Document ofThe World Bank

Report No: 25226-YEM

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED CREDIT

IN THE AMOUNT OF US$23.4 MILLION

TO THE

REPUBLIC OF YEMEN

FOR THE

PORT CITIES DEVELOPMENT PROGRAM

IN SUPPORT OF THE FIRST PHASE OF THEPROGRAM

DECEMBER 18,2002

Middle East and North Africa Region

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CURRENCY EQUIVALENTS

(Exchanige Rate Effective December 16, 2002)

Currency Unit = Yemen Rials1.0 Yemen Rials = USS006

US$1.00 = 165.00 YER

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

AAA Analytcal and Advisory ActivittesAFZA Aden Free Zone AreaAPL Adaptable Program LoanASYCUDA Automated System for Customs DataCAD Computer-Aided DesignCAS Country Assistance StrategyCDS City Development StrategyCOA Chart of AcoountsCOCA Central Organization for Control and AuditingCPAR Cousrty Procurement Assessment ReportCQ Consultants' QualificationsDFID Department for Intemational DevelopmentED Executive DirectorEIA Environmental Impact AssessmentEMP Environmnental Management PlanERR Economic Rate of RetumFMR Financial Monitonng ReportFMS Financial Management SystemFRR FLnancial Rate of ReturtGIA General Investment AuthantyC15 Gcographical Information SysttmGPN General Procurement NoticeIBRD Intemational Baok for Reconstruction and DevelopmentICB Intcmational Competitive BiddingICR Impimentation Completion ReportICT Infotmatirn Communication TechnologyIDA Intemational Develcpmenr AssociationIFC Intemational Finance CorporationIS Intemational ShoppingLED Local Economic DevelopmentLEDD Local Economic Development DepartmentsLRD Land Registry DepartnentMOF Ministry of FimanceMOPD Ministry of Planning and DevelopmentMPW Ministry ofPublic WorksMPWUP Ministry of Public Works and Urban PlanningNBF Not Bank Financed

NCB National Competitive BiddingNGO Non Governmental OrganzationNPV Net Present ValueNS National ShoppingNWSA National Water and Sanitation AuthorityOPEC Organization of the Petroleum Exporting CountriesPAD Project Appraisal DocumentPBMS Perfortmance-Based Monitoring SystemPCDP Port Cities Development ProgramPCIC Port Cities Inermininstenal ComntinrePIU Project Irmplementarion UmitPIP Project Implenentation PlanPLA Public Land AuthorityPO Payment OrderPRSP Poverty Reduction Strategy PaperPSC Project Steering ComnmittrePPI Private Parncipanon in InftsrusmeturePSD Pnvate Sector DevelopmentpW Public WorksQBS Quality Based SelectionQCBS Quality and Cost Based SelectionRPF Resettlement Polity FrameworkSA Special AccountSBD Standard Bidding DocumentSOE Statement of ExpensesSPN Special Procurement NoticeTOR Tenns of ReferenceUNCDF UnLted Nations Capital Development FundUNCTAD Unsted Nations Conference on Trade and DevelopmentUNDP United Nations Deselopment ProgrammreWA Withdrawal ApplicationsYFZA Yemen Free Zone Authority

Vice presidentt Jean-Louis Sarbib

Country Manager/Director: Maotmood AyubSector Manager/Director: Hedi Larbi

Tank Team Leader/Task Manager: Omiar Razzaz

REPUBLIC OF YEMENPORT CITIES DEVELOPMENT PROGRAM

CONTENTS

A. Program Purpose and Project Development Objective Page

1. Program purpose and program phasing 32. Project development objective 43. Key performance indicators 4

B: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 52. Main sector issues and Government strategy 63. Sector issues to be addressed by the project and strategic choices 94. Program description and performance triggers for subsequent loans 10

C. Program and Project Description Summary

1. Project components 102. Key policy and institutional reforms supported by the project 123. Benefits and target population 124. Institutional and implementation arrangements 13

D. Project Rationale

1. Project alternatives considered and reasons for rejection 152. Major related projects financed by the Bank and other development agencies 153. Lessons learned and reflected in the project design 174. Indications of borrower commitment and ownership 185. Value added of Bank support in this project 18

E. Summary Project Analysis

1. Economic 192. Financial 193. Technical 204. Institutional 205. Environmental 236. Social 257. Safeguard Policies 27

F. Sustainability and Risks

1. Sustainability 272. Critical risks 283. Possible controversial aspects

G. Main Conditions

1. Effectiveness Condition 292. Other 29

H. Readiness for Implementation 29

I. Compliance with Bank Policies 30

Annexes

Annex 1: Project Design Summary 31Annex 2: Detailed Project Description 36Annex 3: Estirated Project Costs 44Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 45Annex 5: Financial Sunmmary for Revenue-Earning Project Entities, or Financial Summary 47Annex 6: (A) Procurement Arrangements 48

(B) Financial Management and Disbursement Arrangements 54Annex 7: Project Processing Schedule 59Annex 8: Documents in the Project File 60Annex 9: Statement of Loans and Credits 61Annex 10: Country at a Glance 62

MAP(S)

REPUBLIC OF YEMENPort Cities Development Program

Project Appraisal DocumentMiddle East and North Africa Region

MNSIF

Date: October 11, 2002 Team Leader: Omar M. RazzazSector Manager/Director: Hedi Larbi Sector(s): Sub-national government administration (80%),Country Manager/Director: Mahmood A. Ayub General transportation sector (10%), InfornationProject ED: P065 111 technology (10%)Lending Instrument: Adaptable Program Loan (APL) Theme(s): Municipal governance and institution building

(P), Small and medium enterprise support (S),Infrastructure services for private sector development (S),Gender (S)

Program Flnancing Data

EstimatedAPL Indicative Financing Plan Implementation Period Borrower

(Bank FY)mIDA Others Total Commitment Closing

USS m % US$ m USS m Date DateAPL 1 23.40 88.3 3.10 26.50 01/23/2003 06/30/2007 Government of Yemen

Loan/Credit 45.30 011/20 06/30/2011 Government of Yemen

APLo2 45.30 01/15/2007 06/30/2011 Government of YemenLoan/Credit

APL 3 27.30 01/15/2011 06/30/20 15 Government of YemenLoan/C red it, _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

Total 96.00 3.10 26.50

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

For Loans/Credits/Others:Amount (USSm): $23.4 million Phase I

Proposed Terms (IDA): Standard CreditGrace period (years): 10 Years to maturity: 40Commitment fee: 0.50% Service charge: 0.75%Financing-Plan-(US$m):. Source Local Foreign TotalBORROWER 3.10 0.00 3.10IDA 21.40 2.00 23.40Total: 24.50 2.00 26.50

Borrower: GOVERNMENTResponsible agency: MlNISTRY OF PLANNING AND DEVELOPMENTAddress: P.O. Box 175, Sanaa, Republic of YemenContact Person: H.E. Mr. Ahmed Sofan, MinisterTel: 967-1-250-118 Fax: 967-1-250-665 Email:

Estimated Disbursements ( Bank FY/US$m):FY 2003 2004 2005 2006 2007

Annual 0.10 6.00 7.00 6.00 4.30Cumulative 0.10 6.10 13.10 19.10 23.40

Project implementation period: Phase I - 4 YearsExpected effectiveness date: 02/17/2003 Expected closing date: 06/30/2007

CCS APL VAD F V_ -OO2

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A. Program Purpose and Project Development Objective1. Program purpose and program phasing:

The overall purpose of the proposed Port Cities Development Program (PCDP) is to transform Yemen'sstrategic port cities into regional centers of economic growth by creating environments to support privatesector investment and development. Achieving this would require working with both the public andprivate sectors, developing soft skills and capacities, carrying out reforms at the local and national levels,and upgrading the quality of infrastructure facilities and services locally. This is an ambitious agenda,which cannot be fulfilled within the term of a typical investment project, and is, therefore, paced over atwelve-year program with three phases. The program starts modestly with local capacity building andsmall infrastructure investments in Aden and evolves to national level reforms and strategic investmentsin a number of port cities. In its early stages, the Program develops a cohesive strategy for economicdevelopment for each participating port city. Strategies would be based on empirical studies oncomparative advantage and competitiveness, on shared visions developed by stakeholders in each portcity, and on investment and reform plans to realize the visions. Implementation would be carried out bynewly established Local Economic Development Departments (LEDD) at the Govemorate level, staffedby qualified civil servants, and supported by private consultants. LEDDs would evolve into the mainstrategy/coordination bodies for local economic development at the Govemorate level.

Within the parameters of the Program design, resource allocation would be demand-driven andincentive-based, allowing for competition among cities for Program resources, while providing theincentive for local governments to partner and develop alliances with the business and NGO communitiesthat can lend support to the local reform effort. Triggers for advancement to each successive stage of theProgram, therefore, would be applied separately to each port city.

Geographically, the Program would be launched in Aden, the primary port of Yemen. It then expands toHodeidah and Mukalla during the second phase and finally, encompasses other port cities, such asMokha, Nishtun, Al Salif, etc. The development of strategies, policies and investments for each port citywould take into account comparative advantages, i.e., trade and vessel servicing in Aden (given its highlystrategic location), agro-industry in Hodeidah, fisheries industry in Mukalla, and fishing and simple foodprocessing in other participating port cities.

In terms of reform and institutional development, the Program starts with basic capacity building of keypublic institutions at the local level with direct impact on strategic planning and interface with privateinvestors. Institutions concerned with strategic planning at the local level include the GovernorateCouncil and the Planning Department. Institutions that have direct involvement with private investorsare the General Investment Authority (GIA), the Customs Authority, the Public Land Authority, and theMunicipality (the decentralized branch of the Ministry of Public Works and Urban Planning). TheProgram plans to invest in administrative modernization, ICT, and automation of business processes thatare tailored to the capacity and skill level (often quite limited) of these institutions. The local planningand reform initiatives would be coupled with small-scale infrastructure and other urban revitalizationinvestments specifically targeted to improve economic activity, with a focus on supporting smallbusinesses in the inner city, while building business linkages with key transport facilities, including theAden Container Terminal and industrial free zone, Ma'alla Port and the airport.

Phase II would be triggered by two Central Government measures to develop: (i) a regulatory frameworkfor industrial estates; and (ii) completion of a Resettlement Policy Framework. Triggers at the port citylevel would include, independently for each city, satisfactory progress in prior phases, includingsuccessful implementation of physical investments (in the case of Aden), and formal adoption ofstrategies, master plans, investment plans, resettlement policy framework and reform plans developed inPhase I (see Annex 1). Phase II components would include translating strategies developed during PhaseI into investment, capacity building, and administrative modernization programs, including investments

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Page 4

in port city assets of national significance, such as Industrial Estates or port facilities in Aden, Hodeidah and Mukalla. Phase III would be triggered by two Central Government measures to develop: (i) customs reforms and streamlined procedures to reduce processing time to internationally accepted standards; and (ii) a regulatory framework for the Ports Authority, which specifies public and private roles in port operations. At the port cities level, satisfactory progress in implementing prior phases would trigger advancement to the third phase. Phase m components would include technical assistance, capacity building, and investments in the Customs and Port Authorities, and design of private sector participation in port financing and operations. During Phase III, the Program would also be rolled out to other participating port cities (Mokha, Nishtun, Al Salif, etc.) with small investments to enhance local economic development. 2. Project development objective: (see Annex 1) The objectives of the Project are to assist the Borrower to: (i) remove critical constraints to economic development; and (ii) improve the environment for investment and economic growth and development, within its Port Cities

3. Key performance indicators: (see Annex 1) A performance-based monitoring system (PBMS) would be established under the program to analyze data and monitor performance against expected results. Such systems would be established at each participating port city and baseline data would be collected and monitored using the same or similar variables for comparative purposes. Each LEDD would be responsible for preparing periodic PBMS reports and would submit them to the Port Cities Interministerial Committee (PCIC) for overall program monitoring. Through a partnership with the United Nations Habitat Indicators Program, as well as the Arab Urban Development Institute (AUDI), a concrete set of baseline indicators is in the process of being established that would be suitable for monitoring progress under the Program. Outcome/Impact Indicators * Greater satisfaction of Aden's business community and civic groups regarding the capacity of local government to manage, improved efficiency and participatory methods, indicated by business services report cards and public perception surveys. * Reduced transaction costs and greater transparency in the delivery of local government services at key points of interface with the private sector, including decreased processing time for business registration/issuance of regulatory authorizations and clarified/reduced number of steps required for approvals/permitting. * Improved business district/cluster performance and productivity in project-affected areas, gauged through performance effects of investments (improved infrastructure and services for small and micro enterprises, business linkages reinforced through physical investments, TA, etc.). * Increased private sector investment and real estate values triggered by public investments and improved business environment. Output Indicators * Local Economic Development Department established at Aden to anchor and better coordinate

Program implementation and local economic development policy at the Governorate level.* Improved local government systems installed and operational at key points of interface with the

business community, including the GIA, Public Land Authority, and the Customs Authority.* Strategic, physical and investment planning work updated or completed, including City

Development Strategy (CDS) for Aden, an Aden Master Plan, sub-regional land-use andtransport studies, water and waste management plans, and prioritized Capital InvestmentProgram.

* Successful completion of selected small-scale infrastructure investments and revitalization ofbusiness districts/clusters.

Output and outcome indicators are detailed in Annex 1.

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: IDA/R/2002-015;/l Date of latest CAS discussion: 09/05/2002

Two key objectives stated in Yemen's August 2002 Country Assistance Strategy (CAS) are: (i) creatingan attractive investment environment to generate job opportunities through lighter and more predictableregulation and taxation, enforceable contracts, predictable application of laws, and adequateinfrastructural support; and (ii) achieving an improved governance through better budgeting,expenditure, fiduciary controls, policy formulation, and capacity building for effective decentralizationand, more generally, for improved service delivery to the public and business community. It is primarilythese CAS objectives that will be supported through the proposed Program, which seeks to developAden, Hodeidah and Mukalla as Yemeni regional engines of growth by providing investments ininfrastructure and technical assistance to address local administrative needs to better promote andfacilitate private sector activity.

The CAS identifies four endowments that contribute directly to the rationale and design of the proposedProgram:

* Location. Yemen's position along the major sea route between Europe and Asia, which made Adenthe second busiest port in the world at one time, can again be put to use. Yemen's port cities are wellsituated to become engines of growth. Its long coastline and large marine resources, if properlymanaged, have the potential for sustained growth in export revenues and employment.

* Coastal Aquifers. As the densely populated highlands exhaust their groundwater reserves, manypeople will be forced to seek other places to make a living. It is estimated that certain barely tappedcoastal aquifers, especially in the east (Hadramout), could sustain much larger populations forcenturies. Others already suffer from saline intrusion, but their water could be desalinated affordablyfor nonagricultural uses.

* Trading Culture. Since antiquity, Yemenis have been oriented to international trade. This cultureaffords Yemen a wealth of potential foreign trade and investment links, as well as a large populationof expatriate Yemenis, many of whom would help exploit those links as far as the internal businessclimate permits.

* Decentralized Government. This "endowment" differs from those above in that it alone is theproduct of a government decision, in this case the Local Authorities Law enacted in 2000. Althoughlocal authorities now have the legal basis and primary responsibility for delivering key services to

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local constituients, institutional capacity is weak at the local level, and most Govemorates have yet todevelope to their full potential in terms of qualified staff, appropriate systems, and establishedmechanisms for generating local revenue.

By focusing on port cities, the Program targets localities in Yemen with favorable economic andgeographic endowments, builds on the locational advantage of Yemen and responds to demographicshifts resulting from water scarcity in the highlands. Furthermore, the Program also supportsdecentralization within the three port cities through the use of the Local Economic Development (LED)framework, and enables a better business environment linking Yemen to regional and intemational tradecenters, thus providing inhabitants of port cities with increased job opportunities.

2. Main sector issues and Government strategy:

In July 2002, the Government finalized the Poverty Reduction Strategy Paper (PRSP) for Yemen. Thefirst pillar of this strategy involves achieving a high and sustained rate of economic growth, and portcities are seen as the main engine of such growth, Indeed, the President has designated Aden as thecommercial capital of Yemen. With its strategic location, deep-water port, and relatively high qualityhuman capital, Aden has the necessary prerequisites for assuming such a role. Other port cities,including Hodeidah and Mukalla, have similar strategic advantages and offer complementaryopportunities for the development of a more diversified Yemeni economy by building on existingfisheries, agriculture, manufacturing, and transshipment industries. However, years of neglect have leftthese cities in need of major capital investments, and the high degree of centralized planning, budgeting,and administration that occurred during the 1990s weakened local capacity to effectively manage urbanareas.

Tangible steps have been taken over the last few years to remedy the situation. On the capital investmentfront, substantial public and private investments have been made in the Aden airport, container terminal,economic free zone, and to a lesser degree, Ma'alla Port. On the decentralization front, the LocalAuthorities Law (Law No. 4 of 2000) has transferred considerable administrative and fiscalresponsibilities to local authorities. It stipulates that locally elected councils will be responsible forbudget preparation and accounting, development of physical and economic plans, raising local revenues,and executing local public works. There are also new incentives for local governments to increase localtax revenue. While local elections have taken place and councils have been formed, the ambitiousprovisions of the Law related to planning, budgeting, and administration have yet to fully take hold. Asignificant amount of work remains to be done in terms of institutional design and development at thelocal level, as well as capacity building, before local authorities can assume their full responsibilitiesunder the Law.

A number of national level challenges remain, however:

(a) Economy still oil-dependent:

Yemen's economy is highly vulnerable to changes in oil prices, as oil still represents 35 percent of totalGDP, 75 percent of fiscal revenues and 90 percent of total merchandise exports. The need to developnon-oil sector activities and attract private investment is critical for reducing dependence on oil revenueand putting the country on a more sustainable path of growth and development.

(b) The investment environment for the private sector is uncertain, but Aden holds the most promise:

The pace of reforms involving civil service, judicial, and tax systems has accelerated recently. The

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Investment Law, which has been amended and passed by Parliament, has modifications that giveinvestors the right to register their projects without prior permission, and allows them to possess land fortheir projects and residences. It is hoped that this change will attract more foreign investment to Yemen.Other laws, such as the civil law and estate law, are also slated for amendment to further facilitate landand estate possession by non-Yemeni nationals.

Sources of uncertainty for private investors in Yemen are well known, and involve: (i) the securitysituation in the country, which remains a concern for foreign investors; (ii) corruption and economicmismanagement that are deeply routed and will remain a challenge for the new Government; (iii) judicialindependence and efforts at reform, which are limited; and (iv) the privatization of major publicenterprises, which appears to be stalling. Affecting meaningful improvement in these areas is likely to bea long-term process requiring structural, regulatory and institutional changes. In the short-term, thestrategy should focus on supporting local investors who have proven able to work in the currentenvironment of limited security, but still face substantial infrastructure and regulatory hurdles, whichimpede their ability to compete.

