Document of The World Bank Report No: 84214-BT PROJECT ...documents.worldbank.org/curated/en/... ·...

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 84214-BT

PROJECT PAPER

ON A

PROPOSED ADDITIONAL CREDIT AND RESTRUCTURING

IN THE AMOUNT OF SDR11.3 MILLION (US$17.4 MILLION EQUIVALENT)

TO THE

KINGDOM OF BHUTAN

FOR A

SECOND URBAN DEVELOPMENT PROJECT

April 28, 2014

Sustainable Development Department Urban, Water Supply & Sanitation Unit, South Asia Region

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

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CURRENCY EQUIVALENTS

(Exchange Rate Effective February 28, 2014) Currency Unit = BTN (Bhutan Ngultrum)

US$1.00 = BTN61.67 BTN1.00 = US$0.016 SDR1 = US$1.5474

FISCAL YEAR July 1 - June 30

ABBREVIATIONS AND ACRONYMS

AF Additional Financing BTN Bhutanese Ngultrum CPS Country Partnership Strategy DA Designated Accounts DC Direct Contracting DPA Department of Public Accounts ERR Economic Rate of Return FRR Financial Rate of Return FIC Financing Item Code IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IDA International Development Association IUFR Interim Unaudited Financial Report LAP Local Area Plan MoWHS Ministry of Works and Human Settlement M&E Monitoring & Evaluation MTR Mid-Term Review NCB National Competitive Bidding O&M Operations and Maintenance OP/BP Operational Procedure/Bank Policy ORAF Operational Risk Assessment Framework PDO Project Development Objective PPA Project Preparation Advance PPD Policy and Planning Division (of MoWHS) RAA Royal Audit Authority RAP Resettlement Action Plan RGoB Royal Government of Bhutan SA Social Assessment SDR Special Drawing Rights TT Thimphu Thromde (Municipality) UDP2 Second Urban Development Project

Regional Vice President: Philippe H. Le Houerou

Country Director: Robert J. Saum Sector Director: John Henry Stein Sector Manager: Ming Zhang

Task Team Leader: Shenhua Wang/Zahed H. Khan

iii

KINGDOM OF BHUTAN

ADDITIONAL FINANCING FOR THE SECOND URBAN DEVELOPMENT PROJECT

CONTENTS

I. Introduction ...................................................................................................................... 1

II. Background and Rationale for Additional Financing................................................... 1

III. Proposed Changes and Description of Additional Financing ...................................... 3

IV. Project Cost and Financing plan ..................................................................................... 4

V. Expected benefits .............................................................................................................. 4

VI. Risks ................................................................................................................................... 4

VII. Appraisal Summary ......................................................................................................... 5

Annex 1: Results Framework And Monitoring..................................................................... 7

Annex 2: Operational Risk Assessment Framework (ORAF) ........................................... 13

Annex 3. Detailed Project Description ................................................................................. 16

Annex 4: Financial and Procurement Management ........................................................... 20

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KINGDOM OF BHUTAN

ADDITIONAL FINANCING FOR THE SECOND URBAN DEVELOPMENT PROJECT

ADDITIONAL FINANCING PROJECT DATA SHEET

Basic Information - Additional Financing (AF) Date: April 28, 2014 Country Director: Robert J. Saum Sector Manager/Director: Ming Zhang/John Henry Stein Team Leader: Shenhua Wang/Zahed H. Khan Project ID: P145392 Expected Effectiveness Date: August 25, 2014 Lending Instrument: Investment Project Financing Additional Financing Type: Scale-up

Sectors: Urban Development (100%) Themes: Access to urban services and housing (50%); Municipal governance and institution building (25%); Other urban development (25%) Environmental Category: B – Partial Assessment Expected Closing Date: June 30, 2019 Joint IFC: No Joint Level: N/A

Basic Information - Original Project Project ID: P090157 Environmental Category: B Project Name: Bhutan Second Urban Development Project Joint Level: N/A Lending Instrument: Specific Investment Loan Project Financing: IDA

Expected Closing Date: December 31, 2015 Joint IFC: No Fragility or Capacity Constraints [ X ] Financial Intermediary [ X ] Series of Projects [ X ]

AF Project Financing Data [ ] Loan [ X ] Credit [ ] Grant [ ] Guarantee [ ] Other:

Total IDA financing (US$):17.4 million for Additional Financing (Original US$12.0 million) Proposed terms: 25 years maturity including 5 years grace.

AF Project Financing Plan (US$m) Source Total Amount (US$m)

Total Project Cost: Borrower/Recipient:

IDA Credit:

17.55 0.15 17.40

Client Information Recipient: Kingdom of Bhutan Responsible Agency: Ministry of Works and Human Settlements (MoWHS) and Thimphu Thromde (TT) Implementing Agency: MoWHS and TT

Additional Financing Project: Estimated Disbursements (Bank FY/US$m) FY 2015 2016 2017 2018 2019 Annual 1 2 4 6 4.4 Cumulative 1 3 7 13 17.4

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Project Development Objective and Description

Original Project Development Objective (PDO) for UDP2 was to: (i) support Bhutan’s municipal reform program by strengthening municipal finance and management systems in Thimphu and Phuentsholing; and (ii) improve infrastructure services in northern Thimphu where no formal services are currently available. Revised Project Development Objective (for Additional Financing Project): The revised PDO is to: (i) strengthen municipal finance and management systems in selected Thromdes; (ii) improve infrastructure services in Thimphu; and (iii) support implementation of the urbanization policies under the Recipient’s Eleventh Five Year Plan.

