for. The Chief Administrative Officer (CAO) will designate appropriate officers for these important tasks. The Project will also collaborate with other government programmes and institutions such as NAADS and projects financed by other DPs that are directly or indirectly linked to its successful implementation. Sub-County Annual Work Plans and Budgets will be aggregated at the District level before being sent to the PFT for compilation. The PSO will be assisted by officials from the districts and the PFT in order to plan, implement and monitor the community development activities in the sub-counties, to ensure that there is an integrated approach to the mobilization of communities and interest

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groups and to verify that the technical content of the information provided during the mobilization process, is appropriate and accurate.

5.2.4 The district administration will:

• With PFT assistance select sub-counties in accordance with the NAADS criteria which meet the minimum condition for participation under CAIIP;

• Prepare the district AWP/B, anchored on the broad District Plans, for

consolidation by the PFT;

• Implement project activities included in the AWP/B, maintain the project accounts and records, process eligible programme expenditures and evaluate tender documents with the PFT for review and consolidation;

• Prepare the district quarterly progress reports and submit consolidated annual

progress reports and financial statements to the PFT;

• Monitor programme performance and participate in the mid-term and programme completion reviews.

5.2.5 Sub-county level. Each eligible sub-county local government, under the control of the sub-county chief, will carry out a programme of community mobilization and participatory planning resulting in the inclusion of proposals in the AWP/B, mobilize for implementation and monitoring of performance. Community leaders, leaders of interest groups and members of group management committees will be involved in awareness creation and community mobilization, participatory planning and assessments of programme effectiveness. Communities and their leaderships will, under the guidance and coordination of sub county technical planning committees, actively participate in defining work programmes which respond to local opportunities, demands and initiatives. The private sector service providers and promoters will take advantage of the opportunities offered by the project to promote trade, entrepreneurship and operation of the services on lease contracts. These will include expanding trade at the marketplaces, promoting solar energy services, operate the markets and the marketplace electricity and train the infrastructure management committees for eventual take over and maintenance. 5.2.6 Planning of rural infrastructure investments will follow a series of participatory steps aimed at continual close consultation with the beneficiaries. Agreements will be reached on such matters as design, cost and cost sharing, task responsibilities and organization during implementation and on completion, thereby maintaining “ownership” of the entire process by the beneficiary community. 5.2.7 Contracts administration will be undertaken by the PFT with the participation of each district’s contracts committee. Civil works contracts will be paid for directly by the PFT based on the actual work done. This will provide an incentive to perform well and ensure that large sums are not locked up in districts. Districts and sub-counties will be provided resources to meet costs of recurrent and routine maintenance and other miscellaneous operational expenses. In order to facilitate quick take off of the investments, the Bank will consider the project undertaking some advance actions for acquisition of consultancy services (AAA), such as for recruitment of design engineers and key project staff for the Mbale Office. This will allow the

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Borrower to commence the procurement process in conformity with the Bank rules, but will not sign the contracts prior to approval of the project by the Board of Directors. 5.3 Supervision, Implementation and Expenditure Schedules The CAIIP-P1 will be implemented over a period of five years, starting July 2007. During the period, the project will be supervised by the Bank twice annually. A Mid Term Review will be undertaken in conjunction with GoU in the middle of the third year of the project and a project completion report will be prepared by both the Borrower and the Bank prior to loan closure. The project implementation schedule is given in Annex 7. Tables 5.1 and 5.2 give the expenditure schedules by components and sources of finance respectively of the project.

Table 5.1 Expenditure Schedule by Components, including Contingencies (UA’000)

Table 5.2 Expenditure Schedule by Source of Finance (UA '000)

Source 2007/08 2008/09 2009/10 2010/11 2011/12 Total %

ADF 5,538.9 7,782.1 6,154.8 5,237.2 5,287.0 30,000.0 87.7

GOU 346.2 548.0 841.5 975.8 1,046.1 3,757.7 11.0

Beneficiaries - - 67.1 142.3 226.1 435.5 1.3

Total 5,885.1 8,330.1 7,063.5 6,355.4 6,559.2 34,193.3 100

5.4 Procurement Arrangements

5.4.1 Procurement arrangements are summarized in Table 5.3 below. All procurement of goods, works and acquisition of consulting services financed by the Bank will be in accordance with the Bank's Rules of Procedure for Procurement of Goods and Works or, as appropriate, Rules of Procedure for the Use of Consultants, using the relevant Bank Standard Bidding Documents. 5.4.2 Civil Works: Procurement of civil works (comprising Rehabilitation of District and Community Access Roads and Marketplace Structures, including Housing for facilities, in 26 districts and 78 sub-counties), estimated in aggregate at UA 19.53 million, will be undertaken through NCB procedures. These include the rehabilitation of 390 km of District Roads [valued at UA 3.74 million] and 3,510 km of Community Access Roads [valued in aggregate

2007/08 2008/09 2009/10 2010/11 2011/12 Total A. RURAL INFASTRUCTURE IMPROVEMENT

Rural Roads Improvements 999.4 4,072.2 4,403.6 4,656.9 4,955.8 19,087.9 Markets 2,890.6 2,806.0 1,758.1 964.5 832.3 9,251.6 Rural Electrification 576.9 688.0 226.0 32.3 33.1 1,556.3 Subtotal RURAL INFRA-STRUCTURE IMPROVEMENT

4,466.9 7,566.3 6,387.7 5,653.7 5,821.1 29,895.8

B. COMMUNITY MOBILIZATION Community Mobilization 735.0 272.6 303.1 319.6 337.0 1,967.4 Subtotal COMMUNITY MOBILIZATION 735.0 272.6 303.1 319.6 337.0 1,967.4 C. PROJECT CO-ORDINATION & FACILITATION

Project Coordinating Unit 683.2 491.2 372.6 382.1 401.0 2,330.0 Subtotal PROJECT CO-ORDINATION & FACILITATION

683.2 491.2 372.6 382.1 401.0 2,330.0

Total PROJECT COSTS 5,885.1 8,330.1 7,063.5 6,355.4 6,559.2 34,193.3

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at UA 11.79 million]. Other civil works include Routine and Recurrent Maintenance of 587 km of District Roads [estimated at UA 146,200], Marketplace Structures, in 78 Sub-Counties [valued at UA 2.55 million] and Housing for Agro-Processing Facilities [valued at UA 1.30 million] will all be procured through NCB procedures. The character, location and sizes of these works are such that they are unlikely to attract bids from outside Uganda, and there are local contractors sufficiently qualified and in a number sufficient to ensure competitive bidding. Routine and Recurrent Maintenance of 5,267 km of Community Access Roads [estimated at UA 682,000 million in aggregate] will be undertaken through Community Participation, specifically in the interest of project sustainability.

Table 5.3 Procurement Arrangements (UA’000)

Categories

NCB

Other*

Shortlist Non-Bank Funded**

Total 1. Civil Works 19,527.5 (19,527.5) 682.1 (246.6) 20,209.7 (19,774.1) 2. Goods 2.1 Vehicles 310.0 (310.0) 310.0 (310.0) 2.2 Motor cycles 71.6 (71.6) 71.6 (71.6) 2.3 Equipment 3,859.1 (3,859.1) 3,859.1 (3,859.1) 2.4 Materials and Inputs 33.0 (33.0) 33.0 (33.0) 3. Services 3.1 TA/Consultancy Services 837.8 (837.8) 837.8 (837.8) 3.2 Audit Services 108.9 (108.9) 108.9 (108.9) 3.3 Studies and Supervision 1,067.3 (1,067.3) 1,067.3 (1,067.3) 3.4 Cross-Cutting Issues 458.0 (458.0) 458.0 (458.0) 3.5 Training and Capacity Building 1,050.4 (1,050.4) 1,050.4 (1,050.4) 4. Miscellaneous 4.1 Personnel 3,757.7 3,757.7 4.2 Civil Wks Maintenance 433.8 (433.8) 433.8 (433.8) 4.3 Vehicle & Equip Maintenance 337.2 (337.2) 337.2 (337.2) 4.4 General Expenses 1,658.8 (1,658.8) 1,658.8 (1,658.8)

4.1.1TOTAL 19,527.5 (19,527.5) 8,894.0 (8,458.5) 2,014.0 (2,014.0) 3,757.7 34,193.3 (30,000.0)