In Aden, the combination of geographic location and evolving port facilities has generated the interest ofnational, as well as international, investors who are actively considering the city, its port and its free zoneas a base for their operations. A growing number of manufacturing and service fu-ms have begun to testthe potential of using the city as a platform from which to access markets in Yemen, East Africa, and theArab Gulf. Shipping lines and their support services, international trading companies and trade serviceproviders are aggressively developing their relations and initiating some activities at the port and the cityin anticipation of its continued ascension as a strategic regional shipping and trade hub.

In order for Aden to capitalize on this significant level of interest and to secure the long-termcommitment of its current and anticipated investors, it must aggressively develop the necessary publicand private sector capacities and efficiencies needed to facilitate and add practical value to their businessoperations.

With its ideal location, and assuming continued development of port efficiency and capacity, theessential prerequisites for the emergence of the port and the free zone as a pivotal regional hub fortransshipment and re-export operations could be firmly in place. However, the city's ability to keep-upand efficiently reap the economic benefits of growth in its port and to use this invaluable catalyst todeepen its competitive advantage and revitalize its economy will depend on its ability to developstrategic and sustainable linkages to the range of evolving port activities. At this stage, Aden's physical,institutional and private sector capacities are in an early stage of development and require imnediate andtargeted support to guide growth to meet anticipated demand. Aden appears to be steadily gainingmomentum in this direction, and the prospects for success seem good. Aden has a real opportunity toposition itself as a significant player in regional trade.

(c) Poverty and unemployment remain high:

Poverty remains a major challenge, as reflected by the 1998 Household Budget Survey, which indicatesthat 42 percent of the population or 6.9 million people live below the poverty line. An estimated 18percent of the population, or about three million people, are incapable of obtaining all their food andnon-food requirements. Moreover, another 25 percent of the population is economically vulnerable andlives on the borderline of poverty.

Based on the 1999 Labor Force Survey, the unemployment rate in Yemen reached 11.5 percent and ismainly traced as an urban phenomenon. The substantial increase in the percentage of unemployed who

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were previously employed (from 30 percent to 63 percent) between 1994 and 1999 is of great concernfrom a poverty perspective. Furthermore, continued high population growth rates places significantstress on the labor market.

In the manufacturing and services sectors, micro- and small-enterprises, which employ from one to four,and five to nine employees respectively, constitute 98 percent of all enterprises in Yemen. Less than twopercent of enterprises employ ten or more persons, suggesting that there are constraints which prohibitsmall enterprises from growing into larger operations.

(d) Poor levels of urban management, infrastructure provision and maintenance:

While investors' primary concerns are political and policy uncertainty, they also consider the quantity andquality of a host country's infrastructure when making investment decisions. Well functioninginfrastructure facilities and services are critical components to economic development, and services suchas transport, water and power are immediate inputs to production. Any reduction in input costs raisesprofitability and promotes productivity.

Current levels of infrastructure provision and maintenance in Yemen's primary cities reflect anequilibrium of low revenues and low expenditures, and many urban services, including road transport,solid waste, water and waste water, and power, have not kept pace with the rapid level of growth, asevidenced by rates of rural-to-urban migration. A competitiveness assessment conducted in May 2002,confirmed the situation in that an overwhelmingly number of businessmen and public officials indicatedthat infrastructure networks in Yemen are poorly developed and inefficient. Over the past couple ofyears, the level of rural migration to Sana'a increased over 107 percent, to Aden by nearly 25 percent, andto Hodeidah by more than ten percent. While Sana'a has attracted the greatest flows, Aden has become aprime destination for many segments of the population moving from water scarce inland areas in searchof employment opportunities, and the strain on infrastructure services is evident. Traffic pressures andtransit demands have increased considerably, and the use of conventional traffic control devices, such assigns, road markings and traffic signals, is sparse. The water distribution system is in need of extensionand reinforcement in order to cover new areas, and some sections of the old cast truck mains need to bereplaced. Reliable power is also problematic in Aden where power generation plants have an averageage of twenty years; power shortages, which can reach 30 percent of expected demand, remain a seriousproblem, and distribution networks have not been upgraded or rehabilitated since 1982. Thesedeficiencies are even more pronounced in other port cities. Basic investments in infrastructure, as well astechnical assistance to strengthen the capacity of local officials to adequately assess, plan and budget forinfrastructure development and maintenance, is needed.

Municipal assets, including land and public buildings, are poorly managed, often abandoned or otherwisenot exploited to their full economic potential, particularly those located in commercial districts.Renovating such publicly-owned facilities and transforming them into productive assets could generatenew municipal revenue streams, having a further knock-on effect by increasing real estate values andtriggering new private sector investment in revitalizing key urban centers of economic activity.

(e) Free Zones: Sofar, an unfulfilledpromise

The Governorate of Aden entered into a concession agreement with Yeminvest to develop and operate acontainer terminal and free zone industrial area on strategically located land. Although the containerterminal has been completed, is now operational and has increasing volumes of commercial traffic, duein large part to a strategic alliance Yeminvest formed with Singapore's largest transshipment concern, thefree zone industrial area took considerably more time to develop. To date, no tenants are operational at

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the site, though plans for five new operations are in the process of being established. However,opportunities for private sector investment linked to the container terminal and transshipment industriesare promising. Marine vessel and container repair/maintenance, bonded warehousing, refueling, andin-land transport are just a few of the opportunities to be exploited directly linked to the promisinggrowth of container terminal traffic. Exploiting further business linkages, including hospitality services,value-added manufacturing for re-export, logistics and distribution services, and overland transportwould provide new opportunities to fuel investment in and growth of Aden's economy.

3. Sector issues to be addressed by the project and strategic choices:

Yemeni cities are facing severe pressures from rapid population growth, high levels of poverty andunemployment, and limited capacity at the local level. The Bank's 2000 urban sector strategy takes a twopronged approach to addressing these pressures. The first is to develop a strategic program, whichfocuses on those cities with an absorptive capacity in terms the potential for job creation and availablewater resources. The second is to develop a municipal fund to help all localities cope with their capitalinvestment needs. The Port Cities Development Program addresses the first prong of this approach, inthat it stresses medium- and long-term local economic development in terms of planning, capacitybuilding, policy reforms, and investments. Strategic choices were made on the following issues:

Capacity building to elected local councils on participatory methods: The Program seeks to providetechnical assistance to elected local council members in participatory approaches with the aim offacilitating greater collaboration with their constituents to formulate priority investment plans. Duringthe preparation process, a number of hands-on training workshops, funded through the Cities Alliance,were held in Aden and combined classroom training with field training in some of the business districtsidentified in the Program.

Reforms: While many of the regulatory constraints to private sector development are at the nationallevel, elected local authorities have an increasing role to play, not only in shaping the local investmentenvironment, but also in bringing pressure to bear on national agencies for needed reforms. As such,local authorities would play a critical role in catalyzing national reform efforts through national-localgovernment dialogue. The approach to phasing of reformrs, therefore, would start with local levelreforms coupled with local investments. As more port cities enter the program, national level reformswould be sought (in Phase II) and coupled with investments in local assets of national significance (ports,custom facilities, etc.).

Urban revitalization through physical investments: Improving linkages between areas of productivity andemployment generation would be addressed under the Program, and potential revitalization investmentsin business districts/clusters during Phase I would focus on projects that are small and localized.Because the first phase would be launched prior to the completion of a master plan and a medium-termcapital investment plan, no large-scale investment in greenfield sites would be considered. Investmentsrequiring land acquisition or resettlement, or which might have significant environmental impacts wouldonly be considered in subsequent phases. Major investments in the water and power sectors, especiallyinvolving generation and transmission, would not be considered as these are being addressed in otheroperations.

Decentralization: With decentralization, local governments are assuming greater responsibility formanagement of their fiscal affairs, and new incentives have been established for local governments toidentify and exploit new sources of revenue. In coordination with the Taiz Municipal Development andFlood Protection Project, the Program would assist local authorities to assume their full responsibilitiesprovided by the recent amendments to the Local Authorities Law through capacity building and other

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supportive investments. Capacity building would be provided to improve revenue and expenditureplanning, better manage municipal assets, and strengthen physical planning and land-use management.

4. Program description and performance triggers for subsequent loans:

Program Description

The total Program cost is estimated at US$96.00 million and would be implemented over a period ofabout twelve years. The Program seeks to remove critical constraints to private sector-led economicdevelopment and growth in participating port cities. Beginning with Aden, Phase I would consist of: (i)strengthening strategic, financial and physical planning processes and identify prioritized investments forPhase II; (ii) reforms to encourage and stimulate economic activity; and (iii) investments that contributeto local economic development by improving productive or commercial environments or create businesslinkages among Aden's economic areas. Primary criteria for selecting Phase I investments includeprojects that:

* support or serve key commercial and industrial areas or facilitate business linkages;* can be fully developed on Government-owned land and do not require land acquisition or

expropriation;* can be completed without resettlement of economic activities or inhabitants residing in the

project area;* will have no negative environmental consequences; and* have a clear plan for sustainable management, maintenance, and operation.

Phase I would also launch the preparation of City Development Strategies (CDSs) in Hodeidah andMukalla.

Triggers for Subsequent Credits

Following successful implementation of Phase I initiatives (for Aden - adoption of development plansand successful implementation of infrastructure investments; for Hodeidah and Mukalla - completion ofCDSs), and incorporation of lessons learned in the design of Phase II, more complex physicalinvestments and discrete private sector support services would be pursued in Aden under Phase H.Program roll out to other participating port cities would also commence. Further details on triggers forsubsequent Credits may be found in Annex 1.

C. Program and Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

Phase I has three components, which are briefly described below.

1. Revitalizing Aden Economy and Business Clusters. This component would support local economicdevelopment by creating and reinforcing business linkages within the city, upgrading industrial andcommercial areas serving micro- and small-scale enterprises, and rehabilitating commercial districts withthe aim of revitalizing existing businesses and triggering new private sector investment. Preliminary,small-scale identified investments include rehabilitation of a small industrial area for microenterprises,physical improvements to the local fish market to enhance sales and marketing (while improvingconditions for fish sellers), and access in and out of Crater's main commecial area.

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2. Port Cities Strategic and Physical Planning. This component would finance the formulation ofCDS strategies for Aden, Hodeidah and Mukalla, including competitiveness assessments, clusterstrategies, participatory workshops and other work that would help to form and reinforce a shared visionof each city. Financing would also support an update of the master plans in the participating port cities,including several inter-related physical planning studies necessary to underpin city developmentstrategies. Investment priorities identified through these planning efforts would subsequently beincorporated into capital investment plans developed in the three port cities. Efforts would be made tolink formulation of this plan with budgetary planning processes at the local level to include budgeting forrecurrent cost obligations implied in the identified capital investments. Technical assistance, design andfeasibility studies would also be financed under this component to assess business cluster needs,determine the appropriateness and cost effectiveness of proposed investments in Aden, and studyprospects for larger, down-stream investments in Phase II in Aden, Hodeidah and Mukalla, and undertakedetailed design work, as well as supervision of works, for Phase I and Phase II investments.

3. Aden Local Capacity Building and Administrative Modernization. Underpinning Aden's strategicand physical planning efforts and revitalization program, this component would include a series ofcapacity building measures focused on improving the efficiency and transparency of public servicesprovided to the private sector. This would include improved organizational and management systems atthe General Investment Authority, Customs Authority, Public Land Authority, and Public Works - fourkey points of interface with the private sector. Rules and procedures need to be simplified, streamlinedand made more transparent. Delays in service delivery can be cut down and inefficiencies reducedthrough the introduction of new automated systems. Businesses would benefit from reduced transactioncosts in establishing and running their operations, while such systems would increase transparency andreduce discretion in the issuance of permits and regulatory approvals. Selected technical assistance andtraining assignments to foster public-private partnerships and support reforms to improve performance atthe Free Zone would also be financed under this component. Performance would be monitored throughbusiness report cards and other feedback mechanisms.

Indicative Bank- % ofComponent Costs % of financing Bank-

(US$M) Total (US$M) financing1. Revitalizating Aden Economy and Business Clusters 14.60 55.1 13.50 57.7

1.1 Access Improvements1.2 City Revitalization1.3 Upgrade Small-Scale

Commercial Areas2. Port Cities Strategic and Physical Planning 6.00 22.6 5.00 21.4

2.1 City Development Strategy2.2 Physical Planning Studies2.3 Capital Investment Plan2.4 TA, Feasibility & Design Studies

3. Aden Local Capacity Building and 4.90 18.5 3.90 16.7Administrative Modernization

4. Unallocated 1.00 3.8 1.00 4.3Total Project Costs 26.50 100.0 23.40 100.0

Total Financing Required 26.50 100.0 23.40 100.0

2. Key policy and institutional reforms supported by the project:

* Putting in place the institutionalframeworkfor the strategic development of port cities, includingthe development of a long-term vision, a short-term strategy based on regional competitivenessanalysis, and a master plan and capital investment plan. This process would be driven by thenewly devolved powers to local govermment, elected councils, and participation of a broadspectrum of stakeholders from private sector and civil society (launched in Aden duringpreparation).

* Enhancing the effectiveness of key public agencies in port cities that have direct interface withthe private sector, including the General Investment Authority, Customs Authority and PublicLand Authority. In addition, support would be provided to core local government departmentsthat play a vital role in shaping and implementing the strategic plans for port cities, particularlywith regard to land use planning and infrastructure service provision (Public Works Department).This would be done through capacity building, modernization, and procedural reforms.

* Program triggers between Phases I and II require concrete progress on: (i) creating a unifiedmunicipal administrative structure for participating cities, rather than fragmented district leveladministration; and (ii) developing a regulatory framework for industrial estates.

* Piloting a Local Economic Development Department at the Govemorate level, which wouldcoordinate the local economic development effort and integrate project management andimplementation within local government.

3. Benefits and target population:

Program Benefits:

* Local economic development vision built on participatory approach;* Improved planning and resource management at the Govemorate level;* Enhanced municipal capacity to design and implement projects;* Creation of an environment more supportive of private sector development; and* Expanded coverage of, and access to, infrastructure facilities and services for businesses.

Target Population: The Program would benefit residents and businesses of Aden and, under laterPhases, other participating port cities. Improved business services and infrastructure facilities would betargeted especially at small businesses in the urban environment, to ease entry into the market by smallentrepreneurs and create job opportunities. Depending on land availability and zoning restrictions,industry clusters could emerge that offer smaller businesses the benefits of co-location and theopportunity to share resources. Infrastructure linkages between commercial areas and the airport, portand free zone would enhance opportunities for larger investors to out-source production to smallerbusinesses, while at the same time, encourage the emergence of new service sector businesses.Renovation of municipal buildings for commercial use would create opportunities for partnership withthe private sector, potentially have a knock-on effect by triggering private sector investment, thuscontributing toward the revitalization of commercial districts, and generate new revenue streams for theAden Governorate. New knowledge generated on business opportunities, competitiveness, andstreamlined administrative procedures would assist all investors.

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4. Institutional and implementation arrangements:

Implementation Period: The overall implementation period for the Program is anticipated to be twelveyears or 144 months, with each of the Program phases spanning a period of four years. Depending onproject performance and progress on triggers, subsequent phases could start before closing of priorphases, i.e., phases could overlap, thus reducing the overall implementation period of the Program.

Executing Agency- Ministry of Planning and Development (MOPD).

Implementation Arrangements: Given the cross-sectoral nature of the Program, and the emphasis onadministrative reforms and implementation at the local level, the Program would be implemented at thelocal level, with national level coordination. At the national level, a Port Cities IntermninisterialCoordination (PCIC) Committee was established in September 2002 by Cabinet Decree (No. 264-2002)and charged with carrying out national level policy reforms required at the various stages of the Program.The Committee is headed by the Prime Minister and includes the Ministers of Planning, Finance,Industry and Trade, Public Works and Urban Planning, Transport and Maritime Affairs, LocalAdministration, Interior, Governors of Aden, Hodeidah and Mukalla, Chairman of Free Zones Authority,President of the General Investment Authority, and Presidents of the Chambers of Commerce for Aden,Hodeidah and Mukalla. Other governmental agencies would be included as Program needs require. ThePCIC would meet twice a year, or as the need arises, and exercise overall decision-making authorityregarding policy matters. The PCIC would also work to remove any obstacles at the central level toenable local administrative reforms to be carried out under the Program.

A National Coordinator, to be funded under the Program, would be responsible for ensuring progress onnational agenda reforms affecting Program objectives, implementing all initiatives associated withComponent 2 of the Project, Strategic and Physical Planning, facilitating preparation and launch forPhase II by other participating cities, and would serve as Secretariat for the PCIC. The NationalCoordinator would be responsible for submitting quarterly progress reports, which would include inputfrom the LEDD Director in Aden, to IDA and MOPD. The National Coordinator would also beempowered to hire short-term consultants on an as-needed basis.

The National Coordinator would engage a team of technical specialists to provide support and guidanceto the LEDD and other relevant public agencies specified in the Loan Agreement in launching the Adencomponent of the Program. The core team would consist of a Local Economic Development Specialist, aProcurement Specialist a Financial Specialist, and a Economic and MIS Specialist. The Procurement andFinancial Specialists would be needed early to ensure adequate compliance with IDA's fiduciarysafeguards. It is envisaged that this team would provide needed support in establishing systems andprocedures at the Aden LEDD during the initial start-up phase (two to three years) and be responsible forensuring adherence to Bank guidelines, after which the team would shift to other participating port citieswhere they would provide essentially the same start-up support in launching LEDDs in those cities. Tofacilitate Program launch, the National Coordinator and the team of technical specialists would be basedin, and provide on the ground support in Aden and, at a later stage, to other participating port citiesaccording to need. The National Coordinator's office, which has already been established and equippedwith needed office furniture, was financed by the Government. Staff have administered a PHRD grant,which has been used to finance studies to help prepare this project.

In Aden, a Local Economic Development Department (LEDD), was established by a decree of theGovernor (No. 63-2002), is under the Office of the Governor of Aden. The LEDD has embedded withinit the functions of a conventional Project Implementation Unit (PIU), and would serve to ensure thelonger-term integration of these functions and institutional sustainability after closing of the Program.Its overall purpose is to provide an institutional foundation for Aden to launch a series of strategic,financial, budgeting and physical planning efforts in a coordinated fashion. The LEDD's main functions

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include: (i) coordinating the formulation of a Local Economic Development strategy and action plan; (ii)establishing an economic database to monitor Aden's performance against identified urban indicators;(iii) commissioning studies and technical assistance to position Aden to take advantage of its competitiveendowments, guide the reform effort and monitor progress on agreed actions through aperformance-based monitoring system established under the Program; and (iv) implementing Aden'scomponent of the PCDP, including delegation of tasks among various local government departments,while retaining oversight responsibility for all key functions. Under the Program, the LEDD woulddelegate responsibility for administering works projects and other physical investments financed underthe Credit to the Aden branch office of the Ministry of Public Works and Urban Planning, but wouldensure that investments are in line with prioritized needs, as determined by the CDS process. Membersof the CDS Team assigned with the responsibility of providing input on the formulation of an LEDstrategy and action plan, and for proposing investments in local infrastructure facilities and services,would serve as an advisory committee to the LEDD. The CDS Team and its technical committees wouldnot have any decision-making powers.

