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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No: PAD961

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROJECT PAPER

ON A

PROPOSED ADDITIONAL CREDIT

IN THE AMOUNT OF SDR 32.4 MILLION (US$50 MILLION EQUIVALENT)

TO

THE UNITED REPUBLIC OF TANZANIA

FOR

THE TANZANIA STRATEGIC CITIES PROJECT

MAY 5, 2014

Urban Development & Services Practice 1 (AFTU1) Country Department AFCE1 Africa 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 MARCH 31, 2014)

Currency Unit = SDR SDR 0.64698537 = US$1

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AF Additional Financing BRN Big Results Now CAS Country Assistance Strategy CDA Capital Development Authority CEM Country Economic Memorandum D by D Decentralization by Devolution DANIDA Danish Foreign Aid and International Development Agency DMDP Dar es Salaam Metropolitan Development Project DUD Department of Urban Development EIRR Economic Internal Rate of Return ENPV Economic Net Present Value ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan FIRR Financial Internal Rate of Return GIS Geographical Information System GoT Government of Tanzania IA Implementing Agency ICB International Competitive Bidding IDA International Development Association IFRs Interim Financial Reports IP Implementation Progress LGA Local Government Authority LGRCIS Local Government Revenue Collection Information System MoF Ministry of Finance MTR Mid Term Review NAO National Audit Office NCB National Competitive Bidding O&M Operation and Maintenance ORAF Operational Risk Assessment Framework

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PDO Project Development Objective PforR Program for Results PMO-RALG Prime Minister’s Office Regional Administration and Local Government RAP Resettlement Action Plan RPF Resettlement Policy Framework SDR Special Drawing Rights SWM Solid Waste Management TSCP Tanzania Strategic Cities Project ULGSP Urban Local Government Strengthening Program

Vice President Makhtar Diop Country Director Philippe Dongier

Sector Director Jamal Saghir Sector Manager R. Mukami Kariuki Task Team Leader Onur Ozlu Co-Task Team Leader Andre A. Bald

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TANZANIA TANZANIA STRATEGIC CITIES PROJECT

CONTENTS

Project Paper Data Sheet Pg iv

Project Paper Pg 1

I. Introduction Pg 1

II. Background and Rationale for Additional Financing Pg 1

III. Proposed Changes Pg 7

IV. Appraisal Summary Pg 10

Annexes

Annex 1 Revised Results Framework and Monitoring Indicators Pg 18

Annex 2 Operational Risk Assessment Framework Pg 22

Annex 3 Subproject List Pg 27

Annex 4 Economic and Financial Analysis Pg 30

Annex 5 Solid Waste Management Technical Analysis Pg 40

Annex 6 Progress and Initial Impacts Observed for Component 2 Pg 46

Annex 7 Financial Management and Disbursement Arrangements Pg 48

iv

ADDITIONAL FINANCING DATA SHEET

Tanzania

Tanzania Strategic Cities Project AF (P148974)

AFRICA

AFTU1 .

Basic Information – Parent

Parent Project ID: P111153 Original EA Category: B - Partial Assessment

Current Closing Date: 31-Dec-2015

Basic Information – Additional Financing (AF)

Project ID: P148974 Additional Financing Type (from AUS):

Scale Up

Regional Vice President: Makhtar Diop Proposed EA Category: B - Partial Assessment

Country Director: Philippe Dongier Expected Effectiveness Date:

01-Jul-2014

Sector Director: Jamal Saghir Expected Closing Date: 31-Dec-2017

Sector Manager: R. Mukami Kariuki Report No: PAD961

Team Leader: Mehmet Onur Ozlu

Borrower

Organization Name Contact Title Telephone Email

Ministry of Finance Dr. Servacius B. Likwelile

Permanent Secretary

+255-222-112-856

[email protected]

Project Financing Data – Parent ( Tanzania Strategic Cities Project-P111153 )

Key Dates

Project Ln/Cr/TF Status Approval Date Signing Date Effectiveness

DateOriginal Closing Date

Revised Closing Date

P111153 IDA-47270 Effective

27-May-2010 11-Jun-2010 08-Sep-2010 31-Dec-2015 NA

Disbursements

Project Ln/Cr/TF Status Currency Original Revised Cancelled

Disbursed

Undisbursed

% Disbursed

P111153 IDA-47270 Effective

XDR 107.40 107.40 0.00 100.73 6.67 93.79

v

Project Financing Data –Additional Financing Tanzania Strategic Cities Project AF ( P148974 )

[ ] Loan [ ] Grant [ ] IDA Grant

[X] Credit [ ] Guarantee [ ] Other

Total Project Cost: 50.00 Total Bank Financing: 50.00

Financing Gap: 0.00

Financing Source – Additional Financing (AF) Amount

BORROWER/RECIPIENT 0.6

International Development Association (IDA) 50.00

Danish Foreign Aid and International Development Agency (DANIDA) 6.00

Total 56.6

Policy Waivers

Does the project depart from the CAS in content or in other significant respects? No

Explanation

Does the project require any policy waiver(s)? No

Explanation

Team Composition

Bank Staff

Name Title Specialization Unit

Mehmet Onur Ozlu Sr Urban Economist Team Lead AFTU1

Aissata Z. Zerbo Procurement Specialist Procurement Specialist AFTU2

Mercy Mataro Sabai Sr Financial Management Specialist

Sr Financial Management Specialist

AFTME

Marie Claire M. Li Tin Yue

Senior Program Assistant

Senior Program Assistant

AFTU1

Helen Z. Shahriari Sr Social Scientist Sr Social Scientist AFTCS

Gloria Sindano Program Assistant Program Assistant AFCE1

Martin Onyach-Olaa Sr Urban Spec. Sr Urban Spec. AFTU1

Donald Paul Mneney Senior Procurement Specialist

Senior Procurement Specialist

AFTPE

Andre A. Bald Sr Urban Spec. Co-Team Lead AFTU1

Jane A. N. Kibbassa Senior Environmental Specialist

Senior Environmental Specialist

AFTN3

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Mei Wang Sr Counsel Sr Counsel LEGAM

David MayalaMulongo Urban Specialist Urban Specialist AFTU1

Luis S. Schwarz Senior Finance Officer Disbursement CTRLA

Christiaan Johannes Nieuwoudt

Finance Officer Disbursement CTRLA

Chyi-Yun Huang Urban Specialist Urban Specialist AFTU1

Non Bank Staff

Name Title Office Phone City

Gottfried Roelcke Urban Specialist

Robert Breeze Solid Waste Management Specialist

Andre Oosterman Economic and Finance Specialist

Locations

Country First Administrative Division

Location Planned Actual Comments

Tanzania Tanga Region Tanga X

Tanzania Mwanza Region Mwanza X

Tanzania Mbeya Region Mbeya X

Tanzania Kigoma Region Kigoma X

Tanzania Dodoma Region Dodoma X The Capital Development Authority, which is also located in Dodoma, is a participating entity in the project.

Tanzania Arusha Region Arusha X

Tanzania Mtwara Region Mtwara X

Tanzania Mwanza Region Ilemela X Mwanza City Council split into Mwanza City Council and Ilemela Municipal Council. Ilemela MC has officially become an additional Participating LGA.

vii

Institutional Data

Parent ( Tanzania Strategic Cities Project-P111153 )

Sector Board

Urban Development

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation Co-benefits %

Mitigation Co-benefits %

Transportation Urban Transport 57

Public Administration, Law, and Justice

Sub-national government administration

27

Water, sanitation and flood protection Solid waste management

12

Water, sanitation and flood protection Flood protection 4

Total 100

Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %

Urban development City-wide Infrastructure and Service Delivery

92

Urban development Municipal governance and institution building

6

Public sector governance Administrative and civil service reform 1

Public sector governance Public expenditure, financial management and procurement

1

Total 100

Additional Financing Tanzania Strategic Cities Project AF ( P148974 )

Sector Board

Urban Development

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation Co-benefits %

Mitigation Co-benefits %

Transportation Urban Transport 30

Public Administration, Law, and Justice

Sub-national government administration

20

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Water, sanitation and flood protection Solid waste management

40

Water, sanitation and flood protection Flood protection 10

Total 100

I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project.

Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %

Urban development City-wide Infrastructure and Service Delivery

60

Urban development Municipal governance and institution building

20

Public sector governance Administrative and civil service reform 10

Public sector governance Public expenditure, financial management and procurement

10

Total 100

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I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional credit in an amount of US$50 million equivalent to the United Republic of Tanzania, for the Tanzania Strategic Cities Project (P111153; Credit Number 4727-TZ; referred to as TSCP or the Project). TSCP has been under implementation since September 2010. 2. The proposed Additional Financing (AF) will fund the cost of scaling up through: (i) new infrastructure investments in urban roads, bus stands, terminals and lorry stations, street lights, drainage and new cells in existing landfills; and (ii) strategic capacity building activities for project Local Government Authorities (LGAs). The AF will also enhance the development impact and sustainability of the investments financed by the original project by investing in equipment and operation, and maintenance capacity for existing infrastructure, and deepening local government capacity for urban management. Most activities proposed for scale up were appraised when the parent operation was prepared but sufficient resources were not available at the time to finance them. These activities have therefore, been re-appraised for technical and financial due diligence.

3. The Danish Foreign Aid and International Development Agency (DANIDA) provided parallel co-financing for the parent project (totaling US$12.50 million). This support focused on institutional strengthening, and will be augmented, in tandem with the IDA AF, through additional funding in the amount of US$6 million equivalent. II. Background and Rationale for Additional Financing

Project Background and Performance

Background and Context 4. Urban areas are critical to Tanzania’s national economic growth. They account for the majority of the country’s physical, financial, human, academic, and technological capital. Cities produced more than half of Tanzania’s Gross Domestic Product, and accounted for around 56 percent of the country’s economic growth from 1990 to 20041. The Government of Tanzania (GoT) recognizes the potential of urbanization and of urban areas. To help mobilize this potential, its Decentralization by Devolution (D by D) policy2 aims to reduce poverty and improve service delivery through the decentralization of resources and responsibilities to the local level. 5. The AF will, through the provision of key urban infrastructure and local government institutional development, support GoT’s efforts to create well-functioning and productive urban centers which are conducive to inclusive growth and job creation. According to the 2014 Country Economic Memorandum (CEM), “creating productive jobs is the most sustainable path

1 Source: Kessides, Christine. 2006. “The Urban Transition in Sub-Saharan Africa: Implications for Economic Growth and Poverty Reduction.” Working paper, Transport and Urban Development Department, World Bank, Washington, DC 2 The policy reforms introduced by D by D give LGAs a wide range of responsibilities which include public sector functions and services such as the provision of primary and secondary public education and public health services, as well as economic or municipal functions, including the construction and maintenance of roads, access to markets and the collection of solid waste.

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out of poverty for developing countries… and Tanzania is not an exception”. In this way, the AF will also contribute to the twin development goals of the World Bank— ending extreme poverty and boosting shared prosperity. 6. Further, the proposed AF is consistent and directly aligned with the strategic objectives of World Bank Country Assistance Strategy (CAS) FY2012-2015 for Tanzania, the upcoming CAS Progress Report, as well as the World Bank’s Africa Strategy. The CAS recognizes that managing rapid urbanization is one of the main challenges for the country. The proposed activities will specifically help achieve two of the CAS objectives, ‘Build Infrastructure and Deliver Services’ and ‘Promote Accountability and Governance.’ At mid-term, the CAS continues its support to GoT’s initiative on service delivery (and especially the “Big Result Now” Initiative3). 7. In addition, the AF supports important national strategies - Tanzania’s five-year National Strategy for Growth and Poverty Reduction and the Tanzania Development Vision 2025. The Tanzania Development Vision 2025 envisages more inclusive growth and poverty reduction, underpinned by the economy’s transformation from “a low-productivity agricultural economy to a semi-industrialized one.” These documents highlight the importance of harnessing the benefits of urbanization especially through increased investments in infrastructure which the proposed AF would support. The proposed AF would thus support these broader GoT strategies. 8. Despite the extensive mandate given to LGAs for delivering urban services, there remains a financing gap, of approximately US$1 billion4, to meet these mandates. Generally, LGAs lack adequate fiscal and institutional capacity to effectively respond to the urbanization challenges5.

9. Against this background, the TSCP was prepared in 2008/09 to support the following seven LGAs: Tanga, Arusha, Mwanza, Kigoma, Dodoma, Mbeya and Mtwara, in addition to the Capital Development Authority (CDA) in Dodoma, the national capital. These LGAs are of strategic importance due to their urban population size, physical location, importance for regional trade and demographic weight. Mwanza, Arusha, Dodoma, Mbeya and Tanga comprise the most populous urban centers in the country, after Dar es Salaam. Kigoma also ranks high in the urban population ranking of the country (at 10th place in mainland Tanzania) in addition to being an important lake port in Western Tanzania, bordering Burundi, with a direct link to the seaport in Dar es Salaam. Lastly, Mtwara is the capital of the Mtwara region and is home to vast proven gas reserves with significant growth prospects. These LGAs have also recorded high population growth. The median urban population growth rate between 2002 and 2012 across Tanzanian LGAs with population size more than 100,000 is 4 percent per annum. TSCP LGAs,

3 GoT launched the “Big Results Now!” initiative in 2013 to strengthen government delivery, aiming at establishing a strong and effective system and culture to drive, monitor, and evaluate the implementation of its development priorities. The flagship BRN initiative was launched by the President of Tanzania and has received broad support from the parliament, citizens and development partners. 4 Sarzin and Raich. 2012. “Financing the Urban Expansion in Tanzania”. World Bank Urban Development Series Knowledge Papers No. 15. 5 In particular, the framework for local revenues and intergovernmental transfers does not accommodate the large financing needs of Tanzania’s cities. Most domestic revenues are collected in urban areas (more than 80 percent in Dar es Salaam alone) while more than 80 percent of transfers go to rural areas. In per capita terms, transfers to rural LGAs are 21 percent higher than transfers to urban LGAs.

