World Bank Documentdocuments.worldbank.org/curated/en/671971468775546701/pdf/27776.… · Document...

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 27776-NG

PROJECT APPRAISAL DOCUMENT

O N A

PROPOSED CREDIT

IN THE AMOUNT OF SDR 8 1.7 MILL ION (USD 120 MILLION EQUIVALENT)

TO THE

FEDERAL REPUBLIC OF NIGERIA

FOR A

NATIONAL URBAN WATER SECTOR REFORM PROJECT

May 17,2004

Water and Urban 2 Country Department 12 Africa Region

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

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CURRENCY EQUIVALENTS (Exchange Rate Effective March 3 1, 2004)

Currency Unit = Naira Naira 135 = US$1 US$1.46 = SDR 1

FISCAL YEAR January 1 - December 31

APL CAS CFAA CPAR FD/FPIU FGN FMenv FMF FMS FMWR FPA FPIU FPM FSA ICR JIS MTR NEEDS Nwp OSAG PIU PFMU PIM PPP PPF PRSP PSP PSR SEEDS SOE SPA SPIU SSA S W R A S I L SWA UFW WIMAG

ABBREVIATIONS AND ACRONYMS

Adaptable Program Loan Country Assistance Strategy Country Financial Accountability Assessment Country Procurement Assessment Review Finance Department of FPIU Federal Government of Nigeria Federal Ministry o f the Environment Federal Ministry o f Finance Financial Management System Federal Ministry of Water Resources Federal Project Account Federal Project Implementing Unit Financial Procedures Manual Federal Special Account Implementation Completion Report Joint Bank Group Interim Strategy Mid-Term Review National Empowerment and Economic Development Strategy National Water Policy Office of State Accountant General Project Implementation Unit Project Financial Management Unit Project Implementation Manual Public-Private Partnership Project Preparation Facility Poverty Reduction Strategy Paper Private Sector Participation Project Status Report State Empowerment and Economic Development Strategy Statement o f Expenditure State Project Account State Project Implementing Unit State Special Account State Water Regulatory Agency Sector Investment Loan State Water Authority Unaccounted for Water Water Investment Mobilization and Application Guidelines

Vice President: Callisto Madavo Country ManagedDirector: Mark Tomlinson

Sector Manager: Inger Andersen Task Team Leader: Alex McPhail

FOR OFFICIAL USE ONLY NIGERIA

National Urban Water Sector Reform Project

CONTENTS

Page

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

............................. 2 3

B. PROJECT DESCRIPTION ............................................................................................................. 4

1.

2.

3 .

Rationale for Bank involvement ...................................................

Higher level objectives to which the project contributes .....................................

1. Lending instrument ....................................................

Project development objective and key indicators ...........................................

3. Project components.. ............................................... ................................... 4

Lessons learned and reflected in the project design ...............................

2.

4. ........ 5

C. IMPLEMENTATION ..................................................................................................................... 8

Institutional and implementation arrangements., ....................................................... 1, 2. Monitoring and evaluation o f outcomes/results.. ................................................. 9

3 . Sustainability ................................................................................

4. Critical risks and possible controversial aspects.. ...........................................

5 . Loadcredit conditions and covenants ............................................... I 1

D. APPRAISAL SUMMARY ............................................................................................................. 11

1. Economic and financial analyses ........................................... 11

2. Technical ................................. ........................................... 12

3. Fiduciary ........................................................................................

4. Social ...................................................................................................

5 , Environment ........................................................................................ 14

6. Safeguard policies ........................................................................................ 15 7. Policy Exceptions and Readiness.. .. ..................................... 15

Annex 1: Country and Sector or Program Background .................................................................... 16

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .............................. 19

Annex 3: Results Framework and Monitoring ................................................................................... 20

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. I t s contents may not be otherwise disclosed without W o r l d Bank authorization.

Annex 4: Detailed Project Description ................................................................................................ 22

Annex 5: Project Costs ........................................................................................................................ 25

Annex 6: Implementation Arrangements ........................................................................................... 26

Annex 7: Financial Management and Disbursement Arrangements ................................................ 28

Annex 8: Procurement ........................................................................................................................ 37

Annex 9: Economic and Financial Analysis ........................................................................................ 46

Annex 10: Safeguard Policy Issues ...................................................................................................... 49

Annex 11: Project Preparation and Supervision ................................................................................ 51

Annex 12: Documents in the Project File ............. : .............................................................................. 52

Annex 13: Statement of Loans and Credits ........................................................................................ 53

Annex 14: Country at a Glance ........................................................................................................... 56

Map N o . IBRD 32973 Map No . IBRD 32997

c

NIGERIA

NATIONAL URBAN WATER SECTOR REFORM PROJECT

PROJECT APPRAISAL DOCUMENT

AFRICA

AFTU2

Date: May 17, 2004 Country Director: Mark D. Tomlinson Sector Manager: Inger Andersen

Team Leader: Alexander A. McPhail Sectors: Water supply (50%); Sub-national government administration (40%); Central government administration (5%); Sanitation (5%) Themes: Access to urban services for the poor (P); Municipal governance and institution building (P);Infrastructure services for private sector development (P); Water resource management (S) Environmental screening category: Partial Assessment

Project ID: PO71075

Lending Instrument: Suecific Investment Loan Safeguard screening categorv: Limited imuact " " v u , ~.

Project Financing Data [ ] Loan [a Credit [ ] Grant [ ] Guarantee [ ] Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 120.00 Prouosed terms: Standard

INTERNATIONAL DEVELOPMENT 0.00 120.00 120.00 ASSOCIATION Total: 20.00 120.00 140.00

Borrower: Federal Republic o f Nigeria Responsible Agency: Federal Ministry o f Water Resources, Abuja, Nigeria

FY 1 2005 I 2006 I 2007 I 2008 I 2009 I 2010 I 2011 I 4nnual 20.00 30.00 30.00 40.00 15.00 4.00 1.00 Zumulative 20.00 50.00 80.00 120.00 135.00 139.00 140.00 Proiect imdementation oeriod: Start October 4. 2004 End: March 3 1. 20 10

Expected effectiveness date: September 30, 2004 Expected closing date: March 3 1, 2010 Does the project depart from the CAS in content or other significant respects? ReJ PAD A.3

ReJ PAD D. 7

[ ]Yes [“o

[ 1-3 [ x l N o

[ ]Yes E IN0 E ]Yes [ X I N O

Does the project require any exceptions from Bank policies?

Have these been approved by Bank management? I s approval for any policy exception sought from the Board?

[XIYes [ ] N o

[XIYes [ ] N o

Does the project include any critical risks rated “substantial” or “high”? ReJ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? ReJ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 To improve reliability and financial viability o f selected urban water uti l i t ies and increase access to piped water networks in selected urban areas.

Project description [one-sentence summary of each component] Ref: PAD B. 3. a, Technical Annex 4

1. Rehabilitation and Network Expansion - restore and rehabilitate existing infrastructure, with the overall objective to have water systems operating at installed capacity

2. Public-Private Partnership Development - help states enter into a public-private partnership for management o f the State Water Authority to rebuild technical and commercial capacity and assure adequate operation and maintenance arrangements.

3. Capacity Building and Project Management - support Capacity Building and Project Management in the FMWR and the State Water Authorities.

4. Policy Reform and Institutional Development - (i) support FMWR to develop a national low-income household service strategy; (ii) assist in the establishment o f State Water Regulatory Authorities; and (iii) complete and implement a National Water Policy.

Which safeguard policies are triggered, if any? Ref: PAD D. 6, Technical Annex 10 Environmental Assessment, OP 4.0 1 Involuntary Resettlement, OP 4.12 Safety o f Dams, OP 4.37 Projects on International Waterways, OP 7.50 Significant, non-standard conditions, if any, for: Re$ PAD C7 Board presentation:

None

Loadcredit effectiveness: 1. Signing o f sub-loan agreements and provision o f legal opinions. 2. Payment o f initial deposit into counterpart fund account by each implementing entity.

Covenants applicable to project implementation: None

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

Nigerian Urban Water Sector Strategy and Instruments

1. In the urban water sub-sector, the Nigerian government has adopted a fhdamental re- orientation in the concept o f service provision. By separating infrastructure investment and ownership from service operation, the government expects to introduce competition with significant efficiency gains. The core urban water strategy i s to improve service delivery through optimal private public partnerships (PPP or PSP) in investment, management and delivery o f water services. A key focus o f development assistance sought by the government, therefore, i s in the area o f technical and investment assistance to launch PPP as a viable instrument for sector and utility reform.

Issues Constraining Achievement of Better Sector Results

2. Investment Deficits. Currently, service coverage in urban areas i s approximately 50%, and rural coverage i s estimated to be 35% o f actual demand for water supply. To increase coverage to 80% by 2020 would require over $10 billion investment each for water supply and simple sanitation and wastewater disposal facilities. Total investment costs would thus be approximately 4% o f Nigeria’s GDP, with operating costs being additional to this amount.

3, Poor Utility Performance. Water production facilities are rarely operated to capacity due to broken down equipment, or lack o f power or fuel for pumping. Mechanical equipment and pipes are poorly maintained, leading to frequent breakdowns and to high loss o f water through leakage. Lack o f metering, outdated information systems and inconsistent billing practices cause severe revenue losses. Cost o f production, including costs for distribution, chemicals, equipment, and electricity are frequently not factored into the pricing. A flat water rate aimed at accommodating the poorer households mostly benefits the rich, while illegal connections in low income communities -- who are unable and/or unwilling to pay the flat rate -- proliferate. As a result, most State Water Authorities (SWA) do not recover their operating expenses from their own revenues, and remain dependent on state governments.

4. Restrictions on SWA Autonomy. Water supply i s a state responsibility, and to this end state governments have created SWAs to manage and operate systems for water service delivery in all urban (officially defined in 1991 census as areas with a population in excess o f 300,000) and in some semi-urban areas. State ministries o f water are responsible for service delivery in small town and rural areas within the state. While service provision i s entirely in SWA jurisdiction, tari f f setting i s not. In a majority o f states, SWA may recommend tari f f increases, but the state legislative assembly and/or the governor must approve such recommendation in order for tariffs to be raised. SWA autonomy i s diluted by pressure and control by the state government in tariffs, operational decisions, scope o f investments, menu o f services, as well as staffing. This gap between accountability and revenue generating ability has resulted in compromised efficiency o f SWA in most states, and has adversely affected service provision.

5. Absence o f Appropriate Regulation. Under the Nigerian constitution, states and local governments are responsible for provision o f water services, while the federal government has jurisdiction over shared water resources. A Utility Charges Commission (UCC) was established at the federal level in 1991 to set tariffs for infrastructure utilities, including water. However, given the constitutional role o f the states in regard to service delivery, and tari f f setting for public services, the U C C proved to be not the optimal solution. Currently there i s no independent regulation o f water service delivery at the state or local government level. Private vendors dominate the large and growing informal market with no regulation o f quality or prices charged.

6. Lack of Enabling Policy Environment. Most states today perceive PSP as a potential means o f improving service delivery and investment in the water sector, and are eager to invite private participation. However, states lack the policy, legal, and regulatory environment and expertise to attract and sustain private investment to the sector. State laws are not clear on the role, rights and obligations o f private parties in the provision o f public services. State agencies lack expertise in regard to designing and bidding for complex PSP transactions. Thus, while there i s significant commitment at the state and federal levels to attracting private partners for technical and investment assistance, the basic building blocks in terms o f clear policies, enabling laws and transparent regulation do not exist t o support public private partnerships.

Government Response to Resolution of Sector Issues

7 . There i s consensus among federal, state governments and development partners that the magnitude o f the investment deficit i s wel l beyond the capacity o f the government and international agencies to meet. As a result, the government has adopted PSP as a key means o f diversifying the investment base in al l infrastructure sectors, wherever feasible. However, a number o f technical, regulatory, legal, and policy issues needed to enable PSP and optimize service delivery are yet to be formulated. The government i s thus seeking to set the enabling environment context right in key states - such as the ones participating in this project - so as to provide replicable models for other reform minded states. Additionally, the FGN i s pragmatic regarding i t s PSP expectations-both in terms o f market risks and the sector’s ability to hedge such risks. Thus, the government i s equally committed to strengthening the public sector in order to make the sector more attractive to investors should large amounts o f private sector investment not be feasible.

2. Rationale for Bank involvement

8. Well functioning basic service delivery sectors are a necessary ingredient to sustainable development. Along with adequate electricity, roads, telecommunications and sanitation, a reliable and affordable source o f clean water i s .an essential component o f the basic infrastructure package needed for robust economic activity and also necessary to ensure a healthy and vibrant population. Recognizing the central role that urban water supply plays in any country’s growth and poverty reduction strategy, and in light of the sector challenges highlighted in the previous section, the World Bank has for many years emphasized i t s involvement with this sector in Nigeria.

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9. Despite the crucial role for international institutions, they have found the urban water sector in Nigeria to be especially difficult. I t s large size, the nascent stages o f decentralization, lack o f regulation and low levels o f cost recovery have combined to make the World Bank the only large development institution that remains active in the urban water sector. Other development partners, such as the European Commission, the European Investment Bank and the African Bank for Development, once more active in this sector, are currently looking to the World Bank to lead the assistance agenda and to help the government re-establish the development framework.

10. The World Bank has several advantages over other possible avenues o f assistance to the urban water sector. First, the World Bank has the ability t o make big enough investments in this large country to achieve significant results in terms o f rehabilitation and increasing access. The Bank also has a large staff with significant experience and expertise in water engineering, regulation and the commercial operation o f utilities. I t also has sufficient resources that permit engagement in the sector over a prolonged period, helping to ensure consistent policies and investments. Finally, urban water utilities will need substantial financing from private sources, and the Bank i s perhaps uniquely positioned in terms o f expertise and knowledge to assist the government in establishing the necessary conditions and environment to make this possible.

3. Higher level objectives to which the project contributes

1 1. The country successfblly completed i t s transition to a second democratically elected administration in M a y 2003. The new administration has embarked o n an ambitious program o f reforms and commenced development o f Nigeria’s PRSP (NEEDS, the National Empowerment and Economic Development Strategy.) NEEDS will form the basis for preparation o f a full CAS over the next year. In the interim, and presented with this project, i s a second progress report o f the Joint Bank Group Interim Strategy (JIS), which the Board originally reviewed in M a y 2001. With some adjustments to strategy recommended from lessons o f JIS implementation to date and recent economic developments in Nigeria, it i s proposed the JIS continue to guide Bank Group assistance to Nigeria for the next 12 months to 18 months.