The composition of the LEDD would be small and fully integrated within the local government'sadministration, reporting to and serving the Governor in his executive function. The LEDD wouldprepare reports and commission studies required by the Governor or by the Local Council on economicdevelopment related matters to support them in making informed policy decisions. The LEDD would beheaded by a Director, who would report to the Governor of Aden and serve as the primary liaison among,and work in close cooperation with, the National Coordinator, relevant local government agencies andofficials throughout the Governorate of Aden. Among other responsibilities, the Director would providesupport for and facilitate the actrivities of the CDS process, ensure that the Program's objective of localeconomic development is maintained throughout all project-related activities, and that physicalinvestments conform with the four key criteria set out in Annex 2, Project Component I of the PAD. TheLEDD would also have an Engineer/Procurement Officer, a Financial Officer and Executive Secretary,all of whom would be civil servants. Other staff would join the LEDD on an as needed basis, andshort-term consultants would be hired for specific capacity building and technical assignments. Thisstructure would be replicated in Hodeidah and Mukalla, based on learning gained from the Adenexperience, as they qualify for the program. The LEDD and National Coordinator would share offices inAden until sufficient capacity has been built at the LEDD, as determined through supervision missions.

The LEDD in Aden would report to the Aden Governor's Office, which would have finaldecision-making authority to accept, reject or modify strategies, plans and investments relating to projectactivities.

Financial Management: Details of the project's financial management aspects are provided in Annex6(B), and are summarized below. The financial management system (FMS) at Aden's Govornorate wasassessed during appraisal. The FMS is based on principles defined by the Government's accountingframework and requires significant amendments to meet the project's financial management needs. TheLEDD in Aden would be responsible for managing the project's financial management and reportingaspects. As conditions of effectiveness, the FMS must be established, equipped and fully functional, anda qualified Financial Specialist, acceptable to IDA, appointed. In close cooperation with the NationalCoordinator, the LEDD would prepare quarterly financial monitoring reports (FMRs) and submit them toIDA and MOPD within forty-five (45) days of the end of each quarter. The first set of FMRs would besubmitted for the quarter following the end of the first quarter of initial disbursement. The project'sfinancial statements would be audited annually be a qualified independent auditor acceptable to IDAunder terms of reference acceptable to IDA. The audited financial statements, along with the auditor'sopinion, shall be submitted to IDA within four months after year's end.

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D. Project Rationale

1. Project alternatives considered and reasons for rejection:

A number of choices for structuring the project were considered during preparation. One alternative wasto use a Specific Investment Loan focused exclusively on addressing Aden's urban developmentpriorities. Unlike an APL, this approach appeared too rigid, preventing adequate opportunities forlearning to guide sequencing and rollout to other localities in support of the government's broad, nationaldecentralization agenda. The flexibility and longer timeframe offered by an APL, by contrast, wouldenable an essential institutional and organization foundation to be solidified under the first phase,followed by an expansion of the investment program in Aden and rollout to other port cities insubsequent phases. Another choice was to launch the Program simultaneously at all three participatingport cities, but this approach would have prevented the opportunity for learning that is expected to enablesmoother sequencing of interventions during the rollout phase, along with incentives for national levelreforms that would act as triggers for rollout to other port cities. A third choice involved the balancebetween program involvement at the national and local levels. Given the large number of investment andadvisory activities at the national level, the decentralization process currently underway, and the uniqueneeds of each port city, it was decided that the Program focus should be at the local level. Focusednational-level reforms in support of private sector development would be sought through triggers underthe Program and through coordination with AAA work on the investment climate, transport, and utilityreforms. Increasing demand for such national reforms is likely to emerge from stakeholders in port citieswho have already undertaken considerable local reforms and removed local constraints to development.Finally, consideration was given to adding a sub-component to upgrade core municipal services,particularly as they pertain to strengthening municipal financial management and budgetary preparation,but it was concluded that this need for assistance would best be handled by the on-going Taiz MunicipalDevelopment and Flood Protection Project, which has a component to support capacity building fordecentralization.

2. Major related projects financed by the Bank and/or other development agencies (completed,ongoing and planned).

There are fourteen on-going Bank-financed projects in related sectors in Yemen. In the water sector, sixprojects are under implementation, most of which have a focus on urban areas. In addition, there are anumber of other projects that are being implemented, including three in transport, two involving socialdevelopment, and one each involving private sector development, institutional development, and energy.

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1 __ _| Latest SupervisionSector Issue Project (PSR) Ratings

(Bank-fBnanced projects only)Implementation Development

Bank-financed Progress (IP) Objective (DO)

Urban Water Supply Sana'a Water Supply & S SSanitation Project

Urban Water Supply; Rural-Urban Taiz Water Supply Pilot S STransfers Project

Urban Water Supply Tarim Water Supply Project S SUrban Water Supply Al-Mukalla Water Supply S S

ProjectTransport Transportation Rehabilitation S SInstitutional Development Legal and Judicial Reform S SEnergy Sana'a Emergency Power S UWater and Transport Public Works II S SPrivate Sector Privatization Support S SSocial Development Social Fund Development HS HSSocial Development Social Fund Development IIWater and Sanitation Taiz Municipal & Flood

ProtectionWater Municipal WaterRural Roads Rural Access Program S SOther development agenciesUrban Water Supply German bilateral assistance

for the Secondary TownsProject.

Urban Water Supply & Sanitation German bilateral assistance toSector Reform and Institutional NWSA and the TechnicalSupport Secretariat.

Urban Water Supply and Sanitation German bilateral assistanceRehabilitation for Taiz, Al-Mukalla and

Aden.Urban Water Supply and Sanitation Dutch bilateral assistance in

Rehabilitation Rada and Hodeidah.Urban Sanitation OPEC/Arab Fund financing of

the Sana'a WastewaterTreatment plant and newsewage collection system.

Sanitation Arab Bank support to financesewerage treatment plants inSana'a.

Decentralization UNCDF assistance in theassessment of Law No.4 of2000 on Local Authority.

Solid Waste Japanese Government supporton providing collection

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trucks.Housing UNCDF assistance on the

development of a modellow-cost housing scheme inAden.

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory)

3. Lessons learned and reflected in the project design:

A number of important lessons, drawn from past projects in the Republic of Yemen and from appropriatesector work (Country Assistance Strategy, August 2002; Urban Sector Strategy, March 2001), have beenincorporated in the design of the Program, and include:

* Strategic Focus at the City Level Based on Competitiveness Assessments. Rather than attempt toaddress a wide range of problems, the project would seek to identify constraints to privateinvestment that are specific to participating port cities, and build upon the experience gainedfrom other port cities in developing appropriate solutions.

* Need for Close Coordination Among Line Ministries. The project would be implemented at thenational level through the newly-established Port Cities Interministerial Coordinating Committeeto better cope with the complex cross-sectoral issues that would be raised during implementation.A Local Economic Development Department in the Aden Govemorate would be established toanchor and coordinate local level initiatives among different agencies and departments, inaddition to managing the various subproject activities. In conjunction with the CDS process,teams and workshops already established or implemented, the LEDD would also serve tofacilitate involvement of business and civil society organizations, among other stakeholders, inproject design, preparation, and implementation.

* Inadequate Procurement Procedures. In the past, procurement of works, goods and services hascaused long delays in the implementation of donor-financed projects in Yemen, and even led tothe cancellation of some IDA-financed components. To avoid this, it would be stressed that eachimplementing agency be staffed with at least one professional with in-depth knowledge andpractical experience in procurement according to Bank guidelines and procedures. In this regard,PCDP provides for the financing of one full-time procurement/implementation specialist based atthe LEDD to oversee the overall procurement process, with the Aden branch of the Ministry ofPublic Works and Urban Planning implementing the works components with support from aconsultant, on an as needed basis, with sufficient experience in implementing Bank-financedprojects.

* Poor Financial Record Keeping. The lack of adequate financial records has been a shortcomingof some projects in Yemen. To ensure that the necessary mechanics are in place to properlydocument and preserve information on project-related financial transactions, it would berecommended that: (1) a fully functional and adequate financial management system isoperational be a Condition of Effectiveness; (2) the appointment of a qualified Accountant occurbefore any disbursements take place; and (3) an independent financial auditor be selected andunder contract prior to effectiveness.

* Sustainable Development. Upstream City Development Strategy work, including numerousworkshops, the formation of CDS core teams and extensive work with Local Councils to promotethe concept of participation all lay a solid foundation for proceeding to the implementation

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phase. The demand-driven, participatory approach that has been enthusiastically embraced bylocal council members, public officials and other key stakeholders have achieved early buy-in forthe Program and is likely to continue doing so as the process becomes institutionalized. TheLEDD would play a key role in sustaining this process, as it is designed not only to carry outproject management responsibilities to be assumed under the IDA Credit, but to be a functionaland sustainable unit of the local government.

4. Indications of borrower commitment and ownership:

The Government has demonstrated its commitment to the proposed Program through the followingactions:

* The President has designated Aden as the country's commercial capital, and there is keen interestamong public and private sector officials to fully develop Aden's potential as an engine foreconomic growth and development by removing constraints to investment and facilitating privatesector activities.

* H.E. Ahmed Sofan, Minister of Planning and Development, put forth the idea of establishing ahigh-level Interministerial Coordinating Committee to facilitate the project's implementation andto coordinate national reform initiatives, and has participated in a number of meetings andworkshops.

* The Ministry of Planning and Development has indicated its strong support for the Program byforwarding a Letter of Agreement (June 12, 2002) approved by Cabinet Decree (No. 198-2002),which, among other things, indicates central government committment to providing financingand facilitating institutional reforms to encourage Govemorates to launch initiatives in support ofthe Program.

* Issuance of a Cabinet Decree (No. 264-2002) in early September 2002, which formallyestablished the PCIC.

* The Governor and elected council members of Aden have actively participated in all workshops,a number of which the Governorate has hosted and financed. Govemors and elected councilmembers of Hodeidah and Mukalla have expressed keep interest in joining the Program and haveargued effectively for delinking the beginning of Phase II from the closing of Phase I to allowthem to launch their programs once ready.

* The Aden LEDD was formally established by Govemor's Decree No. 63-2002 in early September2002.

5. Value added of Bank support in this project:

Two factors have necessitated a cross-sectoral design of this Program. The first is that turning acity/region into a "growth pole" for a country requires a range of interventions covering a number ofinter-related sectors. The second is that the decentralization process has put local government in Yemenin the center of decisions on prioritizing and funding investments across social and economic sectors.IDA is in a position to offer guidance to local government that spans and coordinates these sectors, andover a long development horizon through the use of programmatic lending.

While cross-sectoral operations are not yet "conventional" in the Bank, they are increasingly encouragedas they stand to contribute to positive development "outcomes" and "impacts," and not just outputs. IDA

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has accumulated global experience in supporting local economic development, particularly through theintegration of sector reforms and investments. IDA has assisted borrowers across all sectors touchingurban development, including water and sanitation, transport, private sector development, tourism,energy and social development. IDA has also had extensive involvement in Yemen in a broad range ofsectors.

Finally, the strategic approach to develop a long-term investment strategy presents an opportunity tocoordinate financing and advisory services with other international and bilateral donors.

E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)

1. Economic (see Annex 4):Cost benefit NPV=US$ million; ERR = % (see Annex 4)

Cost effectiveness

* Other (specify)

The project would finance a number of investments that would seek to contribute to economicdevelopment by improving productive and commercial environments, and by creating business linkagesamong Aden's economic areas. Because the benefits of the three proposed initial Phase I investments arenot readily measurable in monetary terms, cost-effectiveness analysis was selected. The economicjustification of these initial investments is based on either the best cost per beneficiary ratio or the lowestnet present cost. These initial three projects represent the first set of investments under Phase I, andeconomic evaluations would be conducted on a rolling basis as projects are identified through the processto devise a City Development Strategy for Aden.

For subsequent Phase I investments in infrastructure where benefits can be quantified using generallyaccepted methodologies, such as extension of utilities networks (costs of alternative supplies and timesavings), or improvements in commercial areas (increased employment and land values), cost benefitanalysis would be used. Otherwise, cost effectiveness would be applied. Project criteria to help selectpotential projects include an economic rate of return of ten percent for cost benefit, or the best cost perbeneficiary ratio or the lowest net present cost when cost effectiveness is applied.

Income generating projects would be assessed using financial analysis, and emphasis would be placed onprojects with good cost recovery. Investments would need to attain an internal rate of return of tenpercent. However, for those projects that the Government considers to be priority investments, but areunlikely to attain a ten percent return, selection would be based on the highest cost recovery ratio.

The impact of investments on project-affected businesses and inhabitants, as well as conmmercial andeconomic activities, would be measured through follow-on socio-economic assessments. Suchassessments would be undertaken for at least two projects one year after their completion.

2. Financial (see Annex 4 and Annex 5):NPV=US$ million; FRR = % (see Annex 4)

The total cost of the project is estimated at US$26.5 million, of which some 89 percent would besupported by the Bank Credit and 11 percent would be the Government's contribution. During thepre-appraisal mission, the availability of counterpart funds was raised with the Government, and verbalassurance was provided that because the proposed project is considered a priority, counterpart financingwould be made available. In addition, the project team met with a number of donors during pre-appraisalto discuss the project, and there appears to be potential for co-financing.

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Fiscal Impact:

Counterpart funds, totaling around US$3.1 million, along with the amortization of the Credit, wouldrepresent the main fiscal impacts to the Government. Over the implementation period, requiredcounterpart funding would range between US$500,000 and US$1 million per year, depending on thespeed of implementation. All counterpart funds are expected to be funded from the national budget.Should investments under the project improve access to key areas of productivity, property values inthose areas would probably increase, thereby having a positive impact on the property tax base.Furthermore, should the project succeed in stimulating economic activity, this would generate additionaltax revenues from income and other taxes.

3. Technical:

Physical investments proposed under the project, which would focus on alleviating infrastructurebottlenecks to comnmercial and economic activities, would be limited in scale and based on least-costsolutions. As such, investments would concentrate on paving existing roads and building associatedstorm drainage networks, installing sidewalks and street lighting, and improving traffic management atkey intersections. Projects involving bridges, elevated highways and underpasses, or the large-scaleexpansion of utilities networks would not be undertaken during the Program's first phase. It should benoted that design standards would be consistent with sector ministries strategies and standards. Uponcompletion of the on-going consultancy assignment to assess and design small-scale infrastructureinvestments in Aden, more accurate cost estimates of proposed interventions would be available(expected late November 2002). The Ministry of Public Works and Urban Planning and localconstruction companies have the capacity to undertake maintenance activities associated with theproposed investments.

The proposed E-Govemment solutions would be developed by consultants after a detailed study of theorganizations involved. These solutions would be comprised of reengineered administrative processes(to cut delays, remove discretion from operating staff and reduce corruption) and an automation of theseprocesses using appropriate software and hardware. The consultants are expected to design anE-Government solution, which can be implemented and maintained successfully. The kind of hardwareand software platforms that are likely to be used in the proposed E-Govemment applications are alreadyin use in the Customs Department and at the Free Zone. Maintenance support for such hardware can beprovided by local companies, after some training. Reengineering and change management are thedifficult parts of implementing E-Govemment solutions. Strong internal leadership, and consultants withexperience in similar contexts would be needed to implement the proposed E-Government applications inthe chosen departments.

4. Institutional:

Institutional strengthening is needed in two main areas: (i) planning and budgeting at the local level; and(ii) coordinating and processing approvals for private sector entry and operation. Institutionalstrengthening is crucial, particularly in the area of information management and establishing coordinationmechanisms among cross-sectoral agencies, as well as between the national and local levels. This isespecially true in the decentralization context, where local authorities would assume increasing levels ofresponsibility. Below are brief descriptions of three prominent local entities, as well as brief summariesof institutional issues in key infrastructure sectors.

Local EntitiesAden Governorate: The Governor of Aden is appointed by the central govemment and represents the

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highest political authority in Aden. His mandate is to ensure public safety and the security of the state,and to coordinate economic development with technical ministry branch offices that are represented inthe Governorate. The Governor is affiliated with the Ministry of Local Administration and is assisted bya Deputy Govemor and an office staffed through the Ministry of Local Administration. The Governor'soffice consists of several departments, each headed by a General Director. There are departments thatare responsible for districts, local councils and the Governorate's Executive Council. Other departmentsinclude planning, accounting and personnel. The Govemorate's Executive Council is a coordinationbody with representation from a number of entities, including the Director General of the Governor'sOffice, as well as the Directors General of the Ministries of Finance, Planning and Development, CivilService, Education, Health, Education, Construction and Urban Development, and Interior.

Aden Districts: The Aden Govemorate is divided into eight municipal districts according to the Law onLocal Authority: Sirah-Crater, Khornaksar, Tawahi, Ma'alla, Sheikh Othman, Mansoura, Dar-Saad, andAl-Boreigah. The District Director (a central appointment made by the Prime Minister in consultationwith the Minister of Local Administration) reports to the Ministry of Local Administration through theGovernor. He represents the state at the District level, and his mandate is public safety, state security andcoordination of all development activities in the District. Elected Local District Councils select amongtheir members representatives to form the Govemorate's Executive Council. The Districts municipalservices report to the Office of the Governor of Aden. They are responsible for the provision andmaintenance of social infrastructure services, including street lighting, refuse collection, street cleaningand urban landscaping.

General Investment Authority (GIA): The Aden Office of the General Investment Authority isresponsible for processing applications for new investments. It reports to the central GIA in Sana'a for awide range of permit requests. The GIA's responsibilities overlap somewhat with those of the YemenFree Zone Authority (YFZA). Investors are not sure whether to approach GIA before they initiatecontact with YFZA, and seem to be unclear regarding the distinction between the two authorities and thedivision in their responsibilities.

The CDS process would play a crucial role in linking these planning processes with the shared strategicvision developed for the city. Assistance would also be provided to upgrade skills and systems inplanning processes through the introduction or upgrading of GIS and CAD systems. In addition, betterresource management and a more reliable mechanism for financing maintenance activities and newconstruction in the Governorate, needs to be established. The local branch of MPWUP is also responsiblefor issuing occupational permnits for businesses and building permits.