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on average, have witnessed similar population growth with a median of 3.8 percent per annum for the same period, with Mwanza and Kigoma recording above 4 percent.

10. The TSCP credit in the amount of US$163 million (SDR 107.40 million) was approved by the Bank’s Board of Executive Directors on May 27, 2010, and became effective on September 8, 2010. The total value of the Project is equivalent to US$175.50 million, including parallel co-financing for US$12.50 million from DANIDA for capacity building and institutional strengthening activities under Component 2. 11. The Project is executed by the participating LGAs, with quality assurance, monitoring and evaluation, fiduciary support, and capacity building from the Prime Minister’s Office Regional Administration and Local Government (PMO-RALG) unit. The Project has disbursed 94.7 percent of its original credit for a range of infrastructure investments including landfills, roads, drainage, and support for institutional capacity development, including revenue enhancement, planning, procurement and financial management. Project Description 12. The Project Development Objective (PDO) is to improve the quality of and access to basic urban services in participating LGAs. This is to be achieved through the rehabilitation and expansion of urban infrastructure, and institutional strengthening activities to improve fiscal and management capacities. The PDO is unchanged for the AF.

13. The PDO level indicators under the AF are revised to reflect the scale up and improve accuracy and measurability, as per table below.

Parent Project PDO-Level Indicators

AF PDO-Level Indicators

Reason for Change

(i) Direct project beneficiaries (number), of which are females (%);

(i) Direct project beneficiaries (number), of which are females (%);

No change in indicator.

(ii) Roads in good and fair condition as a share of total classified roads (km, %);

(ii) Non-rural roads rehabilitated or constructed to paved standard (km)

Tanzania does not have a standardized definition of roads in “good and fair condition” and as a result, the figures reported are subjective and not comparable across LGAs. In addition, the revised indicator captures only roads rehabilitated and constructed under TSCP, which is more appropriate for the purposes of measuring impacts under the project.

(iii) Waste collected and disposed at landfill compared to total waste produced in target areas (%);

(iii) Waste disposed at landfills as percent of total waste generated in LGAs.

The phrasing was refined with the indicator essentially measuring the same results.

(iv) People with access to an all-season road

Removed The original indicator measures a subset of the direct project beneficiaries. In addition, intervention on roads has also been captured in indicator 2. Therefore, this

4

(number, % of targeted population);

indicator was removed.

(v) People with access to improved public transport services (number)

(iv) People with access to improved bus stations, terminals or lorry stands (number)

“Public transport services” was better defined as the “bus stations, terminals or lorry stands” as these are the only public transport interventions funded under the project.

14. The parent project has three components, which will remain unchanged under the AF, as per below.

(i) Component 1 – Core Urban Infrastructure and Services (US$150.6 million, 100 percent financed by IDA). Improving core infrastructure and key urban services in the project LGAs through the provision of: (a) investment in core urban infrastructure and services subprojects prioritized by the project LGAs that include: (i) urban roads and drainage, culverts, bridges, footpaths and street lighting; (ii) solid waste management including solid waste collection centers, equipment for transportation and disposal, and the development or improvement of waste disposal sites; and (iii) local infrastructure such as bus stands, terminals and lorry stations; and (b) construction supervision support and technical assistance specifically for the implementation and monitoring of Environmental and Social Management Plans (ESMP) and Resettlement Action Plans (RAP) linked to subprojects, including the payment of compensation costs.

(ii) Component 2 – Institutional Strengthening (US$12.7 million, 98 percent financed by DANIDA and 2 percent financed by IDA). Strengthening the fiscal and management capacity of participating LGAs and PMO-RALG for improved operations and maintenance (O&M) and infrastructure development through the provision of support for: (a) urban infrastructure development and management including technical design, procurement, financial management, contract management, and environmental and social safeguards; (b) upgrading systems for asset management and O&M; (c) enhanced management and cost recovery of key urban services; (d) improved revenue collection from all sources within the Participating LGA’s jurisdiction (including property rates, city service levy, fees and charges, etc.); (e) improved strategic urban planning; and (f) strengthened capacity of PMO-RALG to provide sustained support and guidance to participating LGAs in the areas of urban infrastructure development and urban management.

(iii) Component 3 – Implementation support and preparation of future urban projects

(US$12.2 million, 100 percent financed by IDA): Provision of: (a) financing for: (i) the procurement of office furniture, IT equipment and vehicles to facilitate the coordination and supervision of Project activities; (ii) technical assistance and consultancy services to augment the capacity of PMO-RALG for Project implementation; (iii) consultancy services for the Mid Term Review (MTR) and impact assessment; (iv) operating costs including the cost of technical and steering committee meetings, Project workshops and the annual audit of Project accounts; (b) financing for the preparation of future urban projects, focusing specifically on the

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design and preparation of a future investment project for Dar es Salaam, including support for preparatory studies and the detailed design of priority investments; and (c) financing for studies and technical assistance to inform the preparation and implementation of a national urban policy.

Project Implementation Progress and Performance

15. The Project is making satisfactory progress towards achieving the development objectives. The Implementation Status and Results Report rating for Progress Towards Achievement the PDO has been ‘Satisfactory’ since project effectiveness; and Overall Implementation Progress (IP) has consistently been rated ‘Moderately Satisfactory’ or above, and is currently rated ‘Satisfactory.’ Current disbursements are above the original projections, totaling US$154.4 million (SDR 100.73 million), or 93.79 percent of IDA funds. There is substantial compliance with legal covenants of the parent project.

16. The progress, key achievements, and risks for the components include:

a. Component 1: Core Urban Infrastructure and Services. In many of the participating LGAs, a significant portion of the urban road network has been improved from gravel to paved, with drainage, lighting, road safety, and pedestrian amenities. The design and quality of works are intended to set a higher standard for these urban services. The first five landfills of Tanzania are being constructed under the project. Of the total 24 works contracts, 16 are completed, and the remaining 8 are underway. The original scope of work finances 148.40 km of roads, 15.90 km of drains, 5 landfills, and 7 bus stands, terminals and lorry stations. b. The safeguards implementation performance under the parent project has consistently been satisfactory, with no major compliance issues. c. There have been a number of contract management and works quality issues, primarily related to drainage and sanitary landfills. A Bank and PMO-RALG study undertaken in October and November 2013 found shortcomings in the solid waste management activities, in terms of the quality of works, operational capacity, and sustainability risks. A comprehensive plan, to be supported through the AF, was developed to address these. The scope of the implementation challenges is within the expected risk framework for a project of this nature (multi-sector, with numerous LGAs), and have been addressed, or can be mitigated through AF activities. d. Component 2: Institutional Strengthening (parallel financing from DANIDA). The expected outcomes of this component are to improve: (i) capacity for urban planning; (ii) own-source revenue collection; (iii) systems for asset management, operations, and maintenance; and (iv) cost recovery and management of key urban services, including solid waste. The component is financing the establishment and roll out of the Local Government Revenue Collection Information System (LGRCIS) which is designed to support enhanced local revenue collection with proper identification of the tax payer, invoicing, receipting, demand note (bill) generation, defaulter identification and facilitating electronic or online payment through a single payment gateway. This will

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create a more transparent system, with reporting and analysis, by geography, payers, or revenue types. It will also support efficient follow-up and payment mechanisms, aided by Geographical Information System (GIS). LGRCIS is a potentially transformative system that will radically improve the way local governments collect taxes, with gains in transparency, accountability, and a customer focused response. e. Component 2 has not yet achieved all the targets set at project design. In retrospect, the targets established for the component were ambitious given the pioneering innovations (development of Tanzania’s first GIS-based revenue enhancement tool, the LGRCIS) and the known long-term nature of institutional strengthening and capacity building. In addition, the M&E framework did not capture the evolution of the project and does not reflect how robust the LGRCIS has become. It will be used not only for revenue enhancement but also as the enabling and integrated platform for urban planning, O&M, and cost recovery. f. Despite the shortcomings in results achievement vis-à-vis the current monitoring and evaluation framework, the last implementation support mission (November 2013) found there to be good progress overall under Component 2. The LGRCIS, both software and hardware, has been put in place and is operational in Arusha, Mbeya and Mtwara. The remaining LGAs are in the process of acquiring and having these operational by August 2014. Tax collections for various categories have been conducted using the system. In Arusha, for example, the system is in full operation and is being used to issue and collect property tax, service levy, business license, bill boards and hotel levy. An initial analysis in the tax collected revealed around a 200 percent increase before and after the LGRCIS. However the property tax valuation work is ongoing for several project LGAs and full completion of this exercise is expected by May 2015. It is expected that the other activities for this component will be fully completed by the end of the project. g. Component 3: Implementation Support and Preparation of Future Urban Projects. PMO-RALG supports Participating LGAs by executing a number of coordinating and oversight functions including monitoring and evaluation of project results, conducting field visits and coordination meetings in Participating LGAs, and assisting participating LGAs with the formulation of Terms of Reference for technical assistance and consultancy services. PMO-RALG has procured all contracts including for two other Bank supported programs: the Urban Local Government Strengthening Program (ULGSP) Program-for-Results operation which was approved in FY2013 and the Dar es Salaam Metropolitan Development Project (DMDP) which is under preparation. These contracts were procured on time and prepared to quality standards.

17. As a result of the satisfactory performance to date, a number of TSCP innovations, particularly the decentralized service and infrastructure delivery approach, are being replicated and scaled up under the ongoing Urban Local Government Strengthening Program (ULGSP, a PforR operation).

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Rationale for Additional Financing

18. The proposed AF will scale up activities to enhance development impact and sustainability of institutional strengthening for project LGAs. As explained above, the strategic importance of these investments to project LGAs remains high. 19. Given the satisfactory performance of the ongoing project, and the transformative nature of activities in beneficiary municipalities, the AF will scale up impact by financing complementary activities including: (i) the rehabilitation/upgrading/construction of urban roads, sidewalks, bus/lorry stands, street lights and drains (along these urban roads), and new cells in existing landfills; and (ii) strategic capacity building activities for project local government authorities (LGAs), particularly to increase the capacity of landfills and ensure sufficient equipment and trained personnel to manage the facilities. 20. The majority of the AF will be for urban roads (improving from gravel to paved standards) and addition of associated lighting, sidewalks, and drainage in participating LGAs, as well as new cells in sanitary landfills built under the parent project (no new landfills are envisioned under the AF). The capacity of LGA technical staff in solid waste management will be further enhanced under the AF to increase the operating capacity, maintenance plans, cost recovery, and life span of the facilities.

21. The AF is the preferred financing mechanism because it: (i) leverages the success of the original project, including the enhancement of policy dialogue between the World Bank and GoT; (ii) capitalizes on the effective implementation arrangements and institutions; (iii) enhances the impact of current works by prioritizing funding to LGAs that are performing well; and (iv) improves the capacity of LGAs and PMO-RALG through further capacity building activities and a learning by doing approach. (Please refer to section on technical analysis for more details on AF activities.)

22. The AF will further strengthen institutional performance by requiring project LGAs to meet certain institutional strengthening criteria before AF resources can be accessed. The criteria were captured as indicators in the original project’s results framework and thus, will not create an additional burden on LGAs. This approach will: (i) incentivize progress in project activities particularly under Component 2, which are not progressing as fast as envisaged at original design; (ii) mitigate critical risks particularly for solid waste management investments; and (iii) enhance and consolidate gains from capacity building activities.

23. All AF activities can be completed within the proposed two year period with the closing date for the AF as December 31, 2017. III. Proposed Changes

Summary of Proposed Changes

The AF will support: (i) scale up of infrastructure investments and capacity building; (ii) add a participating LGA (Ilemela) (as a result of the change in the administrative boundaries of one of the LGAs in the original project); and (iii) update the results framework to reflect additional activities to be supported by the AF.

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Change in Implementing Agency Yes [ ] No [ X ]

Change in Project's Development Objectives Yes [ ] No [ X ]

Change in Results Framework Yes [ X ] No [ ]

Change in Safeguard Policies Triggered Yes [ ] No [ X ]

Change of EA category Yes [ ] No [ X ]

Other Changes to Safeguards Yes [ ] No [ X ]

Change in Legal Covenants Yes [ ] No [ X ]

Change in Loan Closing Date(s) Yes [ X ] No [ ]

Cancellations Proposed Yes [ ] No [ X ]

Change in Disbursement Arrangements Yes [ ] No [ X ]

Reallocation between Disbursement Categories Yes [ ] No [ X ]

Change in Disbursement Estimates Yes [ ] No [ X ]

Change to Components and Cost Yes [ X ] No [ ]

Change in Institutional Arrangements Yes [ ] No [ X ]

Change in Financial Management Yes [ ] No [ X ]

Change in Procurement Yes [ ] No [ X ]

Change in Implementation Schedule Yes [ X ] No [ ]

Other Change(s) Yes [ ] No [ X ]

Development Objective/Results PHHHDO

Project’s Development Objectives

Original PDO

To improve the quality of and access to basic urban services in Participating LGAs.

Change in Results Framework PHHCRF

Explanation:

The targets and baselines of relevant indicators will be updated, taking into account the proposed additional funds and the additional sub-projects. In addition, during the mid-term review, shortcomings were found with the results framework – these will be addressed.

Compliance PHHHCompl

Covenants - Additional Financing ( Tanzania Strategic Cities Project AF - P148974 )

Source of Funds

Finance Agreement Reference

Description of Covenants

Date Due Recurrent Frequency Action

IDA Section II A.3. The Recipient shall no later than May 30,

30-May-2016

New

9

2016 carry out jointly with the Association a Mid-Term Review of the progress made in carrying out the project.