12. Through the JIS, the Bank will position i t se l f t o support the Government’s measures to restore macroeconomic stability and the structural reform to achieve growth. The lending program in the FY05-06 focuses on the three main pillars-Governance activities, private sector development activities, and empowerment activities.

13. The National Urban Water Sector Reform Project i s consistent with al l three pillars o f the new JIS, and in particular with the private sector development and empowerment objectives. The JIS objective o f promoting private sector participation in the economy rests in removing infrastructure bottlenecks, o f which power and water supply feature prominently. Similarly, in support o f the empowerment pillar, private sector partnerships in the water sector represent a new paradigm aimed at reversing declining service quality and slow coverage expansion. Finally, the project reflects the JIS’ emphasis on states that self-select into projects based on their actions to achieve pre-set reform thresholds that emphasize both impact and sustainability.

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B. PROJECT DESCRIPTION 1. Lending instrument

Component US$OOO

14. The lending instrument i s a Sector Investment Loan (SIL). An Adaptable Program Loan (APL) i s not used because the FGN believes that the Project’s principal sector policy goals (see next section) can be accomplished with an S I L and there is, therefore, no need for making the Project more complicated with an APL approach.

Percent o f Total

(rounded)

2. Project development objective and key indicators

1 2

3

15. The Project’s principal development outcomes are: (i) improved reliability and financial viability o f selected urban water utilities; and (ii) increased access to piped water networks in selected urban areas.

Rehabilitation & Network Expansion 105,500 75 Public-Private Partnership 16,500 12

Capacity Building and Project 9,850 7 Development

16. Progress toward these principal development outcomes will be measured through: (i) the increase in water delivered through existing and extended networks; (ii) improvements in cost recovery; and (iii) increase in the number o f household connections to the piped water network.

4

5

3. Project components

Management

Development Policy Reform & Institutional 5,300 4

Contingency 1,350 1

17. following table:

The Project has four components and an unallocated amount. These are shown in the

6 I Re-Pay PPF Total

1,500 1 140,000 100

18. The Project’s components were selected on the basis of: (i) professional engineering assessments o f the water systems’ conditions in the three states; (ii) public opinion polls carried out during preparation that signaled enhanced levels of service as a pre-requisite to putting in place adequate tariffs; and (iii) expert opinion that a significant private sector intervention was the fastest and most secure way o f restoring the State Water Authorities to financial sustainability.

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19. Retail customers o f the SWAs will primarily benefit from the Rehabilitation & Network Expansion and Public-Private Partnership components. For this target group, the expected outcome i s substantially better water service, both in terms o f access and quantity delivered. They should also experience much better customer service with the start o f PPP contracts, which are expected to be Management Contracts. Both the SWAs and the FMWR will benefit from the Capacity Building and Project Management components. The outcome o f this component should be a strengthening o f key sector skil ls including: PPP contract design and management, procurement and stakeholder communications. The Policy Reform component will principally benefit the FMWR and State governments. Outcomes here wi l l be the establishment o f state regulatory framework early on in Project implementation, adoption o f a viable National Water Policy and the establishment o f a policy framework to increase the number o f low income connections.

20. Outputs from the Project are expected to include: (i) restoration o f twelve existing urban water systems to their rated capacity; (ii) at least 50,000 new household water connections; (iii) at least two Management Contracts implemented; (iv) preparation o f PPP contracts for at least an additional two States; (v) at least a 20 percent increase in billing and collection efficiency; (vi) at least a 20 percent increase in water availability to end users; (vii) by Project end 100 percent o f O&M cost collected from revenues; (viii) state water regulatory authorities established in three States; (ix) the National Water Policy i s updated and hrther established; and (x) the national low income water connection strategy i s designed and put in place.

21. I t i s anticipated that the Project will address all o f the sector issues mentioned in Section A.l. As was described there, the sector i s constrained by investment deficits and poor utility performance, which are addressed under the f i rs t and second Project components. Improved service and better physical networks will set the stage for more accountability, which should also be aided by PPP contracts that will provide a contractual obligation to achieve this goal over the medium term, which i s supported by the second and third components. The Project’s fourth component will also help the States to establish the required regulatory framework through the establishment o f State Water Regulatory Agencies (SWRA). Work on establishing the regulators i s already under way, and should proceed at the same pace as implementation o f civil works and the PSP contracts. In addition, the FMWR’s work to finalize and update the National Water Policy (NWP) and a national policy for low income connections will help to strengthen and standardize policy for this key infrastructure sector. Finally, this component will also provide the means to draft relevant legislation at the state level to clarify the role o f private sector providers for infrastructure, thereby encouraging future private sector investments.

4. Lessons learned and reflected in the project design

22. Projects in the urban water sector have been undertaken by the World Bank in virtually every borrowing country since Bretton Woods. As a result, there i s a wealth o f experience in this area, and a continually expanding l i s t o f important lessons learned. For example, in just last four years the World Bank Operations Evaluation Department (OED) issued over 40 evaluation reports for water projects, with the majority dealing with urban water. In addition, there are six previous World BanWIDA urban water projects in Nigeria which provide specific lessons for this country. The World Bank Infrastructure Network i s also very active in researching and

5

promoting best practice for this sector. From this large reference base, four lessons learned appear to be most relevant for the Project.

23. Project evaluations reveal there was often over- estimation o f demand when planning for expansion in water supply. Also, some projects in the Water Decade were not synchronized well - while the piped network expansion was completed, production capacity was not enhanced and as a result there were new pipes with no water in them. In other cases, treatment and transmission capacity was expanded, but the distribution network remained insufficient to deliver water to the final consumer. For this Project; (i) in order to better understand demand, rehabilitation will precede network expansion, with the result that plans for expanded capacity can be more accurately matched to demand; and (ii) civi l works will include the whole system, f rom extraction to house connection, helping to ensure consumers receive the benefits o f upstream improvements.

Physical Infrastructure Design:

24. Experience in the sector has confirmed that strong utility management i s key to cost recovery, better service delivery and long term sustainability. Just as important i s the need for strong and capable sector institutions, including the capacity for effective communications and stakeholder outreach. The Project has emphasized institution building during preparation through the use o f a PPF to examine and evaluate SWA technical and managerial capacities, undertake stakeholder outreach and train SWA Public Relations officers, and build up FMWR and SWA staff in financial management and procurement. During implementation, the Project will provide at least US$3 mi l l ion t o build on these efforts to establish and train state water regulators, fbrther strengthen PIU capacity to implement, monitor and evaluate progress, assist the FGN to develop and improve sector policies, build up technical capacity in the country’s environmental agencies and support a wide range o f technical training programs.

Institution Building:

25. Enabling Environment: OED evaluations and related sector work emphasizes the need for broader sector reform, rather than discrete investments, in order to have sustainable and measurable impact on service delivery. Thus, there i s need for wel l functioning legal, institutional and regulatory agencies. Experience also indicates that tari f f setting should also be independent o f the service delivery ministry and the utility, in order to reduce the political drag on utility finances. These core lessons have been fundamental t o N U W S R P design. The sector reform focus o f the Project, with i t s emphasis on legal, regulatory and institutional reforms, has been tested through dialogue, sector work, and baseline studies in each participating state. The Project hopes to establish in each state a regulatory framework to set tariffs and provide an independent advocate for consumer protection. Finally, the Project also introduces management contracts with the private sector, which should establish a foundation for more complex PPP arrangements that will bring private investment.

26. Autonomy of Implementing Agencies: Experience shows that utilities that can bill, collect and keep their revenues, have their own employees (i.e., that are not c iv i l servants), can employ the best qualified people and set salary levels free f rom government interference, and that have the opportunity to develop their own procurement rule will generally perform better than utilities that are under close political control or part o f a large bureaucracy. Thus, enhancement of SWA autonomy from state governments have been one o f the bases for self

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selection to participate in this Project, and the Project seeks to deepen this autonomy through reform o f the regulatory framework, lessening the reliance on state subsidies and increasing SWA capacity to be more self-reliant.

5. Alternatives considered and reasons for rejection

27. The proposed project design was chosen because it is : (i) not complicated or ambitious in i t s objectives; (ii) consistent with the country’s desire to deepen i t s decentralization policy and reward those States that demonstrate implementation capacity; and (iii) large enough to accomplish real change in SWAs.

Alternative project designs considered and rejected included:

28. An Adaptable Program Loan: An APL approach was considered, whereby the Phase 1 would concentrate only on the bidding and award of the PPP contracts. The trigger for a Phase 2, which would include civil works, would have been the existence o f a PPP contract in the relevant SWA. This approach was not followed because: (i) stakeholder surveys indicated the most pressing need was for better service which would require immediate rehabilitation o f the water systems; and (ii) preparation for the PPP contracts i s well advanced and can be implemented early on in the Project.

29. Public Sector Solution vs. PPP: Working with the SWAs without the prospect o f PPP contracts was briefly considered and then rejected as a project design. The World Bank’s previous project for Nigeria’s urban water sector (National Water Rehabilitation Fund Project, L3322-0, closed on June 30, 2001) had a Development Objective to improve SWAs’ capacity to eEciently operate and maintain water supply systems. Based on the sub-optimal operating performance o f SWAs after the National Water Rehabilitation Fund Project closed, the FGN and World Bank have concluded that a PPP approach holds better promise in Nigeria for reforming utility operations. Thus, while the Project will not specifically preclude a public sector option, it i s expected that the bulk of funds wi l l be implemented when PPP contracts are in place. (See Section C5, Disbursement Conditions, and the description o f Component 1 in Annex 4.)

30. Delaying the Civil Works until the PPP contracts are in place: Under a SIL, it had been discussed whether or not to delay civil works until the PPP contracts were in place. This approach was ultimately rejected because stakeholder surveys indicated that raising tariffs would have been very difficult without an improvement in service. In addition, the commitment fees on the loan’s un-disbursed balance would have been approximately US$1 million for the first two years alone and the Task Team wanted to avoid this situation to the extent possible. To mitigate the possibility that PPP contract prove impossible in the Nigerian context for this sector, an alternative was formulated whereby states can access financing for larger civil works either by entering into a PPP contract, or alternatively, by demonstrating that significant efficiency gains have been achieved, and thus, a public sector solution i s sustainable. SWA may demonstrate the desired level of efficiency by (1) recovering for a period of 24 consecutive months at least 90% o f SWA Recurrent Costs (defined as a l l O&M costs, including power, fuel, chemicals, transport, equipment, maintenance, facilities rental, facilities operations, staff salaries irrespective o f whether such costs are incurred by the SWA or on i t s behalf by the state), (2) implementing a

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monthly water testing program comprising 200 end user samples per month for a period o f 24 consecutive months, (3) achieving a 99% success rate per state quality standards per month for a period o f 24 consecutive months, and (4) achieving water production at a level o f at least 90% o f design capacity for at least 9 consecutive months for any 9 month period following January 1, 2003.

3 1. Allowing up to Six States to Participate: The FGN had requested that up to six States participate in the Project. However, the Project was pared back to only three States, on a competitive basis, in order to have sufficient funds to accomplish meaningful rehabilitation and network expansion. I f six States had remained in the Project, then the c iv i l works component would have averaged only U S 1 9 mi l l ion per State, which was considered insufficient to achieve even rehabilitation o f the existing water systems.

C. IMPLEMENTATION

1. Institutional and implementation arrangements

32. Implementation Arrangements. The project i s focused at the utility level, and therefore, implementation will be managed by the States. There will be a separate State Project Implementation Unit (SPIU) for each participating utility at the state level, and a Federal Project Implementing Unit (FPIU) for FMWR at the federal level. Each SPIU will manage i t s own State Special Account (SSA) at the Project Financial Management Unit (PFMU) which will be located in the State Accountant General’s office. A Federal Special Account (FSA) will be located at the federal level. A staff o f the SPIU will be housed at the PFMU to oversee and manage project related issues pertaining to the SSA for this project. The role o f the FMWR, in addition to implementing i t s own component, is expected to be one o f selected quality control, coordination at the national level, overall Project evaluation, and serving as a resource and information help desk. Details o f implementation activities and time frame can be found in the Project Implementation Manuals (PIM).

33. Rationale for Institutional Arrangements. One o f the key lessons learned f rom the recently completed National Water Rehabilitation Project in Nigeria i s that institution building and capacity development at the water utility level i s not easily achieved if the project i s implemented at the federal level. Thus this project i s designed t o decentralize all technical, operational, and regulatory functions and build utility and sector capacity at the state level.

34. Capacity Constraints to be Addressed. At the level of the FMWR, financial management and procurement assessments carried out in January and February 2004 indicate there i s sufficient capacity for Project financial management and procurement. At the level o f the States, the individual P F M U have been established specifically for World Bank projects and the assessments in Kano, Kaduna and Ogun State have shown that substantial financial capacity exists to manage World Bank projects, but that there i s also the opportunity for fbrther training and experience. Procurement will be carried out at the individual SWAs, and assessments there highlighted the need for significant capacity building and strengthening. In order to strengthen financial management and procurement, a variety of measures are envisaged under the Project, including appropriate staffing in the SPIU and PFMU, the preparation and fol lowing o f detailed

8

plans and manuals, and specialized training for the relevant staff. Annex 6 contains further details.

35. Flow o f Funds and Financial Reporting. Through the Federal Ministry o f Finance (FMF), the FGN would pass on IDA funds to the FMWR and Kano, Kaduna and Ogun States. IDA will disburse the credit through (a) one FSA for the federal component managed by F M W Federal Project Implemetning Unit (FPIU); and (b) one SSA for each state through i t s PFMU. At each PFMU, a qualified internal auditor wil l be appointed to perform internal audit activities for the project. Similarly, at the state level, Project activities, records and accounts will be reviewed and subjected to internal audit by appropriately qualified Internal Auditors in the PFMUs. Regular internal audit reports will be submitted to Project coordinators/officers, the State Ministry o f Water Resources/FMF or the supervising agency and the Accountant General for the State.

36. The IDA Credit Agreement will require the submission o f Consolidated Audited Project Financial Statements for the Project to IDA within six months after year-end. Samples o f audit reports are included in Annex XXI, Financial Accounting Reporting and Auditing Handbook (FARAH) o f the World Bank. The FPIU and PFMUs will each appoint relevantly qualified external auditors on Terms o f Reference acceptable to IDA.