Project Description: There are no changes to the three original Project Components of UDP2, but additional activities are proposed under each component. The new activities focus on: (i) extension of municipal finance and management system reforms additional Thromdes; (ii) construction of infrastructure services in Lower Taba Local Area Plan (LAP) and a water supply scheme to serve Thimphu; and (iii) support the implementation of the urbanization policies under the Recipient’s Eleventh Five Year Plan.

Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)

[ x ]Yes [ ] No [ x ]Yes [ ] No [ ]Yes [ x ] No [ ]Yes [ x ] No [ x ]Yes [ ] No [ ]Yes [ x ] No [ x ]Yes [ ] No [ ]Yes [ x ] No [ x ]Yes [ ] No [ ]Yes [ x ] No

Is approval of any policy waiver sought from the Board (or MD if RETF operation is RVP approved)? Has this been endorsed by Bank Management? Does the project require any exception to Bank policy? Has this been approved by Bank Management?

[ ]Yes [ x ] No [ ]Yes [ ] No [ ]Yes [ x ] No [ ]Yes [ ] No

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I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional IDA Credit in an amount of SDR11.3 million (equivalent to US$17.4 million) to the Kingdom of Bhutan for the Second Urban Development Project - UDP2 (Cr. 4744-BT). The proposed Additional Financing (AF) would scale up the development effectiveness of the original project. This Project Paper also seeks approval for: (a) modifying the PDO of the original project to better reflect the scope of AF activities; (b) adjusting the project indicators to reflect World Bank core urban sector indicators for the proposed additional activities; (c) (c) triggering two additional safeguard policies (Natural Habitats and Physical Cultural resources); and (d) extend the closing date of the original project from December 31, 2015 to June 30, 2019. II. Background and Rationale for Additional Financing Project Data and Performance 2. The original IDA Credit of SDR7.75 million (US$12.0 million equivalent) for the Second Urban Development Project (UDP2) was approved on April 29, 2010 and became effective on August 24, 2010. The original Project Development Objective was to: (a) support Bhutan’s municipal reform program by strengthening municipal management systems in Thimphu and Phuentsholing; and (b) improve infrastructure services in northern Thimphu where no formal services are currently available. 3. The Mid-Term Review (MTR) of UDP2 carried out in May 2013 confirmed that the PDO remains relevant. Despite initial delays, the project is progressing well, with 60% of the Credit disbursed and remaining 40% fully committed. Progress under each component is summarized below: Component 1: Municipal Finance and Management. There has been steady progress in this component. The assignment for the Digitalization of Tax and non-Tax Records and Asset Register has been completed. Terms of References for the two remaining consultancy services for Local Revenue Policy and Administration and Strengthening Municipal Financial Management have been finalized and procurement is underway. Component 2: Thimphu Northern Area Development. Works under civil works Package 1 for Dechencholing LAP have been completed and handed over to Thimphu Thromde (TT). Works for treatment plants in Package 2 have been completed and the treatment plants are currently being commissioned. Detailed designs and cost estimates of civil works under Package 3 in Langjophakha LAP have been finalized. Procurement is underway. Component 3: Capacity Building. Several training courses have been conducted under this component with good feedback. As per Ministry of Finance’s advice, half of the credit allocation under this component has been reserved for possible cost overruns in civil works. 4. Project implementation has been in line with IDA fiduciary and safeguards policies. There are no outstanding audits, and no substantial audit qualifications. 5. Key lessons from the original project have been applied to the new AF operation. Improvements achieved under the original project can be attributed to a combination of

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factors, in particular: (a) enhanced implementation support, with appointment of technical staff and recruitment of consultancy services, as well as increased implementation support from the World Bank offices in the region; (b) improved environmental management and RAP implementation; and (c) upgraded financial management system and internal audit functions. Rationale for Additional Financing 6. Social and economic transition in Bhutan is continuing to foster rapid urbanization. Thimphu, the capital city, continues to experience rapid development fueled by migration. Its growth rate is reported to be between 5% and 9% per annum compared to the annual population growth rate of 1% to 2% in the country. The estimated population of Thimphu in 2010 was nearly 90,0001, almost four times the size of the second largest city, Phuentsholing. By 2027, Thimphu’s population is projected2 to reach about 150,000. This continuing population increase is exerting huge demand for housing and infrastructure services in Thimphu. 7. The Royal Government of Bhutan (RGoB) has emphasized the importance of strengthening institutional systems and processes for municipal financial management in its Municipal Finance Policy, which was approved in 2013. The Eleventh Five Year Plan also lays out RGoB’s objectives to enable Thromdes (municipalities) to be financially sustainable and independent. During the UDP2 Mid-Term Review, the RGoB called for the application of institutional systems and strengthening municipal financial management, as introduced in Thimphu and Phuentsholing, to additional Thromdes such as Gelephu and Samdrup Jongkhar. At the national and local level, technical support is needed to effectively implement the urbanization policies under the Recipient’s Eleventh Five Year Plan. 8. The AF will support scaling up on-going activities and to enhance the development impact of UDP2. The AF activities are consistent with, and support the achievement of key outcomes of the World Bank Group’s Country Partnership Strategy (CPS) for FY 2011-2014 for the Kingdom of Bhutan (Report No.: 56577-BT, November 30, 2010). Specifically, the AF aligns with the CPS Area of Engagement B, provide services to populations in rural and expanding urban areas that lack them while addressing emerging social challenges, which is closely aligned with RGoB’s objective of increasing the availability of quality services throughout the country. It will address demands posed by RGoB’s long-standing commitment to increase access to essential services, including roads, water supply, drainage, sewerage and other basic services to areas that lack them, given the challenges posed by shifting demographics, particularly rapid urbanization, and rising public expectations. The AF will also support one of the two cross-cutting themes of the CPS, capacity building for good governance, through strengthening municipal financial management and activities that would complement and support the Ministries and Thromdes in achieving their urbanization policies.