Figures in parenthesis () are the respective amounts financed by African Development Fund. * Other includes: National Shopping, Direct Purchase and Force Account. ** Non-Bank Funded: Items financed by Beneficiaries and the Government. 5.4.3 Goods: Procurement of Vehicles and Motorcycles for Monitoring and Supervision, valued at UA 310,000 and UA 71,600, respectively, will be through National Competitive Bidding (NCB). Assorted Agro-Processing Equipment (Milk Coolers, Grain Millers, Rice Hullers, etc), valued at UA 2.59 million in aggregate, and Rural Energy Facilities, valued at UA 1.18 million, will also be procured through NCB procedures. The quantities and character of these goods are such that they could not possibly interest suppliers from outside Uganda, and there are local suppliers sufficiently qualified and in a number sufficient to ensure competitive bidding. Office equipment, valued at UA 89,000 in aggregate, and labour implements and materials, valued at UA 33,000, will be procured through National Shopping procedures. This is because the goods are readily available off-the-shelf items, and there is an adequate number of national suppliers and agents of qualified foreign suppliers to ensure competitive prices. 5.4.4 Consulting and Training Services: Apart from the allocation of UA 72,000 to NEMA, specifically for environmental baseline studies, to be undertaken on the basis of a memorandum of understanding between the PFT and NEMA, the procurement of consulting services [valued in total at UA 837,800], design studies and supervision [valued at UA 1.07 million], and audit services [valued at UA 108,900], will be undertaken on the basis of shortlists. The selection procedures will be based on technical quality with price consideration. There will be Advance Action for Acquisition (AAA) of consultancy services

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so as to commence recruitment of the design consultants early. Training and Community Mobilization Services will be procured through Direct Negotiations procedures (using the services of NAADS, PFT, Districts, Sub-Counties, Community Groups, etc.). This is because, given the perfect knowledge of local customs and tribal practices required, the assignments are considered as requiring single sources of expertise. Miscellaneous Expenditures, especially Operating Expenses will be undertaken using existing GOU systems acceptable to the Bank. 5.4.5 National Procedures and Regulations: Uganda’s national procurement laws and regulations have been reviewed and determined to be acceptable. 5.4.6 Executing Agency: The PFT of the MoLG will be responsible for managing the procurement of goods, works, and consulting/training services. The resources, capacity, expertise and experience of the PFT (see Annex 4) are adequate to carry out the procurement. 5.4.7 General Procurement Notice: The text of a General Procurement Notice (GPN) will be discussed and agreed with the Borrower, and this will be issued for publication in the UN’s Development Business, upon approval by the Board of Directors of the loan proposal. 5.4.8 Review Procedures: For all activities requiring the Prior Review of ADF, the following documents are subject to review and approval by the Bank before promulgation (except where post-procurement rules apply): Specific Procurement Notices; Tender documents/Requests for Proposals; Tender evaluation/Evaluation of Proposals' reports, including recommendations for contract award; and Draft contracts, if these have been amended from drafts included in the tender invitation documents. 5.4.9 Post Review Procedures: Post procurement review procedures will be applied for individual contracts of value less than the following thresholds:

Civil Works: UA 100,000. Goods: UA 50,000. Services: UA 20,000.

5.5 Disbursement Arrangements 5.5.1 The Special Account (SA) method and the Direct Payment method will be used. The MoLG will open a SA in foreign currency at Bank of Uganda (BoU) into which part of the loan resources will be deposited. It will also open a Local Currency Account (LCA) at the BoU. Thereafter, funds will be transferred from the SA to the LCA as and when required to finance the project activities. Other expenses, especially for minor works, goods and services and all the expenses under miscellaneous will be paid through the SA. The ADF will replenish the SA after the PFT has provided valid justifications for the use of at least 50% of the previous deposit, plus outstanding unjustified balance of the earlier tranche. The opening of the SA and the LCA will be a condition precedent to first disbursement. The Direct Payment method will be used to finance major civil works, goods, and services. 5.5.2 The current arrangements for flow of funds under AAMP (Annex 4) will be adopted by CAIIP. The overriding principle will be to provide an incentive to each district to account quickly such that a fast performing district, that manages its contracts well, does not get held back because another is slow to account for its expenditures. Following from the assessment of the financial and audit control environment which was found to be adequate, the ceiling of

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the SA will be fixed at US$ 2.0 million. Current Bank guidelines on disbursement will apply and these will be illustrated in more detail through the issuing of a disbursement letter to the Government. 5.5.3 The signatories to both the SA and the LCA shall be the PFT Programme Facilitator, the PFT Financial Controller and the Permanent Secretary (MoLG), as is current practice. Each district will also have a district programme account (DPA) and the signatories to this will be the CAO, the CFO and an alternate signatory, the Programme Support Officer (PSO).

5.6 Monitoring and Evaluation

5.6.1 The foundation for the overall project monitoring (and evaluation) systems will be the logical framework, a series of key performance indicators (see project log-frame) and the Project Operational Manual (POM) which will be adapted to suit CAIIP activities by the PFT shortly after project take-off (see para 4.2.3 and Annex 4). The PFT will adapt the existing Manual being used under AAMP. The monitoring indicators, disaggregated by gender, where applicable, will compare project performance each year with the targets set in the AWP/B for that year. The project will finance a baseline study in PY1 to provide reference for monitoring project impact. The general principles for the participatory monitoring of project activities will include: (a) community interest groups will monitor sub-county activities and investment performance, supported by service providers; (b) district authorities will monitor activities, inputs and output achievements in their respective areas; (c) relevant institutions, such as NAADS and the PMA Secretariat will monitor attainment of PEAP objectives, d) the MoLG will monitor overall operations for planning and facilitation purposes for rural economic development in line with its LGSP objectives; while MoWT will monitor the implementation of the roads infrastructure for attainment of national objectives under DUCARIP. The M&E Unit within the PFT will monitor and evaluate overall impact of the project and compile the project’s quarterly and annual reports for dissemination to stakeholders – the Bank, MoFPED, other line ministries, districts and the DPs. 5.6.2 A mid-term review (MTR) will be undertaken at the middle of project year three (see Annex 7) to review the project’s achievements and constraints, looking in particular at the following: (a) the performance of the districts in using and accounting for the rural infrastructure fund; (b) the appropriateness of the community mobilization approach; (c) the performance of the PFT in supporting the districts; (d) the status of the roads and markets implemented to date; and (e) future requirements of the districts for technical support. Prior to the visit of the mid term review mission, the MoLG will have prepared a draft mid-term progress report, if need be, with external technical support. Similarly, upon completion of project investments at the end of programme year five, the Project Facilitator will initiate the process of project completion review (PCR), also drawing on external technical input as necessary. 5.6.3 The Bank has noted with satisfaction that district planning commences from the grass-roots level (i.e. parishes and sub-counties). Each sub-county and district carries out the planning as part of their overall Annual Work Plan and Budget process. Under CAIIP, separate project-specific work-plans and budgets for each district will be extracted from the broad plans and submitted to the PFT for consolidation, prior to the start of the Ugandan financial year. The Districts will assess existing GoU resource commitments and other ongoing/planned development partner interventions when requesting for resources and this will be strictly aligned to monitorable work plans and indicators. The districts will also be