Conditions PHCondTbl

Source Of Fund Name Type IDA Performance Implementation

Manual Effectiveness

Description of Condition The Recipient has updated the PIM in form and substance satisfactory to the Association. (Financing Agreement reference 5.01 (a))

PHCondTbl

Source Of Fund Name Type IDA Performance Agreements Effectiveness Description of Condition Performance Agreements have been entered into between the Recipient through PMO-RALG and each of the Participating LGAs under the terms and conditions satisfactory to the Association. (Financing Agreement reference 5.01 (b))

Finance PHHHFin

Loan Closing Date - Additional Financing ( Tanzania Strategic Cities Project AF - P148974 )

Source of Funds Proposed Additional Financing Loan Closing Date

International Development Association (IDA) 31-Dec-2017

Loan Closing Date(s) - Parent ( Tanzania Strategic Cities Project - P111153 ) PHHCLCD

Explanation:

Ln/Cr/TF Status Original Closing

Date Current Closing Date

Proposed Closing Date

Previous Closing Date(s)

IDA-47270 Effective 31-Dec-2015 31-Dec-2015

Allocations - Additional Financing ( Tanzania Strategic Cities Project AF - P148974 )

Source of Fund

Currency Category of Expenditure

Allocation Disbursement %(Type Total)

Proposed Proposed

10

IDA XDR

Goods, works, consultants’ services, training, workshops and Operating Costs under the Project

32,400,000 100.00

IDA XDR 100.00

Total: 32,400,000

Components PHHHCompo

Change to Components and Cost PHHCCC

Explanation:

The three components as under the parent project will remain unchanged. The Additional Financing will scale-up activities and therefore funding will be increased for Components 1 (IDA US$44.71 million; GoT US$0.60 million – for estimated resettlement cost), Component 2 (with additional parallel co-financing from DANIDA for US$6.00 million) and Component 3 (IDA US$5.29 million).

Current Component Name

Proposed Component Name

Current Cost (US$M)

Proposed Cost (US$M)

Action

Component 1 - Core urban infrastructure and services

Component 1 - Core urban infrastructure and services

150.60 195.91 Revised

Component 2 - Institutional strengthening

Component 2 - Institutional strengthening

12.70 18.70 Revised

Component 3 - Implementation support and preparation of future urban projects

Component 3 - Implementation support and preparation of future urban projects

12.20 17.49 Revised

Total: 175.50 232.10

Other Change(s) PHHHOthC

Change in Implementation Schedule PHHCISch

Explanation:

All AF activities can be completed within the proposed two year period for the AF which will close on December 31, 2017.

Appraisal Summary

Economic and Financial Analysis PHHASEFA

Explanation:

Rationale for Bank financing of proposed infrastructure subprojects. The AF will mainly finance public goods. These public goods comprise infrastructure subprojects that generate net economic benefits, but are not profit making. Stated differently, these subprojects will generate substantial benefits (“positiveexternalities”) to the general public. Bank financing of capital grants is justified given the budgetary

11

constraints of LGAs and the central government itself (which has been running substantial budget deficits in recent years), and the high transaction costs to the Government of Tanzania of involving a new development partner mid-way through project implementation. Economic analysis. Over 80 percent of the total AF will be used to finance the improvement of solid waste management (SWM) systems, and road subprojects. Economic cost-benefit analyses were prepared for a representative sample of infrastructure subprojects. The sample comprised 8 out of the total 29 AF subprojects -four SWM subprojects and four road improvements- with a total cost of US$19.3 million, amounting to about 40 percent of the total cost of all proposed infrastructure subprojects. The key results of the economic analyses are summarized as follows: (i) Urban road construction and improvements; three of the four subprojects analyzed have Economic Internal Rate of Return (EIRRs) which are substantially higher than the minimum required rate of 12 percent (see table in Annex 4 for detailed EIRRs) and (ii) Solid Waste Management (SWM); the economic benefits of the proposed SWM subprojects are higher than the estimated economic costs. EIRRs are more sensitive to reduced benefits than to cost increases of the same magnitude. If benefits are 10 percent lower than expected and costs 10 percent higher, three of the four SWM subprojects would no longer be economically feasible. This reinforces the need for careful subproject preparation and capacity building for adequate management of solid waste management facilities. The weighted average EIRR of the selected subprojects––using cost estimates as weights––was 13.5percent, well above the expected rate of 12 percent. This suggests that the proposed package of subprojects is economically feasible. Financial analysis. Roads and drainage subprojects will not generate direct revenue from tariffs or user charges. Financial revenue from sanitary landfills and bus and lorry terminals may not be sufficiently high to cover the full cost of adequately operating and maintaining these facilities, especially during the first years of operation. As a result, a major portion of the O&M expenditure of AF-financed infrastructure will need to be covered from the general revenue of the participating LGAs. For all jurisdictions where physical infrastructure subprojects will be undertaken, financial projections were made of: (i) net incremental operating expenditure of proposed subprojects; this amount is defined as: increases in O&M expenditure of proposed subprojects minus increases in financial revenue generated by proposed subprojects, and (ii) maximum available public financial revenue. These are estimates of the financial resources that a jurisdiction is able and willing to make available to cover the net incremental operating expenditure identified above. This amount was estimated at 10 percent of the difference between total revenue and recurrent expenditure. In all jurisdictions, maximum available public financial revenue exceeded net incremental operating expenditure by a substantial margin in all years of subproject implementation (2016-2035). This means that all LGAs and the CDA are financially capable to adequately finance the O&M expenditure of infrastructure subprojects to be financed from the proceeds of the AF. Refer to Annex 4: Economic and Financial Analysis for further details.

Technical Analysis PHHASTA

Explanation:

Geographic Scope. The AF will continue to cover the original seven Participating LGAs and the Capital Development Authority (CDA) in Dodoma. However, in addition, as a result of the change in the administrative boundaries of one of the original LGAs (Mwanza City Council split into Mwanza City Council and Ilemela Municipal Council), Ilemela MC will become an additional Participating LGA. The total number of Participating LGAs will therefore be eight in addition to the CDA.

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Component 1. Subprojects to be supported under Component 1 of the AF comprise roads, drainage, rehabilitation and construction of bus and lorry stands, sidewalks, street lights, landfills and purchase of solid waste management equipment. (The detailed list is attached in Annex 3.) All of these subprojects were identified from a priority list of investments proposed by the ward administrations after consultation with communities, and then later approved by both the city councils and mayors. The long list was then appraised by the Bank in a consultative process with PMO-RALG and the technical and executive teams from participating LGAs. Most participating LGAs did not have general planning schemes or strategic sector development plans - thus the subproject selection methodology employed criteria factoring in (i) social and environmental impacts, (ii) economic and financial analysis, (iii) strategic relevance for economic development, (iv) considerations of the spatial growth of the cities, (v) implementation capacity, and (vi) a general focus on investments in the urban core (where there is a higher density of population and economic activities; as well as significant infrastructure needs). These subprojects have been re-evaluated to ensure strategic relevance and soundness. A key focus of the AF is to improve solid waste management; approximately 35 percent (US$17.7 million) of the AF resources will be devoted to this. As a result of initial TSCP investments, substantial progress has been made by each of the participating LGAs towards a basic and functional solid waste management system with formal solid waste collection points, landfills (in five participating LGAs) as well as collection and landfilling equipment. The five landfills will be the first constructed in Tanzania and as such, represent a significant step forward. However, a Bank and PMO-RALG study found shortcomings in solid waste management activities, in terms of the quality of works, operational capacity, and sustainability risks. The AF activities will focus on these key shortcomings and will improve landfill capacity and lifespan through financing mandatory solid waste equipment, enhanced management and operating staff capacity and site access. (Refer to Annex 5 for details.) Component 2. This component will continue to focus on improving: (i) capacity for urban planning and urban management; (ii) own-source revenue collection; (iii) systems for asset management, operations, and maintenance; and (iv) cost recovery and management of key urban services, including solid waste. Ninety eight percent of this component is financed by DANIDA in the parent Project. To date, all component funds have been allocated. In tandem with IDA AF, DANIDA will continue its support through an additional funding of US$6 million to scale up activities under Component 2. The DANIDA AF will bedisbursed directly to GoT in two fiscal years, starting in July-September 2014. A table summarizing the scope of activities and estimated costs for Component 2 is included in Annex 3. A key pioneering innovation introduced in the parent project is the Local Government Revenue Collection Information System (LGRCIS) under Component 2. LGRCIS is critical for the enhancement of revenue at the local government level which, in turn, is key to both the long term sustainability of the LGA municipal finance and the maintenance of infrastructure, including TSCP investments. To date, the performance of LGAs against meeting Component 2 targets has been varied, with a number of LGAs exceeding set targets and others lagging behind. The prospect of additional financing from IDA and DANIDA provides an opportunity to leverage enhanced performance against Component 2. To this end, an important change introduced by the AF will require all LGAs to meet certain institutional strengthening criteria by set dates as presented in the table below. This LGRCIS-related condition is drawn from existing targets for Component 2 and therefore does not create an additional burden on LGAs. In addition to leveraging results against Component 2, the AF will also require LGAs to prepare and implement capacity building and O&M strategy towards the solid waste management activities. This has been proposed as a critical risk mitigation measure by the dedicated solid waste management technical mission undertaken jointly by the Bank and PMO-RALG in October/November 2013. These criteria have

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been discussed with LGAs, most recently during a workshop on March 6, 2014 during appraisal. PMO-RALG will monitor and verify achievement of the milestones, and the Bank will review and clear the findings. The allocation for an LGA which does not comply with the conditions will be redistributed across those that comply. The two institutional strengthening criteria, how they are deemed as satisfied and timeline for doing so are detailed below:

Action to be fulfilled Expected date of Completion

Notes on actions

Criteria 1. The Local Government Revenue Collection and Information System is Operational 1. The city has used the LGRCIS to send

bills and collect taxes; By August 2014

The LGRCIS is operational in all participating LGAs and able to generate collection notices for various taxes other than property tax.

2. The city has sufficient staffing in place to operate LGRCIS with adequate facilities, supplies and budget programmed for the next year’s operations

By August 2014

The staffing and resource needs will increase with time, but sufficient resources need to be in place to ensure smooth operations. PMO-RALG will provide guidance on requirements.

3. The city has completed the valuation exercise.

By May 15, 2015

PMO-RALG indicated this should be achieved by the deadline.

Criteria 2. ULGAs have capacity to operate the landfills and collection systems 1. All participating LGAs with landfills

have completed training for solid waste management operations.

By August 2014

Training curriculum and design was prepared by the Bank in partnership with PMO-RALG. The capacity building activities, such as design of training curriculum on solid waste management, are currently underway and would be conducted in the next few months leading up to project effectiveness.

2. All participating LGAs have robust O&M plans in place for the landfills

By August 2014

In addition, PMO-RALG will complete an assessment of the sustainability risks and mitigation measures of the LGRCIS. This assessment will also include budget estimates to implement further capacity building and training activities for solid waste management. This will be cleared by the Bank before the start of any activities on associated works . Implementation Arrangements. Given the strong track record of the project, the proposed AF will be implemented using the same institutional arrangements, procurement, financial management and disbursement arrangements as for the parent project, as they have been assessed to be satisfactory by the Bank’s fiduciary team. Under the current institutional arrangements, participating LGAs are responsible for implementing subprojects at the local level, including all fiduciary, safeguards and reporting requirements, while PMO-RALG is responsible for the overall management of the project, providing

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overall coordination and technical support to LGAs and CDA. In addition, PMO-RALG is undertaking plans to reinforce its internal capacity to enhance its field-based support to LGAs in supervision, quality assurance, technical transfer, and capacity building. This will further enhance their project implementation capacity. Planned PMO-RALG support enhancements will include (i) strengthening the coordination unit by increased staffing; (ii) strengthening coordination at Regional Secretariat level; and (iii) enhanced capacity building teams under Urban Local Government Support Program to provide cross-support to TSCP, as needed. Monitoring and Evaluation: The project results framework has been updated in the following way: (i) targets and baselines have been revised, taking into account the additional funds and the additional subprojects; and (ii) objectivity and measurability of the system has been enhanced by revising the indicators (formulation and targets) for the whole project. This was based on the findings of the mid-term review, which had highlighted that the results framework was in need of strengthening. In addition to the enhancements to the results framework, the M&E capacity at PMO-RALG to verify quality of data collected at the LGA level has also been enhanced through the increase in M&E staff and planned M&E capacity building capacities under the AF. Sustainability: Sustainability is at the core of the Project and this design feature will be maintained and strengthened further under the AF. The two key elements of sustainability are: (i) the financial sustainability of participating LGAs through the enhancement of institutional capacity and underlying management systems through Component 2 activities; and (ii) the sustainability of LGA physical infrastructure including, but not limited to, those financed under the project. The AF will require LGAs to satisfy conditions which ensure sustainability of these two key elements (see above conditions for LGA access to AF). Further, in coordination with the participating LGAs, PMO-RALG has incorporated the new infrastructure under AF into the O&M strategy, which had been developed in the parent project. Participating LGAs will be setting aside budgets for the O&M of these infrastructure. Financial Management: Overall, the financial management performance has been satisfactory based on the overall project financial management arrangements. The project is in compliance with required financial covenants in terms of maintaining satisfactory financial management arrangements, submission of quarterly IFRs and annual audit report. The last two audit reports received clean opinions, however the last review mission noted FM issues in slow documentation/accountability of funds advanced to LGAs, and inaccountability and internal controls deficiencies. These issues are demonstrated by the findings of the December 2013 National Audit Office (NAO) report for the project. The NAO report include: (i) expenditures of Tsh 127 million (US$78,000) in two LGAs which were not included in the Financing Agreement, (ii) misclassification of funds between Components 1 and 2 in one LGA, and (iii) late deposit into the deposit bank of the account retention money deducted from various contractors in one LGA. The Bank and PMO-RALG therefore, developed an action plan to address each of the findings and prevent future occurrence. To date all major action items have been addressed, including the refund of ineligible expenditure in the amount of US$78,000 as mentioned above. In a letter to the Permanent Secretary of PMO-RALG on March 31, 2014, the NAO confirmed that it has verified the resolution of these issues; subsequently, PMO-RALG informed the World Bank on April 1st, 2014 of NAO’s completion of the verification exercise. Overall, while each individual finding of the NAO report is considered to be minor from a fiduciary point of view, collectively, these findings have required close follow up. As a result, the current FM performance is rated marginally satisfactory. As the outstanding action items are now completed, the rating will be re-evaluated in the next implementation support review.