1 The population of Thimphu district in 2010 was 104,200. Populations of cities and towns in 2010 have been estimated by the author by assuming that, over the period 2005-2010, a city/town’s population grew at the same rate as the district in which it is located. 2 Population estimates from the 2008 report by Cities Alliance on “Thimphu City Development Strategy”.

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III. Proposed Changes and Description of Additional Financing 9. Project Development Objective (PDO). The PDO of the Additional Financing has been modified from that of the original project to better reflect the scope of the AF activities. The revised PDO for the AF is to: (a) strengthen the municipal finance and management systems in selected Thromdes; (b) improve infrastructure services in Thimphu; and (c) support implementation of the urbanization policies under the Recipient’s Eleventh Five Year Plan. 10. PDO-level Indicators. The PDO-level indicators for the AF reflect changes in the wording of two Bank core urban sector indicators and the expansion of the project to additional project cities under the Municipal Finance and Management component. The revised PDO-level indicators are listed below, and the Results Framework is attached in Annex 1: (a) Percentage increase in property tax revenue (land tax and urban house tax); (b) Number of building permits issued for serviced plots in Local Area Plans; (c) New piped household water connections resulting from the project intervention (number); (d) New household sewer connections constructed under the project (number); and (e) Number of plans that incorporate the urbanization policies (number). 11. Project Components. A summary description of project components is provided below: Component 1: Municipal Finance and Management (US$0.7 million). Municipal finance and management improvements introduced in Thimphu and Phuentsoling Thromdes under UDP2 will be extended to two additional Thromdes - Gelephu and Samdrup Jongkhar. Project support will include: (a) asset registration and digitization; and (b) accounting and re-engineered business processes. Component 2: Thimphu Northern Area Development (US$15.90 million). AF activities under this component will include two sub-components: (a) Infrastructure Improvements in Lower Taba Local Area Plan (LAP), including improvement of roads, drainage, water supply network and service reservoir, sewage collection networks and treatment plant, street lighting and cable ducts for power and telephone services; and (b) Water Supply Scheme for Thimphu with a capacity of 7,500 m3/day in the first phase. Component 3: Policy Implementation Support (US$0.8 million). The AF will support the implementation of the urbanization policies under the Eleventh Five Year Plan. This will include: (a) development and implementation of a human settlements strategy; (b) development of a planning act and a set of planning standards; and (c) the application of traditional Bhutanese architectural guidelines and incremental operating costs. As requested by the RGoB, trainings and capacity building activities would be complemented by the RGoB annual budget and possible Trust Funds. 12. Closing date. The closing date for the additional financing is proposed to be June 30, 2019. It is also proposed to concurrently extend the closing date of the on-going project from December 31, 2015 to June 30, 2019 to enable completion of all project related activities.

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IV. Project Cost and Financing plan 13. The total cost of the AF is estimated at US$17.55million (including contingencies), as summarized below. Detailed project costs are provided in Annex 3. RGoB will finance US$0.15 million on resettlement-related compensation payments as per the project Resettlement Action Plan (RAP).

Table 1: Project Cost and Financing (US$ million)

Component Cost UDP2

Original Cost AF Project

Cost Revised Total

Cost 1. Municipal Finance and Management 1.50 0.70 2.20 2. Thimphu Northern Area Development 10.00 16.05 26.05 3. Policy implementation support 1.20 0.80 2.00 Total Cost 12.70 17.55 30.25 IDA Financing 12.00 17.40 29.40

Table 2: Financing Plan for AF

(US$ million)

Component IDA RGoB Total

1. Municipal Finance And Management 0.70 0.00 0.70 2. Thimphu Northern Area Development 15.90 0.15 16.05 3. Policy implementation support 0.80 0.00 0.80

Total Financing required 17.40 0.15 17.55

V. Expected Benefits 14. The Additional Financing will scale up activities to enhance the development impact of UDP2. The expected benefits of AF are approximately 10 percentage increases in property taxes in the Thromdes of Gelephu and Samdrup Jongkhar. An estimated 20,850 households will have access to piped water supply. In addition, institutional strengthening benefits are also expected to accrue as a result of project interventions. VI. Risks 15. The table below summarizes the implementation risks of the project. The operational risk assessment (ORAF) is presented in Annex 2.

Table 3: Summary Risk Rating

Risk Rating Stakeholder Risk Moderate Implementing Agency Risk (including Fiduciary) - Capacity Moderate - Governance Low

Project Risk

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Risk Rating - Design Low - Social and Environmental Moderate - Delivery Monitoring and Sustainability Moderate

Overall Implementation Risk Moderate 16. The overall implementation risk of the AF is rated moderate. The AF activities will be implemented by the same agencies that have been implementing the on-going project in a satisfactory manner. Appropriate risk management measures have been undertaken or are included in the project design, in particular: TT has been strengthened with the appointment of a Project Director for the AF and

the assignment of two additional project engineers to work full-time on the project. In addition, four technicians will be assigned to work on project sites.