2. Monitoring and evaluation of outcomesh-esults

37. Performance monitoring o f the proposed Project would include: (a) the performance indicators as included in Annex 3; (b) the results o f ongoing stakeholder workshops and surveys; and (c) progress in preparation o f investment programs and in the execution o f civil works contracts. The FPIU w i l l carry out necessary analyses o f the various indicator data, as specified in the PIM. The FPIU and IDA would monitor the implementation progress and evaluate the outcomes on a quarterly and annual basis, using information obtained from reports prepared by the SPIU. The Project’s Capacity Building and Project Management component contains adequate funds to support monitoring and evaluation activities in the SPIU.

38. The Project will also be subject to a Mid-Term Review (MTR) and Implementation Completion Report (ICR), which w i l l both be jointly prepared by IDA and the FPIU. Results o f these reviews will be discussed with the SPIU Directors and the relevant oficials in the FMWR and FMF.

3. Sustainability

39. The FGN has demonstrated i t s commitment to the Project and relevant policies through: (i) requesting and using for preparation a US$1.5 million Project Preparation Facility (PPF); (ii) agreeing, and expending funds, to prepare for PPP contracts in the three States; (iii) agreeing to set up State Water Regulatory Agencies early in Project implementation including the drafting o f enabling legislation and support for their staff training; and (iv) exploring the use o f a Water Investment, Mobilization and Application Guidelines (WIMAG) to improve sector planning and coordination by conditioning certain discretionary financing from FGN to states on achievement o f specified performance criteria.

9

40. In addition to the measures mentioned above, it will also be necessary for the States to ensure adequate tari f f levels and to support the SWAs through subsidies over the short to medium term. In Kaduna and Ogun, direct state subsidies are already phased out (indirect subsidies may s t i l l exist, e.g., in the form o f deferred electricity bills), but support from the State may be st i l l required in the future, depending on investments, efficiency gains and the level o f tariffs. In Kano, subsidies from the state are substantial (up to 70 percent o f sales in 2003) and can only be slowly reduced during the Project. Each o f the States have raised tariffs substantially over the last three years (on average 10-20 percent), and this determination to support the SWAs, through both tariff increases and subsidies (if required), will have to be maintained in order to ensure sustainability.

41. The Project design seeks to improve sustainability o f the SWAs through: (i) the introduction o f PPP management contracts which will substantially improve efficiency and cash flow; (ii) the establishment o f appropriate regulatory and legal frameworks; and (iii) capacity building at the state level which strengthens the country’s decentralization strategy-that i s designed to help foster and ensure sustainability o f basic service delivery.

4. Critical risks and possible controversial aspects

State governments do not raise tariffs sufficiently to sustain reliability of investments and maintain adequate cash flow in the SWAs.

Constraints in electricity availability make full utilization of restored or new investments impossible.

TO component results Not all PPP contracts are implemented because the private sector perceives Nigeria as too risky.

Civil works are severely delayed or not completed because of problems with procurement or financial management.

Contracts with the private sector which require performance, that is, in turn, dependent on a minimum cash flow.

Establishment of state water regulatory agency early on in Project implementation. Engineering approach that recognizes t h i s reality in Nigeria and provide for sufficient stand- by electricity sources.

Introductory PPP, i.e. management contracts. Careful and simple contract design and, if there i s no PPP contract, clearly stipulated public sector efficiency standards in order to access funds for infrastructure expansion. PIU training, use of State Project Financial Management Units, and a project design that has few contracts.

k s k Rating with Mitigation

Substantial

Substantial.

Mod era t e

Moderate

10

Project financial management risk

Overall Risk Rating

42. The Project wi l l support significant PPP for the SWAs. The use o f the private sector to manage urban water supplies i s normally controversial because o f perceptions about pricing, transparency and equity. Stakeholder polling in Nigeria shows that people are not opposed to PPP contracts for water service, but are concerned about what these contracts will mean for future price increases and whether or not service will be provided on an equal basis to al l income levels. The Project seeks to allay these concerns through strong contracts that mandate a pro- poor approach, emphasize transparency and provide for continuing stakeholder consultation and information. A special emphasis o f the stakeholder consultation wil l be to build up awareness and consensus for tariff increases as service improves and the goal o f achieving financial self- sufficiency becomes more important.

Use o f PFMUs in each state, Moderate adequate supervision by Bank FMS, and external audits

Substantial

43. FDRPIU will be responsible for the financial management affairs o f the project. FPIU has implemented the National Water Rehabilitation Project, a World-Bank assisted project and thus, have experience in implementing IDA-assisted projects. The risk arising from the outside environment i s assessed as high, based on the yet to be updated CFAA. Given such an environment, robust control arrangements are necessary in the FPIU to ensure that fimds are used only for the purpose intended. There i s a need to ensure a seamless flow o f information and rapid turn around between the other units o f the FPIU and SPIU which will handle project implementation activities and the FDIFPIU and PFMUs which will perform a l l FM. Adequate Financial Procedures Manual will be developed specifically for the project.

5. Loadcredit conditions and covenants

Board Conditions None

Effectiveness Conditions 1. Signing o f sub-loan agreements and provision o f legal opinions. 2. Payment o f initial deposit into counterpart f ind account by each implementing entity.

Disbursement Conditions 1. For disbursement in the Special Account in each individual state, the establishment o f

Project Financial Management Unit (PFMU) in the state. 2. State Legislative Assemblies authorize the necessary Standing Payment Order (SPO) for

payment of counterpart fbnds.

D. APPRAISAL SUMMARY 1. Economic and financial analyses

44. the following table:

Results from the financial and economic analyses for the three project states are shown

11

Financial Economic

(N Bn) Kaduna 3.0 Kano 2.5

Complete details concerning the analysis, including methodology, assumptions and sensitivity, are contained in Annex 9.

(N Bn) 22% 3.3 25% 21 % 2.8 23%

2. Technical

Ogun

45. The Project involves water supply treatment and distribution c iv i l works and goods that employ standard techniques and installations and that are well established in the industry. The FMWR and SWAs are accustomed to these standards and designs and they are considered by World Bank and international engineering experts to represent an appropriate level o f technology for Nigeria.

1.0 1 14%1 I 1.41 16%

3. Fiduciary

46. The Federal Ministry o f Water Resources shall have overall responsibility for management o f procurement activities at the Federal level while the State Water Boards o f the participating states will be responsible for management o f procurement fknctions at the State level. However, these responsibilities shall be discharged by PIUs that have been created in the implementing Agencies. The just concluded assessment of the implementing agencies revealed that, the agencies at Federal and State levels, have considerable experience in implementing World Bank financed projects with a good procurement track record. However, a procurement audit o f the last Bank-financed project implemented by these agencies, conducted in 1999 identified some weakness among which are:

lack o f adequate procurement planning and a procurement monitoring strategy, leading to delay in implementation o f project activities and some few uses o f inappropriate methods o f procurement leading to high costs. The project, (National Water Rehabilitation Project) was extended three times to ensure completion o f project procurement activities;

(ii) lack o f adequate procurement filing system making retrieval o f records difficult and bringing about some level o f inefficient management decisions;

(iii) excessive use o f Procurement/Supervision Consultants to supervise the c iv i l works component of the project, thereby not leaving adequate capacity at the agency after project completion.

47. To ensure that appropriate procurement capacity i s in place, there i s a need for significant capacity strengthening and building at the Federal PIU and the State Water Boards. To strengthen this required procurement capacity, a variety o f measures are envisaged and planned under the project as enumerated in Annex 8. Since it will take some time to build this capacity,

12

each P I U may engage consultants to assist in supervision o f the large civil works contracts. The consultants’ contracts shall make adequate provision for capacity building and transfer o f knowledge to relevant project staff. There are ‘no ex is t ing procurement manuals at any leve l o f the p r o j e c t imp lementa t ion unit. There fore the FMWR has hired the services o f a consultant to assist the p r o j e c t in prepar ing a comprehensive Pro jec t Imp lementa t ion M a n u a l ( inc lud ing p rocu remen t manual) acceptable t o IDA, p r i o r t o effect iveness. T h e agency’s records are manua l ly k e p t by staf f that have n o t attended any f o r m o f t ra in ing during the last f o u r years. T h e water agency stores are disorder ly and there i s a need to computer ize store records in add i t i on to p r o v i d i n g necessary t ra in ing f o r the stores’ personnel.

48. The Finance Department o f FPIU (FD/FPIU) will be responsible for managing the financial affairs o f the Project. FDBPIU i s staffed by relevant qualified accountants. Modern internal audit functions would be performed by the Internal Audit Unit that will be set up at the FPIU (IAU/FPIU). FD/FPIU will be responsible for ensuring compliance with the financial management requirements o f the Bank and the government, including forwarding the quarterly Financial Monitoring Reports and audited annual financial statements to IDA. The same internal audit function will be provided by the Internal Audit Unit o f PFMUs in participating States. The Project wi l l follow disbursement procedures described in the World Bank Disbursement Handbook. Regarding flow o f f h d s and banking arrangements, IDA will disburse the credit through a Special Account (SA) maintained for the project by FD/FPIU for the federal component, and the PFMUs in the States. Also, FD/FPIU and PFMUs will maintain adequate FM arrangements to support the deployment o f Project resources in an economic, efficient and effective manner to achieve the stated development objectives. The arrangements will also provide relevant information to FPIU and SPIU to facilitate the performance o f their oversight functions. Experienced and well qualified external auditors will be appointed (on a TOR acceptable to IDA) to audit Project accounts, financial statements and transactions irrespective o f the source o f financing.

4. Social

49. Over 1,500 stakeholders in three States have been polled about the Project and other matters relating to reform o f the urban water sector. Results show that, in general, people support the idea o f a private-public partnership for the provision o f water services, and they believe that the private sector wi l l deliver better service than under the existing SWA arrangements. However, the polling also shows that there are important concerns about the price o f water and the potential for favoritism with any PPP arrangement. It i s anticipated that stakeholder involvement measures will be continued on a regular basis during Project implementation. Also included in the Project i s substantial support to train SWAs in better stakeholder outreach and to provide materials and logistical support for ensuring adequate involvement and feedback as the Project goes forward.

50. The Project supports a comprehensive, communication strategy in order to help assure stakeholders about the overall direction o f the urban water sector in Nigeria. The communications program, developed with the SWAs and FMWR during preparation, emphasizes the Project’s potential to improve access, quality, reliability and sustainability, the positive social dimensions o f the sector’s reform, and the building up o f alliances to further deepen reform.

13

5 1. Social impacts o f the Project will be monitored through at least the following: (i) a survey o f at least 1,000 stakeholders at the MTR to understand perceptions o f the PPP contracts’ success and weaknesses, (ii) carrying out o f another stakeholder survey at the Project’s completion; and (iii) annual reviews by the SWAs, using a methodology to be developed during the f i rst year o f implementation, o f the Project’s social impact.

5. Environment

52. The project has been classified as falling into Environmental Category B. The Environmental and Social Management Framework (ESMF) report (January 2004) identified typical possible environmental impacts from an urban water project. These included: (i) adverse environmental effects o f construction activities; (ii) water contamination from incorrect facility operation and sludge disposal; (iii) reduction o f raw water levels in rivers; (iv) siltation; and (v) increase in wastewater. The report concluded that adequate mitigation measures are available for these impacts.

53. The ESMF report also identified dam safety as potential large impact in the context o f the Project. The Project will not construct any new dams or weirs, but the urban areas in the Project area sometimes take raw water f rom existing reservoirs. Thus, the report recommends as mitigation measure the “Implementation o f measures in D a m Safety report, especially ensuring that maintenance budget available to owners/operators to undertake preventative and corrective maintenance and early warninghesponse for emergency situations.”

54. During Appraisal, the World Bank Team also identified approximately US$6-8 mi l l ion that should be allocated to dam repairs and deferred maintenance. Details are contained in the D a m Safety Measures Report that was disclosed in the World Bank InfoShop and in Nigeria on April 20, 2004.

55. Each state participating in the Project will be required to an Environmental and Social Impact Assessment and, if the Wor ld Bank policy on Involuntary Resettlement OP 4.12 i s triggered, Resettlement Plans, for Project activities to be executed in that state. States will incorporate mitigation measures and resettlement plans into the design o f c iv i l works and implementation programs before these works are approved and cleared by the Federal Ministry o f the Environment and the World Bank.

56. Key governmental stakeholders are; the Federal Ministry o f Water Resources, Federal Ministry o f the Environment, State Water Agencies, State Water Regulatory Agencies which are to be established, and State Environmental Protection Agencies. Key non-governmental stakeholders are residents of the urban and peri-urban areas served by the State Water Agencies. The Environmental and Social Management Framework report contains a detailed consultation plan including guidelines on public disclosure o f the Environmental and Social Impact Assessments. I t also outlines that consultation will take place during the preparation o f Resettlement and Compensation Plans, through tar i f f studies and poverty assessment and during discussion o f PSP options studies.

14

57. Consultation i s expected to take place through workshops, seminars, symposia, meetings, radio programs, and related efforts. Over 1500 households have already been surveyed during Project preparation about water issues in the context o f the Project and i t s development objectives.

58. The Environmental and Social Management Framework Report and Resettlement Policy Framework Report are currently available for public inspection in the Project Coordinating Unit o f the FMWR in Abuja, the offices o f the General Managers o f the SWAs o f Kaduna, Kano, and Ogun, and in public libraries in these six states. I t i s also available for public inspection in the World Bank InfoShop.

6. Safeguard policies

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP/,GP 4.0 1) Natural Habitats (OP/BP 4.04) J Pest Management (OP 4.09) J Cultural Property (OPN 11.03, being revised as OP 4.11) Involuntary Resettlement (OP/BP 4.12) J Indigenous Peoples (O-D..4;20, being revised as OP 4.10) Forests (O.P/BP 4.36) J Safety o f Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP/GP 7.60)* Projects on Intemational Waterways (OP/BP/GP 7.50)

J ..._ __..__ ...._....._..... ___ ...------. -.__.._-.__ ....--...--..

J

J

J

J J

7. Policy Exceptions and Readiness

59. The Project complies with al l World Bank policies and no exceptions are necessary. The project's f i r s t year procurement plan i s ready and has been reviewed by the Bank. The Project's first year civil works were confirmed at Appraisal and the procurement plan was confirmed at Negotiations. Upon Effectiveness consultants will be appointed to prepare engineering and tender documents.