Infrastructure SectorsUrban Management: The Ministry of Public Works and Urban Planning (MPWUP) through its Adenbranch is responsible for updating the master plan and for planning and overseeing implementation ofinfrastructure investments at the local government level. The institutional capacity of the MPWUPbranch in Aden needs to be improved so that better coordination between land use planning andinfrastructure investments can be achieved.

Power, Water, and Waste Management: These have been identified by the local government and thebusiness sector as critical constraints to local economic development. Given the regulatory issuesinvolved at the national level, which are specific to each sector, it was decided that they are betteraddressed in sector specific operations.

4.1 Executing agencies:

While IDA's main counterpart would be the Ministry of Planning and Development, authority to execute

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and administer component's 1 and 3, which are fully dedicated to Aden, would be delegated to theLEDD. Component 2, involving strategies and physical planning studies to be undertaken in Aden,Hodeidah and Mukalla, would be administered by the National Coordinator. Under Phase I,responsibility for implementation in Aden would be delegated to the Local Economic DevelopmentDepartrnent established under the Aden Govemor's Office.

4.2 Project management:

To help prepare and launch the project's first phase, a Program Coordinator from the MOPD in Sana'awas assigned to work with the Bank team in preparing the project. The counterpart coordinatedmeetings, facilitated the collection of needed data and information, and generally assisted in projectpreparatory activities.

Given the cross-sectoral nature of the Project, an interministerial coordinating committee (the Port CitiesInterministerial Coordinating Committee, or PCIC) was established in Sana'a by MOPD. The objectiveof PCIC is to facilitate project implementation by addressing, in a coordinated fashion, national levelissues that could negatively affect, or possibly derail, key project initiatives at the Govemorate andmunicipal levels.

A Local Economic Development Department was set-up under the Office of the Govemor of Aden. TheLEDD would have overall responsibility for coordinating the promotion of Aden to investors and formanaging and implementing each phase of the project as it relates to Aden, and would receive assistancefrom govermnental ministries and agencies involved in the project, consultants and the Bank team.LEDDs would also be established in Hodeidah and Mukalla in Phase n of the Program (see section C.4).

4.3 Procurement issues:

One of the issues affecting procurement in Yemen is the time required to finalize contracts. This is oftencaused by the large number of people normally involved in the decision making process for any singleprocurement activity. In addition to that, most of the individuals involved with procurement havereceived only limited training. There are also gaps between the procurement law and regulations, whichat times causes disputes between implementing agencies and the decision making bodies within the lineministries or outside.

At times, an unstable working environment also makes it difficult for civil works contractors, especiallyinternational contractors to submit competitive bids. Contractors tend to inflate their bid prices to coverthe risks they think they might face under such circumstances. There have also been instances in the pastwhere the government's contribution to cover a portion of the contract is not made on a timely basis.

To mitigate these risks, procurement under the Program would be streamlined and overall compliancewith the Bank's procurement policies would be the responsibility of the LEDD. The LEDD would besupported technically by the National Coordinator's team of technical specialists, which would be locatedin Aden for the during the first two years of implementatiopn. The Procurement Specialist would workalongside and support a dedicated Procurement Officer, a full-time civil servant who would be appointedto the LEDD, and provide on-going support and capacity building until such time as the ProcurementOfficer had acquired the capacity to assume these responsibilities.

4.4 Financial management issues:

Financial management of the project would be part of the LEDD's responsibilities. Minimum financialmanagement requirements would include appointing a qualified consultant, to be supervised by a Bankfinancial management specialist, to establish an appropriate financial management system at the LEDD

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shortly after project signing. The consultant's terms of reference, to be cleared by IDA, would includepreparing a project financial management manual, setting up a computerized accounting system, andtraining the LEDD's Financial Officer to operate the system. The financial management manual woulddescribe, inter alia, project accounting policies and procedures, intemal control procedures, key staff jobdescriptions, financial arrangements with other project stakeholders, disbursements from the SpecialAccount, intemal and extemal reporting, and auditing arrangements.

Financial Monitoring Reports (FMIRs) would be prepared for the project on a quarterly basis andsubmitted to IDA and MOPD within 45 days of the end of each quarter. The LEDD's manager wouldensure accurate and timely preparation of FMRs. The first FMRs would be due within 45 days of the endof the first quarter of disbursement. FMRs would include: (i) a project progress summary; (ii) costsplanned and incurred during the quarter and to date by project component and category of expenditure,along with explanations for major variances; and (iii) procurement summary for contracts belowthreshold levels.

Project financial statements (project balance sheet, special account statement, and flow of funds) wouldbe audited annually in accordance with Intemational Standards on Auditing by an independent auditoracceptable to IDA. The audited financial statements, along with auditor's opinion, would be sent to theIDA within four months of year's-end, or by April 30th.

Financial Management Risks: The financial management risks are considered moderate. Thisassessment was made in view of the fact that there is currently no financial management system and noaccounting staff on board. These risks would be mitigated by: (i) allocating funds to hire a financialmanagement consultant to establish an appropriate financial management system, and a FinancialSpecialist; and (ii) establishing an adequate financial management system and appointing a qualifiedaccountant as conditions of effectiveness.

5. Environmental: Environmental Category: B (Partial Assessment)5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (includingconsultation and disclosure) and the significant issues and their treatment emerging from this analysis.

Phase I has been categorized as B because it would not include any sub-projects with significantenvironmental impacts. Instead, those investments would be limited in scope and focused on existingsmall-scale infrastructure in commercial areas, such as improving access and roads, or developing publicservices in support of micro and small-enterprises. Depending on the outcome of prioritized CapitalInvestment Plans for the three cities covered by the Program, and which would be developed duringPhase I, Phases II and m may include sub-projects with more significant environmental impacts.Therefore, the environment category would be re-assessed during the appraisal of subsequent phases.

Since the final decision on the five initial sub-projects to be undertaken during Phase I was not madeuntil after appraisal, a two part Environmental Management Plan (EMP) for Phase I of the project wasprepared. The first part of the EMP would be used to guide the environmental assessments that would beconducted for the small sub-projects, as well as potential mitigation measures to be undertaken duringproject implementation. The EMP promotes the use of EIAs, training, and public awareness as tools formainstreaming environmental issues into the planning process.

In the long-term, the implementation of the master plans prepared during Phase I would have a moresignificant environmental impact than the small-scale infrastructure improvements. It is anticipated thatthe larger part of this impact would be positive since the capacity building for municipal planningundertaken during Phase I should help the three cities develop mechanisms for dealing with persistent

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urban pollution problems caused by their over stressed solid waste management, water and wastewater,and traffic control systems. As such, including Environment in all aspects of the planning process inPhase I, per the EMP, as well as upgrading the EMP for the subsequent phases, is vital to ensuring thatthe three LEDDs seriously consider the environment in all aspects of their planning work. The followingkey environmental issues are among those that must be considered by the governments of the three citieswhen developing their master plans: water scarcity, solid and hazardous waste management, waterquality and wastewater management, air quality, wetlands and other coastal issues, noise and congestion,desertification, and endangered species.

5.2 What are the main features of the EMP and are they adequate?

The EMP prepared for Phase I is envisaged as a living document that would be updated at eachsuccessive phase. It contains two sections, the first addresses the small scale sub-projects that areplanned for Phase I and the second addresses mainstreaming environment issues into the Phase I planningprocess of all three LEDDs, which would result in the primary outcomes and triggers for Phase I. PhasesII and m are expected to involve significant infrastructure improvements for the three cities, as opposedto the limited "existing footprint" infrastructure improvements planned for Phase I. Therefore, it islogical to assume that revisions to the EMP for the follow-on phases would be substantial.

The first section of the EMP, which includes an environmental management planning matrix, identifiesmeasures to address potential environmental impacts of infrastructure investments during Phase I. TheLEDD would ensure that the consultant's preparing the interventions use the Design section of the matrixas a guide when preparing the projects. Additionally the Construction section of the matrix would beused as a guide for the contractors implementing the small scale infrastructure improvements.

The second section of the EMP has also developed a planning matrix that enumerates the keyenvironmental issues facing the three cities, as well as potential avenues for addressing these issuesthrough the overall planning process.

The LEDDs would be responsible for ensuring that the environmental concerns listed in the EMP areincluded in the design documents and master plans produced during Phase I. Additionally, the AdenLEDD would be responsible for supervising the construction work for the Phase I sub-projects to ensurethat those environmental concems are properly addressed.

5.3 For Category A and B projects, timeline and status of EA:Date of receipt of final draft: A final Environmental Management

Plan for Phase I was submitted to theInfoShop on June 24, 2002.

5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EAreport on the environmental impacts and proposed environment management plan? Describemechanisms of consultation that were used and which groups were consulted?

With regards to Phase I sub-projects planned in Aden, there was significant stakeholder consultation withconcemed government departments, the private sector, and some NGOs during the pre-appraisal stage.Once the final sub-projects are decided, the EMP calls for public stakeholder consultation in two stages -once during the design stage for each of the sub-projects, and again during the construction stage. In thefirst consultation, stakeholders would be briefed on the overall EMP and consulted on both the negativeand positive impacts that could potentially be brought on by proposed sub-projects. In the secondconsultation, stakeholders would be briefed on the design and consulted on the proposed mitigationmeasures.

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It is envisaged that each of the three LEDDs would use an open and participatory process for developingtheir master plans under Phase I. This process would insure a broad dissemination of the EMP,particularly the second section, which deals with mainstreaming environment into the planning process,and should result in significant, broadbased stakeholder participation in the preparation of the EMPs forsubsequent phases.

5.5 What mechanisms have been established to monitor and evaluate the impact of the project on theenvironment? Do the indicators reflect the objectives and results of the EMP?

The EMP for Phase I includes detailed planning matrices for both the infrastructure improvementsub-projects and the planning process. These matrices would be used by the three LEDDs to monitor andevaluate the project's impact on the environment and by the Bank as a tool for supervision.

6. Social:6.1 Summarize key social issues relevant to the project objectives, and specify the project's socialdevelopment outcomes.

The key social issues relevant to the project are participation, land and economic security, and gender.

Participation: The prospect of decentralization has raised public expectations regarding its impact ondevelopment, but local governments face numerous capacity anrd resource limitations. For the moment,local governments have limited institutionalized mechanisms in place for public consultations orparticipation. The project has already begun to build council members' capacity in involving communitiesin planning and implementing local development initiatives. The City Development Strategy (CDS) sets aprocess by which various stakeholders such as council members, their constituents, civil society and thebusiness community would define a common vision and strategies for implementing them, therebybuilding social capital. The CDS identifies clear development objectives and an action plan for how torealize them.

Land and economic security: Weak systems of land registry and tenure increase the vulnerability of thepoor. The project would support processes that would simplify land management and registry systems,increase transparency, and improve land security. Improved job opportunities for low-skilled workerswould especially benefit the poor.

Gender: Persistent gender inequalities in both access to economic resources and participation indecision-making have put women at a disadvantage. The project would improve women's participation indecision-making by ensuring that they are key members of the CDS team. A decree signed by theGovemor of Aden establishing the CDS team explicitly includes a representative of the Women'sNational Committee. In addition, the Head of the CDS team and Head of the Local Council has alsoexpanded the CDS team to include a woman expert in economic development and woman member of theLocal Council as permanent members of the CDS team. In total, there would be three positions fordifferent women's stakeholder groups. Furthermore, several women are also systematically integratedinto the advisory groups of the CDS. In particular, an advisory group of women professionals active inthe economy constitute a core group of the Local Economic Development subgroup and includecommercial lawyers, economists, NGO leaders, academics and engineers. Women would play an activerole in devising economic strategies for Aden's development to ensure that they would also benefit fromeconomic growth that would be engendered by the project.

The project's social development outcomes are: (1) improved economic opportunities for low skilledworkers, including women; (2) improving women's role in decisionmaking; (3) improved land security;and (4) building social capital and increased public participation in development.

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6.2 Participatory Approach: How are key stakeholders participating in the project?

During preparation and throughout Phase I, key stakeholders in Aden have and would continue toparticipate in the project through a City Development Strategy process. This process seeks to enhancethe capacity of local councils to introduce a participatory approach to urban management anddevelopment. Participative workshops were conducted during preparation, the objective of which was tolaunch a consultative process among all stakeholders, and inform them about the project's goals,approach and implementation steps. Women were active participants in this process and shaped the city'sdevelopment vision and objectives to include gender considerations. Additionally, separate sessions wereheld for local council members in order to strengthen their capacity in assessing and responding toconstituents' needs. (See Annex 2 for full discussion).

Participatory social assessments were conducted in two districts of Aden (Sirah and Al Drain) wheresmall-scale infrastructure investments are proposed that would strengthen the economic potentials of thefish market and a commercial estate area. The objective of the social assessments is to generateknowledge about the locality to enable local council members and the public sector agencies to makeinformed decisions based on a consultative process. The findings of the social assessment wereincorporated into the engineering designs for the two sites and presented to Aden's local council, CDSteam and relevant ministries who selected the most appropriate intervention through a consultativeprocess.

A CDS core team composed of relevant line ministries would prepare the city's development strategythrough consultations with stakeholder groups representing the spectrum of Adeni society. Disseminationof information on the progress of the CDS process would be done through public hearings andstakeholder consultations to develop awareness among citizens on the strategy for Aden to nurture asense of ownership. These activities would set up the process for institutionalizing participation in Adenand would provide lessons for Hodeidah and Mukalla.

Women's participation in decision making is being strengthened through their involvement in the CDSteam and its advisory groups. (See 6.1)

6.3 How does the project involve consultations or collaboration with NGOs or other civil societyorganizations?

NGOs and civil society organizations have been consulted during project preparation. Within theframework established by the City Development Strategies, NGOs and civil society organizations wouldbe actively involved in a consultative process. NGOs were represented at the CDS workshop held duringpreparation.

6.4 What institutional arrangements have been provided to ensure the project achieves its socialdevelopment outcomes?

The CDS process creates the mechanism for public participation, institutionalizes it and builds socialcapital. In order to ensure the social development outcome of improved land security, especially for thepoor, a Resettlement Policy Framework is being prepared through a consultative process with concernedauthorities to define the rules of land alienation and establish clear procedures for policy implementation.

The project strengthens the capacity of local councils to play an active role in establishing processeslinking communities and local governments. Partnerships have been planned with other organizations,

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such as the UNDP-funded Poverty Alleviation Program in conducting participatory social assessments inthe Sirah Fish Market and the Al Drain industrial estate, where infrastructure investments are planned.Other partnerships, such as with the Small Enterprise Promotion Project are also being determined.

6.5 How will the project monitor performance in terms of social development outcomes?

The Social Assessments for the Sirah Fish Market and Al Drain Industrial Estate were conducted duringproject preparation, and provide baseline socioeconomic data for monitoring project impact. Periodicbeneficiary impact assessments would be carried out in Sirah and Al Drain. Assessments of theparticipatory process would be made through periodic evaluations. Assessment of Local Councilperformance would be gauged against constituent feedback and satisfaction surveys.

7. Safeguard Policies:7.1 Are any of the following safeguard policies triggered by the pro ect?

Policy TriggeredEnvironmental Assessment (OP 4.01, BP 4.01, GP 4.01) * Yes 'No

Natural Habitats (OP 4.04, BP 4.04, GP 4.04) 'Yes * No

Forestry (OP 4.36, GP 4.36) 'Yes No

Pest Management (OP 4.09) Yes No

Cultural Property (OPN 11.03) Yes * No

Indigenous Peoples (OD 4.20) 'Yes No

Involuntary Resettlement (OP/BP 4.12) 'Yes * No

Safety of Dams (OP 4.37, BP 4.37) Yes * No

Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) (-'Yes * No

Projects in Disputed Areas (OP 7.60, BP 7.60, GP 7.60)* Yes * No

7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.

To mitigate against potential negative impacts of the Phase I investments, an Environmental ManagementPlan (EMP) was developed. It was produced in compliance with World Bank guidelines, as set forth inOP 4.01.

Phase I infrastructure investments would not involve land acquisition, although in all likelihood, laterphases would. Due to the complexity of land tenure issues in Yemen, studies would be conducted duringPhase I for the preparation of a Resettlement Policy Framework (RPF). The RPF would be prepared incompliance with World Bank guidelines defined in OP 4.12 and submitted to the World Bank before theend of Phase I.

F. Sustainability and Risks

1. Sustainability:

The City Development Strategy, a process by which various stakeholders, such as council members, theirconstituents, civil society and the business community, define a vision for their city and a strategy forimplementing it, was launched during preparation. Within the existing safeguards and objectives,stakeholders are empowered to decide on priorities and investments they would like the Program todeliver. As such, there is a strong sense of ownership and a much higher probability of sustainabilitythan would be the case with a supply driven approach.

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As for implementation arrangements, the Program is departing from the conventional ProjectImplementation Unit (PIU) model by establishing Local Economic Development Departments inparticipating port cities. Unlike the PIU model, which is dissolved upon project completion, the LEDD isdesigned to ensure long-term sustainability of the functions and capacities developed under the Program,as its purpose extends well beyond that of a conventional PIU. In this regard, the LEDD fills a gap incurrent policy making/coordination on issues of local economic development at the Govemorate level.Given the history of top-down centralized, sectoral planning and budgeting, local governments in Yemendo not have the institutional framework for prioritizing investments according to a regional strategy. TheLEDD in Aden would pilot such a function and, based on gained experience, would be rolled out to otherparticipating port cities in Phase II of the Program. LEDD would be headed by a civil servant at theDirector level, and staffed by a core of civil servants. However, recognizing the need to build capacity atthis new institution, it would have access to resources to engage long-term and short-term consultants toassist in capacity building of the LEDD itself, as well as other functions requiring expertise beyond thatof the LEDD staff. In particular, to adequately address fiduciary safeguard requirements, a Procurementand Financial Specialist would be contracted by the National Coordinator to be fully responsible foradministering financial management and procurement aspects for the first three years of the Program,while simultaneously training and building capacity of Aden LEDD civil servants, who would assumethese responsibilities after the third year of the Program. While this solution is more likely to besustainable, the risks are likely to be substantial (see below) given weak incentives for civil servants andthe outdated civil service structure in Yemen. Though in the short-term these issues can be addressedthrough additional allowances or training opportunities built into the compensation of staff, the long-termsolution can only be achieved through reform of the civil service.

Factors which could negatively impact the Project's sustainability include: (i) disagreement on aprioritized set of investments and a breakdown of the process; (ii) inability or unwillingness by thenational government to devolve authority to local government in accordance with Law No. 4 on LocalAuthority; and (iii) incentives within the public sector being so weak that capacity building is impossible.