Independent consultants will be recruited to support project implementation and contract management.

Enhanced implementation support including technical, procurement and contract management will be provided from Bank regional offices.

VII. Appraisal Summary 17. Economic analysis. A Cost-benefit analysis was conducted in the economic assessment of the Lower Taba LAP integrated infrastructure and service improvement, and the water supply scheme in Thimphu respectively. Infrastructure service improvements in Lower Taba LAP are estimated to yield and economic rate of return (ERR) of 25 percent, based on the methodology used in UDP2. The water supply scheme is estimated to achieve an ERR of 24 percent due to increased water tariff revenue and health benefits. Both these project investments are economically justified. Sensitivity analysis under the assumptions of a 10% increase in total cost and a 10% decrease in total benefits, provide ERRs of 20% for investments in Lower Taba LAP and 19% for the water supply investment in Thimphu. 18. Financial Analysis. The financial rate of return (FRR) of the Thimphu water supply investment is estimated to be 14%, and the investment is financially justified. Sensitivity analysis under the assumptions of a 10% increase in total cost and a 10% decrease in total revenue, result in an acceptable FRR of 11%. 19. Technical. The AF is based on the same overall design principles of UDP2, and the same technical design parameters that apply to UDP2 investments will be applicable to AF investments. Following analysis of alternatives, least cost solutions have been applied in Lower Taba LAP and for the central water supply scheme. 20. Financial Management. Existing financial management arrangements for UDP2, which are functioning satisfactorily, will be used for AF implementation. Details are in Annex 4. 21. Procurement. Procurement for the AF will be carried out in accordance with the World Bank "Guidelines: Procurement of Goods, Works and Non-consulting Services under IBRD Loans and IDA Credits" dated January 2011; "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers"

6

dated January 2011; as well as the provisions stipulated in the Financing Agreement. Details are in Annex 4. 22. Environmental safeguards. The AF will use the Country Systems for environmental safeguards, which is being done in the original project. It is designated as environmental ‘Category B’, which is the same as that of the original project. Environmental safeguard policies on Natural Habitats (OP/BP 4.04) and Physical Cultural Resources (OP/BP 4.11) have been triggered as a precautionary measure. The International Waterways Policy (OP 7.50) was also triggered under the AF. In accordance with OP 7.50, the process of notifying riparian countries (India and Bangladesh) on the proposed project completed on February 28, 2014. A response from the Government of India dated February 28, 2014 states that it has no objection to the proposed project. The other riparian country, Bangladesh, has not responded to the notification. Following this, the Regional Vice President approved the Results of Riparian Notification and authorized the team to proceed with the processing of the AF on March 25, 2014. The Environmental Impact Assessments of sub-projects will be cleared by National Environment Commission and the Bank before any physical work commences. 23. Social safeguards. The safeguard framework of UDP2 is applicable for the AF. Social Assessment (SA) and Resettlement Action Plan (RAP) have been prepared for the AF. The SA covers Components 2(a) and 2(b) while the RAP has been prepared for the Lower Taba LAP, where about 95 percent of affected land owners have already signed the land pooling agreement, thus fulfilling the requirement of the law. Remaining land owners, who have legally acceptable justification, have agreed to pay a betterment charge as an alternative to participating in land pooling. The SA and RAP are in compliance with Bank requirements and were disclosed in the MoWHS website on 13 February 2014. 24. Monitoring and Evaluation (M&E). The M&E system for the AF will be the same as that established for UDP2. The Policy and Planning Division (PPD) of MoWHS will continue to prepare bi-annual monitoring reports to be sent to the Bank, that reflect progress on components managed by both PPD and TT.

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Annex 1: Results Framework And Monitoring

REVISIONS TO THE RESULTS FRAMEWORK

Bhutan: AF for Second Urban Development Project

Revisions to the Results Framework Comments/ Rationale for Change Current (PAD) Revisions

PDO The current PDO is to: (a) support Bhutan’s municipal reform program by strengthening municipal finance and management systems in Thimphu and Phuentsholing; and (b) improve infrastructure services in northern Thimphu where no formal services are currently available.

The revised PDO is to: (a) strengthen the municipal finance and management systems in selected Thromdes; (b) improve infrastructure services in Thimphu; and (c) support implementation of the urbanization policies under the Recipient’s Eleventh Five Year Plan.

The proposed change is to better reflect the scope of AF activities

PDO indicators Percentage increase in property tax revenue (land tax and urban house tax): - Thimphu, - Phuensholing, - Gelephu - Samdrup Jongkhar

Revised Gelephu and Samdrup Jongkhar are added to reflect the impact of the AF.

Number of building permits issued for serviced plots in Local Area Plans: - Denchencholing - Langjiophaka - Lower Taba

Revised Revised to reflect the impact of the AF.

8


New piped household water connections resulting from the project intervention. - Dechencholing - Langjophakha - Lower Taba LAP - Entire Thimphu

Revised

Revised to account for the number of households with new piped water connections. UDP2 had both water and sewer combined.

New household sewer connections constructed under the project: - Dechencholing - Langjophakha - Lower Taba LAP

New Revised to account for the number of households with new sewer connections. UDP2 had both water and sewer combined.

Number of plans that incorporate the urbanization policies. New Measures delivery of physical output of Component 3 funded by AF.