* By supporting the proposedproject, the Bank does not intend to prejudice t h e j n a l determination of the parties'claims on the disputed areas

15

Annex 1: Country and Sector Background NIGERIA: National Urban Water Sector Reform Project

Geography and Population

60. Nigeria has a land area o f 924,000 sq. km. The average rainfall ranges from about 500 mndyear in the north to over 2,000 “/year in the south. The northern terrain i s flat and sparsely vegetated with river flows that are generally seasonal. The main rivers, Niger and Benue, converge in the central region, thereafter flowing south as the Niger to discharge into the Atlantic Ocean through an extensive delta area. Their major tributaries are perennial, as are other rivers in the south, and are frequently exploited for water supply.

61. million, growing annually at a rate o f 2 per cent.

Nigeria i s the most populous country in Africa with an estimated population o f 132

Economic and Political Conditions

62. Nigeria i s the largest country in West Africa with a GDP o f US$43.5 billion (2002). Per capita income i s about US$290. Nigeria’s total debt i s at US$30.9 billion. Poverty in Nigeria i s widespread in the northern parts o f the country, but more severe in the remote southern areas. Urban poverty i s on the rise - it i s estimated that about 48% o f urban dwellers are living in poverty. About 30 million people were defined as extremely poor in 1996. The peacefbl transition o f power to the recently re-elected (May 1999, and May 2002) democratic civilian government has awakened the interest of the international community in Nigeria, and re-kindled hope among Nigerians.

Water Resources

63. Based on available data, Nigeria has adequate surface and ground water resources to meet current demands for potable water. However, the temporal and spatial distribution o f water has led to scarcity in some locations, especially in the north. This disparity has led to rapid depletion o f groundwater, especially in the northern towns, which have resorted to other sources. Past Government efforts have been fragmented focusing on water resources development on a sub- sector basis, but neglecting to manage it strategically as a national resource. The River Basin Development Authorities (RBDA), now 12 in total, were created in 1976 for planning and developing water resources, irrigation work and the collection o f hydrological, hydro-geological and meteorological data. The Government recognizes the need to manage water supply in an integrated and sustainable manner, and has embarked on the preparation o f a National Water Resources Management Strategy (WRMS) to ensure proper management and development o f i t s water resources.

Water SUDDIY and Sanitation Coverage

64. Rapid population growth has not been accompanied by an increase in the delivery o f essential urban services such as water supply, sewerage and sanitation, and collection and disposal o f solid wastes. I t i s estimated that currently only about 50% o f the urban and 20% o f

16

the semi-urban population have access to reliable water supply o f acceptable quality (i.e. something better than a traditional source). Overall effective urban water supply coverage may be as low as 30% o f the total population due to poor maintenance and unreliability o f supplies. Rural coverage i s estimated at 35%.

65. Except for Abuja and limited areas o f Lagos, no urban community has a sewerage system, with the result that sewage and sullage either l ie stagnant or are disposed through the storm water drainage system. The proportion o f the population with access to safe facilities for disposal o f excreta and waste water i s lower than for water supply.

Institutional AsDects

66. The three levels o f government in Nigeria share responsibility for the delivery o f water supply and sanitation services. The Federal Ministry o f Water Resources (FMWR), initially created in 1976, i s responsible for formulating and coordinating national water policies, management o f shared water resources including allocation between states, and approving development projects. Responsibility for potable water supply was traditionally entrusted to departments o f the state governments (now 36 in number). As the importance o f drinking water supply grew during the 1970s, most water departments were gradually transformed into State Water Agencies (SWA) to provide urban, semi-urban and, in some cases, rural water supply. Each SWA has, in general, been established under an edict to develop and manage water supply facilities within i t s respective state and to meet sound financial objectives. The Local Government Authorities (LGAs), o f which there are 774, are responsible for the provision o f rural water supplies and sanitation facilities in their areas although only a few have the resources and ski l ls to address the problem. Only few LGAs have rural water supply divisions able to construct small water systems such as open wells and small impoundments o f surface water.

Problems Confronting: The Urban Water Sector in Nigeria

67. The operational efficiency o f the majority o f state water uti l i t ies i s low. Non-revenue or unaccounted for water (UfW) i s very high, up to 63% reported for 1998. I t i s conceivable that Ufw could be higher given the absence o f metering o f production and distribution. On the physical side, aging pipes, frequent breaks, unreliable and unstable supply o f electrical energy or fuel, and treatment chemicals are common to most systems. Preventive maintenance i s not a common practice and limited funds have led to under-investment in new and expanded capacity while preventing the periodic replacement o f the aging components o f existing facilities. A rough estimate of investment deficits in urban water supply indicates approximately US$6.8 billion i s needed for rehabilitation and new facilities, and an additional US$lOO million a year for operations and maintenance.

68. On the institutional side, SWA remain under the control o f state governments - fiscally and operationally. Political tariff setting i s rampant, and tari f fs bear no correlation to cost o f production and delivery. Tariff increases may be proposed by utilities, but must be approved by the state government in most cases. State governments often bear the utility’s costs - particularly for electricity, staff, chemicals, and other - thereby blurring the organizational l ines

17

o f accountability. Thus the original mandate o f most SWA edicts - to operate in a financially self sufficient manner - has thus far not been achieved.

69. The problems o f large utilities are compounded by the inclusion o f peri-urban areas surrounding the cities which come under the jurisdiction o f the main utility. ORen such peri- urban areas remain a l o w priority in terms o f investments due to a relatively higher number o f illegal and/or squatter settlements on public land. Most are served by public standpipes o n the system o f the main utility, or by wells or boreholes. Some utilities have established kiosks for sale o f water to consumers or water carriers in these peri-urban areas. In many cases, water carriers deliver water to the consumers who pay much more than the utility charges for their water, since they must pay both the utility charge for the water and the cost o f labor o f the carrier.

70. Government Response: The FMWR, joint ly with the World Bank, has formulated a Water Sector Strategy to improve services and meet the MDG through 2015. For the urban water sector, FMWR i s focusing on improving SWA performance through institutional and policy reforms at the state level. States themselves are interested in attracting private financing to the water sector. To this end, many states are in the process o f corporatizing their SWA, and are seeking technical assistance from development partners to turn urban water ut i l i t ies into independent profit centers with l i t t le or no state assistance. FMWR and states are exploring optimal legal, regulatory, and transactional structures and modalities to attract private operators either to manage, and/or to invest in the sector.

71. The Bank has financed six projects in the water sector thus far, with mixed results. The state level projects have been successful, and as a result those states - Kano, Kaduna, and Katsina - are the strongest performers among al l urban water utilities in Nigeria. The National Water Rehabilitation Project (NWRP) has attempted to address many o f the institutional weaknesses o f the urban water utilities. The project completed a manpower audit and established a national training program, developed standardized edicts for SWAs, developed manuals for many S W A functions, and provided technical assistance to many SWAs to improve their commercial, financial and technical operations. It was also instrumental in establishing a network and dialog amongst the personnel of the SWAs, integrating the support given at federal level, and promoting the ideas o f reform needed in the sector.

72. However, the scope o f impact o f a national level project i s necessarily limited in a large country l ike Nigeria. Also, while the NWRP had a major impact in terms o f capacity building, many o f the structural problems described above remain, leading inevitably to the clear conclusion that major structural reform i s needed in the way o f doing business in the sector. At the close o f N W , it was clear to FMWR and the Bank team that the modest scope o f the NWRP in terms o f institutional strengthening and reform needed to be expanded. However, it was also apparent that a more lasting impact was more l ikely by focusing on a few states that were already undertaking reforms, and would benefit from appropriate public-private partnerships.

18

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

NIGERIA: National Urban Water Sector Reform Project

Sector Issue Comdeted Proiects

Ongoing Projects

Other development agencies Other Development Agencies AfDB

Kaduna Water Su

Plateau State Water Su

19

Annex 3: Results Framework and Monitoring


PDO

Improve reliability and financial viability o f selected urban water utilities.

Increase access to piped water networks in selected urban areas.

Network Expansion.

Component Two: Public-Private Partnership Development

Component Three: Capacity Building and Project Management

Component Four Policy Reform and Institutional Development

Outcome Indicators

(a) Increase in water delivered through existing and extended networks. (b) Improvement in cost recovery. (c) Increase in number of household connections.

Results Indicators for Each Component Component One: (a) Number of existing water supply networks rehabilitated to installed capacity - 8 by 2007 (b) Number of new household water connections - 50,000 by closing

Component Two : (a) Number o f PPP contracts initiated

(b) Additional States ready to enter into PPP contracts at Project Closing - 2

- 2 by 2007

Component Three: (by closing) (a) At least 20% increase in billing and collection efficiency in all 3 SWA (b) At least a 20% increase in water availability to end users in all 3 SWA (c) 100% O&M coverage from revenues in all 3 SWA Component Four (by closing) (a) State Water Regulatory Agencies established - 3 (b) National Water Policy completed (c) Establishment o f national strategy to increase low income household connections

Use o f Outcome Information 4t Mid-term Review and ICR :o judge progress made. [n assessing Project’s impact 3n Nigeria achieving Millennium Development Goal for increased access to safe water supplies. Use of Results Monitoring

Component One:

safe water supplies. Use of Results Monitoring

Component One: [n the PMUs’ quarterly and annual progress reports.

In the MTR and ICR.

Component Two: As pilots for PPP contracts for urban water systems in other Nigerian States.

As pilots for PPP contracts for urban water systems in other Nigerian States.

As examples for PPP contracts supported by the World Bank in other countries. Component Three:

In PMU quarterly and annual progress reports.

In the MTR and ICR.

Component Four As pilots for regulators for urban other Nigerian States.

As examples for establishing regulators in other countries.

20

N N

0 1

1 0

1 0

d &

0 0

P ' E

c o s

m 3 1

1 1 3

0

0

0

Annex 4: Detailed Project Description NIGERIA: National Urban Water Sector Reform Project

Component 1 : Rehabilitation and Network Expansion (US$lO5.5 million)

73. States wi l l access funds under this component at two distinct times during implementation. Initially, States wi l l use Component 1 f h d s to restore and rehabilitate existing infrastructure, with the overall objective to have their water systems operating at installed capacity. Support for the purchase o f essential vehicles and specialized rolling stock for the SWAs would also be included, as would production and zonal meters to provide vital operational information.

74. The initial stage o f the project for Kano State will include rehabilitation o f the three major water production works at Challawa and secondary facilities at Wudil, Tamburawa and Joda, all serving Kano city and environs. The majority o f financing wil l go towards rationalization and renewal o f raw water pumping facilities and replacement or repair o f existing pumps and generators which have passed their u s e h l l i fe. Distribution pipelines that have been identified as being in poor condition will be replaced. In addition water meters will be provided for production and zonal metering and to improve metering o f major consumers.

75. Kano City, with a population approaching three million people i s estimated to need about 400MVday but currently has a supply o f only about 169Ml/day. The design capacity o f existing production facilities i s 289Ml/day however production i s limited by the poor condition o f pumping and power generating equipment, and the transmission pipeline to the city (and related system storage). Engineering services will be provided for preparation o f detailed specifications and for supervision o f construction or equipment installation; also to help optimize the efficiency o f operation o f the Challawa works where difficulties are being experienced due to the high turbidity o f the water, and to review plans to expand the Watari works. It i s anticipated that production can be increased from the present level o f 161,000 cubic meters per day close to the design capacity o f the existing works o f 289,000 cubic meters per day.

76. The initial stage o f the project for Kaduna State will include rehabilitation o f the three major water production works serving Kaduna city, Kaduna North old and new plants and the Kaduna South plant; also the plants serving the secondary towns o f Kafanchan, Kogoro, Zonkwa, and Saminaka. Limited improvements will also be made to the distribution systems. The majority of financing will go towards improvement o f pumping and power generation facilities and treatment works (mainly replacement and/or rehabilitation o f equipment). In addition water meters will be provided for production and zonal metering and to improve metering o f major consumers. Vehicles and other equipment will be provided to enable improved technical and commercial operation and maintenance.

77. Engineering services will be provided for preparation o f detailed specifications and for supervision o f construction or equipment installation, and to assist with commercial improvements and institutional reform. It i s anticipated that production can be increased from the present level o f 139,500 cubic meters per day for these systems, close to the design capacity o f the existing works o f 300,000 cubic meters per day. For Kaduna State, the Project wi l l

22

support primarily Kaduna City as a first phase o f reform, with the current institutional and operational arrangements continuing for the remaining seven smaller systems for which the Kaduna State Water Board i s responsible.

78. The initial stage o f the project for Ogun State will include rehabilitation o f six water supply systems serving the towns o f Abeokuta, Yemoji, Sagamu, Ifo, Apoje and Ogere. The majority o f financing wi l l go towards improvement o f pumping and power generation facilities and treatment works (mainly replacement and/or rehabilitation o f equipment). In addition water meters will be provided for production and zonal metering and to improve metering o f major consumers. Vehicles and other equipment will be provided to enable improved technical and commercial operation and maintenance. Engineering services wi l l be provided for preparation o f detailed specifications and for supervision o f construction or equipment installation; also to study appropriate improvements for the Ota system and to support commercial improvements and institutional reform. I t i s anticipated that production can be increased from the present level o f 92,900 cubic meters per day close to the design capacity o f the existing works o f 139,300 cubic meters per day.

79. Component 1 also contains an estimated U S 6 . 5 million for Dam Safety enhancements o f dams located within the Project States, including dams that are federally owned but located within a Project State.

80. Once PPP contracts are in place (or when the relevant SWA demonstrates a high degree o f operational capacity and efficiency as well as financial autonomy), then Component 1 will provide funds for system expansion. This w i l l entail infill and improvement o f the distribution systems in each State, including the cities as well as semi-urban areas. New service connections and customer meters would be included.

81. As mentioned above, a SWA could access hnds under Component 1 for system expansion without a PPP contract in place. The trigger for this condition would be when the SWA has: (i) recovered at least 90 percent of,total O&M costs from operating revenues for at least 24 months; (ii) has implemented for at least 24 months a monthly water sampling and testing program at an international standard that collects at least 200 end user samples; (iii) has not had more than a one percent o f end user samples per month that fail to meet the State’s water quality laws and regulations; (iv) has maintained water production at a level o f at least 90 percent o f design production capacity for any consecutive period o f at least 9 months after January 1, 2003.

82. the engineering for this operation.