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The FM risk rating of the project remains substantial, taking into consideration the overall weak internal environment at country level, complexity of the project, and its decentralized implementation modality across eight LGAs. Financial management and disbursement arrangements currently in place under TSCP will continue to support the additional financing. More specifically:

(i) Funds flow arrangements will be as per current credit. (ii) Interim Financial Reports (IFRs): The project will continue to account for the funds using the report-

based IFR disbursement method. The format of the IFR will remain the same. (iii)Audit reports will continue to be received within 6 months after the end of the financial year.

Details of the Financial Management arrangements for additional finance and summary action plan to address issues highlighted above are included under Annex 7. Procurement: Project implementation is mainstreamed within the government entities and structures. Procurement performance at the level of the participating LGAs and CDA with regards to procurement of works and goods and selection of consultants has been satisfactory. Additional activities were conducted to increase procurement capacity of procurement staff and engineering personnel. The capacity building covered contract management, procurement data management in addition to the typical training on procurement procedures under International Competitive Bidding (ICB) and selection of large value contracts. In addition, support was provided from the team at the PMO-RALG level in terms of coordinating and technical back up. At PMO-RALG level, major procurement covered the common items such as solid waste equipment/goods for all the participating LGAs and CDA. The procurement performance at PMO-RALG has also been satisfactory and additional capacity improvement measures included hiring of a procurement expert/ engineer and the government assigning a senior staff as Project Coordinator working full time for the project. Procurement capacity at the LGAs has increased during project implementation. At the beginning of the project, hardly any procurement of works and goods was done by LGAs utilizing the International Competitive Bidding (ICB) method, and only a few under National Competitive Bidding (NCB). This practice was due mainly to the low capacity of procurement staff at the LGA level and limited funds. After about four years of implementation, the procurement staff in participating LGAs and the CDA are now able to adequately process NCB and ICB packages, as a result of continuous capacity building activities including a tailor-made procurement course for TSCP and other relevant procurement training aimed particularly at LGAs.

Social Analysis PHHASSA

Explanation:

The original project did not have and/or use a Resettlement Policy Framework (RPF). Instead,Resettlement Action Plans (RAPs) were prepared for each subproject involving resettlement during design stage. Under the AF, there will be some resettlement and land acquisition for a number of subprojects, mainly those dealing with road rehabilitation and drainage. No new landfill will be financed under the AF. There will be only new cells within the existing landfills which were financed under the original project. The following approach has been adopted for the proposed AF activities:

(i) An RPF for the project as a whole has been prepared and disclosed in the InfoShop and in-country on April 2, 2014. This will provide the guidelines and framework for the preparation of specific RAPs for each subproject to be financed by the AF;

(ii) Two RAPs have been prepared, in accordance with the principles of the RPF, for the following

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two subprojects that have full technical designs: Upgrading of Duga - Airport Road in Tanga and Upgrading of Unga - Muriet Road (including Burka Bridge) in Arusha. These have been disclosed in the InfoShop and in-country on April 2, 2014 ;

(iii) In accordance to the requirements of the RPF, a comprehensive stakeholder analysis, including areas of influence and description of stakeholders, was undertaken. The RPF describes the consultation processes each subproject specific RAP should follow. During the preparation of the two RAPs mentioned above the main stakeholders, including LGAs and the PAPs were consulted and their views considered in the preparation of those RAPs. Consultations with the PAPs took place from 20 to 22 February, 2014 in the Duga-Airport Subproject area in Tanga and from 19 to 25 February, 2014 in the Unga Ltd-Muriet Road (with Burka Bridge) subproject area in Arusha.

LGAs will be responsible for payment of resettlement compensation costs and have secured the necessarybudget for this. The estimated resettlement compensation cost is US$0.6 million which will be financed by GoT as per the financing table. These funds will be made available before any associated works can be started by the relevant LGA.

Environmental Analysis

Explanation:

Activities proposed under the AF will not pose additional safeguards risks or impacts, or require a change in category, or trigger new World Bank safeguard policies. Accordingly, Environmental Risk Assessment for the AF is rated Category B (partial assessment) and triggers the same World Bank Safeguard Policies as the current project, which are: Environmental Assessment OP/BP 4.01; Physical Cultural Resources OP/BP 4.11; and Involuntary Resettlement OP/BP 4.12. There are no known safeguards compliance issues that are unresolved in the original project and overall safeguard compliance is rated ‘satisfactory.’ The AF will support the same category and typology of sub-projects as those supported under the original project. The sub-projects to be financed by the AF do not include any new landfills, but only additional cells in the five landfills supported by the original project. The following approach has been adopted for the proposed AF activities:

(i) An Environmental and Social Management Framework (ESMF) has been prepared for the project as a whole, to guide preparations for individual investments under the AF for which technical designs are not finalized. The ESMF was disclosed in the InfoShop and in-country on April 2, 2014.

(ii) In addition to the ESMF, the government has prepared two Environmental and Social Impact Assessments (ESIAs) for the following subprojects with full technical designs ready: Upgrading of Duga - Airport Road in Tanga and upgrading of Unga Ltd - Muriet Road (including Burka Bridge) in Arusha. These two ESIAs have been disclosed in the InfoShop and in-country on April 2, 2014.

(iii) As per requirements of ESMF and ESIA processes, a comprehensive stakeholder analysis including areas of influence and description of stakeholders has been undertaken. Consultations on the findings of the analysis were conducted with key stakeholders from 20 to 22 February, 2014 in the Duga-Airport Subproject area in Tanga and from 19 to 25 February, 2014 in the Unga Ltd-Muriet Road (with Burka Bridge) subproject area in Arusha. Concerns raised during stakeholder consultations will be addressed in the Environmental and Social Management Plans (ESMPs) to be prepared as part of the ESIAs and monitored during project implementation.

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Risk PHHASRisk

Explanation:

Most risks, including stakeholder, sector and multi-sector, country, capacity, governance, design, social and environmental program and donor are assessed as low or moderate. The two key risks identified at this stage pertain to (i) fraud and corruption, mainly due to the overall weaknesses in fiduciary capacity at the LGA level as well as PMO-RALG’s capacity to provide adequate technical support on fiduciary matters,taking into consideration the complexity of the project and its decentralized implementation modality, and (ii) sustainability of infrastructure assets built and of the institutional strengthening activities for solid waste management and revenue collection. The main measures to mitigate these risks are: (i) the institutional enhancement activities under Component 2 and 3 (including procuring equipment and a series of capacity building activities for solid waste management, public awareness of SWM and cost recovery strategies, updating relevant by-laws for efficient operationalization of SWM system); (ii) introducing institutional strengthening criteria which LGAs have to fulfill to access AF resources for Component 1; and (iii) providing more intensive support to LGAs (and the Bank team and PMO-RALG) during project implementation. These risks and mitigation measures are further detailed in the ORAF.

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Annex 1: Results Framework

Project Name:

Tanzania Strategic Cities Project AF (P148974) Project Stage:

Additional Financing Status: DRAFT

Team Leader:

Mehmet Onur Ozlu Requesting Unit:

AFCE1 Created by: Marie Claire M. Li Tin Yue on 05-Feb-2014

Product Line:

IBRD/IDA Responsible Unit:

AFTU1 Modified by: Chyi-Yun Huang on 26-Mar-2014

Country: Tanzania Approval FY: 2014

Region: AFRICA Lending Instrument:

Investment Project Financing

Parent Project ID:

P111153 Parent Project Name:

Tanzania Strategic Cities Project (P111153)

.

Project Development Objectives

Original Project Development Objective - Parent:


Proposed Project Development Objective - Additional Financing (AF):


Results

Core sector indicators are considered: Yes Results reporting level: Project Level .

Project Development Objective Indicators

Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

Marked for Deletion

Roads in good and fair condition as a share of total classified roads

Percentage Value 36.00 27.00 69.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2015

Comment 155 km 429 km 296 km

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Marked for Deletion

Number of people in urban areas provided with access to all-season roads within a 500 meter range under the project

Number Value 498152.00 1799671.00 736307.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2015

Comment 21% 65% 33%

Revised Direct project beneficiaries Number Value 0.00 620837.00 1483000.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment

No Change Female beneficiaries Percentage Value 0.00 49.00 49.00

Sub Type

Supplemental

New Non-rural roads rehabilitated or constructed to paved standard (km)

Kilometers Value 0.00 123.00 152

Date 30-Jun-2009 28-Feb-2014 31-Dec-2017

Comment

Revised Waste disposed at landfills as percent of total waste generated in LGAs


Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment

Revised People with access to improved bus stations, terminals or lorry stands (number)

Number Value 0.00 603817.00 974000.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment

Intermediate Results Indicators

Status Indicator Name Core Unit of Measure Baseline Actual(Current) End Target

Marked for Deletion

Roads rehabilitated, Non-rural Kilometers Value 0.00 123.00 141.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2015

Comment

Marked for Amount spent / annual budget Percentage Value 80.00 86.00 95.00

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Deletion for maintenance of road infrastructure

Date 30-Apr-2010 28-Feb-2014 31-Dec-2015

Comment

Revised Drainage constructed/rehabilitated

Kilometers Value 0.00 15.10 19.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment

Revised Waste collection points constructed or rehabilitated (number)

Number Value 0.00 259.00 250.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment

Revised Number of landfills and cells constructed or improved

Number Value 0.00 3.00 5.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment 0 cubic meters 64,800 cubic meters

15 cells

Revised Bus stations, terminals or lorry stands constructed or improved (number, capacity)

Number Value 0.00 6.00 12.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment 660 vehicles 1100 vehicles

Revised LGAs with up-to-date strategic urban development plans (number)

Number Value 0.00 3.00 7.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment

New Progress in preparing General Planning Schemes in LGAs

Percentage Value 0.00 100.00

Date 01-Jul-2014 31-Dec-2017

Comment

Revised Up-to-date property valuations (number, and % of all properties in LGAs)

Number Value 45000.00 135715.00 470000.00

Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment 10% 30% 100%

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Revised Amount of property tax collected, and as percentage of property taxes billed (Billion Tanzanian Shillings, %)

Percentage Value 1.00 4.50

Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment 35% 65% 75%

Revised Increase in own-source revenue over base year


Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment

Revised Amount spent on operation and maintenance as percent of total municipal expenditure (%)


Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment

Revised Percent of O&M cost for solid waste management recovered from direct fees and charges


Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment

New Percent of O&M cost for bus stations, terminals or lorry stands recovered from direct fees and charges


Date 30-Apr-2010 28-Feb-2014 31-Dec-2017

Comment .

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Annex 2

Operational Risk Assessment Framework (ORAF)

Tanzania: Tanzania Strategic Cities Project AF (P148974).

.

Project Stakeholder Risks

Stakeholder Risk Rating Low

Risk Description: Risk Management:

There are no known stakeholder risks. There is full engagement and interest from project local governments, PMO-RALG and citizens in the project local governments.

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

Implementing Agency (IA) Risks (including Fiduciary Risks)

Capacity Rating Moderate


LGAs started to procure, implement and maintain sub-projects directly for the first time with this project. Implementation track-record to date is satisfactory. Innovations introduced by the project, such as LGRCIS and the operation, management and maintenance of landfills (a first in Tanzania) are progressing but with challenges, particularly as a result of low capacity at LGA level to undertake these tasks. There is a risk that the skill mix in PMO-RALG, especially the recently established Department of Urban Development (DUD) and the quantitative capacity will not suffice to handle the increasing number of projects for which PMO-RALG/DUD are responsible.

Capacity building for LGAs is a key focus in the AF and takes place on several levels. PMO-RALG will provide overall guidance to LGAs during implementation and the capacity of LGAs will be enhanced through a “learning-by-doing” approach. In addition, specific capacity building activities, such as those pertaining to operation of LGRCIS and solid waste management will be provided under the AF Component 2 and 3. The institutional strengthening criteria which LGAs have to fulfill in order to access the AF resources for Component 1 also pertain to enhancing the capacity of LGAs in these two areas. PMO-RALG has also undertaken plans to reinforce their internal capacity to enhance its field-based support to LGAs in supervision, quality assurance, technical transfer, and capacity building. This will further enhance their project implementation capacity for theAF. Planned PMO-RALG support enhancements will include (i) strengthening the coordination unit by increased staffing; (ii) strengthening coordination at Regional Secretariat level; and (iii) enhanced capacity building teams under ULGSP to provide cross-support to TSCP, as needed.

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The Bank will also monitor implementation closely, with frequent implementation support missions and from the country office on the ground.


Client In Progress Implementation Yearly

Governance Rating Moderate


The national implementing agency (PMO-RALG), as well as the participating LGAs have the necessary governance structures in place. This was demonstrated in 2013 by the successful resolution of a complaint filed by a citizen in one of the participating LGAs over the quality of an urban road construction. The complaint was flagged, processed and acceptable measures were taken to ensure that the road was of appropriate quality. Despite these, governance structures are not functioning adequately mainly due to relatively weak capacity and staffing levels.

Enhanced staff capacity and increased staffing, as mentioned above, will help strengthen the capacity at both the PMO-RALG and participating LGAs levels. The Bank has identified the need to strengthen (i) environmental and social management, including the complaints handling mechanism, (ii) public financial management, (iii) quality assurance systems, (iv) capacity building for local governments, and (v) measures for communications, public outreach, and accountability. The PMO-RALG field-based support enhancement plan covers these areas.


Client In Progress Implementation 31-Dec-2017

Risk Management:

Improve the overall fiduciary environment in LGAs through institutional capacity building activities. Implement the Local Government Anti-Corruption Strategy and Action Plan Phase III 2010 – 2015 developed by PMO-RALG.



Project Risks

Design Rating Moderate


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Under the AF, two institutional strengthening criteria are introduced which LGAs have to satisfy before AF resources could be accessed for component 1 activities. There may be a risk of LGAs not meeting these criteria.