Intermediate Level Indicators Number of property tax records computerized - Thimphu - Phuentsholing - Gelephu - Samdrup Jongkhar

Continued, with adjusted project targets. Revised to reflect the impact of the AF.

Number of newly serviced plots - Dechencholing - Langjophakha - Lower Taba LAP

New Added to take into account and separate the pre-existing infrastructure in the project areas.

9


Kilometers of new internal roads constructed - Dechencholing - Langjophakha - Lower Taba LAP

Continued, with adjusted project targets Revised to reflect the impact of the AF.

Kilometers of water pipelines constructed - Dechencholing - Langjophakha - Lower Taba LAP

New Added to reflect the impact of the AF.

Kilometers of sewage pipelines constructed - Dechencholing - Langjophakha - Lower Taba LAP


Number of National, Dzongkhag, and Municipal officials that have built competencies in applying Bhutanese architectural guidelines


10

RESULTS FRAMEWORK AND MONITORING

Results Indicators Unit of

Measure

Baseline April 29, 2010

Cumulative Target Values Data Collection and Reporting

2011

2012

2013

2014

2015

2016

2017

2018

June 30,

2019

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PDO-Level Results Indicators 1. Percentage increase in

property tax revenue (land tax and urban house tax):

a) Thimphu b) Phuensholing c) Gelephu (2013) d) Samdrup Jongkhar

Percentage a) 7.52

b) 2.08 c) 6.7 d) 1.11

a) 50 b) 40 c) Nil d) Nil

c) 10 d) 10

Annually starting from MTR

Local Revenue Database, Project Progress Reports

Thromde Finance Dept.

2. Number of building permits issued for serviced plots in Local Area Plans:

a) Denchencholing b) Langjiophaka c) Lower Taba

Number

a) 30 b) 45 c) 29

a) 40 b) 55

a) 75 b) 65

a) 100 b) 75 c) 100

a) 160 b) 100 c) 170

Annually

Progress Reports

TT

3. New piped household water connections that are resulting from the project intervention.

a) Denchencholing b) Langjiophaka c) Lower Taba LAP d) Entire Thimphu

Number a) 0 b) 0 c) 0 d) 20,000

a) 100 b) 0 c) 0 d) 20,100

a) 200 b) 250 c) 0 d) 20,450

a) 250 b) 350 c) 0 d) 20,600

c) 250 d) 21,200

At Baseline, MTR and end of project

Household Survey (baseline) and TT Water unit database (MTR and end of project)

TT Water unit

4. New household sewer connections constructed under the project:

a) Denchencholing b) Langjiophaka c) Lower Taba LAP

Number a) 0 b) 0 c) 0

a) 100 b) 0 c) 0

a) 200 b) 250 c) 0

a) 250 b) 350 c) 100

c) 350

At Baseline, MTR and end of project

Household Survey (baseline) and TT

TT

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Measure



2011

2012

2013

2014

2015

2016

2017

2018

June 30,

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5. Number of plans that incorporate urbanization policies

Number 0 2 5 Annually Project Progress Reports and end of project

MoWHS

Intermediate Level Indicators 6. Number of property

tax records computerized:

a) Thimphu, b) Phuensholing, c) Gelephu d) Samdrup Jongkhar

Number a) 0 b) 0 c) 0 d) 0

a) 4,000 b) 1,000 c) Nil d) Nil

a) 4,500 b) 1,500 c) Nil d) Nil

a) 5,000 b) 2,000 c) Nil d) Nil

c) 1,000 d) 1,500


Tax Database, Project Progress Reports

GT and SJT Finance Dept.

7. Number of newly serviced plots

a) Denchencholing b) Langjiophaka c) Lower Taba

Number a) 0 b) 0 c) 0

a) 179 b) 121 c) 0

a) 179 b) 121 c) 0

a) 179 b) 121 c) 0

c) 100

Annually

Project Progress Reports

TT

8. Kilometers of internal roads constructed


Kilometers a) 0 b) 0 c) 0

a) 6.3 b) 0 c) 0

a) 6.3 b) 5.8 c) 0

a) 6.3 b) 5.8 c) 1.00

c) 8.34


Project Progress Reports and end of project

TT Engineering Dept.

9. Kilometers of water pipelines constructed

a) Denchencholing b) Langjiophaka c) Lower Taba LAP d) Water tank

Kilometers a) 0 b) 0 c) 0 d) 0

a) 0 b) 0 c) 0 d) 0

a) 0 b) 0 c) 0 d) 0

a) 5 b) 4 c) 1 d) 0

c) 11.7 d) 1




10. Kilometers of sewage pipelines constructed


Kilometers a) 0 b) 0 c) 0

a) 0 b) 0 c) 0

a) 0 b) 0 c) 0

a) 5 b) 4 c) 2

c) 10.32




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Measure



2011

2012

2013

2014

2015

2016

2017

2018

June 30,

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11. Number of national, dzongkhag, and municipal officials that received capacity building in applying Bhutanese architectural guidelines

Number 0 80 Annually MoWHS records

MoWHS

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Annex 2: Operational Risk Assessment Framework (ORAF)


Project Stakeholder Risks

Stakeholder Risk Rating Moderate

Description: Risk Management:

Stakeholders have been supportive of UDP2 and Government has requested this AF to scale-up the impact of UDP2. TT has already prepared a Social Assessment (SA) and the Resentment Action Plan (RAP) for Lower Taba based on thorough field investigations, consultations with affected persons and relevant stakeholders. TT could still encounter resistance towards the land-pooling approach from some affected landowners.