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guided by the Programme Operations Manual (POM) that the PFT will prepare prior to commencement of project implementation. 5.7 Financial Reporting and Auditing The PFT will maintain proper financial reports and audited accounts, copies of which will be made available to the Bank not more than six (6) months after the end of each Ugandan financial year. The PFT will be assisted by each of the districts’ accounts offices who will provide a reinforcement function. The Audit reports will be prepared by an independent audit firm under the auspices of the Office of the Auditor General of Uganda, whose costs will be paid for by the Project. The PFT will also submit to the Fund regular quarterly progress reports which will follow the official Bank Group reporting guidelines. 5.8 Aid Co-ordination, Harmonisation and Alignment 5.8.1 The major development partners (multilateral and bilateral) include Austria, BADEA, Belgium, DANIDA, DfID, IFAD, Irish Aid, EU, FAO, GTZ, Italy, Japan, Netherlands, NorAid, Spain, Sweden, UNDP, UNFPA, UNICEF, USAID, WHO, and the World Bank. Several NGOs/CBOs are also present in Uganda and these include ACCORD, CAP, AFRICARE, PRIDE AFRICA, World Vision, Action Aid, TechnoServe, FINCA Uganda and Uganda Women Finance Trust. 5.8.2 Development Partners (DPs) supplement their multilateral and bilateral relations with GoU with participation in various Donor Working Groups. These include the PMA DP Group chaired by DfiD, and DP Group on Decentralisation chaired by the Belgian Embassy. Formulation of the Uganda Joint Assistance Strategy (UJAS) was prompted by the need to have a harmonized response and approach in supporting GoU in the realization of PEAP outcome targets and based on a 2003 agreement on “Partnership Principles”. Bank staff, both in the field office and headquarters, are members of the various working groups. 5.8.3 The Bank Group has partnered with the other DPs in the formulation of the Uganda Joint Assistance Strategy (UJAS)6 prompted by the need to have a harmonised response and approach in supporting GOU in the realization of PEAP outcome targets of the country’s third Poverty Eradication Plan (PEAP 2005-9). The UJAS has been drawn in full realization of the DPs comparative advantage in terms of choice of sectors and modality for delivering development support. The Uganda Field Office was an active participant in the preparation of the UJAS and the Board has already approved the UJAS Cover Note which specifically relates to Bank Group assistance to Uganda. 5.8.4 The DPs also participated effectively in the design and formulation of this project, starting from the economic and sector work to the appraisal. During the field missions, both for preparation and appraisal, dialogue meetings were held with the DP Groups, bilaterally and jointly, to inform them about the proposed project, share their experiences, as well as build strategic partnerships, alignment and consensus, including discussing the possibility for co-financing. The project activities will be coordinated using the same umbrella to avoid duplication and ensure maximum collaboration. Project implementation and supervision mission reports will be made available to the donor groups, of which UGFO will remain an active member, and to visiting missions. UGFO will provide supervision of the project and on-the spot advice regarding Bank Group procedures.

6 Germany, Norway, The Netherlands, Sweden, United Kingdom, World Bank Africa Region, IFC Sub Saharan Africa Department, Multinational Investment Guarantee Agency.

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5.8.5 A number of DPs have included in their pipelines, activities similar to those planned

under the CAIIP. IFAD, in particular, has given an indication in principle that it will finance the scaling up of CAIIP targets in infrastructure development. However, care has been taken by the GoU to ensure that there is complementarity and with no duplications. For example, the proposed IFAD-financed Agricultural Marketing and Agro-Processing Support Programme is focusing on the software aspects of marketing, essentially, connecting people to the markets through market information, training and business development, while the CAIIP focuses on the hardware physical infrastructure improvement. Similarly, IFAD’s proposed Districts Livelihoods Support Programme is focusing on a range of agricultural production activities not covered by the CAIIP and some physical infrastructure, but with the activities located outside the districts earmarked for the CAIIP implementation. However, even if these projects were to overlap with those of the CAIIP districts, there are still many sub-counties yet to be covered by the CAIIP and additional resources or co-financing would still be justified, subject to the GoU’s annual borrowing ceilings. Other key Development Partners’ proposed complementary activities include the World Bank (Local Government Development Programme Phase 3 and the Energy for Rural Transformation Programme Phase 2), DANIDA (mainly with preferred support in northern Uganda, bridging programme planned for 2007 - 09); EU (mainly on the northern corridors under its EDF 10 being planned for 2008). All these DPs have given indications of supporting the CAIIP in one form or another. For example, IFAD will continue to fund the existing PFT until 2008 when CAIIP takes over full funding; the World Bank will leverage funding by making available to the PFT its technical assistance in the field for supervision of the rural electricity in the markets. This will be through its on-going Energy for Rural Transformation; while DANIDA will avail the Project with facilities at Mt. Elgon for training of technical staff in infrastructure and environment issues. Thus the design of the project ensures aid harmonisation and alignment in line with the principles of the “Paris Declaration”. 6. PROJECT SUSTAINABILITY AND RISK

6.1 Recurrent Costs Total recurrent costs under the project amount to UA 6.19 million or just 18% of total costs. Of these, the Bank Group will finance UA 2.43 or 39% of total recurrent costs, while the GoU will finance the balance of UA 3.76 million or 61%. The Bank’s financing of recurrent costs decreases from 51% in PY1 to 35% in PY5 (see Annex 6(b)). Thus the GoU will gradually assume greater burden of the recurrent costs during the project period, and all recurrent costs after project completion. In addition, the Government and the Communities will assume the full operation and maintenance of most of the facilities as from PY4. These include maintenance of the market structures and the rural energy component, essentially using the revenues arising out of the market operations. Districts will also use their own revenues raised from within the districts to complement revenues from the markets and the Central Government conditional grant allocation for road maintenance works. 6.2 Project Sustainability 6.2.1 The following will sustain activities initiated by the project: (i) government’s strong commitment to the process of decentralisation and institutional reform; (ii) private sector participation; in line with Government’s policies, the project design recognises the key role to be played by the private sector in promoting agro-processing and rural energy. The design makes provisions for Local Governments to contract private sector sources (including NGOs)

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for project activities including infrastructure works, technical, financial, management and administrative training; and (iii) by building synergy and effective linkages with agricultural production related projects in the project area, examination of crop/livestock yield potentials suggests that good returns can be realised from technology adoption which, in combination with improved access to financial services and enhanced marketing opportunity, should be sufficient to encourage increased capitalisation on smallholdings. 6.2.2 The Rehabilitation of District roads will be sustained by a combination of Central Government’s regular budgetary allocations to the districts (conditional grants for roads maintenance), as well as by the districts’ own capability to undertake road maintenance. During the first year after completion of the rehabilitation works, the Contractor, under project financing, will still be responsible for the maintenance of the road (contractual maintenance period). After the final handing over of the rehabilitated road, the District’s Works Department will take over the full responsibility for the routine maintenance and, from the fourth year, for the periodic maintenance. After periodic maintenance, the District will continue with the annual routine maintenance activities. For Community Access roads, these will be maintained at 50:50 cost-sharing between the Project and the communities during the project period. After the project period, the local authorities and the communities will take full responsibility for the maintenance. Community access roads maintenance will be undertaken through employing labour gangs, of which at least 50% will be women, for the routine and recurrent maintenance. Thus ownership will be instilled in them from the outset, and they will see the continued maintenance of these roads as a matter of social responsibility to their communities. 6.2.3 District and Sub-County revenues will be buoyed by additional incomes from leasing out of the markets to private market operators. Market management committees, working in collaboration with the sub-counties will plough back some of the revenues in maintaining the markets. Sellers pay user fees to the operators. However, these fees are regulated to ensure that agricultural produce is not unnecessarily over-taxed. The energy for rural market component will be maintained by the service providers for three years as part of the contract, after which it will be turned over to the communities who will operate same with revenues accruing from the markets. The sub-counties retain 65% of such revenues which will be re-invested for market maintenance. The local authorities will decide on the option of privatising the market infrastructures after they become fully operational. The project would seek to establish beneficiary ownership of the schemes and promote scheme longevity by adopting a fully participatory, demand-driven process during all stages of scheme development. The participatory process assigns all parties clear commitments and responsibilities at each stage. 6.3 Critical Risks and Mitigation Measures 6.3.1 There are two main risks that the project faces. The first risk is that communities may not sufficiently maintain the infrastructural facilities provided. This will be minimized by ensuring that infrastructure provision is demand-driven and that the communities are fully sensitized and mobilized for prioritization, selection and maintenance. Communities will also be trained in asset management. The second risk is that District and Sub-county staff may not be sufficiently motivated to provide the necessary technical support to the communities. This will be minimized by ensuring that facilities, including adequate operating funds and necessary logistics support are provided to motivate work ethic amongst staff. The Project will also sustain the incentive mechanism already in-built under the AAMP.