This LGRCIS-related condition is drawn from existing targets for Component 2 and therefore does not create an additional burden on LGAs. A series of solid waste management related capacity building activities have been designed and will be provided to LGAs to assist them to meet the solid waste management criteria. In addition, these criteria have been discussed with LGAs and PMO-RALG and assessed as achievable. PMO-RALG will closely monitor the progress and verify achievement of these criteria.


Both In Progress Implementation 31-Dec-2017

Social and Environmental Rating Moderate


Inadequate experience at LGAs in executing social and environmental safeguards policies may lead to non-compliance with safeguards policies requirements. Project LGAs will be responsible for RAP implementation as well as compensation, as contrary to the original project arrangements where they were funded through IDA.

PMO-RALG safeguards team provides close technical support and capacity building to safeguards specialists in LGAs. LGAs have budgeted for the RAP compensation costs in their annual budget cycle.


Client Not Yet Due Implementation 31-Dec-2017

Program and Donor Rating Moderate


Component 2 depends largely on funding from DANIDA, which is arranged as a parallel co-financing, disbursing directly from DANIDA to GoT. The World Bank has neither fiduciary responsibility over Component 2 funds nor formal oversight on the technical design of Component 2.

For the DANIDA AF, both the Bank and PMO-RALG team have been constantly engaged in discussions with DANIDA. To ensure cooperation and full complementarity, the practice of strong collaboration between DANIDA, PMO-RALG and World Bank which includes, among other things, joint implementation support missions, will continue under the AF.



Delivery Monitoring and Sustainability Rating Substantial


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Sustainability of investments: The landfills under construction financed by the project are the first set of landfills in the country. While this increases the technical relevance of the intervention, as landfills are direly needed, it also means a significant risk as there is no cadre of experienced solid waste management specialists and established procedures for operating and maintenance landfills. There is a substantial risk that O&M efforts (for physical subprojects under Component 1) by LGAs may fall short of the requirements or that achievements made under Component 2 may not be sustained by LGAs with sufficient vigor.

The team is acutely aware of the risk and as such, undertaken a special technical mission for solid waste management from Oct 20 to Nov 5, 2013, which assessed the progress, quality, sustainability, and risk of all sector investments and determined risk mitigation measures and actions required for additional financing. These measures and actions, most significant of which are to increase the number of cells for the landfills under construction to ensure longevity and to provide extensive training for technical LGA staff are at the core of the request for the AF and will be priority investments. In addition, IDA AF will be available to LGAs which satisfy the condition on solid waste management including capacity building and O&M strategy.


Both In Progress Implementation 31-Dec-2017

Overall Risk

Overall Implementation Risk: Rating Substantial

Risk Description:

The overall risk rating for TSCP was moderate at original project approval. For the AF, most risks including stakeholder, sector and multi-sector, country, capacity, governance, design, social and environmental program and donor risks are assessed as low or moderate. However, risks related to fraud and corruption, and delivery monitoring and sustainability are currently assessed as substantial. The fraud and corruption risks are mainly due to the overall weaknesses in fiduciary capacity at the LGA level as well as PMO-RALG’s capacity to provide adequate technical support on fiduciary matters, taking into consideration the complexity of the project and its decentralized implementation modality. The delivery monitoring and sustainability risk mainly pertains to O&M and solid waste management issues. The overall project risk is thus rated substantial. The main measures to mitigate these risks are: (i) the institutional enhancement activities under Component 2 and 3; (ii) institutional strengthening criteria which LGAs have to fulfill to access AF resources for Component 1; and (iii) the intensive support to be provided by the Bank and PMO-RALG during project implementation.

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Annex 3: Indicative List of Sub-Projects and Estimated Costs Component 1 LGAs Indicative Sub-Projects per LGA Costs (US$ Mil)

Tanga

Duga Airport Road upgrading 2.32 Street No 8 Road Rehabilitation 1.11 Improvement of Bus and Lorry Stands 0.50 Feeder drains for Duga & Mabawa drain 0.40 Infrastructure Sub-Total 4.33

Arusha

Unga Ltd-Muriet Rd & Burka Bridge construction (landfill access road) 6.52

Three additional cells at landfill 2.00

Bondeni drain extension 0.27

Infrastructure Sub-Total 8.79

Mwanza

Improvements to Pasiansi-Buzuruga, Sanga-Kiloleli, Butimba & Pepsi Loop Roads 1.45 Msuka river bank protection across Sanga – Kiloleli Road 0.40 Isamilo-Mjimwema junction road upgrading 0.35 Tilapia Road upgrading 0.30 Mtakuja Road upgrading 0.40 Uzinza Road upgrading 0.46 Infrastructure Sub-Total 3.36

Ilemela Infrastructure Sub-Total 0.00

Kigoma

One additional cell at landfill 2.00

Improvements/Extension of Lubengera & NHC Katubuka Storm Water Drains 0.97

Improvements to bus stands 0.35

Rusimbi Road upgrading 1.26


Dodoma

Two additional landfill cells 1.60

Improvements to landfill 0.15

Improvements to "Package 1" works 1.26

Improvements to "Package 2" works 0.64


CDA

Improvements to Kisasa & Chang'ombe Road 2.32 Improvements to Area A & Kikuyu Road 1.13 Various storm water drains linking Package 2 & Package 3 drainage works 0.56 Infrastructure Sub-Total 4.01

Mbeya

Two additional landfill cells/improvements at Uyola 4.00

Improvements to Package 1 works including drainage, access structures and street lights 1.41

Improvements to Package 2 works including drainage, access structures and street lights 1.73


Mtwara

One additional cell and one rainwater storage pond at landfill 1.80 Additional drains along Port and Zambia roads 0.67 Additional drains and street lights along Chuno Road 0.88 Infrastructure Sub-Total 3.35

TOTAL

Sub-Total Infrastructure Sub-projects 39.21

Price Contingencies for Infrastructure @ 5% 1.94

Supervision 3.56

TOTAL COSTS 44. 71

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Component 2 (fully financed by DANIDA) Description of

Sub-components Indicative List of Activities Costs (US$ Mil)

1 Urban Development and Management

Sensitization workshop on online M&E and Mail and File Tracking Systems & LGRCIS

0.18

TSCP Monitoring, Evaluation and Reporting Change Management Advisor

Awareness campaign (and/or Communication Strategy) of project activities and achievements

Procurement of equipment and training for new staff

2 Improved Urban Strategic Planning

High and medium valued property valuation for rating

3.00

Preparation of General Planning Schemes (for 5 LGAs: Tanga, Arusha, Kigoma, Ilemela, Mtwara) - including a consultancy to guide the process and for quality control

Public and staff awareness raising and/or enforcement of laws governing Urban Development Control and Land Use Management

Strengthening of GIS units and its application in LGAs: - Tools/equipment, - additional training, - back-up and recovery site

3 Improved Asset Management and O&M

Conducting inventory of LGAs' assets (including infrastructure) 0.36 Sensitization and training on application of SOMMA

4 Improved Management and Cost Recovery of key urban services including solid waste, bus stand and Lorry parking

Public awareness of SWM and Cost Recovery strategies

0.86

Updating relevant by-laws for efficient operationalization of SWM System SWM Capacity building: - Financial training for SWM fee collection - Training for managers of SWM collection system - Ongoing remote trainer support (via skype) - Implementation check-in workshop - Recruitment of SWM expert

5 Improved Own Source Revenue

Equipment and training for LGRCIS for LGAs

1.00

Centralized LGRCIS & SOMMA hardware and software Public awareness on the Tax Compliance and Revenue Enhancement Campaigns Municipal finance expert for Revenue Enhancement strategies and plans Round Table Discussion - Synergizing Revenue Enhancement Endeavors Additional specialized short courses for ICT staff (for PMO-RALG & LGAs)

Equipment for LGRCIS disaster recovery site

6 Contingencies (managed by DANIDA) Contingencies

0.60

TOTAL 6.00

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Component 3

Category/Activity Costs (US$ Mil)

1. Goods 2.90

PMO-RALG IT & Office Equipment 0.10

SWM equipment for LGAs 2.80

2. Consultancy Services 1.24

Designs for Storm Water Drainage System in Mtwara Mikindani Municipality 0.54

Other Consultancies/Technical Assistance during Project Implementation 0.35

SWM capacity building 0.35

3. Workshops 0.15

End of Project Workshop

4. Operating Costs 1.00

Project Operating Costs

TOTAL 5.29

OVERALL

Components IDA AF (US$ Mil)

DANIDA (US$ Mil)

GOT (US$ Mil)

Total AF (US$ Mil)

Component 1 44.71 0.00 0.60 45.31

Component 2 0.00 6.00 0.00 6.00

Component 3 5.29 0.00 0.00 5.29

Total 50.00 6.00 0.60 56.6

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Annex 4: Economic and Financial Analysis 1. Introduction. The Government of Tanzania (GoT) has requested US$50 million of Additional Financing (AF) for the Tanzania Strategic Cities Project (TSCP). The proposed amount would be used to co-finance investments in physical infrastructure, equipment and consulting services. This annex first presents an overview of the physical infrastructure projects to be financed from the AF, and articulates the rationale for the use of public financing in general, and the use of World Bank resources in particular, to implement the subprojects. It then presents the results of the economic analysis of a representative sample of proposed infrastructure subprojects, followed by an analysis of the financial capacity of the participating LGAs to adequately operate and maintain economically feasible subprojects. A. INFRASTRUCTURE SUBPROJECTS TO BE FINANCED FROM AF

2. Estimated cost of proposed infrastructure subprojects. In January 2014, GoT submitted a long list of 107 infrastructure subprojects to be considered for financing from the proceeds of the AF. The estimated cost of the subprojects was approximately US$157 million, which was substantially more than the maximum amount of available AF. In consultation with the Bank, 29 infrastructure subprojects were prioritized. The total cost of the subprojects was estimated at approximately US$48 million in constant January 2014 prices; this amount includes a provision for detailed design and construction supervision.6 The remainder of the AF would be allocated to finance capacity building in the nine participating LGAs (US$0.7 million) and the incremental cost of the PMO (US$1.8 million). 3. Sectoral distribution of proposed infrastructure subprojects. It is envisaged that the AF will finance physical infrastructure subprojects in the following four sectors:

i. Roads. Proposed investments in roads account over half of the AF (about US$ 28 million, or 56% of the total). Most proposed roads projects involve the completion of road upgrading projects that were started during the first phase of TSCP, usually by providing side walks, street lightning and drainage (see Table 1 for details).

ii. Solid waste management. About US$16 million of the AF will be allocated to financing improvements to landfills and the procurement of waste collection and compacting equipment in five of the nine LGAs.

iii. Drainage (stand-alone). The AF will not only finance investments in drainage to improve roads, but also three relatively small stand-alone drainage projects: river bank protection in Mwanza, storm water drains in Kigoma, and a drain extension in Arusha.

iv. Bus and lorry terminals. In three LGAs (Tanga CC, Dodoma CC and Kigoma Ujiji MC) the AF will finance the upgrading of terminals that were constructed with funding from the original TSCP loan. The cost of these investments accounts for about 3% of the AF.

6 Base cost estimates for all subprojects were prepared by the Government of Tanzania. Cost estimates for landfills

were adjusted by the Bank. In addition, the Bank added price contingencies of 6% to all subproject base cost estimates, and an additional 9% for detailed design and construction supervision. It was assumed that all cost estimates included 18% VAT and (where required) provisions for resettlement and compensation.

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Table 1: Estimated Cost of Infrastructure Subproject Projects for AF, by Sector

Sector # Subprojects Cost (US$ m)* % Total Cost

Roads 18 28.3 56

Solid waste management 5 16.1 32

Drainage** 3 1.9 4

Bus and lorry terminals 3 1.7 3

TOTAL INFRASTRUCTURE 29 48.0 95

Capacity building and PMO support 2.5 5

TOTAL ADDITIONALFINANCING

50.5 100

Source: World Bank estimates (2014) * Expressed in constant January 2014 prices ** Stand-alone drainage subprojects only (drainage works that form part of road improvement

subprojects were included in the category “Roads”)

4. Geographical distribution of proposed infrastructure subprojects. The AF for physical infrastructure subprojects has mainly been allocated to the participating jurisdictions in proportion to their populations, as evidenced by the relatively minor variation in per capita allocations (Table 2). There are two notable exceptions to this pattern: (i) Mtwara Mikindani; this MC has a small population, so that the inclusion or exclusion of a subproject has a relatively large impact on its per capita allocation, and (ii) Ilemela; this council will not execute subprojects because it has only recently been established as an independent LGA after the split of Mwanza City Council, and the infrastructure investments will be implemented by the Mwanza City Council on its behalf. Ilemela will, however, receive capacity building support. Table 2: Estimated Cost of Infrastructure Subproject Projects for AF, by Jurisdiction

Jurisdiction* Number of Subprojects

Cost (US$ million)**

% Total Cost

Cost/Capita (US$)***

Tanga CC 4 5.0 10 18

Arusha CC 3 10.6 21 25

Mwanza CC 6 3.9 8 11

Ilemela MC - - - -

Kigoma Ujiji MC 4 5.6 11 26

Dodoma MC 3 4.5 9 } 22

CDA 3 4.6 9

Mbeya CC 3 9.2 18 24

Mtwara Mikindani MC 3 4.5 9 42

TOTAL INFRASTRUCTURE 29 48.0 95 22

Capacity building and PMO support 2.5 5 1

TOTAL ADDITIONALFINANCING

50.5 100 20

Source: World Bank estimates (2014) * CDA: Capital Development Authority, CC: City Council, MC: Municipal Council ** Expressed in constant January 2014 prices *** Based on 2012 census data

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5. Rationale for World Bank financing of proposed infrastructure subprojects. As will be shown in Section B of this annex, the economic benefits of the proposed subprojects are expected to exceed their economic costs. At the same time, none of the proposed subprojects are expected to be financially feasible from tariff revenues or user charges (roads and drains do not generate direct financial revenue, whereas the financial revenue from sanitary landfills and bus and lorry terminals normally cannot cover the full capital cost of infrastructure). Thus, the proposed subprojects will generate substantial benefits (“positive externalities”) to the general public. Bank financing of capital grants is justified given the budgetary constraints of LGAs and the central government itself (which has been running substantial budget deficits in recent years), and the high transaction costs to the Government of Tanzania of involving a new development partner mid-way project implementation. The reasons are further elaborated below:

Limited availability of equity financing. Because the proposed subprojects are not financially feasible, it will not be possible to attract domestic private investment for these. In the short term, LGAs themselves will also not be able to finance the proposed subprojects from their own budgetary resources, given that most of their revenue is either earmarked or needs to be allocated for the operations and maintenance of existing and proposed infrastructure facilities (in the medium and long term, some of the participating LGAs may be able to co-finance infrastructure investments from rapidly growing own-source revenue).7 At present, the central government is also not in a position to finance substantial infrastructure investments from its own resources. Since 2004, it has been running budget deficits ranging from 8.6% to 11.9% of GDP. 8

High cost of commercial loan financing. The Government of Tanzania continues to have access to substantial amounts of concessional loans. The conditions of such loans are much more favorable than loans at commercial rates. In addition, domestic debt markets are relatively underdeveloped and offer maturities of up to 10-15 years. This is significantly shorter than the economic lifetime of most of the proposed infrastructure projects, which is in the order of 20-25 years.