Based on the experience of UDP2, pro-active consultations will be continued with the affected persons.

Resp: Stage: Recurrent: Due Date: Frequency: Status:

Bank & TT

Implementation On-going

Implementing Agency (IA) Risks (including Fiduciary Risks)

Capacity Rating Moderate


TT has demonstrated the capacity to manage UDP2 in a satisfactory manner. However, the significant expansion of the project through the proposed AF could stretch TT capacity.

A Project Director and two additional project engineers have been appointed for the AF. Four technical staff will be recruited for construction supervision and project management. Bank implementation support missions and Bank Regional Office will continue to review implementation capacity and will provide guidance and support, as necessary.


Client & Bank

Implementation Ongoing

Governance Rating Low


A governance structure is in place for UDP2 and is functioning well. The same governance arrangements will apply to the AF.

(i) Project management technical assistance will be provided to reduce governance risks. Bank will continue oversight of procurement through close monitoring and mandatory reviews. (ii) TT’s will be supported by procurement consultants.


TT & Bank

Implementation Not yet

due

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Project Risks

Design Rating Low


The AF is based on the same overall design principles of UDP2, and the same technical design parameters that apply to UDP2 investments will be applicable to AF investments.

Technical assistance is included to ensure good quality technical designs. Bank implementation support missions will confirm the adequacy of designs and provide guidance, as required.


TT and Bank

Implementation

Ongoing

Social and Environmental Rating Moderate


Bank safeguard requirements have been complied with under UDP2. A household survey has been completed for the AF, and the Environmental Impact Assessment and SA reports, as well as a RAP have been prepared conforming to Bank requirements.

Bank will ensure that environmental impacts related to the water pipelines, in a protected area, are mitigated. TT will seek the approval of the National Environment Commission before implementation. The RAP will be implemented fully before contract bidding for civil works construction. Bank implementation support missions will monitor implementation of the RAP through site visits, discussions, and review of reports.


RGoB & TT and Bank

Implementation Not yet

due

4.4. Delivery Monitoring and Sustainability

Rating Moderate


The track record of UDP2 on delivery quality and M&E reporting has been satisfactory. Sustainability will depend on satisfactory implementation of required tariff increases for water supply, adequate arrangements for Operations and Maintenance (O&M), and introduction of property taxes to boost TT revenues.

Project management consultants will be recruited to provide quality control and oversight of implementation. TT will seek adequate funding from RGoB to carry out O&M. TT will be encouraged to implement necessary tariff increases to improve TT’s cost recovery performance for water supply and sewerage services. The project includes measures to increase TT revenue through the development of an improved land valuation system for the introduction of a modern property tax system to boost revenues of TT. Bank implementation support missions will monitor the effectiveness of the arrangements for delivery monitoring, M&E, and sustainability, through inter alia, site visits, review of progress reports and consultant study reports, as well as discussions with Government and TT officials.

Resp: Stage: Recurrent: Due Date:

Frequency: Status:

TT& RGoB, as well as Bank

Implementation

Not due yet

15

Overall Risk - Moderate

Comments: Based on the track record of UDP2 implementation and risk management measures built into this operation, the overall risk of the AF is rated moderate.

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Annex 3. Detailed Project Description


I. PROJECT DESCRIPTION 1. Project Development Objective. The PDO for the AF Project is to: (a) strengthen the municipal finance and management systems in selected Thromdes; (b) improve infrastructure services in Thimphu; and (c) support implementation of the urbanization policies under the Recipient’s Eleventh Five Year Plan. 2. Issues addressed under the proposed AF are described below.

(a) Inadequate Urban Policy Development Framework and Capacity. RGoB recognizes the urgent need to formulate and adopt a national planning framework, and develop strategies to manage rapid urbanization in the country.

(b)Weak Municipal Finance and Financial Management. Municipal finance management

reforms introduced in Thimphu and Phuentsholing Thromdes under UDP2 will need to be mainstreamed to additional thromdes to strengthen institutional systems and processes to enable them to function effectively as efficient, transparent, accountable, and financially sustainable urban local governments.

(c) Lack of Infrastructure Services to Accommodate Growth in Thimphu. Building

construction has already commenced in Lower Taba before installation of infrastructure; nearly half of Lower Taba is now developed. TT is under considerable pressure from plot owners to provide basic facilities such as roads, drainage, water supply, wastewater, and street lighting in Lower Taba LAP.

(d)Insufficient Water Supply in Thimphu City. Thimphu city currently has no integrated

water supply system. Two water treatment plants in the west of the city provide water to about a third of the city area, where parts of the service area suffer from low pressures and intermittent supply of about eight hours per day. Water supply and wastewater services in LAPs developed by TT are designed with individual local water supply and sewerage systems, which are inefficient and costly. In addition, parts of Thimphu city have a number of private community water supply systems with unsatisfactory water quality. Provision of a central water supply system to complement the two existing service areas as a safe integrated city scale water supply system is an urgent necessity for TT. A feasibility study has identified a source for a central water supply system adequate to meet the city’s demand for about 30 years.

(e) Weak Resource Mobilization Capacity in Thimphu Thromde. Thimphu Thromde’s

financial management capacity is inadequate and it still depends on fiscal transfers from RGoB. Resource mobilization through land and property taxation is a priority for Thimphu Thromde to strengthen its finances and reduce its dependence on transfers from RGoB.