Component 1 also includes about US$2 million to prepare a follow-on Project and begin

Component 2: Public-Private Partnerships (uS$16.5 million)

83. I t i s anticipated that each of these three states will also enter into a public-private partnership for management o f the SWA to rebuild technical and commercial capacity and assure adequate operation and maintenance arrangements. The private sector operator contracts are expected to be five year management contracts and to cost about $16.5 million (about 12 percent

23

o f the total proposed Project cost o f US$140 million) to design, tender and pay the operator’s fees.

Component 3 : Capacitv Building & Proiect Management (US$9.85 million)

84. The Project would also support Capacity Building and Project Management in the FMWR and the State Water Authorities. This will include project management costs, stakeholder communication programs, training and office equipment. Support would also be given to the FMWR for i t s ongoing work in sector coordination and reform and capacity building, particularly to help in raising the performance o f non-participating states to be able to participate in the continuing national reform program in future. In this context, fbrther studies to prepare additional states for PPP contracts would be included.

Component 4: Policy Reform & Institutional Development (US$5.3 million)

85. Under this component, support would be given to: (i) the FMWR in order to develop a national low income household service strategy; (ii) assist in the establishment o f State Water Regulatory Authorities; and (iii) complete and implement a National Water Policy and carry out initial, and then annual, Water Investment Mobilization and Application Guidelines (WIMAG) conferences. Concerning the regulatory framework, the Project will: (i) support establishment o f the regulators as quickly as possible; (ii) support training o f the regulator’s staff over several years so that they are capable o f carrying out their mandate; and (iii) help the state governments determine when the regulators have gained sufficient expertise and capacity to practically assume regulatory functions.

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Annex 5: Project Costs


2 Public-Private Partnership Development Transaction Design & Tendering 150.00 1,350.00 1,500.00 1.10 Private Operator Fees 1 750.00 14,250.00 15,000.00 10.80

Sub-Total 1 900.00 15,600.00 16,500.00 11.80

Identifiable taxes and duties are about US6 million, and the total project cost, net o f taxes, i s US$134 million. Therefore, the share o f project cost net o f taxes i s 89.5%. 1

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Annex 6: Implementation Arrangements NIGERIA: National Urban Water Sector Reform Project

Implementation Period: FY2005 - FY2010.

86. The Borrower i s the Government o f Nigeria, represented by the Federal Ministry o f Finance (FMF). The executing agency o f the federal component o f the project i s the Federal Ministry o f Water Resources (FMWR). The executing agencies o f the states components of this project are the Federal Project Implementing Unit (FPIU) and State Project Implementation Units (SPIU) o f each state. Overall Project coordination knct ions will be undertaken by the FPIU at the FMWR.

Borrower and Executing Agency.

87. Project Implementation at State Level. All technical assistance, institutional building, and investment sub-projects will be managed and supervised by a SPIU in each participating state. Each SPIU will be headed by a senior coordinator who will manage an inter-disciplinary staff comprising engineers, PSP transaction expert, l o w income services advisor, and core communications staff. The staff o f each SPIU are substantially in place. Logistical set-up, communications equipment and soRware are expected to be completed by project effectiveness. SPIU staff will also complete adequate procurement, financial management, and safeguards training to comply with IDA rules and guidelines by effectiveness.

88. Project Management and Coordination at Federal Level. At the federal level, the FPIU at FMWR will manage and supervise the implementation o f technical assistance sub- projects in the federal component o f the project. Additionally, the FPIU will perform selected coordination tasks and serve as a resource and information help desk. The FPIU i s currently in place and consists o f experienced staff who have managed the recently completed, Bank financed National Water Rehabilitation Project.

89. Financing. The total project cost i s US$140 million, o f which IDA i s providing US$120 million. Counterpart financing o f US$20 mi l l ion will be shared by the states and the federal government in estimated amounts as follows: Kano: US$6.75 million, Kaduna: US$6.1 million, Ogun: US$6.45 mi l l ion and FMWR: US$0.7 mil l ion. A total o f approximately US$120 mi l l ion will be on-lent by the FMF to the states: Kano: 38.8 million, Kaduna: 35.2 million, Ogun: 36.4 million, and US$8.1 mi l l ion to the FMWR, plus US$1.5 mi l l ion for the Project Preparation Facility. Counterpart knds will be paid in advance by the states and FMRW into State Project Accounts (SPIU) and a Federal Project Account (FPIU) respectively. On-lending terms will replicate IDA lending terms, except for a tighter repayment schedule in the repayment o f the sub- loan by states to the federal government. IDA credit proceeds will be on-lent by the FMF to the states under a sub-loan agreement between the parties, which will bind the participating states to full compliance with IDA implementation standards and guidelines. Implementation arrangements pertaining to flow of knds, financial management and compliance with IDA fiduciary safeguards are detailed in Annex 7 below.

90. Monitoring and Evaluation. M&E procedures and reports are described in Section C.2

91. Project Implementation Manual (PIM). A detailed PIM will be in place at effectiveness to guide implementation at each level: utility/operator, state PIU and FMWR. The

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PIM will set forth all operational and procedural steps regarding sub-project evaluation, reviews and approval, flow of information, detailed description o f PIU fimctions, operational agreements among participating agencies, procurement and financial management arrangements and standards and tasks, standards for reports, change management and manual amendment procedures.

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Annex 7: Financial Management and Disbursement Arrangements


I. Summary o f the Financial Management Assessment

A. GENERAL

Objective o f the FM System

92. The objective o f the Financial Management Systems (FMS) i s to support the implementing units in deploying Project resources to produce the required outputs and with attention to economy, efficiency and effectiveness. Specifically, the FM systems will be capable o f producing timely, understandable, relevant and reliable financial information that will enable the implementing units to plan, coordinate, monitor and appraise the Project's overall progress towards the achievement of i t s objectives as wel l as ensuring that costs are under control and Project fimds are used for the purposes intended.

Financial Management

93. Federal level: The Federal Ministry o f Water Resources (FMWR) will serve as the oversight body. I t will provide (a) international and local expertise to strengthen the national policy dialogue and assist with sector reform; (b) training and specialist support to the states including states other than the three states for capacity building; and (c) project support including monitoring and evaluation, dissemination and sector promotion. The FPIU (Federal Project Implementing Unit) will coordinate Project activities on behalf o f the FMWR and would be responsible for the financial management aspects of the Project at the Federal level. A Finance Department has been set up for this purpose. They were also responsible for the financial management o f the Bank-assisted National Water Rehabilitation Project which closed in 2002.

94. The Finance Department of FPIU (FD/FPIU) will be responsible for managing the financial affairs o f the Project. FD/FPIU will be staffed by relevantly qualified accountants. Modern internal audit functions will be performed by an Internal Audit Unit (IAU) which will be established at the FPIU and will be staffed with professionally qualified and experienced accountants from the Office of the Auditor General o f the Federation. The IAU will carry out a systematic review, appraisal and reporting of the adequacy o f the systems o f managerial, financial, operational and budgetary control and their reliability in practice. FD/FPIU will be responsible for ensuring compliance with the financial management requirements o f the Bank and the government, including forwarding the quarterly Financial Monitoring Reports (FMR) and audited annual financial statements to FMWR and IDA.

95. State level: A State project implementing unit (SPIU) will be responsible for general oversight o f the technical aspects o f projects in each State. The SPIU will enjoy operational autonomy and flexibility to carry out i t s roles and responsibilities. Financial Management in the States will be carried out by the State Project Financial Management Unit (PFMU), which will be established in the Off ice of the State Accountant General (OSAG) under the proposed f h d s f low arrangements for Nigeria. Specifically, the PFMU will be responsible for managing the

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financial affairs o f Bank-assisted projects in the state, including NUWRSP. Specifically, the FD/FPIU and PFMU will be responsible for preparing budgets, monthly reports, quarterly FMRs, annual financial statements and progress reports respectively. FD/FPIU and PFMUs will also be responsible for ensuring compliance with the FM requirements o f the Bank and the government, including forwarding the quarterly FMRs and annual financial statements to I D A .

96. applications and financial management skills.

All accounts personnel will be sufficiently trained in Bank procedures, computer

B. RISK ANALYSIS

Inherent Risks

97. The Country Financial Accountability Assessment (CFAA), which was conducted in C Y 2000, revealed that the systems for planning, budgeting, monitoring and controlling public resources in Nigeria have deteriorated to a level that they do not provide any reasonable assurance that funds are used for the purpose intended. Risk o f waste, diversion and misuse o f funds was highly rated until such a time as the C F A A recommendations have been implemented. Some o f the CFAA recommendations have been implemented while others are being implemented. An update o f the CFAA, which is due before C Y 2006 i s required to confirm the current risk level.

98. T o minimize the aforementioned risks and ensure that the appropriate financial management capacity i s in place prior to Project effectiveness, an assessment o f the financial management capacity o f the FPIU has been undertaken.

Control Risks

99. The overall Project risk from a financial management perspective i s considered moderate, provided: (a) the weaknesses described in paragraph 98 are satisfactorily addressed; (b) the financial management action plan described in paragraph 130 i s fully implemented; and (c) the conditions for Board are met.

Strength and Weaknesses

100. Strength: FPIU has previous experience in implementing Bank-Assisted Projects. Some of the staff have also attended Bank-led training on Financial Management and Disbursement in Bank-Assisted Projects. Based on this, the FPIU i s familiar with Bank Financial Management Procedures. At the state level, the financial management functions o f the project will eventually be handled by a PFMU situated in the OSAG under the funds f l ow arrangement for Nigeria. The arrangements feature relevantly qualified staK effective internal control--including adequate segregation o f duties, internal check and monitoring, and effective modern internal audit--and computerized FM systems. The Bank i s assisting in the computerization o f the FM systems o f the unit and training of staff in Bank procedures.

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101. Weaknesses: The main weaknesses are: (a) The FPIU does not have an Internal Audit Unit (IAU); (b) one of the participating States, Kano, has not established a PFMU and this could delay the State’s participation; and (c) shortage o f professionally qualified accountants in the public sector.

C. FINANCIAL MANAGEMENT SYSTEMS

Funds Flow and Banking Arrangements

102. The overall project fhding will be from the IDA credit and government counterpart funds. IDA will disburse the credit through a Special Account, which will be managed by the FD/FPIU and the PFMU.

103. IDA will disburse the credit through special accounts consisting o f (a) 1 federal special account (FSA) managed by FPIU; and (b) 1 state special account (SSA) for each state. The establishment of a PFMU by each participating State i s a condition for disbursement of IDA funds to the State and until such a time as a State would have created i t s PFMU, they cannot access the SA. FPIU and the participating States will each maintain the following accounts:

i. A SA in US Dollars to which the initial deposit and replenishments from IDA will be lodged.

ii. A Current (Draw-down) Account in Naira with Bank X to which draw-downs from the Special Account will be credited once or twice per month in respect of incurred eligible expenditures (the FSA and SSA). Following the immediate payments in respect o f those eligible expenditures, the balance on this account should be zero.

iii. A Current (Project) Account in Naira with Bank X to which Counterpart Funds will be deposited, a federal project account (FPA) and state project accounts (SPA) respectively.

104. Also, they wil l each maintain an IDA Ledger Loan Account (Washington) in US Dollars/Naira/SDR to keep track of draw-downs from IDA credit. The account will show (a) deposits made into Bank X by IDA, (b) direct payments by IDA, and (c) opening and closing balances.

105. Al l bank accounts wil l be reconciled with bank statements on a monthly basis by the FD/FPIU and PFMUs. The bank reconciliation statements wil l be reviewed by designated officials, and identified differences wil l be expeditiously investigated.

106. The FD/FPIU and PFMUs will be responsible for preparing and submitting to the World Bank consolidated applications for withdrawal, as appropriate. Appropriate procedures and controls, which wil l be documented in the FPM, will be instituted to ensure disbursements and flow of funds are carried out in an efficient and effective manner.

107. Credit that will be reconciled monthly with the Disbursement Summary provided by the Bank.

The FD/FPIU and PFMUs will maintain a cumulative record of draw-downs from the

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108. (e.g. check signatories, transfers, etc.), wil l be documented in the FPMs.

Detailed banking arrangements, including control procedures over all bank transactions

Draw-down (zero Draw-down (zero balance) Naira A/C balance) Naira A/C

Funds Flow Diagram

Sources of Funds

Project (Naira Counterpart Funds) A/C

Government Budget

Disbursement Arrangements Use o f statements of expenditures (SOEs)

109. All applications for the withdrawal o f proceeds from the credit will be fully documented, except for: (i) contracts with an estimated value o f less than US$250,000 for goods; (ii) contracts with an estimated value o f less than US$1 million for works packages; (iii) contracts with an estimated value o f less than US$200,000 for consulting firms, and less than US$50,000 for individual consultants; (iv) training costing less than US$15,000; and (v) study tours, and incremental operating costs which may be claimed on the basis o f certified Statements o f Expenditures (SOEs). Documentation supporting all expenditures claimed against SOEs wil l be retained by FPIU and PFMU, and will be available for review when requested by IDA supervision missions and project auditors. All disbursements are subject to the conditions o f the Development Credit Agreement and the procedures defined in the Disbursement Letter.

Special account:

110. To facilitate disbursements for eligible expenditures for goods and services under the Federal component, the FPIU will open a special account - the FSA, which will be managed and administered by the FPIU, in a commercial bank to cover part o f IDA’S share o f eligible expenditures. The authorized allocation o f the special account would be US$900,000 covering an estimated 4-6 months of eligible expenditures financed by IDA. Similarly, each State would open a special account, the SSA, with an authorized allocation o f US$3.5 million to cover part o f IDA’S share o f eligible expenditures. FD/FPIU and PFMUs will be responsible for submitting monthly replenishment applications with appropriate supporting documents for expenditures, To the extent possible, all o f IDA’S share o f expenditures should be paid through the FSA and respective SSA.

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11 1. The FSA and three SSAs will be replenished through the submission o f Withdrawal Applications on a monthly basis and wil l include reconciled bank statements and other documents as may be required until such time as the borrower may choose to convert to report- based disbursement. All disbursements wil l be channeled through FSA and SSA, and in l ieu o f such special accounts, the borrower may choose to pre-finance project expenditure and seek reimbursement from IDA.

112. By effectiveness, the Project will not be ready for report-based disbursements. Thus, at the initial stage, the transaction-based disbursement procedures (as described in the World Bank Disbursement Handbook) will be followed, i.e. direct payment, reimbursement, and special commitments.