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6.3.2 Other risks associated with the project are: risks of fire and land disputes in the marketplaces. Adequate security will be provided at the market by the market management committees to ensure protection. Mitigation measures include settlement of claims resulting from disputes. There is a risk that women may not fully be able to participate in the labour gangs. The project through sensitization will ensure that enough women are involved. The GoU may not be able to provide adequate counterpart funding. GoU’s contribution has been limited to mainly funding salaries and allowances. Finally, prior to rehabilitation/construction of each marketplace, the district must provide evidence of lease or other form of ownership to the PFT for comfort, and any land expropriated must be fully compensated for. Bank missions will monitor these measures. 7. PROJECT BENEFITS 7.1 Financial Analysis Main financial benefits of the project will result from two direct effects: increased prices and reduction of agricultural transport costs. Improvement in roads (district and community) has been shown to lead to between 36% and 51% reduction in operating costs for various motorised vehicles. A more than 50% reduction in transport costs for passengers had also been recorded by AAMP. M&E surveys from AAMP have also reported better farm gate prices as a result of traders having better access to the producers. For example following improvement in community access roads, the AAMP mid-term review reported a price increase from UGS700 to UGS 2,000 for a bunch of bananas in Mbarara, while in Kisoro and Kabale districts, the price of a bag of Irish potato rose from UGS6,000 to UGS16,000. These increases are expected be replicated in the project area at completion. Women will be able to sell more potatoes than hitherto the case without the project. The project will lead to over 50% increases in farm incomes following improvement in roads and market access, and the cutting off of middlemen. The main agricultural communities that have benefited from such increases in farm gate prices include banana (matoke), horticulture products and beans, including export potentials to neighbouring countries which will emerge when communities are linked to main trading centres. It is anticipated also that these incentives will lead to induced production and substantial increases in farm incomes. 7.2 Economic Analysis 7.2.1 Economic analyses for typical improved district and community roads were carried out. All investment and recurrent costs were included in the calculation of the economic rate of return. Local cost components have been shadow priced using the standard conversion factor (SCF) of 0.9. Benefits considered in the calculations include for district roads: savings in operating cost of vehicle, travel time cost savings and producer surplus transport cost savings; whilst for community roads: the benefits are attributable to producer surplus transport cost savings only. No appreciable increases in traffic are envisaged for community access roads (CAS) and therefore have not been factored in the CAS analysis. 7.2.2 An Economic Rate of Return of 47% was estimated for a typical 5 km. community road improvement model serving about 1000 hectares of agricultural land. Similarly, for the district road improvement, an economic rate of return of 38% had been estimated based on the initial capital cost of rehabilitation, assumed costs of routine and periodic maintenance, and benefits derived from vehicle operational savings, passenger time savings and producer transport savings for major commodities hauled on the improved roads. These estimates compare well with

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previous work7, and recent AAMP assessment of additional feeder roads for rehabilitation8. A one year lag in benefits reduces the EIRR to 27%, while a 10% increase in costs reduces the EIRR to 33%, whilst a simultaneous 10% increase in costs and a one year lag in benefit reduce the EIRR to 25% (see Annex 8) 7.3 Social Impact Analysis 7.3.1 An estimated 1.76 million households will benefit from the CAIIP-1. The project will generate benefits for all the spectrum of the rural communities in particular and the over-all national economy as a whole. Improved access will lead to expansion of production, enhanced marketing and household incomes. Other social benefits will include improved access to healthcare facilities, schools and the overall monetisation of the rural communities through growth of markets, new businesses and economic development along the rehabilitated roads. Extension workers, NGOs and Government officials will have better access to the grassroots people. Time savings from passenger trips (as much as 30 minutes per trip) will be ploughed back to farming and other household chores. 7.3.2 Implementation of the project will lead to improved transportation services, which in turn will result in better access to health centres, improved delivery of social services by the GoU (particularly in the health, education and agriculture sectors), and increased secondary school enrolment rates. Furthermore, road improvement will lead to an increase in the volume of trade and commercial activities in the targeted districts and sub-counties since the current state of the road discourages traders because of the high transport costs, vehicle maintenance costs and the length of time it takes to reach commercial centres. The project will create better and faster access to markets at more competitive prices. It is also anticipated that increased volume of trade and better transport services will lead to better prices for farm produce, as well as facilitating access to farms inputs and services. Indirectly, better farm produce prices are an incentive to increasing farm productivity at the household level. This should also result in the households in the targeted areas to be more food secure. 7.3.3 From a gender perspective, a number of women are involved in the marketing of small quantities of farm produce at urban and market centres along sub-project roads. Some of the women are also involved in selling cooked foodstuffs and local brew. The improvement of the sub-project roads will positively affect the structure and volume of business undertaken by women. This should result in an improvement in the health of women and children at the household level. Women participating as members of the labour gang (at least 50%) will be paid cash incomes over and above the communities’ statutory contributions. Such incomes will improve their lots in many ways, as men often expropriate incomes from farm produce. 7.3.4 Overall, the project will contribute to an increase in economic activities, higher price levels for farm produce, higher household income levels and improved standards of living. In relation to the positive impacts of the public markets and the adjacent agro-processing units, these infrastructures will allow improved working conditions (permanent stalls providing shelter against weather conditions), better hygiene (sanitation facilities and solid waste sites will be integrated within their design), security (safe distance with the adjacent road), secure energy source (and reduction of Greenhouse Gases due to use of solar systems) and improve the market value and the standards of agricultural produces. Importantly, the project will 7 See for example: C. Ojukwu (2000), Economic Analysis and Prioritization of Feeder Roads Rehabilitation, ADB Economic Research Papers No. 54. 8 AAMP (2006), Economic Analysis Report of Additional 400KM of Feeder Roads, with estimated IRR as high as 75%.

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expand private sector operations through promotion and sale of solar panels and agro-processing facilities. The markets will serve as centres of commercialisation in the rural areas and will attract indirect social benefits to the communities. Expanding agricultural productivity will lead to increased food production which will in turn lead to higher value added and poverty reduction. These assumptions and expectations will be monitored as the project is implemented. 8. CONCLUSIONS AND RECOMMENDATIONS

8.1 Conclusions 8.1.1 Experience from the on-going projects financed by the Bank and other development partners in Uganda shows that investing in rural infrastructure, such as rural roads and markets, reduces transportation costs, induces further production and enhances incomes through access to markets and better prices. Furthermore, it has been demonstrated that value addition from agro-processing not only creates ready markets for agricultural produce but also leads to increases in household margins through improved quality and reduction in post harvest losses. Other indirect social benefits include induced commercial enterprises and settlements along improved roads and around the marketplaces. Through contribution to rural infrastructure development, the project will optimize the contribution of the agricultural sector to contribute to Uganda’s poverty reduction efforts and economic growth. 8.1.2 The project is technically feasible, economically viable and socially desirable, and is in line with the Bank Group strategy for poverty reduction and aligned to CAADP Pillar 2. The economic rate of return for a typical district road improvement model is 38%, while that for a typical Community Access Road is 47%, which are both robust and underpins the justification for investing in rural road improvement in general, and rural community access roads in particular. 8.2 Recommendations It is recommended that an ADF loan not exceeding UA 30.00 million be granted to the Government of Uganda (GOU) for the purpose of implementing rural infrastructure improvement in the 26 districts of central to eastern Uganda, as described in this report, subject to the following specific conditions:

A. Conditions Precedent to Entry into Force The entry into force of the Loan Agreement shall be subject to the fulfilment by the Borrower of the provisions of Section 5.01 of the General Conditions of the Fund. B. Conditions Precedent to First Disbursement The obligations of the Fund to make the first disbursement shall be conditional upon the entry into force of the Loan Agreement in accordance with (A) above and the fulfilment by the Borrower of the following conditions: (i) Provided evidence of having opened one foreign currency special account (SA) for the deposit of the proceeds of the loan; and one local currency account (LCA) for transfer of funds from the special account, in the Bank of Uganda (para 5.5.1).

42

(ii) The Borrower shall have undertaken to provide to the Bank, a Letter of Comfort that in the event any private land is expropriated during marketplace development, adequate compensation will be paid to the landowners prior to commencement of the construction (para. 4.5.7). Other Conditions: The GoU shall have: (i) Within 6 months of first disbursement, recruited the following specialists: Infrastructure Engineers (2, one for Kampala, 1 for Mbale); Community Mobilization Specialist (1 for Mbale) Rural energy Expert (1 for Kampala); Zonal Accountant (1 Mbale) and M&E Specialist (1 Mbale), whose qualifications and experience are acceptable to the Fund (para 5.2.2).