Limited transaction costs of World Bank financing. Given that concessional loans are the preferred source of financing for the types of infrastructure considered in this annex (i.e. public infrastructure with positive externalities and a long economic lifetime), it is more efficient for GoT to request AF than to seek an alternative source of concessional financing. Because the key Tanzanian stakeholders in TSCP are already familiar with the Bank’s requirements, and because the Bank has an in-depth knowledge of the project, the AF can be prepared at a lower cost and in a shorter period of time than would be the case for a new concessional credit.

B. ECONOMIC ANALYSIS OF SELECTED INFRASTRUCTURE SUBPROJECTS

6. Methodology for economic analysis. The section contains an analysis of the economic costs and benefits of selected landfill and road improvement subprojects to be financed from the

7 Increased mobilization of own-source revenue is supported through Component 2 of the project. 8 Source: Bank of Tanzania (http://www.bot-tz.org, accessed on 10 February 2014).

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AF. In April 2013, the Bank issued a revised operational policy statement on investment project financing (better known as OP 10.00).9 According to this OP “the Bank assesses the Project’s economic rationale, using approaches and methodologies appropriate for the Project, sector, and country conditions”. The methodology that was used for the preparation of economic benefit-cost analysis of the selected subprojects involves the following five steps:

1. assess economic costs (cost estimation), 2. assess economic benefits (benefit valuation), 3. determine the appropriate discount rate (discounting), 4. compare the net present value of discounted economic costs and benefits (economic

feasibility analysis), and 5. conduct sensitivity analysis.

Because the criterion for accepting or rejecting an option (an EIRR of at least 12%; see paragraph 14) is expressed in real terms, all economic costs and benefits were also expressed in real terms. For this reason, price contingencies do not form part of the economic cost. Taxes are transfer payments and were therefore also excluded from the economic cost. For roads, economic costs and benefits were projected from 2015-2035 (construction to be completed in 2015, followed by a 20-year implementation period). For landfills, the implementation period would end in year in which the landfill would have reached its capacity. The economic lifetime of equipment for solid waste management was estimated at 10 years. 7. Application of methodology. The methodology was applied to 8 of the 29 proposed infrastructure subprojects: 4 solid waste management subprojects and 4 road improvement improvements. The total cost of these subprojects is estimated at US$19.3 million; this is equivalent to approximately 40% of the total cost of physical infrastructure projects financed from the AF. Because of data limitations, it was not feasible to conduct an economic cost-benefit analysis of all proposed subprojects (it should also be noted that, during implementation of the AF, cost estimates and subproject selection may be revised). The first two steps of the methodology (cost estimation and benefit valuation) vary by subproject type and are therefore discussed separately for landfills and road improvement subprojects. 8. Step 1a: Assess economic costs of SWM subprojects. The towns where these subprojects will be implemented already have a solid waste collection system in place. An assessment of the economic costs and benefits of proposed investments in improving this system (by expanding a sanitary landfill and providing additional collection and compaction equipment) should only consider costs and benefits that would not arise without the proposed investments. The incremental economic costs of the proposed landfills therefore consist of:

Economic investment cost. This is the financial cost of the investment minus taxes and duties (assumed 18% of the financial cost, equal to the VAT rate). The residual value, net of any decommissioning costs, was estimated at 20% of the investment cost.

Incremental economic cost of O&M. LGAs will prepare detailed O&M plans (including O&M cost estimates) in the second half of 2014. Annual O&M costs were provisionally estimated at a fixed percentage of the investment cost (3% for landfills and 10% for

9 With the issuance of this OP, the World Bank’s operational policy statement on the economic evaluation of

investment operations (OP 10.04) was retired.

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equipment). It is recommended that the economic feasibility analysis of SWM subprojects will be updated once more reliable estimates of O&M costs and waste collection volumes becomes available.

Economic cost of loss of livelihood was assumed zero. (More specifically, it was assumed that waste pickers and waste traders currently working on uncontrolled dumpsites in the project towns would be allowed to continue their activities on the expanded landfill.)

9. Step 2a: Assess economic benefits of SWM subprojects. Two types of economic benefits were quantified:10

Direct public health benefits. These are public health benefits accruing to persons whose solid waste will be collected and treated because of the implementation of the subproject. Because of increases in population (over 2.0% per year) and per capita waste generation (1.0% per year), the total amount of solid waste generated in the LGAs will increase by at least 3% per year. In 2013, the LGAs collected an estimated 30%-50% of the total waste that was generated in that year. Without an increase in the capacity of its waste collection vehicles (as assumed by the “without project” scenario), the rapid increase in waste generation will cause service coverage to drop to 30-40% in 2035. In contrast, the “with project” scenario is based on achieving 75% service coverage by the end of that year.11 To quantify the direct economic benefits from increased service coverage, the number of project beneficiaries was estimated for each year during the project implementation period (2014-2033) and multiplied by the per capital public health benefit. For the preparation of the Community Urban Infrastructure Project in 2006, per capita health benefits were estimated at TZS 4,727 per year. This amount was converted into constant January 2014 prices, and used for the estimation of health benefits.

Indirect public health benefits. These are benefits accruing to persons whose solid waste will be collected both in the “without project” and “with project” scenario. These persons nonetheless benefit from the subproject for two reasons: (i) the collected waste will be stored in a sanitary landfill instead of in a controlled dumpsite (thereby reducing air and groundwater pollution), and (ii) a higher overall collection rate will reduce floods, waterborne diseases and other adverse environmental and social impacts. Indirect public health benefits were estimated (on a per capita basis) as 25% of direct health benefits.

It is important to note that the benefits from improved public health will only be realized in the period during which the proposed sanitary landfill (or the additional cell) has unused capacity. Once the landfill or additional cell is fully used, it will no longer be able to generate economic benefits. The capacity of the proposed expansions to the landfills was estimated by the World Bank based on landfill design reports commissioned by GoT.

10 Savings to LGA road and drainage maintenance budgets were not considered, because such savings are mainly

generated by investments in waste collection equipment, not by investments in final disposal sites. Increased revenue from waste collection fees were not considered as an economic benefit either, because such revenues are effectively a transfer payment without economic value, given that LGAs normally make (or are expected to make) payment for waste collection compulsory in all sub-districts in accordance with “the polluter pays” principle and irrespective of the willingness-to-pay for SWM services.

11 The service coverage target of 85% for 2020 (as mentioned in the PAD for the original TSCP loan) was deemed too ambitious in view of delays encountered during the first phase of implementation

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10. Step 1b: Assess economic costs of road improvement subprojects. The economic costs of these subprojects consist of the incremental economic investment cost (which is equivalent to the financial cost minus 18% VAT) and the incremental economic cost of O&M. The O&M cost was estimated using the Version 3.2 of the World Bank’s Road Economic Decision Model; this model was also used for the preparation of the original TSCP loan. For road improvement projects that involve the conversion of an unpaved to a paved road surface, incremental O&M costs are approximately 1% of the economic investment cost. The residual value was estimated at 20% of the economic investment cost. 11. Step 2b: Assess economic benefits of road improvement subprojects. The AF will finance two types of road improvement projects, the economic benefits of which are different:

Road surface improvements. The majority of proposed road improvements involve the paving (or re-paving) of road surfaces that are currently in poor condition. The resulting economic benefits consist of reductions in travel time, vehicle operating costs and accident costs vis-à-vis the “without project” scenario. These benefits were quantified using the Road Economic Decision Model. For inner city roads, the economic benefits of increases in value of land, houses and rental were added (the assumed additional benefit was estimated as TZS33 million per kilometer per year in 2010 prices, following the TSCP PAD).

Provision of drains, street lights and sidewalks. The AF will also finance drains, street lights and sidewalks to complete road projects that were started during the first phase of TSCP implementation. Such projects will not result directly in reduction of travel time or of vehicle operating costs because the road surface of these roads has already been improved. The economic benefits of the additional improvements were estimated by assuming that drains would extend the road’s economic lifetime by five years (the benefits of street lightning, which mainly consist of improved security, were not quantified). Further, additional benefits will be accrued from improved safety and accessibility along those roads where sidewalks will be added.

12. Step 3: Determine the appropriate discount rate. A subproject is deemed economically feasible if the economic net present value (ENPV) of the subproject’s discounted (net) cashflows is at least zero, or if economic internal rate of return (EIRR) of these cashflows exceeds the discount rate of 10%. As stated in the technical appendix to the Bank’s Handbook on Economic Analysis of Investment Operations (1998), it is standard practice to apply a (real) discount rate of 10-12% to projects. This rate reflects the opportunity cost of capital committed to the selected option. For the purpose of assessing the economic viability of subprojects to be financed from the AF, the discount rate was set at 12%.12 This rate was also applied to evaluate the economic feasibility of subprojects financed from the original TSCP loan. 13. Step 4: Compare the net present value of discounted economic costs and benefits. The economic internal rates of return of seven of the eight subprojects in the sample exceeded the minimum required rate of 12% (Table 3). Only the installation of additional drains and street

12 According to the Handbook, “Task managers may use a different discount rate, as long as departures from the 10-

12 percent rate have been justified in the Country Assistance Strategy”. No such justification was found in the World Bank’s latest CAS for Tanzania.

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lighting along Chuno Road in Mtwara was not deemed feasible. The weighted average EIRR of the selected subprojects––using cost estimates as weights––was 13.5%, well above the hurdle rate of 12%. This suggests that the proposed package of subprojects is feasible, but that the economical feasibility of the package may be further increased by a careful review of each subproject before it is being implemented. Table 3: Results of Economic Analysis of Selected Infrastructure Subprojects

Jurisdiction Description* Cost (US$ m)**

EIRR (%)

Economically Feasible?

SOLID WASTE MANAGEMENT

Arusha CC Two additional landfill cells 2.8 16.8 Yes

Kigoma Ujiji MC Construction of landfill / additional cell 2.6 14.0 Yes

Dodoma MC Two additional landfill cells / Improvements tolandfill

2.4 25.5 Yes

Mbeya CC Two additional landfill cells at Uyola 5.5 12.4 Yes

ROAD IMPROVEMENTS

Kigoma Ujiji MC Rusimbi Road upgrading 1.5 12.1 Yes

CDA Improvements to Kisasa and Chang'ombe Rd 2.7 18.6 Yes

Mtwara Mikindani MC

Additional drains along Port and Zambia roads 0.8 16.0 Yes

Additional drains and street lights along Chuno Rd 1.0 -29.8 No***

ALL SELECTED SUBPROJECTS 19.3 13.5** Yes Source: World Bank estimates (2014) * Financial cost in constant January 2014 prices ** Weighted average, using subproject cost estimates as weights *** Not on basis of quantifiable benefits from increased economic lifetime due to better drainage

14. Step 5: conduct sensitivity analysis. To assess the sensitivity of the outcome of the economic analysis to adverse changes to key parameters, the following three scenarios were considered:

Scenario E1: Increase in economic costs by 10% vis-à-vis the base case. Scenario E2: Decrease in economic benefits by 10% vis-à-vis the base case. Scenario E3: Combination of the above two scenarios.

As shown in Table 4, also under these adverse conditions, the EIRR of five of the eight selected subprojects remain above minimum required rate of 12%. The exceptions are: (i) the Rusimbi Road upgrading in Kigoma, (ii) the SWM subproject in Mbeya CC (the estimated cost of the landfill in Mbeya is relatively high compared to its capacity), and the improvements to the Chuno Road in Mtwara (which was already marked as a marginal project in the PAD for the original TSCP loan).

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Table 4: Results of Sensitivity Analysis (Economic Analysis)

Jurisdiction Description EIRR (%)*

Base E1 E2 E3

SOLID WASTE MANAGEMENT

Arusha CC Two additional landfill cells 16.8 13.8 13.5 10.6

Kigoma Ujiji MC Construction of landfill / additional cell 13.7 12.5 12.3 11.1

Dodoma MC Two additional landfill cells / Improvements to landfill 25.3 23.0 22.8 20.7

Mbeya CC Two additional landfill cells at Uyola 12.0 10.7 10.6 9.4

ROAD IMPROVEMENTS

Kigoma Ujiji MC Rusimbi Road upgrading 12.1 10.8 10.7 9.5

CDA Improvements to Kisasa and Chang'ombe Rd 18.6 14.5 14.1 10.2

Mtwara Mikindani MC

Additional drains along Port and Zambia roads 16.0 12.0 11.6 7.9

Additional drains and street lights along Chuno Rd -29.8 -31.5 -31.7 -33.5

Source: World Bank estimates (2014) ** Areas shaded in grey indicate EIRRs below the minimum required value of 12 percent

C. FINANCIAL ANALYSIS OF PARTICIPATING ENTITIES

15. Methodology for financial analysis. A subproject that is economically feasible should in principle be undertaken, provided that the LGA (or CDA) has the financial capability to adequa-tely operate and maintain the subproject. Two types of subprojects financed from the proceeds of the AF will generate financial revenue that will partly or wholly cover the O&M expenditures of the subprojects themselves (SWM and bus and lorry terminals). For other types of subprojects (roads and drains), the O&M expenditure will need to be covered from the general revenue of the LGA or CDA. To assess the financial capacity of a jurisdiction to operate and maintain economically feasible subprojects, the following four-step method was used:

Step 1: Forecast net incremental operating expenditure of proposed subprojects. This amount is defined as: increases in O&M expenditure of proposed subprojects minus increases in financial revenue generated by proposed subprojects.