2. Critical Risks (reflecting the failure of critical assumptions found in the fourth column of Annex 1):

Risk Risk Rating Risk Mitigation MeasureFrom Outputs to ObjectiveStrategic and participatory approach to M Substantial investment in capacity building andlocal economic development not adhered TA upfront (already underway).to.

HAdverse incentives of the current civil In the short-term, develop incentives within theservice system dominate, making scope of the program (allowances, training). Inadministrative modemization and the medium- to long-term, no substitute forcapacity building difficult to achieve. civil service reform.

Investments and modernization programs S Coordinate with other activities and advisoryconceived within Phase I are not services on macro, trade, PSD, and PPI.sufficient to change business Incorporate critical constraints of national levelenvironment in Aden. significance within Phases II and m of the

program.

From Components to OutputsCentral Government's commitment to M Project supported by the implementation ofdecentralization process diminishes. Decentralization Law 2000.

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LEDD's staffing structure (civil servants H Assess performance of LEDD early on duringsupported by consultants) fails in project supervision and be willing to modify structuremanagement. if need be.

Insufficient counterpart funds available. N Strict monitoring of counterpart funding byBank staff, and use of local currency SpecialAccount.

Procurement problems causing delays in H LEDD to include experienced Procurementimplementation. Specialist familiar with Bank procedures.

Lack of commitment among some of the S Be willing to drop from the program agenciestargeted agencies for capacity building, where leadership and commnitment are lacking.modernization, and reform.Overall Risk Rating

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)

3. Possible Controversial Aspects:

G. Main Credit Conditions

1. Effectiveness Conditions

Procurement1. Adoption of the Project Inplementation Plan (PIP) and Operations Manual.

Financial Management2. Establish a functional financial management system at the Aden LEDD.3. Appoint a qualified Financial Management Specialist.4. Select a qualified auditor.

2. Other [classify according to covenant types used in the Legal Agreements.]

None.

H. Readiness for Implementation

I 1. a) The engineering design documents for the first year's activities are complete and ready for thestart of project implementation.

L] 1. b) Not applicable.

I 2. The procurement documents for the first year's activities are complete and ready for the start ofproject implementation.

I 13. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

4. The following items are lacking and are discussed under loan conditions (Section G):

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1. Compliance with Bank Policies

1. This project complies with all applicable Bank policies.I 1 2. The following exceptions to Bank policies are recommended for approval. The project complies

with all other applicable Bank policies.

_ _ _ _ _ _ _. _ __ __ w l ( t rOmar M. Raz zaz i Hedi Larbi ahrood A. AyubTeam Leader il Sector Manage/Director Country Manager/Director

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Annex 1: Project Design Summary

REPUBLIC OF YEMEN: Port Cities Development Program

Key Performance Data Collection StrategyHierarchy of Qbjectives Indicators Critical Assumptions

Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission)To create an attractive Controlling for exogenous Baseline indicators to be Exogenous effects do notinvestment environment to effects, increased private established by Project launch further undermine thegenerate job opportunities. investment in cities within the based on urban indicators and investment and business

program. other baseline data gathered climate.through PHRD-financed study.

Continued emphasis ongovemance reform, especiallyon judicial and anti-corruptionreforms

To achieve improved Decentralization reforms Aden Local Economic Central Govemment willgovemance through effective implemented with new Development Dept. (LEDD), continue to support thedecentralization and service services offered and existing Aden Branch of Central decentralization process anddelivery to the public and business processes modified to Statistics Organization and improve the policybusiness communities. reduce transaction costs. General Investment Authority environment to support export

collection of relevant data. and private sector led growth.

Program Purpose: End-of-Program Indicators: Program reports: (from Purpose to Goal)To enable Port Cities in Greater satisfaction of Baseline indicators gathered Central Govemment willYemen to become engines of business community and civic through competitiveness continue its policies to supporteconomic growth and groups regarding local assessments; LEDD the decentralization processdevelopment for the country government capacity, semi-annual economic and private sector led growth.by aggressively developing efficiency, participatory monitoring reports;local public sector capacities methods. Supervision reports, mid-term Macro economic and politicaland efficiencies to improve review and ICR. PAD for stability at the national levelservice delivery and business Phases 11 and 111.performance.

Phase 1: Administrative Triggers Phase I to Phase IImodernization and small for each of the Port Citiesinvestments at the Port City City Level Reforms:level (4 Years) * Formal adoption by

Govemor and LocalStrategic approach to port city Council of Citydevelopment, which includes Development Strategy,competitiveness assessment, including Master Plan,long-term vision, Capital Local GovernmentInvestment Plan, master plan, Reform Plan, Capitalcapacity building, Investment Plan, andmodemization of local Capacity Building Plan.administration services, andsmall, but key, investments to * Establishing a municipalrevitalize business clusters and structure consolidating thelinkages (preparation and administrative functionsimplementation in Aden, of the Districts within thepreparation in Hodeidah and city.Mukalla).

* Satisfactory progress for

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each city independentlyon implementation ofPhase 1, includingcompletion of strategicinvestments.

National Level Reforms:* Developing regulatory

framework for IndustrialEstates.

* Completion of aResettlement PolicyFramework.

Phase II: National reforms on Triggers Phase H to PhaseCustoms and Ports and mstrategic investments in the City Level Reforms:three Port Cities * Satisfactory progress of

each city independentlyTranslating strategy developed on implementation ofin Phase I into investment, Phase II.capacity building, and National Level Reforms:administrative modemization * Customs reforms andprogram, including strategic streamlined proceduresinvestments to enhance local reducing processing timeeconomic development in to meet intemationalthree port cities, such as standards.industrial estates or portfacilities in Aden, Hodeidah * Developing and adoptingand Mukalla. regulatory framework for

ports specifying publicand private roles.

Phase m:: National reforms End of Program Indicatorsand investments in assets ofnational significance (ports Increased business confidenceand customs), and program in the investment environment.rollout to other participatingport cities. Improved levels of public

service to the private sector.In three main port cities,technical assistance, capacity Increase in private sectorbuilding, and investments in activity in port citiescustoms and port authorities, (measured by capitaland design of private sector investment, employment, andparticipation in port finance trade flows).and operation. In other portcities (Mokha, Nishtun, AlSalif, etc.), small investmentsto enhance local businessclusters.

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Page 33 Hierarchy of

Objectives

Key Performance

Indicators

Data Collection

Strategy

Critical Assumptions

Project Development

Objective:

Phase I:

The objectives of the Project are to assist the Borrower to: (i) remove critical constraints to economic development; and (ii) improve the environment for investment and economic growth and development, within its Port Cities

Outcome / Impact

Indicators:

Greater satisfaction

of Aden’s business community and civic groups regarding local government management capacity, efficiency and participatory methods, gauged by business services report cards and public perception surveys.

Reduced transaction costs and greater transparency in the delivery of local government services at key points of interface with the private sector, including decreased time to process business registration/issuance of regulatory authorizations and clarified/reduced number of steps required for approvals/permitting. Improved

business district/cluster performance and productivity in project-affected areas, gauged through

Project reports:

LEDD Project progress reports and economic monitoring reports, business services report cards, public perception surveys, supervision reports, GIA reports.

(from Objective to

Purpose)

Macro-economic stability and national security are assured. Home grown strategies, reforms and investment plan have a greater chance of being implemented in Phases II and III.

performance effects of investments (improved infrastructure and services for small and micro enterprises, business linkages reinforced through physical investments, TA, etc.).

Increased private

sector investment and real estate values triggered by public investments and improved business environment

Key Performance Data Collection StrategyHierarchy of Objectives Indicators Critical Assumptions

Output from each Output Indicators: Project reports: (from Outputs to Objective)Component:

For Phase I (Aden): * Successful completion of LEDD economic monitoring Local infrastructure conditionsli) Upgraded physical selected small-scale and Project progress reports, are significant constraints toinfrastructure and information infrastructure investments Bank supervision reports. growth and productivity.networks aimed at port city and revitalization ofbusiness clusters. business districts/clusters. Lack of information, networks,

and linkages is a bindingconstraint to growth andproductivity.

Continued support for PSDpolicies.

(ii) Strengthened local * Local Economic LEDD economic monitoring Strategic and participatorygovernment strategic and Development Department and Project progress reports, approach to local economicphysical planning capabilities (LEDD) established to Bank supervision reports, development will beto better utilize existing assets anchor and better completed studies. institutionalized and adheredand resources, and prioritize coordinate Program to.future investments. implementation and local

economic developmentpolicy at the Governoratelevel.

* Strategic, physical andinvestment planning workupdated or completed,including CDS, AdenMaster Plan, sub-regionalland-use and transportstudies, water and wastemanagement plans, andprioritized CapitalInvestment Program.

(iii) Streamlined and more Capacity improved and new LEDD economic monitoring Credible commitment by theefficient administrative systems installed and reports, performance Governorate to improvesystems and procedures operational at local monitoring framework and capacity and change incentivedesigned to improve local government offices servicing project monitoring system; systems to counter balance thegovernment performance the business community, and Project progress reports, adverse incentives of thegenerally and at the point of including the GIA, land Bank supervision reports, GIA current civil service system.interface with the private registry, and customs data.sector in particular. authority.

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Key Performance Data Collection StrategyHierarchy of Objectives Indicators Critical Assumptions

Project Components / Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)For Phase 1: Committed counterpart funds1. Revitalizing Aden Economy IDA contribution $13.5 LEDD economic monitoring are available.and Business Clusters: million and Project progress reports,

* Access Improvements supervision reports No procurement problems.* City Revitalization* Upgrade Small-Scale LEDD fulfills its project

Commercial Areasmanagement dutbes.

Clusters and districtsstrategically selected.

11. Port Cities Strategic and IDA contribution $5.0 million LEDD economic monitoring Political and technicalPhysical Planning: and Project progress reports, commitment to the process

* City Development Strategy supervision reports and its outcome.* Physical Planning Studies* Capital Investment Plan* Feasibility, TA, & Design

Studies

Ill. Aden Local Capacity Building IDA contribution $3.9 million LEDD economic monitoring Leadership in each of theand Administrative and Project progress reports, involved agencies to engage inModemization: supervision reports a capacity building,

* General Investment modernization, and reformAuthority process.

* Customs* Public Land Authority..* Munici Lalit Civil servants have incentives

to acquire new capacity.

Capacity building andmodernization programsrealistically tailored to currentskill levels.

IV. Unallocated IDA contribution $1.0 million

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Annex 2: Detailed Project DescriptionREPUBLIC OF YEMEN: Port Cities Development Program

By Component:

Project Component I - US$14.60 million

REVITALIZING ADEN ECONOMY AND BUSINESS CLUSTERS

Objective: This component would support emerging industry clusters, create and reinforce businesslinkages within the city, upgrade industrial and commercial areas serving micro- and small-scaleenterprises, and rehabilitate downtown commercial districts with the aim of revitalizing existingbusinesses and triggering new private sector investment. Preliminary, identified small-scale investmentsinclude, rehabilitation of a small industrial area for microenterprises, physical improvements to the localfish market to enhance sales and marketing (while improving conditions for fish sellers), and access inand out of Crater's main commecial area.

Sub-Component 1: Access Improvements: This sub-component addresses deficiencies in access to keycommercial activity areas such as Ma'alla Port, the Textile Factory, and downtown Crater. Least costoptions would be considered first (e.g. better traffic management). Projects that propose bridges,elevated highways or underpasses would not be considered. Three such sites (Ma'alla Port, TextileFactory, and Crater intersections) have been identified as options for first year implementation.

Sub-Component 2: City Revitalization: This sub-component would seek to revitalize Aden by helpingthe municipality to transform idel, non-productive assets into productive, revenue-generating assets or bygenerating new employment opportunities. Investments in assets owned by the municipality, particularlythe numerous buildings that have fallen into disrepair and are no longer occupied, represent an untapped,but potentially valuable, resource. Many of these public structures are situated in prime locations, andonce renovated, could provide investors with access to a serviced location in which to establishoperations.

Sub-Component 3: Upgrade Small-Scale Commercial Areas: This sub-component would target smallbusiness districts/clusters for revitalization and support and might include fish/vegetable rarkets, lightindustry areas, and the historic Central Business District. The works envisaged include ICT connectivity,rehabilitation of roads and drainage systems, upgrading localized utility networks, installing sidewalksand street lighting, building or rehabilitation of marketing facilities, zoning and land use, and supportprograms to facilitate linkages among firms in these districts, as well as linkages within the city, port,free zone, and beyond. These clusters would be selected through a combination of a city cluster analysiscoupled with a demand driven process to select areas with willingness to participate.

Two such districts have been identified for implementation during the first year. The first is Al DrainEstate for light industry (46 ha) that houses a number of vibrant micro and small enterprises. There areapproximately 259 establishments in the Al Drain Estate area, out of which 72 operate without a license.The total number of persons employed in the area is estimated to be around 2,600. The Estate is welllocated at proximity to both Aden's International Airport and the warehousing and industrial estate at theAden Free Zone Area (AFZA), and on the route to the Govemorates of Abyan and Lahj. Improvingaccess and upgrading the estate's infrastructure would facilitate linkages among firms and productiveareas both within the city and with the country's hinterland, and would also enable it to become animportant service base to the City of Aden, the AFZA, and the proposed cargo village near the airport.The second is the Sirah Fish Market. This community of fishermen and traders is an important part of

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Adeni society and sustains a large number of families, mostly from lower income brackets. Currently,the community faces severe competition from large fishing companies, and fishermen are subjected tohigh maintenance costs for their fishing boats and nets.

Project Component 2 - US$7.00 million

PORT CITIES STRATEGIC AND PHYSICAL PLANNING

Objective: The objective of this component is to assist the port cities of Aden, Hodeidah and Mukalla to:(a) develop medium- to long-term strategies for local economic development, including an action plan forgrowth with distribution, both prepared and sustained through stakeholder participation; (b) undertakephysical planning efforts to improve access to and the quality of infrastructure services through moreoptimal arrangements for service provision, cost recovery and regulatory oversight; and (c) prepare aprioritized Capital Investment Plan and associated recurrent costs obligations.

Sub-Component 1: City Development Strategy

Preparation of a City Development Strategy (CDS) is intended to transform what has been essentially aphysical master planning exercise largely implemented at the national level into a broader, integratedstrategic planning approach implemented at the local level. Building on the competitive advantages ofeach respective port city, these Local Economic Development-focused strategies would serve to promotethe local business environment by facilitating the formation and linkages of business clusters, leveragingprivate sector investments for public good, and enhancing public/private partnerships. Thissub-component would finance competitiveness assessments, Participatory Forums to promote publicdiscussions in a workshop format, and preparation of documentation that would be widely discussed anddisseminated in public. It would also finance activities identified in the CDS Action Plan. The followingchart depicts the organizational structure for implementing the project.

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Organizational Chart of Implementation

Interministerial Coordinating CommitteeChair: Prime MinisterMembers: Ministers of Planning & Development, Finance, Industry and Trade, PublicWorks & Urban Planning, Transport & Maritime Affairs, Local Administration, Interior,Govemors of Aden, Hodeidah & Mukalla, Chairman of Free Zones Authority, Presidentof General Investment Authority, and Presidents of the Chambers of Commerce for Aden,Hodeidah & Mukalla.Coordinator: National Level Program Coordinator

Aden Hod eidah MukallahGovernorate Governorate Governorate

Council Council Council

Consultativc Local Consultative Local Consultative LocalGroup/ Public Economic Group/ Public Economic Group/ Public EconomicHcarings Dcvelop- Hearings Develop- Hearings Dcvclop-

ment ment mentDepartment Departmcnt Dcpartment

Majmou 'at Al-ShouraAl-MahaliahlAl-Liqa'at Al-Shab'iah

Wahdat Al-TanmiahAl-mahaliah

One of the first participatory processes under the CDS umbrella was a participatory social assessment inthe Al Drain Industrial Estate and Sirah Fish Market. Its primary objective was to establish a processthrough which local knowledge was generated and local councils and communities made informeddecisions through consultative means. The activity generated knowledge, began a consultative processamong all stakeholders in the specific subproject area (residents, local businesses, local councils, districtlevel line ministries etc) for economic development and strengthened the capacity of local councilmembers.

Knowledge generation. Sufficient information was gathered to design a project that is in accordance withthe needs and desires of the people in the two areas and their existing organizational capacities. Itallowed the design of interventions that would strengthen the economic potential of the areas, whileimproving social conditions for residents and business owners alike. In addition, it provides baselineinformation to monitor and measure the project's socioeconomic impact and provide lessons for futurephases.

Strengthening the Local Councils. Currently the Local Councils do not integrate participatory approachesin their decision making, and many Local Councils are perceived to be unresponsive to the needs of localcommunities. The Local Council members in the districts of Sirah and Al Drain have assumed aprominent role in the social assessment process, and acquired "participation skills by doing."

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Community Participation. The capacity building exercise is also intended to ensure the informedparticipation of the members of the two communities. By mobilizing the communities to describe theirsocioeconomic conditions, analyze challenges, identify resources and formulate shared developmentvisions, it launched a process through which communities and local councils work in partnership. Theidea is that communities would not only express their needs and demands, but also define how theywould contribute to local development.

Workshops for Strengthening Local Councils and Coordination Among Stakeholders. A workshop washeld during project preparation to launch the participatory process with the aim of strengthening localgovemance and opening channels of dialogue among stakeholders. An important component forachieving effective local govemance is establishing institutionalized mechanisms for public participation.Through consultations between the Councils and their constituents, community based solutions forpriority needs can be devised, constraints on local govenmment understood and elected leaders heldaccountable. Currently, no such mechanisms exist and, therefore, there is very limited publicparticipation.

The workshop, which was held in June 2002:

1. established a constructive dialogue with Aden's elected council members on their role within theCDS and the Port Cities Development Program;

2. enabled council members to define concrete steps for introducing participation in their districts;and

3. began to lay the foundation for an insitutionalization of the CDS participatory process, includingan Action Plan and agenda for next steps.

A second workshop attended by CDS team members and other stakeholders developed a vision for thecity as well as goals and objectives for achieving them. Some of the objectives included: Buildinginstitutional capacity of the public and private sectors in Aden; enforcing laws anddeveloping local regulations supporting business enabling environment and improving thelivelihood of citizens; developing and upgrading infrastructure networks; strengthening securityand judicial system which ensures the safety and security of all citizens and investors; improving,modernizing and supporting the small enterprises sector, especially for women; and efficientdevelopment of Aden Port and Airport, supported by effective legal and institutional frameworkfor Aden Free Zone, to become competitive and attractive poles.

Sub-Component 2: Physical Planning Studies

As a complement to the CDS process, various physical planning studies would be needed to strengthen,rationalize and better coordinate public investment planning activities. Such studies may includeland-use plans, waste management plans and water management plans, and transportation and trafficmanagement plans, among others. In addition, given the potential for the Yemen Free Zones Authorityand the Yemen Ports Authority to generate jobs in Aden, support would be provided to improve thecoordination and integration of their respective investment plans. The various studies would seek toaddress Aden's existing and future needs in a more integrated and coordinated fashion.