1 13. When project implementation begins, the quarterly Financial Monitoring Reports (FMRs) produced by the project will be reviewed. Where the reports are adequate and produced on a timely basis, and the borrower requests conversion to report-based disbursements, a review wil l be undertaken by the Task Team Leader (TTL) to determine if the project i s eligible. The adoption of report-based disbursements by the project will enable it to move away from time- consuming voucher-by-voucher (transaction - based) disbursement methods to quarterly disbursements to the FSA and SSA, based on FMRs.

114. Detailed disbursement procedures will be documented in the FPM.

Planning and Budgeting

1 15. Cash Budget preparation will follow the Federal Government and participating States' procedures. Additionally, financial projections or forecasts for the l i fe of the project (analyzed by year) will be prepared. On an annual basis, the Project Accountant in FD/FPIU and PFMUs (in consultation with key members of the implementing unit) will prepare the cash budget for the coming period based on the work program. The cash budget should include the figures for the year, analyzed by quarter. The cash budget for each quarter will reflect the detailed specifications for project activities, schedules (including procurement plan), and expenditure on project activities scheduled respectively for the quarter. (Guidance on the preparation o f budgets i s available in the Bank publication entitled "Financial Monitoring Reports: Guidelines to Borrowers".) The annual cash budget will be sent to the TTL at least two months before the beginning of the project fiscal year.

116. Detailed procedures for planning and budgeting wil l be documented in the FPMs.

Fixed Assets and Contracts Registers

117. At the FD/FPIU and PFMUs, a Fixed Assets Register will be prepared, regularly updated and checked. A Contracts Register will also be maintained in respect o f a l l contracts with consultants and suppliers. The FD/FPIU and PFMUs will prepare Contract Status Reports quarterly. Control procedures over fixed assets and contracts with consultants and suppliers/vendors for States and federal levels will be documented in the Financial Procedures Manual.

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Information Systems

118. The FPIU presently has a Lotus based accounting system. This was used for the closed National Water Rehabilitation Project and the Small Towns Water Supply and Sanitation Project which i s about to close. FPIU will upgrade the system taking into consideration the reporting requirements in the Financial Monitoring Reports Guideline; and train staff on the use o f the software in compliance with the FPM. Under the standard fbnds flow arrangements for Nigeria States implementing IDA-financed projects, a computerized financial management system will be developed and installed in the PFMUs and staff w i l l be given relevant training.

Financial Reporting and Monitoring

119. Monthly, quarterly and annual reports wil l be prepared (as outlined in paragraphs 28, 29, 30 and 3 1) for the purpose o f monitoring project implementation. The reports will be submitted to the project coordinators, project implementing units, government and IDA. In compliance with government reporting requirements, Monthly Returns will be made to the Federal and State Accountants General, for incorporation in the Government's accounts, as described in the FPM.

120. following reports to the project coordinators:

Monthly: On a monthly basis, the FD/FPIU and PFMUs will prepare and submit the

A Bank Reconciliation Statement for each bank account; Monthly Statement of cash position for project f h d s from all sources, taking into consideration significant reconciling items;

e A monthly Statement of expenditure classified by project components, disbursement categories, and comparison with budgets, or a variance analysis; and

e Statement of Sources and Uses of funds (by Credit Category/ Activity showing IDA and Counterpart Funds separately);

Quarterly: The following financial monitoring reports wil l be prepared by the FD/FPIU 121. and PFMUs on a quarterly basis and submitted to FMWR, IDA and the project coordinators:

Financial Reports which include a Statement showing for the period and cumulatively (project l i fe or year to date) inflows by sources and outflows by main expenditure classifications; beginning and ending cash balances o f the project; and supporting schedules comparing actual and planned expenditures. The reports will also include cash forecast for the next two quarters. Physical Progress Reports which include narrative information and output indicators (agreed during project preparation) linking financial information with physical progress, and highlight issues that require attention. Procurement Reports, which provide information on the procurement o f goods, work, and related services, and the selection of consultants, and on compliance with agreed procurement methods. The reports will compare procurement performance against the plan agreed at negotiations or subsequently updated, and highlight key procurement issues such as staffing and building Borrower capacity.

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122. SOE Withdrawal Schedule listing individual withdrawal applications relating to disbursements by the SOE Method, by reference number, date and amount. Each PFMU wi l l submit a copy o f the quarterly project financial monitoring reports to the SPTU. Also, it wi l l forward a copy o f the reports to the FPIU for consolidation.

123. FD/FPIU and PFMUs will include the following:

Annually: The annual project financial Statements, which will be prepared by the

A Statement o f Sources and Uses o f funds (by Credit Category/by Activity showing IDA and Counterpart Funds separately); Statement o f Cash Position for Project Funds from al l sources; Statements reconciling the balances on the various bank accounts (including IDA Special Account) to the bank balances shown on the Statement o f Sources and Uses o f funds;

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

0 Notes to the Financial Statements.

0

0

Each PFMU will submit a copy o f the project financial statements to the FPIU for consolidation.

124. Indicative formats for the reports are outlined in two Bank publications: (a) Financial Monitoring Reports: Guidelines to Borrowers-quarterly FMRs, and (b) Financial Accounting, Reporting and Auditing Handbook (FARAH) - monthly and annual reports.

Accounting Policies and Procedures

125. IDA and Counterpart Funds wi l l be accounted for by the Project on a cash basis. This will be augmented with appropriate records and procedures to track commitments and to safeguard assets. Also, accounting records will be maintained in dual currencies (i.e. Naira and 9. 126. annual financial Statements, including information on the following:

The Chart o f Accounts will facilitate the preparation o f relevant monthly, quarterly and

Total project expenditures 0

0

0

Total financial contribution from each financier Total expenditure on each project component/activity, and Analysis o f that total expenditure into civil works, various categories o f goods, training, consultants and other procurement and disbursement categories.

127. Annual financial Statements will be prepared in accordance with International Accounting Standards (IASs). All accounting and control procedures will be documented in the FPM, a living document that will be regularly updated by the Project Accountants.

D. ACTION PLAN

128. The following actions are to be implemented as specified.

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Project Account; and IDA advised o f authorized bank signatoriedspecimen

Supervision Plan

129. Supervision activities wil l include review o f quarterly FMRs; review o f annual audited financial statements and management letter as well as timely follow-up of issues arising; annual SOE review; participation in project supervision missions as appropriate; and updating the F M rating in the Project Status Report (PSR).

2. Audit Arrangements

Internal Audit 130. The Internal Audit Unit of FPIU (IAU/FPIU) wil l perform internal audit activities for the project. Regular internal audit reports will be submitted to the, PMU and the Accountant General. At FPIU, a professionally qualified internal auditor will be appointed to perform internal audit activities for the project. Similarly, at the state level, Project activities, records and accounts wi l l be reviewed and subjected to internal audit by appropriately qualified Internal Auditors in the PFMUs. Regular internal audit reports wil l be submitted to Project coordinators/officers, the Federal and State Ministry o f Water ResourcesEMF or the supervising agency and the Accountant General for the State as appropriate.

External Audit

131. Audited Project Financial Statements for the project will be submitted to IDA within six months after year-end. Relevantly qualified external auditors will be appointed based on Terms of Reference acceptable to the Bank to perform these audits.

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

133. In addition to the audit report, Management Letters giving observations

the external auditors will be expected to prepare and comments, and providing recommendations for

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improvements in accounting records, systems, controls and compliance with financial covenants in the IDA agreement.

3. Procurement Arrangements

134. Capacity o f the implementing entities.

A Bank Procurement Specialist (PS) has carried out an assessment o f the Procurement

135. For IDA Funds, the project will observe procurement procedures outlined in the Guidelines: ‘Procurement under IBRD and IDA Credits and Guidelines for the Use of consultants by World Bank Borrowers and by the World Bank as Executing Agency.’ The Federal Government o f Nigeria and FMF procurement regulations will apply for Counterpart Funds, The Project Accountant, internal auditor and support staff must be conversant with the Bank’s procurement procedures, as internal control issues and the incurring o f liabilities will be matters o f concern to the financial management hnction.

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Annex 8: Procurement NIGERIA: National Urban Water Sector Reform Project

General

136. The procurement system in Nigeria i s in the process o f being reformed at al l levels. The government procurement reform program was fashioned in l ine with the recommendations o f the year 2000 Nigeria Country Procurement Assessment Report (CPAR). All the three tiers o f governments are operating under the Financial Regulations (FR), which are essentially an internal set o f ru les for economic controls. The CPAR identified major weaknesses in the procurement policies and practices in Nigeria and made appropriate short-, medium-, and long- term recommendations. Based on the short-term recommendations o f the 2000 Nigeria CPAR, the procurement procedures section o f the FR at the federal government level was revised on June 27, 2001, to ensure clarity and transparency by incorporating details o f the various procurement methods and their applications for goods, works and services among others. For instance, the ineffective Federal and Departmental Tender Boards have been abolished while the Ministerial Tender Boards have been strengthened with powers to approve contract awards. For now, this revision applies only to federal projects, as the states are yet to adopt these changes. However, it is envisaged that the states and local governments will review and revised their procurement system in line with the FGN reform programs. The functions o f the Procurement Reform Implementation Unit (PRIU) and that o f the Steering Committee that was established in year 2002, to oversee the implementation o f government reform programs, have been transferred to the Budget, Monitory and Price Intelligent unit in the Presidency (a Unit currently managing the Federal Government due process), for effective coordination. The reforms have five main features:

e

e

e

e

Enactment o f a new procurement law based o n the U N C I T R A L model law. (the procurement bil l has been withdrawn from the National Assembly to accommodate the World Bank’s and other stakeholders’ comments by the executive arm of government) Establishment o f a public procurement oversight body, the Public Procurement Commission (PCC), independent o f the Tender boards with responsibility for the efficiency and effectiveness o f the procurement fknction across the public sector Revision o f key areas o f the Financial Regulations to make them more transparent (this has been effective at the federal level since June 2 7, 2001). Deep restructuring o f Tender Boards and approval procedures for contracts. Specifically, abolish Federal Tender Board and Departmental Tender Boards and strengthening Ministerial Tender Boards by vesting them with powers to approve contract awards (Partially fulfilled). Building procurement capacity in the public sector through a restoration o f professionalism in procurement and intensive training o f procurement staff.

137. Until the government takes major steps to reform the procurement policies and practices in the country (presumably the reform process w i l l reach an advanced stage by end of FY04), procurement risk for doing business in Nigeria i s assessed as high. However, the Agencies that

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would be managing the proposed project at both Federal and State levels, have considerable experience in implementing World Bank financed projects with good procurement track record. Therefore the procurement risk for the proposed project i s rated “medium”.

Use of Bank Guidelines

138. All goods, works and services financed under the IDA credit would be procured in accordance with the appropriate IDA Guidelines (Guidelines: Procurement under IBRD Loans and IDA Credits, January 1995 and as revised in January and August 1996, September 1997, and January 1999; and Guidelines: Selection and Employment o f Consultants by World Bank Borrowers, January 1997 and as revised in September 1997, January 1999 and May 2002). To the extent practicable, Bank’s standard bidding documents for works and goods and Standard Requests for Proposals for consultants as well as all standard evaluation forms would be used throughout project implementation.

139. The procurement process that shall be used by the implementing Agencies shall be well defined in the Procurement Manual and the Project Implementation Plan (PIM). The Bank shall provide Government with a sample (draft) procurement and financial procedures manual.

Advertising

140. A General Procurement Notice (GPN) i s mandatory and has been published before Board presentation in the UN Development Business and in at least a national newspaper as provided under the Guidelines. The GPN shall show all International Competitive Bidding (ICB) for goods and works contracts and al l International Consulting Services. In addition, a Specific Procurement Notice (SPN) i s required for al l goods and works to be procured under ICB and Expressions o f Interest (EOI) for all consulting services with a value in excess o f US$lOO,OOO. All NCB procurement packages for goods and works would be advertised in the national daily newspapers.

Procurement Capacity Assessment

141. A formal assessment o f the capacity o f the National and three participating States have been conducted in accordance with Procurement Services Policy Group (OCSPR) guidelines dated August 11, 1998. The assessment outlines the main issues and recommendations and i s in the project fi les. Based on these recommendations, for the FPIU and SPIU to perform procurement coordination responsibilities, the following action plan was agreed with the Borrower:

(a) The FPIU i s staffed with relevant technical professionals including a qualified and experienced Procurement OEcer.

(b) All participating states have established their own SPIU with relevant professionals among which are three qualified and experienced Procurement Officers either seconded from ministries or directly recruited under a competitive process.

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(c) The FPIU and SPIUs have prepared a f i rst year procurement plan which was discussed, finalized, and agreed upon during Negotiations using the African Region developed new procurement tool kit.

The FPIU have prepared a comprehensive Procurement Manual with the help o f a Consultant for the project. The manual will be adopted by the SPIUs prior to project effectiveness.

The Bank will organize specific Procurement training for relevant Staff o f the FPIU and SPIU before Board presentation. In addition, relevant staff o f the project would be encouraged to attend procurement courses at training institutes such as NCEMA, ESAMI, or GIMPA no later than six months following effectiveness.

Contract management workshop shall be organized for FPIU and SPIU officials no later than three months after effectiveness.

FPIU and the SPIUs shall hold meetings with the Business Communities in their environment after preparation or adoption o f a Procurement Manual no later than six months after effectiveness.

142. One o f the major problems in project implementation in Nigeria i s the change o f staff mid-stream. Assurances were sought during Negotiations, that staff who will have received training under the project would not be changed except for reasons to be mutually agreed upon between the Government and IDA.

Procurement Planning

143. The types o f activities to be financed under the project have been designed to meet the present infrastructure deficiencies in the selected implementing states. Therefore, the Borrower wi l l prepare a detailed procurement plan for the first-year, or 18 months o f project’s activities for both the Federal and State components. The plans were discussed and finalized during Appraisal and Negotiations with the Bank. The agreed plans which shall be prepared in line with the new African Region procurement plan tool kit, shall form part o f the project DCA. The plan shall be updated as needed. Any revision made to the plan shall require IDA clearance. The plans should be closely coordinated with on-going operations in other sectors, including the Community- based Poverty Reduction Project (CPRP), Universal Basic Education Project, Community-based Urban Development Project and Micro-Watershed and Environmental Management Project.