ANNEX 2

COMMUNITY AGRICULTURAL INFRASTRUCTURE IMPROVEMENT PROGRAMME

PROPOSED DISTRICTS FOR CAIIP PROJECT 1

Districts Number of Rural Sub-

counties

NAADS active Sub-counties

Sembabaule 6 6 Masaka 19 12 Rakai 18 8 Lyantonde 5 5 Mpigi 15 0 Mubende 14 6 Mityana 5 5 Kiboga 13 0 Nakasongola 8 0 Kibaale 18 18 Mukono 24 24 Kayunga 8 4 Iganga 18 12 Namutumba 6 6 Butaleja 7 6 Tororo 15 15 Kamuli 17 14 Kaliro 5 5 Pallisa 19 4 Budaka 5 0 Mbale 16 9 Sironko 18 0 Manafwa 8 4 Bududa 5 4 Bukwa 4 4 Kapchorwa 11 7

ANNEX 3

CAIIP: PROJECT ORGANOGRAMME

Legend

Programme Facilitation Team (Kampala/Mbale)

Inter-Ministerial Policy Committee (IPC)

Ministry of Local Government (PS)

Districts x26 Local Governments (CAO)

Chairman PS MOLG PS MoWT PS MWE PS MAAIF PS MFPED PS MGLSD PS MTTI Director PMA Ex. Director NEMA Ex. Director, NAADS Secretary-Programme Facilitator

Programme Facilitator Financial Controller Rural Infrastructure Advisor Infrastructure Engineers (2) Rural Energy Expert M&E Specialist M&E Officer Accountants (2) Community Development Specialist Community Mob. Officer Support Staff District Councils

Sub-Counties Local Governments x 78 Sub-County Councils

Rural Infrastructure Management Committee

Beneficiaries/ Communities

MOLG – Ministry of Local Government MoFPED – Ministry of Finance Planning and Economic Development MAAIF – Ministry of Agriculture Animal industry and Fisheries MoWT – Ministry of Works and Transport MGLSD – Ministry of Gender, Labour and Social Development MWE–Ministry of Water and Environment MTTI – Ministry of Trade, Tourism and Industries

ANNEX 4

CURRENT INSTITUTIONAL ARRANGEMENTS AND ROLES OF PROJECT FACILITATION TEAM (PFT) UNDER AAMP

Currently under AAMP the Programme Facilitation Team (PFT) provides a backstopping function

by way of coordination between districts and sub-counties. The PFT includes a programme facilitator, a monitoring and evaluation advisor, a financial controller, an agriculture business development advisor, an infrastructure engineer, an agriculturist, 2 accountants, a community development advisor, 13 programme support officers (Districts) and support staff. The Inter-ministerial Policy Committee (IPC) was established to provide policy guidance to the PFT and harmonization with GoU priorities, such as NAADS. In fact the aim was to even use AAMP as a pre-cursor to NAADS as the later unfolds into a sector-wide programme across Uganda. In addition, once the districts concerned have decided, the IPC approves the sub-counties selected for intervention, their annual work plans and confirmation of their annual performance assessments.

The PFT has followed the Local Government Development Plan (LGDP) formula for allocation of development funds to local governments. This allocates AAMP project funds based on population, land area and poverty using a 40%, 20% and 40% weighting respectively. At the start of the year each district gets an indicative allocation from the PFT however the budget ceiling is kept flexible to cater for varying performances. In the first year, the budget cap was 130% but in subsequent years this cap depended on the performance level attained based on a set of pre-determined criteria. The processes followed by the PFT are detailed in the Programme Operations Manual (POM) which provides guidance to all stakeholders involved in the management and implementation of AAMP and is a framework document, amended as needed.

In terms of flow of funds a special account (SA) is based at the MoLG level with a counterpart UGX account (CPA). AAMP has set SA initial advance ceiling of US$1m and is replenishment through withdrawal applications backed by appropriate supporting documents showing how the amount being requested was expended. The signatories to both accounts are the PFT programme facilitator, the PFT financial controller and the Permanent Secretary (MoLG). Each district has a programme account (DPA) and the signatories to this are the Chief Administrative Officer (CAO), the Chief Financial Officer (CFO) and an alternate signatory – the Programme Support Officer (PSO). The CPA is used to transfer operational funds to the DPA, to finance the cost of all civil works and to finance the PFT’s operations. Payments for the completed civil works and consultancy services are made directly to the contractors/consultants in order to incentivise fast performance amongst them.

Replenishment of the SA is based on frequent and rapid accountabilities for expended operational funds from the districts. This is done not later than 15 days after the end of each month. As districts account for expenditure, they are provided more funds from the centre. This provides an incentive for each district to account quickly such that a fast performing district, that manages its contractors well, does not get held back because another is slow to account.

For planning purposes, each sub-county or district carries out its planning function as part of their overall Annual Work Plan and Budget process. Separate project-specific work-plans and budgets for each district are then extracted and submitted to the PFT for consolidation. This is done annually prior to the start of the financial year, with quarterly updates. AAMP also requires its districts to provide quarterly progress reports before consolidation into a biannual progress report and eventually an annual progress report. This is supported by an annual project audit.

The POM lays out the thresholds for procurement purposes. Under the AAMP district roads component, the technical evaluation of bids is done jointly by a supervising consultant and the PFT. However, for community roads, the procurement of contractors is carried out using the district’s own procurement system, subject to prior review by the PFT. A Tender Evaluation Committee (TEC) is set up to evaluate bids and produce an evaluation report. This report is sent to the PFT so that they can decide whether it needs a ‘no-objection’ from the Bank. Once cleared by the PFT, it is sent back to the TEC who then submit to the District Contracts Committee (DCC) for contract award. The PFT has performed very well and it is proposed that CAIIP will adapt its structure and roles for its implementation.

ANNEX 5

CURRENT DONOR INTERVENTIONS IN UGANDA

PROJECT NAME COVERAGE SOURCE%

FUNDS AMOUNT (millions)

STARTING ENDING PLANNED OUTPUTS

A.DISTRICT ROADS 1.District Roads Regravelling Project (Northern Roads Corridor) (STABEX)

District of Toronto, Bigiri, Jinja, Mukono, Wakiso, Mpigi, Masaka

EU EUR11.4 July 2003 Dec 2007 1315km Rehabilitation;3000km Maintenance

2. DANIDA RSPS-2 District Roads Component.

15 Districts Of North and North Eastern Uganda

DANIDA DKK 120 June 2003 Dec 2007 700km Rehabilitated; 3000kmMaintenance

3. Area Based Agricultural Modernization Programme (AAMP)

13 Districts of Western and Southern Western Uganda

ADB US$ 13.6 June 2004 Dec 2006 700km Rehabilitated

4. District Roads Maintenance (PAF) All Districts GOU UGX 18,000

1999 Continuous Routine Maintenance of 1800km

5. Roads All Uganda EU EUR15 2008 2011 B. Community Access Roads 1. DANIDA RSP2 Community Access Roads Component

Mbale, Sironko, Kapchorwa, and Lira, Kumi, Soroti

DANIDA US$4.0 2003 Dec 2007 400km Rehabilitated

2. Area Based Modernization Programme (AAMP)

13 Districts of western and South Western Uganda

IFAD US$2.3 June 2004 Dec 2006 1350km Rehabilitated

3. North West Region Small Holder Agricultural Development Project (NSADP)

Adjumani, Moyo,Yumbe, Nebbi, Arua, Koboko and Maracha and Terego Districts

ADB UA 17.6 2000 Dec 2007 200km Rehabilitated 1600km Maintained

4. Northern Uganda Social Action Fund(NUSAF)

Northern and North Eastern Uganda IDA US$2.3 2004 2008 410km

5. Local Government Development Programme (LGDP)

In Most Districts of the Country IDA US$1.4 2000 Continuing 250km Rehabilitated so far.