Step 2: Forecast public financial revenue. These are estimates of the financial resources that a jurisdiction has at its disposal to cover the net incremental operating expenditure identified in Step 1.

Step 3: Identify maximum available public financial revenue for O&M of proposed subprojects. This amount is expressed as a percentage of total public financial revenue estimated under Step 2.

Step 4: Compare net incremental operating expenditure with maximum available public financial revenue. If, in any year during the economic lifetime of the AF-financed subprojects, the net incremental operating expenditure of proposed subprojects does not exceed the maximum available financial revenue of the jurisdiction in which these subprojects are implemented, then that jurisdiction is considered as having the capability to finance the adequate operations and maintenance of these projects.

The approach that is presented here avoids the need to estimate FIRRs for revenue-generating subprojects (which, in all likelihood, are not financially feasible in any case) and, at the same

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time, ensures that an LGA (or CDA) is able to sustainably manage all proposed infrastructure subprojects, also those subprojects that do not generate direct financial revenue. 16. Step 1: Forecast net incremental operating expenditure of proposed subprojects. Net incremental operating expenditure consists of two items, each of which were estimated separately:

Incremental O&M expenditure. In the absence of more detailed information, the incremental O&M expenditure of the proposed investment was estimated as a fixed percentage of the capital investment expenditure (these percentages were 2% for drains, and 5% for bus and lorry terminals, 1% for roads, 3% for landfills and 10% for SWM equipment).

Increases in financial revenue. It was assumed that incremental revenue from waste collection fees would cover 50% of the incremental O&M cost of SWM equipment. Similarly, it was assumed that increases in revenue from parking fees would fully cover the incremental O&M cost of the proposed bus and lorry terminals.

For ease of comparison, net incremental operating expenditure and public financial revenue were both expressed in constant January 2014 prices. 17. Step 2: Forecast public financial revenue. At the time of writing, the most recent information on public financial revenue of the participating jurisdictions was from 2012/13. It was assumed that public financial revenue would not increase in real terms from that year until the end of the economic lifetime of the AF-financed projects in 2034/35. For two reasons, this was a highly conservative assumption: (i) since 2010/11, total revenue of the LGAs increased by approximately 5% per year, and (ii) own-source revenue is expected to increase significantly because of TSCP-funded investments in property tax administration and other revenue-enhancing measures. 18. Step 3: Identify maximum available public financial revenue for O&M of proposed subprojects. Discussions with PMO indicate that LGAs are willing and able to allocate up to 10% of their discretionary budget (defined as total revenue minus recurrent expenditure) to cover net incremental operating expenditure of the proposed subprojects. 19. Step 4: Compare net incremental operating expenditure with maximum available public financial revenue. The estimated net operating expenditure of the proposed subprojects did not exceed the 10% limit in any year for all participating jurisdictions (Table 5). This means that all LGAs (and the CDA) are financially capable to adequately finance the operations and maintenance of infrastructure subprojects to be financed from the proceeds of the AF. 20. Sensitivity analysis (financial analysis). To assess the sensitivity of the outcome of the financial analysis to adverse changes to key parameters, the following three scenarios were considered:

Scenario F1: Increase in incremental operating expenditure by 10% vis-à-vis the base case.

Scenario F2: Decrease in incremental financial revenue by 10% vis-à-vis the base case. Scenario F3: Combination of the above two scenarios.

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Also under these adverse conditions, the participating jurisdictions remain financially capable to finance the required O&M expenditures. Table 5: Net Incremental O&M as Percentage of Discretionary Expenditure*

Jurisdiction (TSZ billion) Net Incremental

O&M as % of Discr. Expenditure

Total Revenue

Recurrent Expenditure

Discretionary Expenditure

Incremental O&M (Net)

Tanga CC 37.3 21.0 16.4 0.1 0.4%

Arusha CC 46.0 29.2 16.9 0.3 1.6%

Mwanza CC 66.0 48.1 17.8 0.1 0.4%

Kigoma Ujiji MC** 17.5 13.2 4.3 0.2 5.0%

Dodoma MC 22.3 18.1 4.3 0.1 3.5%

CDA *** *** 1.4 0.1 5.3%

Mbeya CC 43.1 30.1 13.0 0.4 2.8%

Mtwara Mikindani MC 21.5 10.6 10.8 0.2 1.7%

Source: World Bank estimates (2014) based on PMO-RALG (2012/13 realization) * Expressed in constant January 2014 prices ** Average for 2010/11-2012/13 (2012/13 not representative because reserves were depleted to finance major increase in development expenditure) *** No data (development budget used to estimate discretionary expenditure)

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Annex 5: Solid Waste Management Technical Analysis Introduction 1. As a result of initial TSCP investments, substantial progress has been made by each of the LGAs towards a basic and functional solid waste management system with concrete pads and skip containers for the neighborhood collection sites, appropriate transportation vehicles and landfills (in five participating LGAs). The five landfills are the first to be constructed in Tanzania and as such represent a significant step forward. 2. As noted above in the main project paper, a join Bank and PMO-RALG study found significant shortcomings in the solid waste management activities, in terms of the quality of work, operational capacity, and sustainability risks. As a consequence, additional investments and funding for operations and maintenance (O&M) to support waste management system improvements are needed. 3. The indicators for the solid waste activities of TSCP assesses waste collected and disposed at landfills compared to waste produced in target areas (%). The specific indicators for solid waste management are: Waste collection points constructed / improved Landfills constructed / improved % of solid waste O&M recovered from fees % of solid waste O&M vs. total expenditures Progress to Date and Sustainability Risks 4. Neighborhood Collection Sites: Numerous skip pads and other locally driven designs for neighborhood collection points have been constructed through the initial TSCP funding. These are all very near completion. The style and locations for the pads and collection points were determined by the LGAs in consultation with CBOs, local neighborhood groups and the private sector. Minor issues were identified during the November review with the “as constructed” pads and collection points. These have been largely rectified by the contractors. 5. Solid Waste Equipment: No equipment was procured for either the solid waste collection system or the landfill sites pending the November 2013 Bank and PMO RALG review. The review found that the equipment in the final procurement list did not adequately reflect solid waste management needs of the individual LGAs. In some cases, road construction and maintenance equipment replaced solid waste equipment undermining the long term sustainability of waste transportation and landfill investments. Without adequate collection and transportation vehicles, it would be difficult to achieve the project KPI. Without adequate landfill equipment, the landfill sites will be poorly operated resulting in unacceptable human health and environmental impacts on workers and area residents from litter, odors and smoke. Inadequate equipment can also significantly reduce the life-span of the landfills. Without dozers and compactors, the compaction (density) of the solid wastes in the landfill will be significantly less than optimal thereby reducing both site capacities and lifespan.

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6. Landfill Lifespans: Landfill construction is now nearing completion for five participating LGAs (Arusha, Kigoma, Mtwara, Dodoma and Mbeya). Two participating LGAs (Mwanza and Tanga) did not apply for landfill funding from the original project as their priorities were focused primarily on roads and solid waste collection. Because of underestimating costs in the original package, inadequate designs and poor quality work, the number of landfill cells to be constructed for each of the five landfills was reduced by PMO- RALG, in discussion with each city, to contain costs. This has resulted in a reduction in landfill lifespan to less than 2 years for Arusha and Kigoma. Expected lifespans for Mtwara, Dodoma and Mbeya will likely be far less than 10 years. Mwanza and Tanga will continue to operate open dumps. Without additional landfill investments, the sites operated by the LGAs will revert back to dumps in the very near future. This represents a significant sustainability risk. 7. Technical and Safeguard Issues: The designs for the five landfill sites provided very basic design provisions to address some of the critical technical and safeguards issues. Other technical and safeguard issues were not fully incorporated in the designs. The problem of inadequate designs was significantly increased by supervisory consultancies and contractors that had limited understanding of the solid waste function of the civil works. In part, this led to several on-site design changes that have the potential to severely impact on the environment and human health. There are shortcomings in the groundwater monitoring programs proposed for most of the landfill sites. For some landfills, unless mitigated, groundwater borehole locations and design could result in contamination by-passing the monitoring system. In other landfills, groundwater boreholes were removed from the design as the contractor misunderstood their importance; In a number of cases, there is inadequate provision for landfill gas venting and monitoring. Venting is essential to prevent methane gas migration; The buffer zones around a number of the sites have not been mapped, delineated and protected from encroachment. Without buffer protection and site fencing, neighbours will encroach on site operations resulting in unacceptable safety risks; Several of the landfill designs omitted provisions to segregate contaminated surface water run-off from uncontaminated run-off from the landfill working face. This can result in overloading of the surface water runoff retention ponds and contaminated water discharges to area watercourses. 8. Site Access: Access to the Arusha landfill site may not be possible during inclement weather as the access road is in very poor condition. It was reported by Arusha City Council, the works contractor and the supervisory consultancy that the road can be impassable during the rainy season. Poor access roads can prompt some vehicle operators to dump wastes along the road when the conditions are most severe, resulting in unacceptable human health and environmental impacts. 9. Technical Capacity: Landfills are new technology for all of the TSCP participating LGAs. A dedicated and trained landfill supervisor will be required for each city along with technical support staff to undertake site operations, maintenance and environmental monitoring. Without qualified management and operating staff, the landfill will revert to a dump site within a

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few years. None of the participating LGAs have begun to hire and train the necessary management and staff teams for the landfills. 10. Support will also be required to build the capacity of collection system managers, Wards and CBOs to improve performance of the complete solid waste value chain to promote local level waste recycling and composting so as to reduce the quantities of waste that will require landfilling and to provide a revenue stream for local communities to support solid waste activities. These efforts will also need to focus on opportunities to optimize the collection system to reduce O&M costs and accelerate achieving the project KPI. 11. Comprehensive landfill site operating and development plans have not been prepared for any of the landfills. Very basic plans have been prepared for Arusha and Kigoma. Site operating and development plans form the basis of training for landfill managers and operators. Without clear plans, sites will revert to dump sites within a few years. At a minimum, each city must prepare detailed plans to support training that address key elements such as site security, leachate management, cell progression, site monitoring and site closure. SWM risk mitigation measures to be financed by the AF 12. No additional investments are required for the skip pads and neighborhood collection sites. The initial investments have provided an adequate number of locations for households, CBOs and Wards to bring area wastes for pickup and transportation by the LGAs to the landfill sites. Additional support is required, however, to build capacity of both Wards and CBOs to increase the quantities of wastes brought to neighborhood collection sites and to initiate source separation, recycling and composting pilot projects that demonstrate the potential to reduce waste quantities destined for landfill and increase revenues from material sales. Particular attention will need to be paid to increasing the number of CBOs in the LGAs to support this work. 13. Additional investments are required to upgrade both waste collection equipment and landfill site operating equipment. Without adequate collection and transportation equipment, it will be difficult to achieve the project KPI. Without adequate landfill equipment, there is a potential for the sites to revert to open dumps, once again emitting air, ground and surface water contaminants off-site. The lifespan of the landfills will also be reduced as compaction will be suboptimal. 14. To ensure proper management, maintenance and sustainability of landfills financed under the project, additional investment is required. As noted earlier, the cost overruns were a result of insufficient attention to solid waste management equipment, training for LGA technical staff and required landfill capacity. Many of the landfills in their current state will have a short lifespan (2-5 years), if there is insufficient equipment and human resources to maintain them – some could soon become open dumps. This threatens to undermine the overall sustainability of the project. 15. To provide a consistent means of evaluating the overall collection and disposal system for each city, a baseline list of basic system needs was developed and used to identify additional investments required to ensure long term system sustainability. These are:

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Each city should have sufficient collection equipment for once a week collection in the CBD; Each city should have sufficient landfill capacity for 15 years; Dump sites located contiguous to the new landfills should be remediated; Each city should have the following basic landfill operating equipment: o Bulldozer o Compactor o Hydraulic excavator o Wheel loader o Tipper (to transport cover material to the working face) o Weighbridge

Proposed Solid Waste Investments to be financed by the additional financing

LGA Landfill

Investments (US$000s)

Equipment Investments (US$000s)

Total (US $000s )

Arusha $2,000 $490 $2,490Mbeya $4,000 $940 $4,940Mtwara $1,800 $690 $2,490Kigoma $2,000 $340 $2,340Dodoma $1,600 $340 $1,940Capacity Building $ 350Total $11,400 $ 2,800 $14,550 16. As presented in the above table, there will be investments under the AF for new landfill cells for the five LGAs with landfills under construction. With the completion of these additional investments, the life-spans for each LGA landfill would be in the order of 15 years. The higher estimated costs for Mbeya reflect significant changes to the design of the landfill to accommodate problems encountered with site geology during construction of the initial cell. The redesign work is underway as part of the initial TSCP investment. Overall cost estimates for each site include (where required) internal access roads, security fencing, buildings, lined cells, leachate collection systems, gas venting, surface water and leachate retention ponds, groundwater monitoring boreholes and site buffers. 17. The proposed additional investments also include landfill equipment to address off-site and on-site human health and environmental risks from litter, dust, odours and smoke from fires. With these investments, the LGAs will be able to regularly compact and cover wastes minimizing the potential for workers and off-site residents to be impacted. The additional landfill equipment will also help the LGAs extend the capacity and lifespan of the sites to the intended 15 years by achieving the optimal compaction (density). 18. The above table does not include new investments for either Tanga or Mwanza due to budget restrictions. New landfill investments are to be focused on solidifying the investments already made in the original five LGAs and ensuring the long term sustainability of these facilities. The proposed investments in collection and transportation equipment for Tanga and Mwanza have also been removed. To provide collection and transportation equipment to the two