Sub-Component 3: Capital Investment Plan

Based on the strategic vision outlined in the CDS and the physical planning studies, a Capital InvestmentPlan would be prepared for each of the participating port cities. These plans would not only identify

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investment needs, but would also prioritize them and serve as a tool in leveraging external donorassistance. They would also be used to identify associated recurrent cost obligations tied to newinvestments, and ensure that appropriate resources are made available to operate and maintain newinvestments.

Sub-Component 4: Technical Assistance, Feasibility and Design Studies: This subcomponent coverscluster analysis and identification and preparation of additional business clusters/districts that would besupported by physical investments during Phase I, including feasibility studies, detailed design work, andsupervision of works. Necessary preconditions for Phase I investments include projects that: (a)strengthen business linkages and contribute to an enhanced environment for private sector activity; (b)can be fully developed on Government-owned land and would not require land acquisition orexpropriation; (c) can be completed without resettlement of econornic activities or inhabitants residing inthe project area; and (d) would not have negative environmental consequences.

Support would also be provided to begin evaluating the economic, social and environmental impacts oflarger-scale public investments to be tackled in subsequent phases of the Program. During Phase I,studies would be undertaken to determine the feasibility of larger-scale public investments and trunkinfrastructure that are identified in Capital Investment Plans, such as industrial zones and port facilities inAden, Hodeidah and Mukalla. In each instance, studies would be necessary to effectively plan fordownstream investments, including determination of conmmercial demand for proposed infrastructureinvestments/services, regulatory and other institutional arrangements (particularly by delineatingappropriate roles for the private and public sector), financial and economnic feasibility, andenvironmental/social impact, among other areas. These studies and subsequent implementation of agreedrecommendations would provide an essential enabling environment to attract investment, while ensuringsustainability of investments. For selected investments slated for Phae II, detailed design work would beundertaken.

Project Component 3 - US$ 4.90 million

ADEN LOCAL CAPACITY BUILDING AND ADMINISTRATIVE MODERNIZATION

Objective: Underpinning Aden's strategic and physical planning efforts and revitalization program, thiscomponent would include a series of capacity building measures focused on improving the efficiency andtransparency of services provided to the private sector.

Sub-Component 1: Under this component, funding would be made available to key local governmentagencies to improve their organizational and management systems, and business processes by financingIT hardware and software, training, and technical assistance to support automation and computerization.The primary focus of support would be on those agencies that have a significant interface with the privatesector, but attention would also be devoted to supporting those departments that can strengthen localgovernment planning processes. Public sector agencies that exercise regulatory oversight of privatesector activity would be supported so that rules and procedures could be simplified, made moretransparent, and/or streamlined. The objective would be to cut down on inefficiencies and improveservice delivery to investors. However, rather than pre-determining the types of investments andinterventions to be made at the candidate agencies, which include the General Investment Authority,Customs Administration, Public Land Authority and Public Works, each would submit proposals to theLEDD detailing specific improvements sought. Proposed interventions would need to establish a clearlinkage with services provided to the public, and would need to demonstrate how the investments wouldbenefit investors, i.e., lower transaction costs, increase efficiency in processing applications, reduceuncertainty, etc.(detailed criteria are included in the Project Implementation Plan). Examples of areas

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where investors transact directly with the four identified agencies, and which are likely targets forimprovement, are highlighted below:

General Investment Authority* Exemption License* Tax Exemption Certificate* Customs Exemption Certificate* Labor/Immigration Exemption Certificate

Customs Administration* Processing of Customs Declaration* Clearance of Goods

Public Land Authority* Issuance of Agreement for Intent to Lease* Issuance of Lease* Inventory of Public Land Available for Investors* Procedures for Allocation of Public Land

Public Works* Site Survey Certificate* Design Review Approval* Building Permit

Proposed improvements would need to be technically and financially feasible, and measurable outcomesidentified, such as a decrease in the time it takes to process an application or building permit, or anincrease in the general satisfaction of a given service compared to a previous period. Because fundingfor the improvements would be made in tranches, proposals would need to include phases or milestonesagainst which performance would be based. A Consultant would be available to assist the agencies indeveloping appropriate proposals, and those agencies whose proposals are approved would be asked tosign a performance contract with the Aden Governor's Office. More detail on the types of improvementsneeded at the four agencies is provided below.

(a) General Investment Authority (GIA): Computerization of the GIA would enable GIA to actas a one-stop-shop for delivery of information and services required by investors inestablishing a business and for promoting investments in the city of Aden. Businessregistration of new investments would be entered into the system on a timely basis andprocedures carefully mapped out and disclosed to investors with reports issued upon aninvestor's request disclosing the status of application processing measured against processingdeadlines. Computerization would also facilitate coordination between the GLA and othergovernment departments.

(b) Customs Administration: As Yemen's primary sea port, with increasing transshipmentactivity and a thriving container terminal, Aden would stand to gain considerably fromautomating its customs administration system in terms of reduced transaction costs andgreater transparency in customs administration, particularly where servicing of internationalclients is significant and growing. Aden customs collects YR 10 billion in customs dutyevery year. Last year customs collection grew by 25 percent. Such a system could be basedon ASYCUDA software provided by UNCTAD and would involve system setup, training of

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customs staff, and integration of the program into the overall national customs administrationsystem. On-line clearance through ASYCUDA could be expected to reduce the time forclearing a shipment to two hours from the current level of two days, and might increaserevenue collection by a further 10 percent. Roll-out could be based on experienced gainedfrom the pilot phase implemented in other locations with financing from Department forInternational Development (DFID).

(c) Public Land Authority (PLA) and Land Registry Department: The bulk of vacant land inAden is public. Many businesses, however, have identified public land as a major constraintto their ability to establish or expand operations. Considerable tracts of land were allocatedby the Public Land Authority (PLA) to prospective investors over the last decade on a leasebasis for development. While some of these lands have been developed, the bulk remainsidle with the intent of speculation. The PLA at the Central Govemment level has requestedsupport for Aden in developing an inventory of all their records of public land, as a first steptowards developing a better land management system. The central level PLA has undertakenimpressive procedural reforms (reducing the number of signatures needed on a transactionfrom sixteen to five) and preservation of archives. The PLA plays a crucial role not only inthe initial allocation of land, but also in certified property rights in a range of privatetransactions carried out through the Land Registry Department (LRD). An aim of the firstphase of the program could be to support these two departments through agradually-implemented program involving the creation of an electronic database of recordsand automation of processes. These could be coupled with capacity building of staff and,possibly, contracting out data conversion activities to the private sector upon the assessmentof current capacity.

(d) Public Works (PW): The Aden Public Works bepartment is currently in the process ofreorganizing and restructuring itself. The General Director is keen to computerize the Adenoffice, linked to key administrative functions, such as urban planning, licensing for buildingconstruction, the design center, personnel and the finance and accounting department. Atpresent, this Department suffers from low productivity, as several well-trained engineers andtechnicians lack access to computers to aid their planning efforts. Computers andcomputer-aided design software (CAD) would certainly improve the quality and efficiency ofthe Department in producing designs and master plans. Such computer-enabled systemswould encourage PW engineers and technicians to share design work during preliminarydrafting phases with public officials and with citizens through open forums for planning anddiscussion purposes. Modifications would be simplified in comparison to the manualapproach, and final plans can be made accessible electronically to increase transparency.Updated GIS software and training would support master plan preparation and to facilitatedisclosure and discussion of master plan draft outputs consistent with the CDS participatoryapproach.

(e) Capacity Building at Other Key Agencies: Capacity building inititatives would also beundertaken at the Local Economic Development Department (LEDD) in Aden, which wouldreceive on-going support and guidance from a core team of technical specialists inimplementing the strategy for Aden that would be developed through the CDS process, andwith equipment and software to establish an economic database and carry out essentialday-to-day functions. In addition, other key agencies are likely to receive capacitystrengthening support, including the Aden branches of the Ministry of Planning andDevelopment (MOPD) and the Statistics Organization. In each instance, a detailed systemsneeds assessment would be carried out and designed to suit the particular requiremnents of

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each institution. For the MOPD, support might be provided for core activities related tobudget preparation in the context of decentralization, while the Aden Branch of the StatisticsOrganization, which provides vital socio-economic data at the regional level to enable policyformulation and monitoring of key economic trends, would benefit from automated systemsto improve data collection efficiency, data entry and data manipulation and analysis.

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Annex 3: Estimated Project CostsREPUBLIC OF YEMEN: Port Cities Development Program

Local Foreign TotalProject Cost By Cormponent US $million US $million US $million

1. Urban Revitalization Investments 12.90 0.70 13.602. Strategic and Physical Planning 4.70 0.30 5.003. Local Administrative Reforms 3.50 0.40 3.904. Unallocated 0.75 0.25 1.00Total Baseline Cost 21.85 1.65 23.50

Physical Contingencies 1.40 0.10 1.50Price Contingencies 1.40 0.10 1.50

Total Project Costs' 24.65 1.85 26.50Total Financing Required 24.65 1.85 26.50

Local Foreign TotalProject Cost By Category US $million US $million US $million

Goods 1.30 0.60 1.90Works 15.10 0.70 15.80Services 7.10 0.30 7.40Incremental Operating Expenses 0.40 0.00 0.40Unallocated 0.75 0.25 1.00

Total Project Costs' 24.65 1.85 26.50_~~~~~~~~~~~~~~~~~~ .

Total Financing Required 24.65 1.85 26.50

Identifiable taxes and duties are 0 (US$m) and the total project cost, net of taxes, is 26.5 (US$m). Therefore, the projcct cost sharing ratio is 88.3% oftotal project cost nct of taxes.

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Annex 4REPUBLIC OF YEMEN: Port Cities Development Program

Economic Analysis

The project would finance a number of investments that would seek to contribute to economicdevelopment by improving productive and commercial environments, and by creating business linkagesamong Aden's economic areas. Because the benefits of the three proposed initial Phase I investments arenot readily measurable in monetary terms, and because the desirability of the proposed investments arenot in question, cost-effectiveness analysis was selected. The economic justification of these initialinvestments is based on either the best cost per beneficiary ratio or the lowest net present cost. Theseinitial three projects represent the first set of investments under Phase I, and economic evaluations wouldbe conducted on a rolling basis as projects are identified through the process to devise a CityDevelopment Strategy for Aden.

Three alternative investments scenarios were considered for the Crater Intersection and the Sirah FishMarket, while two were proposed for the Al Drain Industrial Estate. The present cost of each alternativeselected, as well as those that were not, are provided below. (Costs in US$)

Sub-Project Alternative Selected Altnernative 1 Not Alternative 2 NotSelected Selected

552,300 478,300 466,300CRATER INTERSECTION

300,000 697,000 560,000SIRAH FISH MARKET

4,747,750 6,109,500 N/AAL DRAIN INDUSTRIALESTATE _

NOTE: The alternative selected for the Crater Intersection is more than its other two alternatives because theInfrastructure Subconmmittee, which was formed by the Government to specifically review proposed investments,combined aspects of all three proposed alternatives, including realigning the existing road from Ma'alla to Crater,and increasing the pavement width from 7.5 meters to 10.5 meters, in the alternative selected. As a result, the cost ofthe chosen alternative increased, but was deemed most appropriate.

For subsequent Phase I investments in infrastructure where benefits can be quantified using generallyaccepted methodologies, such as extension of utilities networks (costs of altemative supplies and timesavings), or improvements in cormnercial areas (increased employment and land values), cost benefitanalysis would be used. Otherwise, cost effectiveness would be applied.

Investments assessed using cost benefit would be selected based on a minimum economic rate of returnof ten percent. When cost effectiveness is applied, the best cost per beneficiary ratio or the lowest netpresent cost would be utilized. Examples include:

Road/Intersection Rehabilitation: number of vehicles utilizing the road/intersection, and numberof businesses served and/or residents living within a half-kilometer.

Street Lighting and Sidewalks: reduction in the number of accidents (if data available).

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Utility Networks: reduction in cost to access network per beneficiary.

Income generating projects would be assessed using financial analysis, and emphasis would be placed onprojects with good cost recovery. Investments would need to attain an internal rate of return of tenpercent. However, for those projects that the Government considers to be priority investments, but areunlikely to attain a ten percent return, selection would be based on the highest cost recovery ratio.

The impact of investments on project-affected businesses and inhabitants, as well as commercial andeconomic activities, would be measured through follow-on socio-economic assessments. Suchassessments would be undertaken for at least two projects one year after their completion.

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Annex 5: Financial Summary

REPUBLIC OF YEMEN: Port Cities Development Program

Years EndingFY July I - June 30

IMPLEMENTATION PERtODYear I Year 2 Year 3 1 Year 4 1 Year 5 Year 6 Year 7

Total Financing RequiredProject CostsInvestment Costs 0.0 7.3 7.8 6.2 4.4 0.0 0.0

Recurrent Costs 0.1 0.2 0.2 0.2 0.1 0.0 0.0Total Project Costs 0.1 7.5 8.0 6.4 4.5 0.0 0.0-Total Financing 0.1 7.5 8.0 6.4 4.5 0.0 0.0

FinancingIBRDIIDA 0.1 6.0 7.0 6.0 4.3 0.0 0.0Govemment 0.0 1.5 1.0 0.4 0.2 0.0 0.0

Central 0.0 0.0 0.0 0.0 0.0 0.0 0.0Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0User Fees/Beneflciarles 0.0 0.0 0.0 0.0 0.0 0.0 0.0Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Project Financing 0.1 7.5 8.0 6.4 4.5 0.0 0.0

Main assumptions:

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Annex 6(A): Procurement ArrangementsREPUBLIC OF YEMEN: Port Cities Development Program

Procurement

General. A Country Procurement Assessment Report (CPAR) for Yemen was carried out in 2000. Itshowed that the present legislation (Law No. 3 of 1997 conceming Government Tenders, Auctions andStores, and corresponding Regulations introduced by Decree No. 234 of 1997) is a significantimprovement over the previous legislation of 1991, but is not up to international standards, notably in thefollowing areas: (i) gaps in the Legislation, including but not limited to, pre-qualification proceedings,clear obligation to announce evaluation criteria in the bidding documents and methodology to be used inevaluation, and rules dealing with two-stage bidding, among other areas; (ii) absence of Standard BiddingDocuments (SBD), except for works contracts; and (iii) conflicts with procurement guidelines of donors,including IDA. Even where rules exist, they are not necessarily followed. It is not clear whether theinconsistent application of the Legislation stems from a lack of understanding of these national rules, orfrom a lack of discipline in the civil service in charge of enforcing the rules, or perhaps both.

Two years have elapsed since CPAR 2000 and no real improvements have been noted. Quality of theprocurement practices at the national level remain lower than international standards. Delays caused bylong and multi-level processing procedures along with various other deficiencies are common practice,creating unnecessary hindrances to development and efficient use of resources.

Development of Procurement Capacity. The Port Cities Development Program would beimplemented in Phase I principally by a new department to be established by and reporting to theGovernor of Aden. The department would be called the Local Economic Development Department(LEDD). Its main purpose would be to formulate a local economic development (LED) strategy and anLED action plan for the City of Aden, which it would monitor against key urban economic indicators. Itwould also establish an economic database, contract technical specialists to provide advisory services topromote public-private partnerships, recommend improvements in managing municipal assets, andcoordinate local government reforms at key points of interface with the private sector. None of thesefunctions are presently addressed by any of the existing government departments.

The Project is now in the final stages of preparation, and it is clear that a number of procurementactivities would be undertaken, beginning with Phase I. Some of these activities would include complexand diversified procurement contracts, including some that are already in the design phase. According tothe assessment carried out, the capacity of the Governor's Office and LEDD to procure works, goods andservices based on IDA guidelines and procedures is not adequate and needs to be addressed. Concernsare raised at this stage about the possible risks that may involve procurement under the project and theneed to address them in an effective manner. Procurement capacity is weak because the Governors'offices do not normally involve themselves in project implementation, and there was no LEDD inexistence when the assessment took place in July 2002.

The importance of staffing the LEDD early on to allow staff to take part in the project preparationactivities and to familiarize themselves with the project and its various components is clear. As such,recruitment of the LEDD's core staff members, which would include an LEDD Director, ImplementationOfficer, Financial Officer and Economic and MIS Officer, shall be finalized before effectiveness. TheLEDD would be established and supported financially by the Governor of Aden, in addition to capacitybuilding support and provision of some financing for incremental operating expenses on a declining basisover Phase I of the Program.

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Procurement Capacity. It is envisaged that Local Economic Development Department in Aden wouldbe established prior to effectiveness of Phase I of the Program, and that similar LEDDs would beestablished in Hodeidah and Mukallah in Phase II of the Program. The LEDD would be fully integratedinto the Governor's Office in Aden and would be responsible for managing procurement and financialaspects of the project. Since the Aden LEDD has not yet been fully established, an assessment of itscapacity to implement procurement based on Bank guidelines and procedures is not possible at this stage.It is envisaged, therefore, that a Procurement Specialist with extensive procurement-related experience inBank-financed projects would be contracted by the National Coordinator and stationed at the AdenLEDD for the first three years of the Program to (i) assume direct responsibility for procurementmanagement, while (ii) building requisite capacity/experience through on-the-job training of the LEDDImplementation Officer (civil servant hired by the Governor's Office). Bank supervision missions wouldhave the explicit purpose of periodically reviewing the capacity building dimension of the ProcurementSpecialist's support to the LEDD with the aim of determining when it would be appropriate for theprocurement responsibilities to be reassigned to the Implementation Officer. When sufficientprocurement capacity has been built in the Aden LEDD, the Port Cities Program Coordinator wouldreassign the Procurement Specialist to Hodeidah and Mukallah to build capacity in their respectiveLEDDs, based on learning gained from the Aden experience.

Risk Assessment: This is a key aspect of the project's procurement capacity assessment. It is closelyrelated to the LEDD's experience, existence and application of written rules and procedures and expectedtransparency and predictability of the process. While an LEDD for Aden is still being created, the teamof technical specialists is expected to play a key role in the project's procurement activity, and in trainingthe LEDD's Procurement Officer. Based on the need to establish the LEDD, which would be responsiblefor project implementation, including new staffing and equipping the office, the overall procurementrisk assessment is considered high. This risk would be reassessed after the procurement consultant andother staff have been mobilized.