Procurement Implementation Arrangements

144. The overall coordination and implementation o f the project activities would be entrusted to FPIU and SPIUs. Therefore, the FPIU and SPIUs as project executing agencies, will be responsible for coordinating all procurement fhctions under the project. The procurement capacity assessment highlighted the need for significant capacity strengthening and building at the SWA. To strengthen their required procurement capacity, a variety o f measures are envisaged and planned under the project as enumerated under paragraph 143 above. A project

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launch workshop will be organized prior to effectiveness to familiarize FPIU and SPIU staff and other institutions involved in the execution o f projects with Bank procedures. The workshop wil l cover procurement policy and procedures and their application to procurement arrangements planned for project implementation, disbursement, reporting and auditing requirements. There are no existing procurement manuals at al l levels o f project implementation units. Therefore, the FMWR has hired the services o f a consultant to assist the project prepare a comprehensive PIM (including procurement manual) acceptable to IDA, before effectiveness. Agreement was reached during Negotiations that such manual wou ld be adopted by al l the States as a condition o f effectiveness for the states.

PROCUREMENT METHODS

Civil Works ($87.1 million)

145. Civil works contracts estimated at U S $87.1 million, mostly to rehabilitate treatment plant, distribution network and expansion o f existing ones will be undertaken by the project. To the extent practicable, civil works contract, shall be grouped in bid packages to take advantage o f bulk purchase. Therefore, al l civil works contract estimated to cost the equivalent o f US $1,000,000 per bid package, shall be procured using International Competitive Bidding (ICB) procedures. Each civil works contract package estimated to cost less than US$l,OOO,OOO equivalent may be procured using National Competitive Bidding procedure (NCB) acceptable to IDA. However, since there i s no National SBD acceptable to IDA for now in Nigeria, IDA SBD for procurement ofworks (Smaller Contract) will be adapted by the project.

146. Minor civil works contracts, estimated to cost less than $100,000 equivalent which are labor intensive, spread over time and which do not lend themselves to grouping and therefore are unlikely to attract foreign bidders shall be procured using shoppine; procedures. These works contracts would be awarded on the basis o f quotations obtained from three qualified domestic contractors invited in writing to bid. The invitation shall, among other things, include a detailed description o f the works, including basic specifications, relevant drawings and bill o f quantities where applicable, the required completion date and a basic form o f agreement acceptable to the Bank. A sufficient bid submission period would be allowed and bids would be opened in public. The award will be made to the lowest evaluated responsive bidder who has appropriate experience and resources to successfully complete the contract.

147. In cases where the quantity o f work cannot be defined in advance, i s too small and scattered to attract private contractors and under emergency situations, when work must be carried out without disrupting ongoing operations, and i s estimated to cost less than $50,000 equivalent, force account procedures can be used.

Goods ($9.1 million)

148. The project will finance items such as office equipment, computers and accessories, vehicles, generators, water meters, etc. to the tune o f $9.1 million. To the extent practicable, goods and equipment shall be combined in packages worth at least $250,000 and be procured using International Competitive Bidding (ICB) procedures, using IDA Standard Bidding Documents.

40

149. Each contract for goods estimated to cost between US$30,000 and US$250,000 up to an aggregate o f US$1.5 million shall be procured through National Competitive Bidding (NCB) using procedures acceptable to IDA. Procurement for readily available off-the-shelf goods that cannot be grouped, or standard specification commodities for individual contracts o f less than US$30,000, up to an aggregate o f US$0.5 million, would be procured under Shopping procedures as detailed in paragraph 3.5 and 3.6 o f the "Guidelines: Procurement under IBRD Loans and IDA Credits'' and June 9, 2000 Memorandum "Guidance on Shopping" issued by the Bank.

150. To monitor the use o f each method o f procurement by projects, each quarterly progress report o f the project would include a table setting out the number and value (in US$ equivalent) o f contracts issued through Shopping and National competitive bidding during the quarter as well as the cumulative total value (in US$ equivalent) o f contracts under each o f these two procedures from the date o f project start-up.

Domestic Preference

151. A margin o f preference will be provided in the evaluation o f bids for: (i) goods manufactured in Nigeria when comparing bids offering such goods manufactured abroad; and (ii) works from eligible Nigerian contractors when comparing bids from for such works from foreign firms.

Consulting Services ($36.9 million)

152. The total value for consulting services would be US$36.9 million. The recruitment o f consulting services under this project will include technical audit, financial audit, legal and utility operations, environmentallsocial assessment, capacity building, engineering design and Tender Documents, and supervision o f constructionhehabilitation works. As a rule, consultant services wi l l be procured though Quality and Cost Based Selection (QCBS). All consultancy assignments estimated to cost US$200,000 or more shall be procured through QCBS and would be advertised in Development Business and/or Development Gateway and in at least one national newspaper. In addition, the scope o f the service may be advertised in an international newspaper or magazine seeking "expressions o f interest." In the case o f assignments estimated to cost less than US$200,000, the assignment may be advertised nationally, and the shortlist made up entirely o f national consultants provided that at least three qualified national firms are available in the country, and foreign consultants who wish to participate are not excluded from consideration. Consultant services estimated to cost less than the equivalent o f US$lOO,OOO, may be contracted by using the Consultants Qualifications (CQ) method in accordance with paragraph 3.7 o f the Guidelines. All consulting services o f individual consultants (IC) will be procured under individual contracts in accordance with the provisions o f paragraphs 5.1 to 5.3 o f the Guidelines. Consultants for assignments of a standard routine nature such as audits may be selected on the basis of Least-Cost method (LC) or CQ. Single Source Selection: in exceptional cases, this method would be used in accordance with the provisions o f paragraphs 3.8 to 3.11, with IDA'S prior agreement.

41

Training, Workshops and Study Tours ($3.9 million)

153. Training, workshops, and study tours wil l be carried out on the basis o f approved annual programs that would identify the general framework o f training activities for the year, including the nature o f trainindstudy tours/workshops, the number o f trainees, and cost estimates, to be reviewed and cleared by IDA. Selection o f training institutions for workshopdtraining should be based on a competitive process using the Consultant's Qualifications method o f selection.

IDA Prior Review

154. Table B provides the prior review thresholds. Each contract for goods estimated to cost US$250,000 equivalent or more, will be subject to IDA prior review as per paragraph 2 o f appendix I o f the Guidelines. The first National Competitive Bidding package for goods and civil works o f each Federal and State PIUs shall be subject to IDA prior review. Other contracts wil l be subject to post review in accordance with paragraph 4 o f Appendix I o f the Guidelines. All consulting contracts costing US$200,000 equivalent or more for firms, and US$50,000 and more for individuals, will be subject to IDA prior review. All single-source selection o f consultants and terms o f reference for consulting services wil l be subject to IDA prior review. Any exceptional extensions to non-prior review contracts raising their values to levels equivalent or above the prior review thresholds shall be subject to IDA clearance. Other consulting contracts shall be subject to post review. All projects' annual training plan, shall be subject to IDA prior review.

42

Procurement methods (Table A)

- -

1. Civil Works

Table A: Project Costs by Proc urement Arra ngem ents

ICB NCB Other 21 N.B.F. Total Cost 75.1 10.0 2.0 0.0 87.10

(US$ million equi valent)

2. Goods

3. Consultant Services

(62.1) (8.3) (1.7) (0.0) (72.1) 7.1 1.5 0.5 0.0 9.1

(6.4) (1.3) (0.4) (0.0) (8.1) 0.0 0.0 36.9 0.0 36.9 ~. -~ ~

4. Training and Workshops

5. Operating Cost

6. PPF Refinancing

(0.0) (0.0) (33.2) (0.0) (33.2) 0.0 0.0 3.9 0.0 3.9

(0.0) (0.0) (3.9) (0.0) (3.9) 0.0 0.0 1.5 0.0 1.5

(0.0) (0.0) (1.2) (0.0) (1.2) 0.0 0.0 1.5 0.0 1.5

(0.0) (0.0) A (1.5)

1/ Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies.

Total 82.2 (68.5)

2/ Includes civil works and goods to be procured through local shopping, consulting services, l ine ministries action plans and NGO/community grants, training, technical assistance services, and operating costs related to project management.

11.5 46.3 0.0 140.00 (9.6) (41.9) (0.0) (120.00)

43

Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review

Expenditure Category 1. Works Small works (rehab) under line ministries action plans

2. Goods

3. Services

Contract Value T h res ho Id

(US$) US$l,OOO,OOO and

above

Less than US$l,OOO,OOO

Less than $100,000

Less than $50,000 $250,000 and above

$30,000-$250,000

Less than $30,000 and Urgent Procurement $200,000 and above

(firms)

Less than $100,000 (firms)

$50,000 and above (individual)

Less than $50,000 (individual)

All contracts

Total value of contracts subject to prior review:

Overall Procurement Risk Assessment: Medium

Procurement Method

ICB

NCB

Lump-sum fixed-priced on the basis o f three

quotations

Force Account ICB

NCB

National and International Shopping

QCBS

QCBS-CQS-LCS

IC

IC

Single Source

$1 12 Million

Contracts Subject to Prior Review (US$ millions)

All

lSt contract package o f Federal and State

Post Review

Post Review

Post Review All

1'' contract package for Federal and State PIUs

Post Review

A l l

Post Review

All

Post Review

A l l

Frequency of procurement supervision missions proposed: One every three months (includes special procurement supervision for post-review/audits)

44

Expenditure Category Amount (US$ million)

Civil Works 70.75

Financing Percentage

100% FE, 45% L C Goods 8.10 100% FE, 45% L C Consultant Services 33.20 90% Project Management 1.20 80%

PPF 1.50 Training & Workshops 3.90 100%

45

Annex 9: Economic and Financial Analysis NIGERIA: National Urban Water Sector Reform Project

Kano 2.5 Ogun 1 .o

Results

21 % 2.8 23% 14% 1.4 16%

155. and I R R s for each state are shown in Table 9.1.

Results o f the base case financial models, showing both financial and economic NPVs

Table 9.1 Results o f Base Case Financial and Economic Analyses

Financial' ! I Economic I NPV 1 IRR I / NPV 1 I RR

156. The difference between the financial and economic results represents the effect o f taxes, which are estimated to represent 11.5 percent o f the cost o f new c iv i l works, engineering and equipment investments. Table 9.2, shown below, shows summary statistics f rom the three models. Electronic copies o f the three models are available in the Project File.

Methodology

157. For each state, a 20-year financial model was constructed. The years covered are 2001 to 2020. Actual results, based on audited financial statements, are reflected in years 2001 and 2002. Year 2003 results are based on part year actual and estimated figures. Years 2004 to 2020 are based on estimates, taking into account the expected project benefits and include nine years o f operations after the Project closes in 2010 and al l systems have been expanded.

Assumptions

158. The models contain several critical assumptions. The most important o f these are:

0 Substantial, and regular, tariff increases are implemented during project implementation as service improves to customers;

0 System infrastructure i s quickly restored to 90 percent o f installed capacity, a 20 percent increase in production capacity i s accomplished by year 20 10, and there i s sufficient energy to permit the systems to operate on a continuous basis;

0 All systems achieve at least a 10 percent reduction in leakage; and 0 For all three systems, about 50,000 new flat rate customers are added.

46

Sensitivity Analysis

State/Scenario Kaduna Kano Onun

159. outlined in Section C4 o f the PAD, are modeled as follows:

The first two key assumptions from above, which also reflect three o f the Critical Risks

EIRR resulting f rom Scenario Base Case EIRR 1 2 3

25% 14 17 10 23% <O 19 15 16% <O 13 9

Scenario 1. No tari f f increases for period 2004-2010. Scenario 2. Operating efficiency only reaches 70 percent due to energy shortages. Scenario 3. SWA does not attain or sustain management efficiency gains.'

160. Results o f the sensitivity analysis are shown in Table 9.3 below:

Implications for Project Implementation

161. As shown above, the importance o f regular tari f f increases i s very important for the Project's sustainability. In this context, the stakeholder polling carried out during Project preparation also highlighted the importance of'improved service if higher tariffs are anticipated. Finally, Scenario 3 results highlight one the Project's key themes, Le., sustainability i s in large part a result o f vastly improved utility management. Therefore, improving management i s equally important during implementation as i s achieving realistic tar i f f levels.

' Modeled as: (i) the lowering post 2010 capacity utilization ratio by 5 percent per year until 60 percent level i s reached; (ii) increasing post 2010 chemical and energy use by 5 percent per year; (iii) holding steady the number of new customers after 2010; (iv) and not permitting a capacity expansion by 20 percent.

47

Table 9.2 Summary Statistics from Financial Models

1 Kaduna 1 Kano Cumulative Average Tariff Increase By Year:

I2010 I 35.00% 72.00%

Ogun

60.00%

% of Installed Capacity Operational at: 20031 ! 57% 1 59%

IProiect end 1 90% I 90% 67% 90%

39% 40% 40% Project end 30% 30%

Water Billed Mm3lyear 12003 I Proiect end

48,435 33,970 20,337 102.302 72.546 38.438

12003 1 73,000 IProiect end 1 96.063

I I

67,0001 24,428 88.1671 30.909

No. of New Customers at Proiect end

48

50.712

Indicative cost per m3 billed (N) 12003 17 !Project end 1 13

29 17 17 15

Annex 10: Safeguard Policy Issues NIGERIA: National Urban Water Sector Reform Project

Potential Long Term Impacts

162. This project falls into Environmental Category B because no adverse long term impacts are anticipated. N o long term adverse impacts were identified in the Environmental and Social Management Framework (ESMF) report.

Project Location and Salient Physical Characteristics Relevant to the Safeguard Analysis

163. The Project i s expected to take place in already built up urban areas o f Kano, Kaduna and Ogun states. For the initial two years o f the Project, no new facilities are expected to be built, there will be no extension o f water networks, and water abstraction and treatment capacity w i l l not be expanded. Thus, the civil works to be carried out in the first two years will be limited to the rehabilitation o f existing infrastructure.

164. After rehabilitation i s complete, there i s the possibility for expanded distribution networks and increased water extraction and treatment. These civil works will take place in built-up urban areas in the three states mentioned above. The exact locations are not known at present.

165. The ESMF report also identified dam safety as potential large impact in the context o f the Project. The Project wi l l not construct any new dams or weirs, but the urban areas in the Project area sometimes take raw water from existing reservoirs. Thus, the report recommends as mitigation measure the “Implementation o f measures in Dam Safety report, especially ensuring that the maintenance budget i s available to owners/operators to undertake preventative and corrective maintenance and early warning/response for emergency situations.”