3. Project Components Component 1: Municipal Finance and Management (US$0.7 million)

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Additional financing to this UDP2 component aims to strengthen institutional systems and processes to allow the selected Thromdes to function effectively as efficient, transparent, accountable, and financially sustainable urban local governments. Project support will extend the financial management systems introduced under UDP2 to the two new AF Thromdes - Gelephu and Samdrup Jongkhar - and will cover two broad areas: (a) Asset registration and digitization. The AF would finance local asset registration and digitization (consulting services, software and hardware). The database in each Thromde will be linked to on-going efforts of RGoB to modernize land records and update land valuation. (b) Accounting and re-engineered business processes. The AF would support the development of a computerized billing and collection system for local revenues to allow the finance departments of the two Thromdes to carry out efficient monitoring of revenue collection and ensure more timely collection. AF funds would cover consulting services, software and hardware, customization, and integration of the new end user tax payment facilities with existing systems.

Component 2: Thimphu Northern Area Development (US$15.90 million)

(a) Infrastructure Improvements in Lower Taba. The AF would support infrastructure improvements include:

• Roads - about 6.86 km (Road width ranging between 4 m and 15 m) and associated

drainage system. • Sewer network of about 9.45 km with 177 manholes and 250 inspection chambers, a

Sewage Treatment Plant of 1 MLD capacity (approximately 40% of the ultimate population has been adopted for the design of the STP which results in the design period of 15 years).

• Water supply reticulation network of about 7.9 km, including two 230 cubic meter storage tanks with fire hydrants.

• Cable ducts of 6.86 km length for both Power and Telecom. • 228 streetlights.

(b) Water Supply Scheme for Thimphu Thromde. The proposed water supply scheme will

abstract 15,000 m3/day of water from Thim-Chu River for Phase 1 and 2, which is about 0.7% of the lowest flow in the river. The AF will finance Phase 1, which includes:

• intake diversion and settling tanks; • 14.6 km of 350 mm diameter ductile iron (DI) raw water transmission main to Lower

Taba, including three pipe bridges; • a water treatment plant of 7,500 m3/day capacity; • a clear water transmission main to the Taba area, including a storage tank of 230 m3

capacity; and • a clear water transmission main to connect to the Lower Taba distribution tank.

Component 3: Policy Implementation Support (US$0.8 million)

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The AF will finance the following activities in the four sub-components: (a) Development and implementation of a human settlements strategy. This sub-component includes: (i) review of existing strategy documents (for example, the 2008 Bhutan National Urbanization Strategy) to identify gaps in the context of the National Human Settlements Policy, e.g., need to include urban-rural linkages and to revise key human settlement trends based on more recent data; (ii) propose a methodology and carry out detailed research and analysis to identify the main development potential for selected regions in Bhutan; (iii) conduct stakeholder consultations; (iv) develop a strategy targeted at balanced growth with recommendations for priority investments; and (v) develop strategic valley plan(s) ready for implementation in priority areas as needed. (b) Development of a planning act and a set of planning standards. This will focus on the establishment of an institutional and legal framework to enable effective human settlement planning at a national level through the following activities: (i) a detailed review of previous drafts of the Planning Act, Land Act and other related material to identify gaps in regulation; (ii) research and evaluation of existing planning act models that can be adapted to Bhutan’s context; (iii) stakeholder consultations; and (iv) providing assistance in drafting a Planning Act and technical planning standards that can guide future plans. (c) The application of traditional Bhutanese architectural guidelines and urban development planning. This will provide support to national and local authorities in urban development planning and the use of new traditional Bhutanese architectural guidelines under MoWHS. This component also supports incremental operational costs including communication expenses, vehicle rental and fuels for supervision activities, office supplies, and remunerations for contractual staff.

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Sl. No.

Component

IDA (US$)

Base cost including

Contingencies (1)

IDA (US$)

Base cost without

contingencies (2)

RGoB (US$)

(3)

Total (US$)

(4)=(1)+(3)

1 MUNICIPAL FINANCE AND MANAGEMENT

0.70 0.67 0.00 0.70

1.1 Consultant services, software and hardware for asset registration and digitization.

0.35 0.34 0.00

1.2

Consultant services, software and hardware for accounting and re-engineered business processes (computerized billing and collection system).

0.35 0.33 0.00

2 THIMPHU NORTHERN AREA DEVELOPMENT

15.90 14.48 0.15 16.05

2.1 Taba LAP Infrastructure. 7.15 6.49 0.00

2.2 Central Water Supply Scheme. 8.05 7.32 0.00

2.3 Project Management Consultancy (including PPA).

0.70 0.67 0.00

2.4 Land acquisition. 0.15

3 POLICY IMPLEMENTATION SUPPORT

0.80 0.76 0.00 0.80

3.1 Consultant services for development of human settlements strategy.

0.50 0.48 0.00

3.2 Consultant services for planning act and a set of planning standards.

0.15

0.14 0.00

3.3

Consultant services for urban development planning and application of traditional Bhutanese architectural guidelines, and incremental operating costs.

0.15 0.14 0.00

Total Baseline Costs 15.91 0.15 16.06

Physical Contingencies 0.69 0.69

Price Contingencies 0.80 0.80

Total Financing required 17.40 17.40 0.15 17.55

Note: For civil works, 5% physical contingency and 5% price contingency applied; For TA, 5% of price contingency applied.