Procurement of Civil Works. As a capacity building measure, the Aden branch of the Ministry ofPublic Works (MPW) would assist the LEDD, which would have overall responsibility for theprocurement process, with the procurement of works contracts. A detailed description of the existingcapacity of MPW, including its functions, departments, and the number of staff, as well as the waybusiness is conducted is available in the Project Implementation Plan (PIP). The MPW may be involvedin the preparation of bidding documents and bids for invitation, evaluating bids received, supervision andcontract management, or review of the designs and bidding documents for contracts sourced out byLEDD to private consulting firms. To ensure that IDA procurement guidelines and procedures arefollowed by all parties involved in the procurement process, the Procurement Specialist would beresponsible, until such time as the LEDD's Procurement Officer has aquired the capacity to take overresponsibility.

Regarding the implementation capacity of the MPW, based on discussions during assessment withrelevant authorities and individuals, it was clear that MPW has its own weaknesses, which need to beaddressed and rectified before project launch. This could be achieved by different forms of support,including, but not limited to, the provision of technical assistance, training of relevant staff, or providingoffice furniture and equipment. It is important to mention again that arrangements to involve MPW incarrying out the above mentioned tasks would require the formation of a dedicated team of technicalspecialists to support MPW. Support in building procurement capacity at MPW would be provided bythe Procurement Specialist based at Aden's LEDD.

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Procurement capacity of MPW offices in Hodeidah and Mukalla would be assessed during year two ofthe Program's first phase. Their functions and organizational structure are almost similar, but theircapacity to procure works contracts based on IDA procurement guidelines and procedures differ fromone branch to another. This must be investigated thoroughly during the proposed assessments.

Procurement of Goods and Technical Assistance. Similar to the arrangements outlined above,procurement responsibility for goods and technical assistance would rest in the first three years with aProcurement Specialist to be based at Aden's LEDD. This would be the arrangement for the twocomponents financing works, goods and services in Aden, as well as for the services financed undercomponent 2 for Aden and for other participating port cities. It is expected that Bank guidelines andprocedures would be used to manage all procurement activities under the Project. All staff at the AdenLEDD, which would be established based on agreed implementation arrangements, would be financedfrom the local budget, but would be supported by financing under the Credit for technical specialists andto cover incremental operating expenses on a declining basis. Once sufficient capacity has been built inAden, similar capacity building efforts would be launched in Hodeidah and Mukalla under Phase I toprepare for Phase II implementation.

Procurement Plan. A procurement plan has been developed and is available in the ProjectImplementation Plan (PIP).

Operations Manual. To clarify roles and responsibilities, a Project Operations Manual (OM) would beprepared and would address administrative procedures and internal organization regarding LEDD. Thiswould include: (i) procedures for calling for bids, selecting contractors, consultants, vendors, andawarding contracts; (ii) internal organization for supervision and control of works; (iii) financialmanagement, budgeting, accounting, and disbursement procedures; and (iv) procedures for handing overcompleted works. LEDD should have its own OM prepared and completed before effectiveness, and thiscan be done by adopting the versions available to suit its own requirements.

During negotiations, the Government gave assurance that it would: (a) use and apply the OperationsManual; (b) use the Bank's Standard Bidding Documents for ICB and modified Standard BiddingDocuments for NCB, Standard Request for Proposals for the selection of consultants, and Standard BidEvaluation Forms; (c) update the procurement plan on a regular basis before IDA supervision missions,or more frequently if needed, in order to compare planned versus actual completion dates, and transmit itto IDA; (d) make available to IDA supervision missions all records necessary for the post review ofprocurement decisions, according to the Credit Agreements, and (e) carry out, during supervisionmissions, an assessment of the effectiveness of bidding procedures and performance.

Use of Bank Guidelines. Procurement of goods and works would be in accordance with World BankGuidelines for Procurement under IBRD Loans and IDA Credits, published in January 1995 and revisedin January 1996, August 1996, September 1997, and January 1999. For International CompetitiveBidding (ICB) the Borrower would use Bank's Standard Bidding Documents, Standard PrequalificationForms, and Bid Evaluation Forms, as mandated in the Guidelines. For National Competitive Bidding(NCB), in the absence of national standard bidding documents Bank's Standard Bidding Document(SBD) would be used, with modifications acceptable to IDA, either in Arabic or English language.

Procurement of consulting services would be in accordance with World Bank Guidelines for Selectionand Employment of Consultants by World Bank Borrowers, published in January 1997 and revised inSeptember 1997, January 1999, and May 2002. The Borrower would use Bank's Standard Request forProposal, Sample Contract Documents, and Evaluation Forms, as mandated in the Guidelines.

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Advertising. A General Procurement Notice (GPN) would be issued in Development Business toadvertise for major consulting assignments, works and goods. It would be updated annually withSpecific Procurement Notice (SPN) for all outstanding ICB procurement of goods, works, and largeconsulting contracts. Special Procurement Notices (SPN) and Expressions of Interest (EOI) would alsobe published in the national press for contracts under NCB. The program elements by disbursementcategory, their estimated costs, and procurement methods are summarized in the Tables A, B, and C.

Procurement methods (Table A)

The cost of civil works contracts under Phase I is estimated to be around US$ 14.3 million, includingtaxes, duties, and contingencies. Phase I civil works would be implemented in Aden only, with designand engineering studies carried out for infrastructure investments to be made in Hodeidah and Mukallaunder later phases. Contracts expected to cost more than US$500,000 would be procured based on ICBprocedures. Contracts expected to cost less than US$500,000 up to an aggregate amount ofUS$4,000,000 may be procured under National Competitive Bidding (NCB) using modified standardbidding documents acceptable to IDA. No pre-qualification of contractors would be required for NCBcontracts. Pre-qualification of contractors would be carried out for all Intemational Competitive Bidding(ICB) contracts, using IDA pre-qualification procedures. Direct Contracting would be used on anexceptional basis, in compliance with the criteria of para. 3.7 of the Bank's Procurement Guidelines.Contracts procured under ICB procedures would be subject to prior review, plus the first five NCBcontracts irrespective of their values. Prior review of contracts would also be applied to all contractsprocured under Direct Contracting procedures. Evaluation of bids solicited under NCB and ICBprocedures would be carried out using the Bank's Standard Evaluation Forms.

Procurement of goods (US$1.80 million) would cover office furniture and equipment, computers,software and two vehicles to be used for project related purposes, such as construction supervision. ICBprocedures would be applied for the procurement of goods or group of contracts that would cost morethan US$500,000. Contracts or group of contracts that cost less than US$500,000 would be procuredusing NCB procedures up to an aggregate amount of US$1.00 million. Smaller items or groups of itemscosting less than US$50,000 per contract, up to an aggregate amount of US$200,000 may be procuredusing National or International Shopping. Solicitations would: (a) be issued in writing to at least threereputable suppliers; (b) include specifications; (c) the delivery time; and (d) be opened at the same timeand, in the case of International Shopping quotations, be solicited from at least three supplies in twodifferent countries. All contracts procured under ICB and NCB methods would be subject to priorreview, plus the five NS/IS contracts irrespective of their values.

For contracts with consulting firms (international and local) estimated to cost US$100,000 and above,QCBS/QBS selection methods would be used, while for contracts below US$100,000 up to an aggregateof US$1,000,000, CQ selection method may be used. The selection of individual consultants wouldfollow Section V. of the Bank's Consultant Guidelines, and any other selection methods provided for inthe guidelines may be used, including single sourcing. IDA's prior review would be applicable to allQCBS, QBS and SS contracts, and the first five CQ contracts for firms and first five contracts forindividuals, irrespective of their values.

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Table A: Project Costs by Procurement Arrangements(US$ million equivalent)

Procurement MethodExpenditure Category ICB NCB Other2' N.B.F. Total Cost

1. Works 11.20 3.22 0.40 0.00 14.82IDA 90% (11.04) (2.90) (0.36) (0.00) (14.30)2. Goods 1.00 0.71 0.40 0.00 2.11100% ex-factory, 85% for goods (0.90) (0.54) (0.36) (0.00) (1.80)procured locally.3. Services 0.00 0.00 8.17 0.00 8.1790% for int'l. and local firms, and (0.00) (0.00) (6.00) (0.00) (6.00)85% for int'l. and localindividuals.4. Incremental Operating 0.00 0.00 0.40 0.00 0.40Expenses 3/

(0.00) (0.00) (0.30) (0.00) (0.30)5. Unallocated 0.00 0.00 1.00 0.00 1.00

(0.00) (0.00) (1.00) (0.00) (1.00)Total 12.20 3.93 10.37 0.00 26.50

(11.94) (3.44) (8.02) (0.00) (23.40)

"Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies.21Includes civil works and goods to be procured through direct contracting, national shopping, consulting services,

services of contracted staff of the project management office, training, technical assistance services, and incrementaloperating costs related to managing the project.

3/ Incremental operating expenses would include fuel, insurance, vehicle maintenance, utilities, telecommunicationsand workshops.

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review'

Contract Value Contracts Subject toThreshold Procurement Prior Review

Expenditure Category (US$ millions) Method (US$ millions)1. Works Above 0.50 ICB All ICB contracts.

Below 0.50 NCB The first five NCBcontracts.

Direct Contracting All contracts.

2. Goods Above 0.50 ICB All contracts.0.50 and below NCB All contracts.0.05 and below NS or IS First five contracts.

3. Services(including 0.10 and above QCBS/QBS All contracts.individual consultants) Below 0.10 CQ for firms First five contracts.

Below 0.05 Sect V. for individualsBelow 0.02 Ss All contracts.

Total value of contracts subject to prior review: US$24.0 million.

Overall Procurement Risk Assessment: HighFrequency of procurement supervision missions proposed: One every four months

(includes special procurement supervisionfor post-review/audits)

The frequency of procurement supervision missions would be one every four months during the first yearof implementation, to help ensure development of procurement capacity, and then once every six monthsin subsequent years.

Thresholds generally differ by country and project. Consult "Assessment of Agency's Capacity to ImplementProcurement" and contact the Regional Procurement Adviser for guidance.

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Annex 6(B) Financial Management and Disbursement ArrangementsREPUBLIC OF YEMEN: Port Cities Development Program

Financial Management

1. Summary of the Financial Management Assessment

Assessment: The Financial Monitoring System (FMS) currently in place at the office of the Governor ofAden, which would be the implementing agency for the PCDP, is based on principles and procedures thatare defined by the Government's accounting framework. This system, which is used by all governmentalinstitutions in the country, can be characterized in the following manner: (i) it uses an accounting systemthat is based on national budgetary categories, with transactions recorded on a cash basis; (ii) paymentprocedures that permit the Ministry of Planning and Development (MOPD) and the Ministry of Finance(MOF) to exercise control over annually approved budgets for line ministries; (iii) assignment offiduciary responsibility to the Governnent's Auditor General (COCA); and (iv) a reporting system thatfocuses on budget-line execution, rather than on performance and outcomes. In short, the financialmanagement system currently utilized by the Government, and the Aden Governor's Office, does notconform with IDA's financial management and reporting requirements.

Overview: A Local Economic Development Department (LEDD), to be established under the Governor'sOffice of Aden, would be charged with the functions of a conventional Project Coordination Unit. Thesefunctions would extend to the Project's financial management aspects, including maintaining all financialand accounting records, preparing, reviewing and posting accounting entries, preparing monthly bankreconciliation statements, as well as managing all disbursements from IDA funds. In addition, the LEDDwould be responsible for preparing quarterly project financial monitoring reports (FMRs) and annualproject financial statements, and for ensuring that annual audits are undertaken by a qualified auditoracceptable to IDA. For this purpose, the LEDD would appoint a qualified consultant to prepare afinancial management manual, develop a Chart of Accounts based on project activities, and establish acomputerized accounting system to ensure that an adequate financial management system is fullyfunctional prior to project effectiveness. In addition, a qualified accountant would be appointed prior toeffectiveness, and both appointments would be made based on terms of reference acceptable to IDA.

Accounting System: The project's accounting practices would follow international accounting standards,including an accrual basis of accounting and double-entry bookkeeping, which would be detailed in thefinancial management manual. Local accounting software would be installed for the project that wouldassist in generating quarterly FMRs. All accounts and supporting documents would be maintained at theAden LEDD during Phase I, and at the respective LEDDs in Hodeidah and Mukalla in subsequentProgram phases (the same accounting system that is implemented at the Aden LEDD would be replicatedat the LEDDs in Hodeidah and Mukalla).

A Chart of Accounts (COA) would be created with a logical structure for recording transactions, whichwould be based on the project's components and have the capacity to classify accounting data. The COAwould enable data to be captured in a manner that would facilitate reporting of project-relatedexpenditures by source, project component and expenditure activities.

Internal Control Procedures: The financial management manual would define adequate internal controlprocedures and proper segregation of duties among various functions, including dual check signatories,and the preparation of monthly general ledger closure and monthly bank reconciliation statements for allproject bank accounts. During Phases II and mII, the LEDDs in each participating Governorate wouldmanage its own accounting and financial management affairs, and keep separate accounting records for

- 54 -

the project. This would necessitate appointing qualified accounting and procurement staff at eachLEDD.

Flow of Funds: A Special Account in US Dollars would be established in the Central Bank of Yemen,and prevailing arrangements regarding approval authority for Special Accounts, which vests power in theMinistry of Planning and Development and the Ministry of Finance, would be adopted by the project.Withdrawal of funds will be made using transaction-based disbursement method, including directpayments, reimbursments, payments against special commitments issued under letters of credit, andreplenishments of the Special Account on the basis of Statement of Expenditures (SOEs) and fulldocumentation, as required. Withdrawal Applications would be prepared by the LEDD's FinancialManagement Specialist and signed by the National Coordinator. Payments to contractors and thirdparties from the Special Account would follow the internal control procedures stipulated in the financialmanagement manual, which include the following steps:

1. The Financial Management Specialist ensures that all supporting payment documents areavailable, and verifies them for completeness and accuracy. The Financial ManagementSpecialist then prepares and signs a Payment Order (PO) and forwards it, along with thesupporting documents, to the LEDD Director for review and signature.

2. The Financial Management Specialist prepares and posts appropriate journal accountingentries in the general ledger after the LEDD Director approves payment.

3. The PO and all supporting documents are then sent to MOPD, which verifies that theprocurement process was conducted in accordance with agreed procedures in the LegalAgreement. MOPD also maintains separate Statements of Account for all projectsfinanced by foreign donors. Accordingly, the amount of payment is entered into therelated project statement account.

4. If supporting documents are complete and in order, the MOPD prepares and forwards toMOF an approval letter acknowledging that they have reviewed the PO and areapproving it for payment.

5. The MOF then conducts its own review of the PO and supporting documents. If MOFfinds everything to be in order, they prepare a letter to the Central Bank of Yemenauthorizing them to make payment to the beneficiary.

6. Under no circumstances may any portion of the IDA Credit be used for payment of taxes.

7. The Central Bank of Yemen will send bank advice and bank statements to the LEDD.

Project financing provided by the Government (through budget allocation arranged by the Ministry ofPlanning and Development) would be either paid directly to the contractor based on a request from theLEDD, or transferred to a separate project account in local currency (separate from the US Dollar SpecialAccount) that would be managed by the LEDD and used exclusively for project purposes. The separateproject account would be established at the Aden branch of the Central Bank.

Records Management: The management of financial records should provide a paper trail on which theaccounting system is based, and verification of financial transactions. For each financial transaction, aseparate record should be created. Generally, records management should include:

* clearly defined procedures for creating and maintaining records;* adequate backup arrangements;

- 55 -

* storage of financial records under lock and key, and safe from environmental risks (fire and waterdamage); and

* easy access for authorized personnel only.

All project documents and supporting invoices would be maintained at the LEDD during projectimplementation and for one year after IDA's receipt of the final audit. All project documents would beprovided to the Auditor and to visiting IDA missions.

Financial Monitoring Reports: The Aden LEDD would be responsible for producing and forwardingunaudited quarterly FMRs to IDA, MOPD and MOF within 45 days of the end of each quarter. Thereports would show: (i) a narrative progress report, which briefly summarizes the status of projectimplementation; (ii) cost per component for the quarter and cumulative-to-date; (iii) costs incurred perexpenditure type; and (iv) procurements incurred on contracts below the stated threshold. The followingFMRs would be submitted to IDA quarterly:

* Discussion of Project ProgressSources and Uses of Funds Statement

* Uses of Funds by Project Activity* Physical Progress Report* Procurement Monitoring Report (for procurements below the threshold)

The first set of FMRs would be due at the end of the quarter following initial disbursements from IDAfunds.

Where possible, the project's Chart of Accounts would be set-up to facilitate the automatic generation ofFMRs, and the content and format of the FMRs was agreed during negotiations. During Phases II and Ill,it is envisaged that each LEDD would be responsible for preparing quarterly FMRs on its project-relatedactivities, showing all project expenditures incurred from its own resources and summarizing physicalprogress achieved. These quarterly reports would be sent within 15 days after the end of each quarter, tothe National Coordinator, who would have overall responsibility for reporting on the project andforwarding the respective FMRs to IDA.

Staffing: A Financial Officer and Implementation Officer would be engaged by the Aden Govemoratethrough the civil service system and would be based at the LEDD. However, during the first three yearsof the Project, a Financial Management Specialist and Procurement Specialist would be contracted andfinanced under the Credit to fulfill key fiduciary safeguard functions with respect to Project financialmanagement and procurement administration. A key role of these consultants would be to providecapacity building support and training to the two LEDD civil servants. This arrangement would bereviewed annually through Bank supervision missions, including an FMS and a procurement-certifiedBank staff, with the aim of transferring Project financial management and procurement responsibilities tothe LEDD civil servants by the third year of the Project.

Overall Financial Management Risk Rating: The Project's financial management risk is consideredmoderate. This rating was based on the absence of an adequate financial management system, and on theneed to hire a qualified Financial Officer. These risks would be mitigated through: (i) allocating funds toestablish an adequate financial management system at the Aden LEDD and hiring a qualified Accountant,and ensuring that these actions are completed prior to project effectiveness; (ii) the FinancialManagement Specialist assigned to the Country Office in Yemen would assist in building the capacity ofthe Project's Financial Officer in fulfilling IDA's financial management requirements, review the

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Financial Management Manual and project COA; and (iii) close supervision by the project team duringthe first year of implementation. The frequency of supervision missions in following years would bebased on project performance during the first year of implementation.

2. Audit Arrangements

The project's financial statements (project balance sheet, statement of cash flow, and Special Accountstatement) would be subject to annual audits under Intemational Auditing Standards and carried out byan independent auditor under terms of reference acceptable to IDA. It is mandatory that the Borrowerobtain IDA's no objection for the appointment of the Auditor. The audit would cover all sources offunds related to the project, including proceeds from the IDA Credit, Government contributions, andother sources of financing. It would also cover all expenditures incurred using Statement ofExpenditures (SOEs), and indicate their compliance with the Credit Agreement. The auditor would issuean opinion on the fairness of the project's financial statements, as well as a separate opinion on theeligibility of all expenditures incurred and claimed under SOEs. The audit report should be sent to theIDA no later than four months of year's end (i.e., April 30th of the following year). Under Phases II andm, it is anticipated that there would be one auditor for the Project, and that the National Coordinatorwould be responsible for ensuring that a consolidated audit is completed and forwarded to IDA withinthe agreed timeframe.