C. MARKETS 1. North West Agricultural Sector Development Programme(NWASDP)

North West Uganda ADB Part of B.3 above

May 2001 2007 22 Markets; 200km access road Rehabilitation;340km of Maintenance

2. Agricultural Marketing & Agro-processing Support Programme

All Uganda (8 or 9 districts covered) IFAD US$30 Under preparation

Seeks to connect farmers to markets and enhance enabling environment

3. District Development Support Programme 5 Districts in Western Uganda IFAD US20.6 Dec. 2001 Dec. 2006 Agricultural extension services and physical infrastructure

D. ENERGY 1. Energy for Rural Transformation Project (ERT)

All Uganda WB US$123 2007 2008 Facilitates investments in commercially oriented rural electrification projects

2. Energy All Uganda EU EUR10 2008 2011

ANNEX 6(a): LIST OF GOODS AND SERVICES

(UA ('000))

Government of Beneficiaries African Development Local Uganda Fund Total (Excl. Amount % Amount % Amount % Amount % For. Exch. Taxes) I. Investment Costs A. Civil Works 0.0 - 435.5 2.2 19,774.1 97.8 20,209.7 59.1 7,478.3 12,731.4 B. Vehicles - - - - 310.0 100.0 310.0 0.9 277.6 32.4 C. Motorcycles 0.0 - - - 71.6 100.0 71.6 0.2 64.1 7.5 D. Equipment 0.0 - - - 3,859.1 100.0 3,859.1 11.3 3,449.8 409.3 E. Materials and Input - - - - 33.0 100.0 33.0 0.1 19.4 13.6 F. Techn.Asst/Consultants 0.0 - - - 837.8 100.0 837.8 2.5 723.0 114.8 G. Audit Services - - - - 108.9 100.0 108.9 0.3 108.9 -

H. Training and Capacity Building 0.0 - - - 1,050.4 100.0 1,050.4 3.1 608.0 442.4

I. Cross-Cutting Issues 0.0 - - - 458.0 100.0 458.0 1.3 170.8 287.2 J. Studies and Supervision 0.0 - - - 1,067.3 100.0 1,067.3 3.1 791.4 275.8 Total Investment Costs 0.0 - 435.5 1.6 27,570.2 98.4 28,005.8 81.9 13,691.3 14,314.4 II. Recurrent Costs A. Salaries and Allowance 3,757.7 100.0 - - - - 3,757.7 11.0 - 3,757.7 B. Civil Works Maint 0.0 - - - 433.8 100.0 433.8 1.3 159.6 274.3 C. Veh & Equip Maint 0.0 - - - 337.2 100.0 337.2 1.0 192.0 145.2

D. General Operating Expenses 0.0 - - - 1,658.8 100.0 1,658.8 4.9 946.9 711.9

Total Recurrent Costs 3,757.7 60.7 - - 2,429.8 39.3 6,187.5? 18.1 1,298.4 4,889.1 Total (I + II) 3,757.7 11.0 435.5 1.3 30,000.0 87.7 34,193.3 100.0 14,989.8 19,203.5

Annex 6(b): GoU and ADF Comparative Financing of Recurrent Costs (UA’000) 2007 2008 2009 2010 2011 GoU 346.2 540.0 841.5 975.8 1,046.1 ADF 358.1 481.8 512.7 525.8 551.3 Total 704.3 1,029.8 1,354.2 1,501.6 1,597.4 ADF as % of Total 50.8 46.8 37.9 35.0 34.5

ANNEX 7 – IMPLEMENTATION SCHEDULE (July 2007 – December 2012)

Activity Period Responsibility 1. Loan Approval 13 January 2007 ADF 2. Advertise GPN in ‘UN Development Business’ February 2007 ADF/GoU 3. Loan Signature February 2007 GoU/ADF 4. Project Launching and Start-up March 2007 ADF 5. Advertise SPN for TA’s/Experts in ‘UN Development Business’ (AAA) May 2007 MOLG/ADB 6. Loan Effectiveness/Disbursement Effectiveness July 2007 ADF/GoU 7. Confirm Project Facilitation Team (PFT) July 2007 GoU/MOLG 8. Confirm Inter-ministerial Policy Committee (IPC) and hold First meeting July/August 2007 GoU/MOLG/IPC/PFT 9. Open Special Accounts–Foreign and Local Currencies August 2007 MOLG/PFT/DISTRICTS 10. Selection of Participating Sub-Counties in Districts July/August 2007 MOLG/DISTRICTS/NAADS 11. Workshops to Mobilize Districts and Sub-Counties for Prioritization August-September 2007 PFT/NAADS/DISTRICTS/SUB-COUNTIES 12. Form Sub-County Community Groups September 2007 PFT/DISTRICTS/SUB-COUNTIES 13. Procure Vehicles and other Goods (Office Equipment & Supplies) September PFT/DISTRICTS/SUB-COUNTIES 14. Commence Designs of Infrastructure facilities – Roads, markets etc. September 2007 PFT/DISTRICTS/MoWT 15. Preparation of Bid Documents for Infrastructure facilities September/October 2007 PFT/DISTRICTS/MOWT 16. Finalize Procurement/Recruitment of TA’s/Specialists/Consultants August-October 2007 PFT/ADB 17. Invitation of Bids for District and Community Infrastructure Works October 2007 PFT/DISTRICTS 18. Commence Construction of Rural Infrastructure Services January 2008 PFT/DISTRICTS/SUB-COUNTIES 19. Develop Reporting, M&E Arrangements October 2007 PFT/DISTRICTS 20. Develop and Finalize and Submit Training Plans October 2007 PFT/DISTRICTS 21. Monitoring and Reporting/Quarterly Reports 15 Days after end of each Quarter PFT 22. Supervision and Monitoring Every 6 months: Dec07;Jul/Dec08;Jun&Nov ADF 23. Audit Report 6-Months after end of Each Financial Year GoU/PFT 24. Mid-Term Review January 2010 PFT/ADF 25. Project Completion Report November 2012 PFT/ADF

ANNEX 8

Uganda: CAIIP Summary of Financial and Economic Analysis

A. INTRODUCTION

1. The objective of the road component is to provide road access and to reduce agricultural inputs and outputs transport costs. Other objectives include the derived transport operating cost savings accruing to non-agricultural traffic users, the reduction in time for commuters compared to without project situation. These objectives put together have enabled the analyses of representative district road and community (access) road rehabilitation models. The investment package is computed by comparing total benefits accruing to an improved road with total costs of road rehabilitation and assumed maintenance regimes (routine and periodic). The assumptions and the result of the analysis are presented hereunder:

B. COST ESTIMATES 2. In estimating a typical road improvement costs, the following assumptions were applied: - The civil works will involve full rehabilitation along existing alignments, and will consist of road side

and cross drainage works, construction of embankment for swampy sections, reshaping and re-surfacing of carriageway with gravel and reconstruction of broken bridges. The design will follow the guidelines set by the Ministry of Works, Housing and Communications (MWHC)

- The cost of rehabilitating 1 km of district road has been estimated severally as UGS 20 million. Cost

estimates include a 10% physical contingency. This compares favourably with current contract agreements for district road improvement under the AAMP programme.

- According to the Government 2004 Strategy for Sustainable Maintenance of District, Urban and

Community Access Roads, and discussions with District engineers during the visit to Uganda, 25% of the capital cost is assumed to be used for periodic maintenance9. This is assumed to take place every 5 years after construction/periodic maintenance. Routine maintenance is assumed to occur every year, except in the first year of capital investment and the years when periodic maintenance is undertaken.

- Routine maintenance costs for district roads and community access roads have been estimated at

about US$270 and about US$140 respectively for the year following full rehabilitation.

C. BENEFITS 3. For a typical District Road, three types of benefits have been estimated: (i) benefits accruing as a result of motorised vehicle operating cost savings; (ii) benefits accruing to commuters as a result of road travel time savings; and (iii) benefits accruing to non-motorised vehicle (bicycle) as a result of 50% of the agricultural surpluses being hauled to market by bicycle and the resultant savings on the cost of transportation following improved roads (Motororized vehicles – cars, pick-up and trucks – are expected to haul the balance 50%. However, only the bicycle has been included in the analysis to avoid double counting since the reduction in motorised vehicle operating costs will also be transferred to reduced transport costs to non-agricultural vehicle users). For estimation of the various benefits, the following assumptions have been made: - assume 312 (26 days in a month) days per year traffic period; - assume 5% annual growth rate of traffic after rehabilitation. For the purposes of this analysis, the

growth rate is assumed to peak in PY6.10

9 See the AFRICON 1999 Report 10 VOC data are based on HDM-IV programme (as contained in the MoLG Report Manual for Evaluating District Roads),

- For commuter time savings, assume a return trip (road length x 2)11. Time savings have been

converted to man-days and valued at their opportunity costs factored by the shadow wage rate. - For estimation of benefits accruing as a result of producer surplus hauled by bicycles, the following

assumptions are made: - Road Zone of Influence assumed 1 km either side and either end of road; - Assume 60% of the arable land cultivated annually12. - Assume typical farm model13for the proposed project area - For the farm model, major crops are beans (20% area), banana (35%), maize (25%) and Irish potato

(20%). This varies from place to place. Loss in consumer surplus (family consumption plus waste) assumed between 20% to 50% for the typical crops. This will vary from crop to crop and as to whether cash or food crop in individual road analysis.