166. The World Bank project appraisal team includes a dam safety expert. A Dam Safety Report was prepared during March 2004 and disclosed in the World Bank InfoShop and in Nigeria on April 20, 2004.

167. The ESMF report contains an “Analysis o f Alternatives” section, and concludes that the Project as designed adequately addresses the Project’s development objectives while not placing irreversible adverse impacts on the bio-physical and social environment. The report fbrther states that the “do nothing” scenario would worsen the present situation in the proposed Project areas and worsen poverty.

Measures Taken by the Borrower to Address Safeguard Issues

168. Each state participating in the proposed Project will be required to have an Environmental and Social Impact Assessment and, if the World Bank policy on Involuntary Resettlement OP 4.12 i s triggered, Resettlement Plans, for Project activities to be executed in that state. States wil l incorporate mitigation measures and resettlement plans into the design o f civil works and implementation programs before these works are approved and cleared by the Federal Ministry o f the Environment and World Bank.

49

169. In the Federal Ministry o f Water Resources, the Federal Ministry o f Environment and the State Environmental Protection Agencies, adequate capacity exists to implement the measures described above. Capacity in the State Water Authorities will be strengthened under the Project with the addition o f a new position titled “Environment and Social Specialist”. Specialized environmental training will be included in the Project. The Environmental and Social Management Framework report recommends that over US$lOO,OOO be allocated for this training.

50

Annex 11: Project Preparation and Supervision NIGERIA: National Urban Water Sector Reform Project

Planned Actual PCN review 12/05/2000 Initial PID to PIC 121 13/2000 Initial ISDS to PIC 3/25/2002 Appraisal 3/1/2004 3/1/2004

Board approval 5/25/2004 Planned date o f effectiveness Planned date o f mid-term review Planned closing date 9/30/2010

Negotiations 4/5-6/2004 416-812004

91612 0 04 December 2007

Key institutions responsible for preparation o f the project:

Federal Ministry of Water Resources

Bank staff and consultants who worked on the project included:

Name Title Unit Alex McPhail Team Leader AFTU2 Hassan Kida Sanitary Engineer AFTU2 David Henley Sr. Sanitary Engineer AFTU2 (Consultant) Pinki Chaudhuri Sr. Regulatory Specialist AFTU2 (Consultant) Wole Afolabi Financial Analyst AFTU2 (Consultant) Chau-Ching Shen Sr. Finance Officer LOAG2 Ernestina Attafuah Sr. Program Assistant AFTU2 Edward Olowo-Okere Sr. Financial Management Specialist AFTFM Adenike Sherifat Mustafa Financial Management Specialist AFTFM Bay0 Awosemusi Procurement Specialist AFTPC Comfort Ede Program Assistant AFC12 Serigne Omar Fye Sr. Environmental Specialist AFTS 1 Sameena Dost Counsel LEGAF Eric Haythorne Senior Counsel LEGPS Peer Reviewers Alain R. Locussol Lead Water and Sanitation Specialist SASE1 Claudia W. Sadoff Lead Economist ARD Suhail J. S. Jme'An Sr. Financial Analyst MNSIF Fook Chuan Eng Sr. Financial Afialyst AFTU 1 Quality Reviewers &chard Verspyck Lead Water and Sanitation Specialist AFTU2 Bank funds expended to date on project preparation: 12/24/2003 1. Bank resources: $666,194.00 2. Trust fbnds:PPIAF $525,000; PHRD $650,000; PPF $1.5 M; CTF Dutch $20,000; Canadian $25,000. 3. Total: $3,386,194

Estimated Approval and Supervision costs: 1. Estimated annual supervision cost: $100,000

51

Annex 12: Documents in the Project Fi le NIGERIA: National Urban Water Sector Reform Project

A. Project Implementation Manual

B. Bank Staff Assessments

1. Nigeria - Water Supply and Sanitation Interim Strategy Note, October 2000 2. Nigeria States Finances Study 3. Financial Analysis of Kaduna, Kano and Ogun States (Excel fi les)

C. Other

1. PSP Options Studies for each State 2. Mission Aide Memoires 3. Economic analyses for the three Participating States (paper and electronic copies)

52

Annex 13: Statement of Loans and Credits


Original Amount in US$ Millions

Project FY Purpose ID

IBRD IDA SF GEF Cancel.

Difference between expected and actual disbursements

Undisb. Orig. Frm. Rev’d

PO69892 2004

PO71494 2003 PO80295 2003 PO74963 2003

PO72018 2002

PO70291 2002 PO70290 2002

PO69901 2002

PO69086 2001

PO70293 2001

PO66571 2000 PO65301 2000 PO64008 2000

NG LOCAL EMPOWERMENT & ENVIR. MGMT. UNIVERSAL BASIC ED. NG POLIO ERADICATION NG LAGOS URBAN TRANSPORT PROJECT N1GERIA:TRANSMIS SION DEVELOPMENT PROJECT HIV/AIDS PROG. DEV. 2ND HEALTH SYSTEMS DEV. COMMUNITY BASED URBAN DEVELOPMENT

REDUCT. NG PRIVATIZATION SUPPORT PROJECT 2ND PRIMARY EDUC. ECON, MGMT. CAP. BLDG. SMALL TOWNS WATER

C0M.-BASED POV.

0.00 70.00 0.00

0.00 101.00 0.00 0.00 28.70 0.00 0.00 100.00 0.00

0.00 100.00 0.00

0.00 90.30 0.00 0.00 127.01 0.00

0.00 110.00 0.00

0.00 60.00 0.00

0.00 114.29 0.00

0.00 55.00 0.00 0.00 20.00 0.00 0.00 5.00 0.00

Total:

0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00

0.00 0.00 0.00

0.00 72.35 1.37

0.00 106.13 21.87 0.00 18.82 0.16 0.00 108.56 14.88

0.00 104.57 45.63

0.00 95.47 26.49 0.00 142.16 34.62

0.00 124.85 32.85

0.00 55.13 14.71

0.00 116.63 39.49

0.00 41.19 39.71 0.00 8.18 0.02 0.00 3.40 3.08

0.00

0.00 0.00 0.00

12.33

0.00 0.00

0.00

8.71

0.00

24.11 0.00 2.40

0.00 0.00 0.00 0.00 997.44 47.55 981.30 274.88

53

NIGERIA STATEMENT OF IFC’s

Held and Disbursed Portfolio I n Millions o f US Dollars

Committed Disbursed IFC IFC

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

1998 1997 1999

1999 1999 1996 1997 2000

1997 2000

1997 1995 1994 2003 1964/66/70/89 2000 2000 2001 2000 2000 1992193 2000 2000 1981/85/88 1993 200 1

AEF Ansbby AEF Ekesons AEF Global Fabri AEF Hercules AEF Hygeia AEF Mid-East AEF Moorhouse AEF Oha Motors AEF Radmed AEF SafetyCenter AEF Telipoint AEF Vinfesen Abuja Intl Adamac Arewa Textiles CAPE FUND Citibank wig) Delta Contractor Diamond Bank FSB FSDH GTB IBTC Ikeja Hotel Tourist Co Nir UBA

0.10 0.06 0.32

1.30 0.19 0.00 0.79 0.84

0.25 0.50

0.08 1 .oo 1.75 25.00 0.00 0.00 18.28 15.00 14.00 4.50 0.00 18.00 20.00 0.00 0.00 30.00

0.00 0.00 0.00

0.00 0.19 0.00 0.00 0.00

0.00 0.06

0.00 0.00 0.71 0.00 0.00 7.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.25 0.00

0.00 0.00 0.00

0.00 0.00 0.12 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

18.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00

15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.10 0.06 0.32

1.30 0.19 0.00 0.79 0.84

0.25 0.50

0.08 1 .oo 1.75

11.56 0.00 0.00 8.28 0.00

14.00 0.00 0.00

18.00 20.00 0.00 0.00

0.00 0.00 0.00

0.00 0.19 0.00 0.00 0.00

0.00 0.06

0.00 0.00 0.71 0.00 0.00 5.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.25 0.00

0.00 0.00 0.00

0.00 0.00 0.12 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

18.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 6.94 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total portfolio: 8.71 6.61 6.94 151.96 18.12 15.00 79.02 18.12

54

Approvals Pending Commitment

FY Company Loan Equity Quasi Partic. Approval 2002 MTNN 0.08 0.02 0.01 0.00 2002 NTEF- SCB 0.02 0.00 0.00 0.00 2004 UBA Sub-Loan 0.01 0.00 0.00 0.00

Total pending 0.11 0.02 0.01 0.00 commitment:

55

Annex 14: Country at a Glance


1992 (%of GDP) Agriculture 3 0 8 238 3 4 6 3 7 4 Industry 3 3 3 5 8 3 3 5 5 2 8 8

M anufacturing 9 6 4 3 4 2 Services 3 5 8 179 299 3 3 8

Private consumption 6 9 9 581 4 5 5 5 5 4 General government consumption 6 1 184 3 0 0 2 7 2 Imports of goodsandservices 2 2 3 405 3 9 9 4 3 6

POVERTY and S O C I A L

2002

GNI percapita (Atlas method, US$)

Niger ia

02.8 290 38.7

Po pulat io n , mid- year (millio ns)

GNI (Atlas method, US$ billions)

Average annual growth, 1996-02

Population (Yd 2.5 Laborforce (M 2.6

M o s t recent es t imate ( la tes t year avai lable, 1996-02)

Poverty (%of population below national poverly line) Urban population (%of totalpopulation) 46

109 31 62

Lfe expectancyat birth (years) 45 Infant mortality (per 1000 live birlhs)

liliteracy(%ofpopulation age 6+) 33 Gross primaryenrollment (%ofschool-age population) 82

Child malnutritio n (%of children under5) Access to an improvedwatersource (%OfpOpUlatfOn)

Male 89 Female 74

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1982 1992

GDP (US$ billions) 49.7 32.7 Gross domestic investmentlGDP .. 218 Exports of goodsandserviceslGDP 6 . 3 42.2 Gross domestic savings/GDP l4.0 23.5 Gross national savings/GDP 11.4 16.9

Current account balancelGDP -0.5 -4.0 Interest payments/GDP 1.7 5.6 Total debtlGDP 24.1 88.7 Total debt servicelexports 6.1 30.9 Present valueof debtlGDP Present valueof debtlexports

1982-92 1992-02 2001 (average annual gro wth) GDP 4.2 2.3 2.9 GDP percapita 1.2 0 . 4 0.6

G r o w t h o f i n v e s t m e n t and GDP (%)

40

20

-20 1 97 ga 99 00 01 02

.,..<sz+.,GDI -GDp -

Sub- Saharan Low-

Afr ica income

688 450 306

2.4 2.5

33 46 105

58 37 88 92 80

2001

42.5 20.1 44.4 24.5 22.9

2.8 4.6

73.2 19.0

72.6 160.6

2 495 430

1,072

19 2 3

30 59 81

76 37 95 103 87

2002

43 4 23 3 37 7 774 l48

-8 5

69 4 181

2002 2002-06

-0.9 3.5 -3.1 0.5

Deve lopment d iamond*

Life expectancy

T

Gross I primary enrollment

i

Access to improved watersource

E c o n o m i c ra t ios*

Trade

Indebtedness

x.....- Nigeria I - Low-incomegroup

(average annual gro wth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goodsandservices

Manufacturing

1982-92 1992-02 1 G r o w t h o f expor ts and impor ts (%) 1 4 8 3 8 3 8 5 3 2 4 0 8 15 -4 8 2 8 13 3 8 6 0 2 4 3 2 -4 3

-18 -20 - I 2 5 7 2

zo

10

0

- 10 -10 105 2 2 6 6 0 3 2 0 5

-89 6 5

56

Nigeria P R I C E S and GOVERNMENT FINANCE

Domest ic prices (%change) Consumer prices 7 7

1982

Implicit GDP deflator 2.6

Government finance (%ofGDP, includes current grants) Current revenue Current budget balance Overall surDlus/deficit

T R A D E

(US% millions) Totalexports (fob)

Crude petroleum Liquefied natural gas Manufactures

Total imports (cif) Food Fuelandenergy Capital goods

Export price index (1995=X)O) Import price index(S95=DO) Terms of trade (S95=00)

BALANCE o f P A Y M E N T S

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

7.8

1982

12,154 11,888

17,730 2,890

186 63

293

1982

12,607 a , 2 0 -4,602

-1,661

Current account balance -6,693

Financing items (net) Changes in net reserves

4,326 2,367

Memo: Reserves including gold (US% millions) 1,639 Conversion rate (DEC, loca//US%) 10

EXTERNAL DEBT and RESOURCE FLOWS

(US% millions) Total debt outstanding and disbursed

1982

11,972 IBRD 674 IDA 37

Total debt service IBRD IDA

Composition of net resource flows Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments

2,087 85

1

169 2,417

0

x)O 144 33

1992

44.6 83.6

35.1 16.7

1992

11,886 11,642

36 9,842

807

1x) 89 123

1992

12,034 11,539

495

-2,569 776

-1,298

-7 a 2.015

2,135 19.0

1992

29,019 3,174

80

3,750 555

1

198 -1,542

714 0

58 1 296 295

2 0 0 1

189 7 8

46 9 7 1

-3 3

2 0 0 1

17,949 16,574

708 88

13,619 1,790 2,717

148 85

175

2 0 0 1

18,943 17,041 1,902

-2,482 1,773

1193

-170 -1,023

xl.423 111 6

2 0 0 1

31119 1,337

621

3,659 285

13

-1,464 -184

1,796 0

305 27

215

2002

12.9 11.6

40.2 2.9

-5.8

2002

14,912 13,306

886 89

14,752 1,917

3,470

152 84 181

2 0 0 2

15,932

-2,523

-2,956 1,8Q

-3,667

18,455

676 2,991

7,233 121.0

2002

30,116 1,275 676

2,933 251

16

1,950

438 20 189

Inflation (%) I

Export and import levels (US$ mill.)

I I

I a Exports Inports O1 O2 I 96 97 98 99 W

Current account balance to GDP (%)

T

15

Composit ion o f 2 0 0 2 debt (US$ mill.)

A: 1,275 G 1723 8 : 676

E: 22,446

A - IBRD E- Bilateral B - IDA D - Other multilateral F - Rivate C - I M F G - SDrt-term

57

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World Bank Documentdocuments.worldbank.org/curated/en/671971468775546701/pdf/27776.… · Document...

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Transcript of World Bank Documentdocuments.worldbank.org/curated/en/671971468775546701/pdf/27776.… · Document...