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LGAs could result in considerable reputation risk to the Bank if wastes were simply transported to open, burning dumps. 19. New investments will also provide for additional collection vehicles and containers to begin to approach once a week collection in the CBD and immediate surrounding areas. Collection will remain sporadic or non-existent in the peri-urban areas of most LGAs. Investments do not include equipment for vehicle maintenance or for environmental monitoring. 20. Vehicle maintenance will be outsourced to the private sector as part of the procurement process to ensure that the turnaround time is reasonable and that there is ready, in-country access to spare parts. With this approach, major repairs will be undertaken by equipment suppliers. Routine repairs will continue to be made by the LGAs at existing municipal depots. Equipment for environment monitoring will be outsourced to private sector laboratories. Costs for both will be included in O&M estimates for the individual LGAs. 21. The Terms of Reference (TOR) for the design of the solid waste management systems are currently being finalized. Funding for the design work is provided under the current project funding envelope. These TOR will require the consultancies to address the issues identified above with the existing investments, provide detailed designs for the new landfill cells and develop detailed operating and development (O&M) plans for each landfill. These plans will form an essential part of the capacity building initiatives discussed below. 22. There will be additional investment for solid waste capacity building for each of the LGAs. A dedicated and trained landfill manager will be required for each city along with technical support staff to undertake site operations, maintenance and environmental monitoring. Without qualified management and operating staff, the landfill will revert to a dump site within a few years. The focus will be on tiered practical classroom and hands-on training based on a prescribed staff training curriculum that recognizes the different competencies required for management and specific staff positions. 23. Before funds under this project can flow, each LGA will have to hire SWM specialist staff that includes a SWM (health) officer; a landfill manager and a landfill operations officer. In addition, these staff will all have to be trained in accordance with the following four tiers of training before funding can commence: Foundational training covering a broad range of topics from landfill design, operations,

maintenance, staffing, monitoring, contingency planning to site closure. The objective of the foundational learning is to build an understanding of the theory and critical elements of solid waste landfilling for city engineers and operational staff. It is anticipated that this tier will last for one and a half (1.5) days.

Detailed classroom training covering all of the elements of the O&M Plans. Classroom

sessions will use a variety of methods and media including practical demonstrations, videos and Skype sessions with landfill operators in other jurisdictions to maximize staff participation, interest and learning. The objective of this tier is to build the competence of

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solid waste focal points and landfill managers to operate and maintain each of the landfills. It is anticipated that this tier will last for three and a half (3.5) days.

Hands-on field visit to a successfully operating SWM site. The participants will

“shadow” the landfill site operator for a few days to fully understand how to operate a site. This is expected to take place in South Africa, but the location and content will be determined further.

24. It is anticipated that training will be required in addition to the above. This additional training will not be a prerequisite of funds flowing to the LGAs. It will be comprised of: Hands-on training at one of the TSCP landfill sites. To undertake this tier, a hands-on

session will be organized at one of the TSCP landfill sites (yet to be chosen) to open the site and begin operations. The objective would be to provide “hands on” experience to the solid waste focal points, landfill managers and equipment operators from all of the five participating LGAs plus ZMC. It is anticipated that this direct work experience would last for five (5) days. This training will begin immediately after procurement of the necessary new equipment for the landfill.

Training for the financial staff at each of the LGAs into solid waste user fee collection

and broader financial management issues. This would include a best practices review of techniques used internationally to collect and manage user fees; what’s worked and what hasn’t. In addition, it would include a component on preparing for and managing outsourcing contracts such as the vehicle and maintenance contracts to ensure that the contracts are well prepared and managed to minimize service quality problems.

Training for the managers of the solid waste management collection system of each LGA

will be provided into the complete value chain of the waste system with a focus on overall system optimization as well as opportunities to promote waste reduction, recycling and composting as methods to both reduce the quantities of waste requiring landfilling and also to generate revenue. Opportunities to support Ward and CBO level waste reduction, recycling and composting will be identified for follow up by each LGA and PMO RALG.

Ongoing support on Skype by the trainer and key SA landfill operational personnel for

each of the LGAs. It is anticipated that this could be a weekly call-in and “as needed” for individual LGAs.

A workshop for all solid waste staff from the 5 LGAs plus ZMC to be prepared and

managed by the landfill trainer. This workshop would be held, in Tanzania, 4 to 6 months after the landfills have been operating to review progress and resolve issues.

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Annex 6: Progress and Impacts Observed for Component 2 1. The overall progress of Component 2 activities has been mixed. The main initiative, LGRCIS is yet to be fully operational in all the LGAs. According to the latest update by PMO-RALG, core data collection activities have been completed for Arusha, Mbeya, Tanga and Mtwara; while that for the other LGAs stood at around 69% by end February 2014. Valuation rating would begin on 1st July 2014 and requires six months to complete the activities. All LGAs are expected to have LGRCIS fully operational, and be able to send all bills through the system by January 2015. This would be fully harmonized with the typical tax billing cycle. 2. The LGRCIS is potentially transforming and will radically improve the way local governments collect taxes, with gains in transparency, accountability, and a customer focused response. As an example, initial results observed for Arusha demonstrated a vast improvement to the collection of taxes across five main categories, with approximately a 200% increase in overall tax collected. The details are as shown in the table below.

COLLECTION CATEGORIES

Before LGRCIS After LGRCIS Difference

Average Monthly (Sept, Oct, Nov

2013) (for 3 mths)

Average Monthly (Dec 2013, Jan, Feb

2014) (for 3 mths)

Average % Increase

1 PROPERTY TAX 12,185,337 58,189,698 378%

2 SERVICE LEVY 165,470,870 392,426,559 137%

3 BUSINESS LICENCE 48,092,253 198,086,465 312%

4 BILL BOARDS 61,012,541 221,121,498 262%

5 HOTEL LEVY 9,089,264 20,513,898 126%

TOTAL (TSHS) 295,850,265 890,338,119 201%

3. The main reasons cited for the improvements are:

h. Broadened Database - the increase in coverage of the database leads to increase in the

number of tax payers hence overall increase in city council revenue. i. Transparency - the LGRCIS increased transparency for both tax payers to know the tax

due and for city management to locate the tax payers and amount due. j. Accountability – increased transparency enhances accountability as tax payers could hold

the city management accountable of the use of tax collected. k. Carbon slipping – previously with a manual system, there are inconsistencies in the

original customer receipts with the second and third copies kept in city records (possibly

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due to forgery); with LGRCIS, the accounts and process is automated and thus such cases are reduced.

l. Deterrence effect – with LGRCIS in place, staff is aware of the difficulty of forgery and thus errant behaviors are deterred.

m. Taxpayers’ confidence - taxpayers believe that by having receipts produced directly from the LGRCIS, the receipts are genuine and their money reaches the proper place and is captured in the system without forgery.

n. Efficiency improvements - LGRCIS helps revenue collection staff to know the exact location of taxpayer and the defaulters through the use of geographic information system (GIS) and without having to go physically to the field, hence facilitating the ease of following up.

o. Improved detection – Previous taxpayers with tax liability which go undetected for any reason before the LGRCIS was available are now located, hence leading to increase in revenue collection.

p. No negotiation between taxpayer and staff since all data are in the system.

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Annex 7: Financial Management and Disbursements Arrangements Introduction: The financial management assessment of the additional finance is based on the last FM implementation support mission for the main credit, which indicated satisfactory on the overall project financial management arrangements and recent audit report findings. The project is in compliance with the required financial covenants in terms of maintaining satisfactory financial management arrangements, submission of quarterly IFRs and annual audit report. The last two audit reports received clean opinions. However the recent Bank mission noted FM issues in slow documentation/accountability of funds advanced to LGAs, and in accountability and internal controls deficiencies. These issues were confirmed by the National Audit Office (NAO) in its December 2013 report for the project. The NAO report includes: (i) expenditures of Tsh 127 million (US$78,000) in two LGAs which were not included in the Financing Agreement, (ii) misclassification of funds between Components 1 and 2 in one LGA and (iii) late deposit into the deposit bank of the account retention money deducted from various contractors in one LGA. The Bank and PMO-RALG have developed an action plan to address each of the findings and prevent future occurrence. All major action items have been addressed, including the refund of the $78,000 mentioned above. In a letter to the Permanent Secretary of PMO-RALG on March 31, 2014, the NAO confirmed that it has verified the resolution of these issues; subsequently, PMO-RALG informed the World Bank on April 1st, 2014 of NAO’s completion of the verification exercise. Overall, while each individual finding of the NAO report is considered to be minor from a fiduciary point of view, collectively, these findings have required close follow up. As a result, the current FM performance is rated marginally satisfactory. As the outstanding action items are now completed, the rating will be re-evaluated in the next implementation support review. The overall FM risk rating assigned to the Project remains substantial taking into consideration the overall weak internal control environment at country level, complexity of the project, including implementation arrangements which cover participating LGAs and PMO-RALG. Financial management and disbursement arrangements currently in place under TSCP will continue to support the project. More specifically: (i) Funds flow arrangements will be as per the parent operation. (ii) Interim Financial Reports (IFRs): The Project would continue to account for the funds using the report-based IFR disbursement method and the format of the IFR remains the same. (iii) Audit reports will continue to be received within six months after the end of the financial year. Details on the Financial Management arrangements for additional finance and action plan are as indicated below:

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Budgeting arrangements: There is no change to the current budgetary arrangements as a result of the additional financing. The project’s budgeting process is deemed to be adequate. The budgeting process follows the Government budget procedures. There is an adequate process of monitoring budget execution on a monthly and on a quarterly basis at PMO-RALG and at LGA level. Consolidated progress reports at PMO-RALG and Quarterly financial reports at the LGAs are prepared which show actual expenditure against budget and both the Internal and External Auditors review and report on budget execution during the audit reviews. Accounting arrangements: The current accounting arrangement is considered acceptable and no change is foreseen. The accounting and reporting processes at Local Government Authorities are subject to Local Government Finance Act, the Local Authority Accounting Manual (2010) and Local Authority Financial Memorandum (2009). The accounting and reporting processes at PMO-RALG are subject to the Public Finance Act and its guidelines. These accounting and reporting processes are considered adequate. The project uses government computerized accounting software called Epicor to prepare the required reports. However the consolidation of IFRs at PMO-RALG is done using spreadsheets. PMO-RALG and LGAs have adopted International Financial Reporting Standards and International Public Sector Accounting Standards. The annual financial statements are prepared within the required period i.e., by September 30 and submitted to the National Audit Office within the expected time frame. The staffing level at eight LGAs and PMO-RALG is considered adequate. However regular training on modern financial management should be undertaken by the project staff to keep abreast with new developments in the accounting profession. Internal control and internal auditing arrangements: Internal control procedures as stipulated in the Public Finance guidelines and the Local Authority Accounting Manual will continue to be used for the additional financing. The assessment of current project’s internal control indicates that adequate internal controls exist. Proper authorization and approval procedures exist and are practiced. However, the annual audit review for FY2013 identified accountability and internal controls deficiencies. PMO RALG and respective LGAs have taken short-term and long-term measures to ensure the above deficiencies are addressed. In addition, the ministry is committed to strengthen the Internal Audit and Council Finance Committee capacity in terms of regular training. Additional resources will be provided to the internal audit units to ensure they carry out regular field visits to the project sites. Internal Auditing: PMO-RALG and 8 LGAs have internal audit units headed by Chief Internal Auditors. The Chief Internal Auditors have overall responsibility of carrying out on quarterly basis internal audit reviews of project financial transactions. These units have audit strategies and plans and they use risk based audit approach to carry out their work. The audit departments have adequate qualified and experienced internal auditors. The review noted inadequate capacity in terms of limited resource for the units to carry out regular visits and monitoring of financial affairs. Funds flow and disbursement arrangements: The current flow of funds and disbursement arrangement will be used for the additional financing. The project will continue to submit a

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withdrawal application to the Bank to request and account for the funds made using the quarterly IFRs. A separate designated bank account will be used for additional financing funds. Financial reporting arrangements: The project will continue with its current arrangements in respect to financial reports and prepare quarterly un-audited IFRs for the project (by combining the additional financing funds with the existing project) in the current form and content, which will be submitted to the Bank as usual within 45 days after the end of the quarter to which they relate. The existing format of the IFR remains the same and will show separately the disclosure of the financing sources (i.e. the current and the additional financing). Auditing arrangements: The current Audit arrangements will be used. The project will have the annual financial statements of the existing and additional financing audited using the International Standards on Auditing by an auditor acceptable to the Bank. The audited financial statements will be submitted to the Bank within 6 months after the end of each fiscal year along with the management letter. The current Audit terms of reference will be used. Currently there are no overdue audit reports. Audit for FY2013: The auditors issued an unqualified (clean) opinion but highlighted some accountability and internal controls deficiencies. PMO-RALG has prepared an action plan to address issues raised in the audit report. The review of the action plan and actions taken so far (as of March 10, 2013) by PMO-RALG and respective LGAs indicated that they have addressed 14 out of 22 major issues raised in the above audit report. Supervision plan: The overall FM risk rating for the project is substantial hence the project will have field supervision twice per year and continuous supervision including desk reviews of quarterly IFRs and annual financial statements. Conclusion: The financial management arrangements meet the Bank’s minimum requirements under OP/BP10.02. The financial management arrangements are adequate to provide, with reasonable assurance, accurate and timely information on the status of the project as required by IDA. Actions agreed to further strengthen financial management would continue to be monitored during the implementation of the project.

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