- Costs of transportation on the roads are as estimated by the mission. Assume no price changes for the

final consumer in the local market. D. RESULT OF THE ANALYSIS 4. All financial costs and benefits were appropriately shadow priced to converting them to economic costs and benefits. The economic internal rate of return (EIRR) for the road model over 20 years is estimated at 38% and is very robust when compared with the opportunity cost of capital for Uganda of 12%. The model produces an NPV of USH. 347.8 million and an NPV/K of 1.56. These estimates compare well with previous work14, and recent AAMP assessment of additional feeder roads for rehabilitation15. Sensitivity analyses show that the rate of return would decrease to 34% and 28% if benefits are lagged by one year. The EIRR will reduce to 34% if costs are up by 10%. A simultaneous 10% increase in costs and 10% drop in benefits will reduce the ERR to 20% respectively. A 2-year delay will reduce the ERR to 22%. It will take a simultaneous 20% reduction in benefits and 40% increase in costs to reduce the EIRR to 18%, which is an unlikely scenario. When the Average Daily Traffic (ADT) was reduced to only 5 vehicles a day, the EIRR was still robust at 33%. If however, only 30% of the arable land were to be cultivated (national average is 30%, according to the PMA Report16), the EIRR will drop to 16% (see Working Paper 2). 5. Analysis of the Community Access Roads (CAR) follows the same pattern except that due to insufficient traffic count, benefits accruing as a result of motorized vehicle operating cost savings have not been included. The estimated EIRR for a typical CAR is 47%.

adjusted to PY2000 constant prices; Traffic count data are taken for a typical model on one of the roads. The data compare favourably with those estimated in the WARDROP Report for MOLG p.47 for least traffic roads, and is in line with traffic count group 3 (11 – 20 veh/day). See MoLG Manual 11. 11 Change in transport costs between bad (typical operating speed of 20 km/hr) and good road condition (operating speed of 60 km/hr), i.e. Before and After Rehabilitation, taken from WARDROP Report p.69, and compares with mission observation. 12 Based on the figures in the Statistical Abstract published by Uganda Bureau of Statistics 13 Yield estimates are based on national averages reported in the Statistical Abstract published by the Uganda Bureau of Statistics. 14 See for example: C. Ojukwu (2000), Economic Analysis and Prioritization of Feeder Roads Rehabilitation, ADB Economic Research Papers No. 54. 15 AAMP (2006), Economic Analysis Report of Additional 400KM of Feeder Roads, with estimated IRR as high as 75%. 16 Plan for Modernisation of Agriculture: Eradicating Poverty in Uganda, MAAIF and MFPED, 3 January, 2000, p.9

ANNEX 9

Uganda: CAIIP Environmental and Social Management Plan Summary Project Title: Community Agricultural Infrastructure Improvement Programme – Project 1 Project Number: P-UG-ABO-001 Country: Uganda Environmental Category: 2 Department: OSAN Division: OSAN.1 a) Brief description of the project and key environmental and social components

The overall sector goal is to contribute to poverty reduction among rural households in the project’s area. The specific objective of the project is to enhance rural competitiveness and increase agricultural productivity and household incomes through improvements in agricultural and rural infrastructures and their sustainable management by highly mobilized communities. The expected project results are: 1) to improve road networks at the District and Community levels; 2) to increase the volume and market value of agricultural produces. Induced impact results would be an increase in producers’ incomes, employment’s opportunities, and contribution to the Government’s overall poverty reduction efforts.

The project has three components: (A) Rural Infrastructure Improvement, including (a) improvement of 3,510 km of existing community access roads and maintenance of 5,267 km; the improvement/rehabilitation of 390 km district roads and maintaining over 587 km of same routinely annually (c) promotion of agro-processing units (rice hullers, fruit and grain driers, grain mills, etc.) and storage (cold rooms, milk coolers, storage house) (d) promotion of rural electrification (through provision of and promotion of solar energy, hydro-power and diesel generators) for power supply at the 78 targeted market places; (B) Community Mobilisation aimed at promoting local participation in prioritization of agricultural infrastructure and participation in maintenance of these infrastructures; (C) Project Facilitation and Coordination to assist the districts and the sub-counties to facilitate implementation through support to a Project Facilitation Team (PFT) in the MoLG. The project activities will be located in 26 largely districts of Central and Eastern Uganda as detailed in the Appraisal Report and the total project cost is estimated at UA 34.20 million. The main direct beneficiaries of the project will include mainly the smallholder’s farmers and the community at large, including traders, vehicle owners and market operators and contractors. The National Environmental Management Authority (NEMA) will play in active role in the review and approval of the comprehensive Environmental and Social Impact Review of the Annual Work Plan (AWP) of the sub-projects identified during project implementation. Issuance of Certificate of Approval of EIA will be a condition to undertaking any physical activities at the sub-project level. b) Major environmental and social impacts Positive environmental and social impacts. These include improved transportation services, which in turn will result in better access to health centres; improved delivery of social services by the GoU (particularly in the health, education and agriculture sectors), and increased secondary school enrolment rates; increase in the volume of trade and commercial activities in the targeted districts and sub-counties since the current state of the road discourages traders because of the high transport costs, vehicle maintenance costs and the length of time taken to reach commercial centres; better prices for farm produce, as well as facilitating access to farms inputs and services; increasing farm productivity at the household level will positively affect the structure and volume of business undertaken by women. This should result in an improvement in the health of women and children at the household level; better hygiene (sanitation facilities and solid waste sites will be integrated into the design of marketplaces) and security; secure energy source (and reduction of GHG due to use of solar systems) and improve market value and standards of agricultural produces. Potential negative environmental and social impacts. These include impact on public health are associated with air and noise pollution, occupational health and safety; increased incidence of STD/AIDS (by linking low and high prevalence areas, such as villages where risk is lower and cities where the prevalence is higher through influx of labour during construction and truck drivers during operation phase); disturbance to the public will also occur during construction and operation phases; increase the danger to non-motorised traffic and livestock and trigger safety issues; loss of lands and property; crop lost and building/structures removed for the purposes of roads construction; increased sexual relationships between workers themselves, or between workers and members of the local communities leading to spread of STD; increased run-off, erosion of embankments with resulting wetland/river sedimentation, induced deforestation and loss of water catchments areas are potential impacts during the operational phase; outbreak of faecal borne diseases due to poor sanitation at markets, poor

solid waste disposal, spending of increased incomes on indulgence in polygamous marriages and drinking of alcohol are all potential impacts. c) Enhancement and mitigation program

NEMA will review and, if satisfied, provide a Certificate of Approval of EIA for the AWP to MoLG with conditions of approval for environmental mitigation measures identified for each sub-project. In addition, environmental remediation measures around the rural infrastructures (tree planting, grass, etc.) and environmental sensitization measures at the sub-counties level by the DEO will be provided.

d) Monitoring program and complementary initiatives

Environmental monitoring is a requirement for agricultural rural infrastructures which should begin at the start of the planning phase and should continue during the construction and operation phases of the Project. Its purpose is to establish benchmarks so that the nature and magnitude of anticipated environmental and social impacts can be continually assessed. So monitoring involves the continuous review of construction and maintenance activities to determine the effectiveness of recommended mitigation measures. On its side, the Environmental and Social Impact Review of the AWP will stipulate the monitoring parameters for each identified sub-projects, and suggests how it should be done, how frequently, and who should be responsible for monitoring and action. e) Institutional arrangements and capacity building requirements. These include:

1) Preparation of an AWP by the MoLG which include all the sub-projects identified through a consultative process in the targeted districts and sub-counties; 2) Preparation of Terms of Reference to undertake an Environmental and Social Impact Review of all the sub-projects identified, including preparation of Project Briefs and the required environmental analysis in compliance with the Uganda’s Environmental Impact Regulations. 3) Recruitment of a National Environmental Firm by MoLG/PFT to undertake the assignment; 4) Issuance of a Certificate of Approval of EIA by NEMA; 5) Monitoring of mitigation measures by the District Engineers, Environmental Officers and Contractor; 6) Release of the Environmental Restoration License, if all mitigations are fully complied by the contractor. The National Environmental Management Authority (NEMA) shall be responsible for oversight, implementation of, and compliance with the Uganda’s EIA Regulations and Guidelines. f) Public consultation and disclosure requirements