It should be noted that the costs to undertake annual audits would be financed under the Credit andprocured as consultant services in accordance with provisions of the Guidelines: Selection andEmployment of Consultants by World Bank Borrowers.

3. Disbursement Arrangements

The proposed Credit would be disbursed over four years against the project categories shown in Table C.The Project's expected closing date is June 30, 2007.

Allocation of credit proceeds (Table C)

Table C: Allocation of Credit Proceeds

Expenditure Category Amount in'US$mllion Financing Percentage1. Works 14.30 90%2. Goods and Equipment 1.80 100% of foreign purchased goods;

100% of local ex-factory expenses;85% for other items procured locally.

3. Services 6.00 100% for international firms andindividuals

90% for local firms87% for local individuals

4. Incremental Operating Expenses 0.30 80% in FY200360% in FY200440% in FY200520% in FY2006

5. Unallocated 1.00 TBD

Total Project Costs 23.40

Total 23.40

-57 -

Use of statements of expenditures (SOEs):

Withdrawals from the loan account may be made on the basis of Statements of Expenses for thefollowing expenditures:

* works contracts costing less than US$500,000, except for the first five contracts;* contracts for goods and equipment costing less than US$50,000, except for the first five contracts;* contracts for consulting firm services costing less than US$100,000;* contracts for individual consultant services costing less than US$50,000;* all LEDD operating expenses.

All supporting documentation for SOEs, including copies of invoices and bank statements, must bemaintained by the LEDD for at least one year after IDA's receipt of the final audit. Special Accountswould be audited annually by an independent auditor acceptable to IDA, and all records must be madeavailable for review by the external auditor and visiting supervision missions from IDA.

Special account:To facilitate disbursements against eligible expenditures, a Special Account (SA) would be established atthe Central Bank in Sana'a. A local currency account would be established at the Aden branch of theCentral Bank of Yemen. The SA would be in foreign currency using proceeds from the IDA Credit,while the local account would be in Yemeni Riyals funded by the Government. There would be nominimurn amount when submitting Withdrawal Applications (WA) to replenish the SA, however, everyeffort should be made to submit WAs on a monthly basis. The Financial Management Specialist wouldprepare WAs and requests for payment, and forward them to the LEDD Director for signature. WAs andpayment requests would then be forwarded to the National Coordinator for review. Once approved, theNC would forward the documents to the Ministry of Planning and Development (MOPD), as perprevailing arrangements. The SA would be managed in accordance with IDA policies and procedures.

Proceeds from the SA would be used to finance those Phase I activities related to Aden, including (i)strengthening strategic, financial and physical planning processes and identifying prioritized investments,(ii) implementing needed reforms to encourage and stimulate economic activity, and (iii) undertakinguncontested investments to improve access and reliability of infrastructure facilities. Proceeds wouldalso be used, under component 2, to support national level objectives, as well as: (i) launch of the CDSprocess in other participating port cities; and (ii) preparation of design and feasibility studies foridentified investment priorities in Hodeidah and Mukalla during Phase I.

- 58 -

Annex 7: Project Processing ScheduleREPUBLIC OF YEMEN: Port Cities Development Program

Project Schedule Planned ActualTime taken to prepare the project (months) 20

First Bank mission (identification) 04/22/2001 04/22/2001

Appraisal mission departure 09/30/2002 10/18/2002

Negotiations 10/28/2002 12/02/2002

Planned Date of Effectiveness 02/17/2003

Prepared by:

Preparation assistance:

Bank staff who worked on the project Included:Name Speciality

Omar Razzaz, MNSIF TTL, Lead Urban Specialist

James Reichert, MNSIF Financial Analyst

Stephen Karam, MNSIF Institutional Development SpecialistJames F. G. Ford, TUDUR Lead Urban Sector Specialist

Gwen Swinburn, TUDUR Sr. Urban Specialist

Omer Karasapan, MNACS Lead Knowledge AdvisorJohn Bryant Collier, MNSRE Operations Analyst

John Keith Rennie, MNSRE Sr. Social ScientistMeskerem Brhane, MNSRE Social Scientist

Subhash Chandra Bhatnagar ICT SpecialistAhmed A.R. Eiweida Urban Development Specialist

Aladeen Shawa, Consultant Small & Medium Enterprise SpecialistSati' Arnaout Urban Infrastructure & Institutional Development SpecialistKaia Miller, Consultant Competitiveness Expert

Radia Lalouani, MNSIF Procurement AnalystAli Khamis, MNSIF Procurement AnalystRoy Facey, Consultant ConsultantAhmed Taha, Consultant, AUDI Urban Indicators SpecialistHocine Chalal, MNSRE Senior Environmental Specialist

Concepcion del Castillo, MNSRE Senior Social ScientistTuyet Chuppe, MNSRE Program Assistant

John Speakman, MNSIF Senior Private Sector Development Specialist

Julia Devlin, MNSIF Senior Private Sector Development SpecialistSheila Braka-Musiime CounselKarim Gigler, MNSIF Program Assistant

- 59 -

Annex 8: Documents in the Project File*

REPUBLIC OF YEMEN: Port Cities Development Program

A. Project Implementation Plan

To be completed by December 2, 2002.

B. Bank Staff Assessments

* Assessment of the Institutional Framework for Private Sector Development (Ala!edeen Shawa, June2001 - Draft)

* Aden Urban Development Program, Rapid Diagnostic Study for a City Development Strategy(Infrastructure and Institutional Development) - Progress Report (Sati'Arnaout, June 2001)

* Potential Contributors to Aden's Competitiveness: A Review of Clusters and Business SupportService Networks (Ala'edeen Shawa, July 2002)

* Competitiveness Assessment (Kaia Miller, Alaedeen Shawa, Roy Facey)* Environmental Management Plan (James B. Collier)* Financial Management Assessment (James Reichert and Ayman Abu Al-Haij a)* Procurement Assessment (Ali Khamis and Radia Lalouani)* Aden Local Economic Development Department (LEDD) Concept, Functions, Staffing Composition

and Organization Chart (Stephen Karam)* Assessment of Business Services and E-Government Solutions (Subash Battnaghar)* Infrastructure sub-project component Assessment (James Reichert)* Costab and Financial Costing Tables (Stephen Karam)* Social Assessment (Meskerem Brhane)* Urban Indicators Assessment (Dr. Ahmed Taha, AUDI)* Assessment and Design of Small-Scale Infrastructure Investments in Aden - Volume 1: Inception

Report (Ahmed Abdul Wareth Consulting Engineers)* Assessment and Design of Small-Scale Infrastructure Investments in Aden - Volume 2: Appendicies

(Ahmed Abdul Wareth Consulting Engineers)* Socioeconomic Assessment of Sirah (RegDev)

C. Other

* Aden City Development Strategy Concept Papers & Workshop Documents (Ahmed Eweidah)* CDS Workshop on Participatory Methods* Participatory methods strategy paper*Including electronic files

- 60 -

Annex 9: Statement of Loans and Credits

REPUBLIC OF YEMEN: Port Cities Development Program12-Dec-2002

Difference between expectedand actual

Original Amount in USS Millions disbursements

Project ID FY Purpose IBRD IDA Cancel. Undisb. Ong Frm RevdP057602 2003 RY-URBAN WATER SUPPLY & SANITATION AP 0.00 130.00 0.00 138.61 1.06 0.00

P043254 2002 RY-HEALTH REFORM SUPPORT PROJECT (HRS 0 00 27.53 0.00 29 42 0 05 0.00

P070092 2002 TAIZ MUNICIPAL DEVEL. & FLOOD PROTECT 0.00 45.20 0.00 42.31 0.47 0 00

P076183 2002 RY-Higher Educalion 0.00 5.00 0 00 5.27 -0.20 0 00

P043255 2001 BASIC EDUCATION EXPANSION PROJECT 0.00 56 00 0 0o 50.71 0 99 0 D0

P005906 2001 RY-RURAL WATER SUPPLY & SANITATION 0.00 20 00 0 00 19.83 4.33 000

P062714 2001 RY - IRRIGATION IMPROVEMENT 0.00 21 30 0.00 19.56 4 35 0 00

P070391 2001 RURAL ACCESS IMPROVEMENT PROGRAM 0.00 45 00 0.00 43.39 13 61 000

P068830 2000 RY-Second Social Furd for Develo,oment 0.00 75.00 0.00 40.96 20 67 0 o0

P050706 2000 RY-CIViL SERVICE MODERN 0 00 30.00 0 00 27.32 14.16 0 00

P050483 2000 RY-CHILD DEVELOPMENT 0.00 28.90 0.00 20.34 -0.23 0 00

P005907 1999 RY-SANA'AWS/SANITATION 0.00 25.00 0.00 3.53 4.22 0.00

P060132 1999 RY-PUBUC WORKS II 0.00 50.00 0.00 3.30 3 53 2 52

P057915 1999 RY-LEGAL & JUDICIAL DEV 0 00 2.50 0 00 1 08 1.22 a 00

P050530 1999 RY-SANA'A EMERG. POWER 0.00 54.00 0 00 28.06 26.75 16 26

P039171 1998 SEEDS & AG. SERVICES 0 00 12.50 0 00 1.94 1.56 0.00

P005902 1998 RY-S.GOV AGRI PRIVATIZA 0.00 24.70 4.01 11.04 11.28 000

P005912 1996 VOC. TRAINING 0.00 24.30 0.00 3.23 6 16 4 36

P005911 1994 EDUCATiON SECTOR 0.00 33.00 0.00 12.94 14.05 9 11

Total 0.00 709.93 4.01 502.82 128.02 32.25

REPUBLIC OF YEMENSTATEMENT OF IFC's

Held and Disbursed PortfolioJun 30 - 2002

In Millions US Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic

1999 ACSM 12.00 0.00 0.00 0.00 8.00 0.00 0.00 0.001998 Radfan 2.85 0.00 0.00 0.00 2.85 0.00 0.00 0.00

Total Portfolio: 14.85 0.00 0.00 0.00 10.85 0.00 0.00 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

2002 Ahlia Water 1.51 0.00 0.00 0.00

Total Pending Commitment: 1.51 0.00 0.00 0.00

- 61 -

Annex 10: Country at a GlanceREPUBLIC OF YEMEN: Port Cities Development Program

M. EastPOVERTY and SOCIAL & North Low- _ _ _

Yemen Africa Income DOelopmentdiarmand2001Population. mid-year (millions) 18.0 301 2.511 Lfe expectancyGNI per capita (Ales method, USS) 450 2,000 430GNI (Alas method, USS billions) 8.2 601 1,069

Average annual growth, 1995-01

Population (%) 2.8 2.0 1.9Labor force (X) 2.8 2.9 213 GNI 4 Gross

per IIprimaryMost recent estimate (latest year available, 1995-01) capita enrollment

Poverty (% of population below national poverty line) 42Urban populalion (% of total populaton) 25 58 31Life expectancy at birth (years) 56 68 59Infant mortality (per 1,000 live births) 76 43 76Child malnutrition (% of children under 5) 46 15 Access to improved water sourceAccess to an improved water souroe (% of population) 69 89 76Illiteracy (9 ofpopulation age 15+) 52 34 37Gross primary enrollment (% of school-age population) 78 97 96 Yemen Rep.

Male 100 103 103 Low-income groupFemale 55 90 88

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1981 1991 2000 20O1Economic rafoa

GDP (US$ billions) .. 5.1 9.2 9.3Gross domestc investmenV/GDP . 16.1 17.8 17.8 Exports of goods and services/GDP 13.7 43.7 379 TradeGross domestic savings/GDP . -.7 25.6 19.9Gross national savings/GDP 15.6 32.4 26.1

Currant account balance/GDP -13.0 14.6 5.2 Domesc / InvestmentInterest payments/GDP 0.6 0.6 0.9 savinvsTotal debUGDP 155.2 61.2 56.0Total debt service/exports 8.5 4.0 5,3Present value of debt/GDP . . 40.4Present value of debttexports . . 76.0

Indebtedness198141 1991.01 2000 2001 200145

(average annual growth)GDP 5.9 4.4 3.1 4.5 Yemen, Rep.GDP per capita 2.9 1.7 0.3 1.6 Low-income groupExports of goods and services 20.5 27.9 -10.4 -1.8

STRUCTURE of the ECONOMY1981 1991 2000 2001 Growth of investment and GODP (%

(% of GDP) ISOAgriculture 21.3 14.6 1 5.Industry 24.5 48.0 49.7 100 k

Manufacturing . 10.1 6.5 6.8 r,o0Services 54.2 37.5 34.8 [ _

Private cornsumpbon 86.6 61.3 66.1 40s s7 sr d oGeneral govemment consumption 19.1 13.1 14.1 GDI e GDPImports of goods and services 35.6 35.9 35.8

198141 199141 2000 2001 Growth of wpot and Imports (%)(average annual growth)Agriculture 5.9 4.6 5.9 4C0Industry . 8.0 5.2 1.9 300

Manufacturing 4.1 3.1 4.5 20 Services 4.8 3.9 2.5 1ws

Private consumption 2.0 -1.5 11.0 o .

General govemment consumption 0.8 1.6 10.9 100 s s7 9s 9 o 01Gross domesUc investment 11.4 -22.4 2.8 - Exports eImportsImports of goods and services 6.4 -1.4 2.9

Note. 2001 data are preliminary estimates.The diamonds show four key indirators in the country (in bold) conpared with its income-group average. if data a rrdssing, the diamond will be incomplte.

- 62 -

Yemen, Rep.

PRICES and GOVERNMENT FiNANCE1981 1991 2000 2001 Inflation (%)

Domestic prices(% change)Consumer pnces . 44 9 4.6 11 9 s5Implicit GDP deflator . 17.1 22 2 2.3 0

Government finance 5 95 97 99 9

(% of GDP, includes current grants)Current revenue 25 0 39 0 35.2 -roeCurrent budget balance 0.7 13.2 93 -G DP deflator * CPIOverall surplus/deficit -3 5 7 3 1 9

TRADE1981 1991 2000 2001 Export and import levels (US$ mill.)

(USS millions)Total exports (fob) 1,197 3,797 3,317 4,000

Crude oil (government share) 454 1,969 1,585Crude oil (company share) 557 1,479 1,320 3.000Manufactures 4 39 42

Total imports (ci 1,921 2,484 2771 2Food 581 984 906 Fuel and energy 257 270 310Capital goods 337 470 609

e5 ae q7 98 99 00 xiExport price index (1995=100) . 109 150 135Import price index (1995=100) .. 87 82 80 flExDorls mImportsTerms of trade (1995=100) 126 183 168

BALANCE of PAYMENTS1981 1991 2000 2001 Current account balance to GDP

(USS millions)Exports of goods and services ,, 1,311 4,008 3,519 20 -Imports of goods and services . 2,672 3,294 3,624Resource balance . -1,361 714 -104 5'

Net income .. -486 -777 -691 10Netcurrenttransfers 1,184 1,400 1,273

5Current account balance .. -63 1,337 478 .E .

Financing items (net) 455 -2,855 -1,197 9s 96 97 99 D0 1Changes in net reserves 208 1.519 719 -5

Memo:Reserves including gold (US$ millions) .. 682 2,915 3,673Conversion rate (DEC, locallUS$) 4 6 29 7 161 7 168 7

EXTERNAL DEBT and RESOURCE FLOWS1981 1991 2000 2001

(USS mriflons) Composition of 2001 debt (US$ mil.)Total debt outstanding and disbursed 2.040 7,888 5,615 5.194

IBRD 0 0 0 0IDA 163 651 1,216 1.289 G-774

Total debt service 116 189 221 261 B 1,29IBRD 0 0 0 0 1IDA 1 8 23 28

Composition of net resource flows C 263Official grants 170 79 114 74Official creditors 308 50 26 -11 v ,Private creditors 102 47 0 -3 .;Foreign direct investment 40 583 .. E 1.97'o DS1Portfolio equity 0 0 0 0

World Bank programCommitments 46 125 145 142 A-IBRD E -BilateralDisbursements 27 49 65 92 B -IDA D -Other multilateral F -PrivatePnncipal repayments 0 3 14 19 C -IMF G -Short-termNet flows 27 45 51 73Interest payments 1 5 9 9Net transfers 26 41 42 64

Ueveiopment tconomics Y1710'

-63 -

Additional Annex 11: Investment Selection Process Flow ChartREPUBLIC OF YEMEN: Port Cities Development Program

Identification/Selection Process Technical Preparation &Aligned with governance Implementation Process

responsibilities A ligned with governanceresponsibilities

Aden Local Council Office of the Governor* Receives/reviews community input/ideas * Serves as executing arm of the

via CDS Team re: potential economic Governorate Local Councilinvestments, district development needs * Passes on to Budget Committee to

* Approves proposals against budgetary ensure availability of counterpart fundsresources and passes to Governor for * Assigns implementation responsibilityassignment of implementationresponsibility

Budget Committee Port CitiesAllocates counter- ProgrampartJunds r eserved Coordinator

CDS Team for contract Ensures national-Serves as channelfor contmunitv voice and inmplementation level coordination

participation . with PCIC* LED Sub-Group works with private

sector/community to identify potential . ________L

projects in support of economic growth d L o* Urban Planning Sub-Group identifies

. physical planning and district economic Pre-screens prtmentPr-cresproject ideas developed bydevelopment potentiall_

. * Both Sub-Groups organize stak-eholder , CDS Team against criteriadevelopment potential * Prepares project data sheets based onworkshops with district local councils and a owith special interest groups, e.g., NGOs, | * Submits project data sheets to CDS Teamwomen 's groups, chambers of commerceand industry, to solicit ideas andfeedback for submission to LC.

* Receives authorization to proceed fromi Governor and PCDP Coordinator

* Assigns implementation or undertakesdirectly, depending on activity

CDS Workshops X_Designed to mobilize and engage Aden Governoratedistrict residents through dialogue Implementing Agencies

into the project identification< process . . himnplement works sub-projects in close

. coordination with LEDD and Port CitiesProgram Coordinator

........................... . .......... . . . . . ..................................... ............. ..... .. ................................................ ........... ............. ............... ... I........................................................

- 64 -

p | | ,_ | _ IBRD 3215442t 44 6°A 4AS 5W 522 _ 54

REPUBLIC OF YEMENPORT CITIES DEVELOPMENT PROGRAM _AUD ARABIA

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9 PROJECT PORT CITIES AIRPORTS h 1ddo ash \qo 0-O TOWNS AND VILLAGES PORTS I

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