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Annex 4: Financial and Procurement Management


II. Financial Management

1. Financial management arrangements of UDP2 will be used for the proposed additional financing credit. Implementing agencies and the nature of expenditure to be financed under the AF will remain same as the original financing credit, i.e., (civil works, goods, consulting services, and operating costs). While new Thromdes (Gelephu and Samdrup Jongkhar) have been added as part of the AF, no project funds will flow to these agencies (Thromdes).

2. The AF will be budgeted as part of the overall MoWHS budget under a separate

Financing Item Code (FIC) for UDP2. The FIC and the activity/sub-activity codes will allow for project-related expenditures to be separately identified, accounted and reported in the Public Expenditure Management System. Interim Unaudited Financial Reports (IUFR) will be used for reporting and disbursements. The existing IUFR format of UDP2 will be suitably modified to provide the required details of the additional financing credit.

3. Project funds will be deposited in advance into the Designated Account maintained

with Bank of Bhutan, in Ngultrums. The designated account will be operated by the Department of Public Accounts (DPA) in MoF. Funds will be withdrawn from the designated account on an `as required’ basis and transferred to the respective Project Letter of Credit accounts of MoWHS and TT through the Government Budget Fund Account maintained by DPA.

4. Consolidated annual project financial statements (for UDP2 and AF) will be audited

each year by the Royal Audit Authority (RAA), as per the standard terms of reference agreed between the Bank and RGoB. PPD, MoWHS will be responsible for submitting the consolidated annual project financial statements to RAA by September 30 of each financial year. The audited financial statements will be submitted to the Bank within six months of the end of the financial year (by December 31 each year).

5. Disbursements. Disbursement arrangements will remain for UDP2. Disbursements

will be made on the basis of quarterly IUFRs being prepared under UDP2. The IUFR will be suitably modified to provide details of expenditure under UDP2 and the AF. The new Designated Account (DA) opened for the Project Preparation Advance (PPA) for the AF will be used for the AF. Based on forecast amounts for the next two quarters, advances will be deposited in the DA. Replenishments to the DA will be made on the basis of expenditure reported and the balance in the DA. The table below provides the categories of disbursement and the disbursement percentage for each category.

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Disbursement Arrangements

Disbursement Category Amount of the Credit Allocated

(expressed in SDR)

Percent of expenditures to be Financed

(inclusive of taxes) (1) Works, Goods, Consultants' Services, , and Incremental Operational Costs under the Project

10,940,000 100%

(2) Refinancing of PPA 360,000

Amount payable pursuant to Section 2.07 of the General Conditions

Total 11,300,000

III. Procurement

6. Procurement for the AF Project will be carried out in accordance with: World Bank’s

"Guidelines: Procurement of Goods, Works and Non-consulting Services under IBRD Loans and IDA Credits" dated January 2011; "Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits & Grants by World Bank Borrowers" dated January 2011; and the provisions stipulated in the Financing Agreement.

7. Implementation arrangements for the AF are the same as those for UDP2. Whilst

Component 1 and Component will be managed by the PPD, MoWHS, the TT will be responsible for the activities and procurement under Component 2. Since there is continuity of project personnel for the AF Project, and personnel are conversant with World Bank Procurement Guidelines, procurement is expected to be handled satisfactorily, and procurement risk is assessed as ‘moderate'. While there is a shortage of manpower in the TT, this will be mitigated by hiring consultants who will either have prior experience of working on Bank funded projects or will be trained on Bank procedures, including on procurement.

8. The AF Procurement Plan has been agreed with the Bank. The Procurement Plan will

be updated at least annually or as required to reflect project implementation needs. Procurement methods and prior review thresholds remain the same as for UDP2.

9. Details of procurement methods and prior review thresholds are provided in the tables

below.

Procurement Methods and Thresholds (Except for Consultants)

Category Method of Procurement Threshold (USD Equivalent) Goods and

Non-consultant services

International Competitive Bidding (ICB)

>200,000

Limited International Bidding (LIB)

wherever agreed by Bank

National Competitive Bidding (NCB)

Up to 200,000

Shopping Up to 50,000 Direct Contracting (DC) As per para 3.7 of Guidelines

Force Account As per para 3.9 of Guidelines Works ICB >1,500,000

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NCB Up to 1,500,000 Shopping Up to 50,000

DC As per para 3.7 of Guidelines Force Account As per para 3.9 of Guidelines

Prior Review Thresholds (Except for Consultants)

Contract Types Prior Review Threshold 1. Works >$3,000,000 equivalent 2. Goods >$600,000 equivalent 3. Non-Consultant Services >$600,000 equivalent

Procurement Methods and Thresholds for Selection of Consultants

Category Method of Procurement Threshold (USD Equivalent) Consultants’

Services Consultants’ Qualifications (CQS)/Least Cost Selection

(LCS)

Up to 100,000

Single Source Selection (SSS)

As per para 3.8-3.11 of Guidelines

Individuals As per Section V of Guidelines Selection of Particular Types of Consultants

As per para 3.15-3.21 of Guidelines

Quality and Cost Based Selection (QCBS)/Qaulity Based Selection (QBS)/ Fixed Budget Selection

(FBS)

for all cases

Prior Review Thresholds for Selection of Consultants

Selection Method Prior Review Threshold 1. Competitive Methods (Firms) >$200,000 2. Competitive Methods

(Individuals) >$60,000

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