The preparation of this ESMF has been done through a consultative process. The EIA Coordinator of NEMA, the Environmental Liaison Unit of the MoWT, the environmental officer at MoLG, the environmental and social coordinators at the MELTC as well as four Districts Engineers and Environment Officers in the District of Mbale, Kapchorwa, Pallisa and Iganga have been consulted in order to ensure their inputs into the design of the ESMF and its related institutional set-up. In addition, bilateral (DANIDA) and multilateral (World Bank, European Union) organisations as well as environmental experts in the transport sector have been consulted in order to identify their best practices and lessons learned in relation to environmental and social management issues in their respective projects and their mainstreaming into the design of this ESMF. In accordance with the requirements of the Uganda’s EIA Regulations, consultation will also be done during the preparation of the Environmental and Social Impact Review of the AWP at the scoping and draft report stage in the targeted districts and sub-counties communities.

g) Estimated cost

The costs for mainstreaming environmental and social mitigation and monitoring measures for this Project are estimated at U.S. $526,750 over the five-year project implementation period. These include: $51,800 for undertaking a detailed ESMF for the rural road development in the 26 Districts; US$ 17,250 for the training of the District Engineer, Supervising Engineer, District Environment Officer, Road Inspector, Gender Officer, Community Development Officer at the Mount Elgon Labour-based Training Centre; US$ 240,000 for review of the AWP; US$ 129,175 for the regular monitoring by the DE/DoE and NEMA; US$ 40,000 for Environmental Audit. Nevertheless, based on the lessons learned of the AAMP, an additional and separate provision of 1% of Bill of Quantities shall be provided for specific remediation measures and potential resettlement issues. The in-kind contribution of NEMA for its review of the environmental analysis of the AWP and its annual monitoring is estimated at $12,000 U.S. h) Implementation schedule and reporting

The measures outlined in the ESMP will be implemented following the same project schedule as all activities were mainstreamed into the project implementation. Achievements or problems will be reported in the project quarterly/annual progress reports and should be timely addressed by the project management and the Bank.

ANNEX 10

UGANDA: CAIIP PROCESSING SCHEDULE

1. ESW/Project Identification: The Project was identified following an Economic and Sector Work/Agriculture and Rural Sector Review undertaken by the Bank in Uganda in 2005 and followed by a stakeholders’ consultative workshop in February 2006. A Tripartite Committee of the Bank, the Government and Development Partners met to set up a Task force to undertake further mapping of development assistance in Uganda and recommend possible areas of Bank Group support. Subsequently, the GoU requested the Bank in May 2006, to finance the proposed Programme and invited the Bank to field a formulation/preparation Mission. 2. Project Formulation/Preparation: The Bank responded by fielding a four-man formulation/preparation mission from 19th June to 14th July 2006 to undertake design of the programme. In preparation for the Mission, the GoU prepared a Concept Paper identifying three components of the programme for Bank financing, comprising: a) Rural Infrastructure Improvement; b) Community Mobilization; and c) Programme Facilitation. The mission met technical staff of the relevant Ministries, Agencies and Development partners to discuss and refine the formulation of the proposed project. The GoU subsequently requested the Bank to field an Appraisal Mission in August/September 2006. 3. Project Appraisal: The Bank, in fulfilment of the GoU’s request, fielded a six-person Appraisal Mission to Uganda from 11-28th September, 2006 to appraise the proposed Community Agricultural Infrastructure Improvement Programme (CAIIP) Project-1. The Mission again met with technical staff of the relevant ministries and Agencies and development partners to discuss the area of focus of the proposed project. In all cases, all the people met welcomed and expressed strong support for the proposed project. Though the programme is nationwide, a decision was taken to implement it in project phases, with Project-2 planned under ADF XI when more resources become available.

4. Internal Working Group/Country Team Review: An IWG/CT meeting was held on Friday 20 October, 2006 to review the report. After the meeting and review of available resources by ORPC, the ADF financing was reduced from UA 40 million to UA 30 million. Comments made were reviewed and incorporated as appropriate.

5. Interdepartmental Working Group Review (IDWG): The IDWG was held on Thursday 2 November, 2006. This was followed by a peer review. The comments made have been duly reflected. 6. Senior Management Committee Review (SMC): The SMC was held on Thursday, 16 November, 2006. Comments made at the SMC Review were duly incorporated. 7. Translation: 28 November, 2006 8. Negotiations: 22 – 23 January, 2007 9. Board: 31 January, 2007

ANNEX 11

UGANDA: Status of Agriculture Sector Audit Reports & Project Completion Reports

As at September 2006, there were no PCRs or audit reports outstanding for Uganda in the agriculture sector.

ANNEX 12 UGANDA: Ongoing Bank Group Interventions as at September 2006

UGANDA - On-going Projects as at 30 Sept 2006

Project Name Source Approval Date

Signature Date

Entry Into Force

Net Signed Amounts Cancelled Amount

Disbursed Undisbursed

Balance Disbursement

Rate % AGRICULTURE Northwest Smallholder Agricultural Development ADF 15.12.99 20.11.00 18.05.01 17.60 0.00 4.06 13.54 23.1 Area-Based Agricultural Modernisation Programme ADF 13.09.00 30.05.01 14.11.03 9.67 0.00 4.28 5.39 44.3 Fisheries Development Project ADF 12.06.02 14.11.02 09.05.03 22.00 0.00 2.51 19.49 11.4 Livestock Productivity Improvement Project ADF 04.12.02 02.06.03 12.04.04 23.74 0.00 3.47 20.27 14.6 ADF-Grant 04.12.02 02.06.03 12.04.04 2.80 0.00 0.59 2.21 21.1 Farm Income Enhancement & Forest Conservation ADF 29.09.04 18.01.05 16.02.06 31.57 0.00 0.54 31.03 1.7 ADF-Grant 29.09.04 18.01.05 16.02.06 9.85 0.00 0.04 9.81 0.4 Uganda-Creation of Sustainable Tsetse Area ADF 08.12.04 19.05.05 30.12.05 6.55 0.00 0.29 6.26 4.4 Sub-total 123.78 0.00 15.78 108.00 12.7

TRANSPORT

Road Sector Support Project ADF 27.04.05 19.05.05 15.09.05 27.01 0.00 0.00 27.01 0.0 ADF-Grant 27.04.05 19.05.05 15.09.05 1.49 0.00 0.00 1.49 0.0 Sub-total 28.50 0.00 0.00 28.50 0.0

WATER / SANITATION Small Towns Water & Sanitation Project ADF 24.11.04 18.01.05 13.06.05 12.26 0.00 3.24 9.02 26.4 ADF-Grant 24.11.04 18.01.05 13.06.05 6.15 0.00 1.33 4.82 21.6 Rural Water Supply & Sanitation Programme ADF 19.12.05 23.01.06 09.05.06 40.00 0.00 4.01 35.99 10.0 Sub-total 58.41 0.00 8.58 49.83 14.7

SOCIAL SECTOR Strengthening of Science-Technology Teaching Educ Project ADF 28.08.90 03.01.91 10.03.91 12.25 1.93 11.90 0.35 97.1 Rural Microfinance Support Project (RMSP) ADF 24.11.99 29.05.00 23.02.01 13.10 0.00 10.22 2.88 78.0 ADF-Grant 24.11.99 29.05.00 23.02.01 1.84 0.00 1.33 0.51 72.3 Support to ESIP (Education II Project) ADF 21.12.00 30.05.01 18.06.01 20.00 0.00 19.97 0.03 99.9 ADF-Grant 21.12.00 30.05.01 18.06.01 2.38 0.00 0.37 2.01 15.5 Education III-Support to Post Primary Education ADF 19.12.05 23.01.06 23.01.06 20.00 0.00 0.46 19.54 2.3 Sub-total 69.57 1.93 44.25 25.32 63.6

MULTI-SECTOR Institutional Support for Good Governance ADF 17.11.04 18.01.05 14.03.05 9.00 0.00 1.82 7.18 20.2 Sub-total 9.00 0.00 1.82 7.18 20.2

GRAND TOTAL 289.26 1.93 70.43 218.83 24.35

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