DOCUMENT OF The World Bank

FOR OFFICIAL USE ONLY

Report No. 32425-NG

INTERNATIONAL DEVELOPMENT ASSOCIATION

PROPOSED PROJECT RESTRUCTURING

AND AMENDMENT OF THE CREDIT AGREEMENTS FOR THE

PRIVATIZATION SUPPORT PROJECT (Cr. 3520-UNI)

AND

COMMUNITY BASED URBAN DEVELOPMENT PROJECT (Cr. 3654-UNI)

IN THE CONTEXT OF THE PORTFOLIO RESTRUCTURING AND IN ALIGNMENT

WITH THE COUNTRY PARTNERSHIP STRATEGY

FOR

THEFEDERAL REPUBLIC OF NIGERIA

June 2,2005

Country Department 12 Africa Region

This document has a restr icted distr ibut ion and may b e used by recipients only in the performance of their off icial duties. I t s contents may no t otherwise be disclosed without W o r l d B a n k authorization.

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CURRENCY EQUIVALENTS

BPE CBPRP CBUDP C D D CFP CPS CREST DBU D C A DO FCT FGN FMHUD FPCU IDA IP IPP LAMATA LASTMA LEEMP LG LSWC LUTP M-Te l N C B NCC NEEDS NEPA NITEL NPC PE PSC PSP SEEDS SPT UBE

Currency Unit US$1 .oo 1 Naira

Nigerian Naira (N) 137Ns 0.0073 US$

FISCAL YEAR January 1 - December 3 1

ABBREVIATIONS Bureau o f Public Enterprises Community Based Poverty Reduction Project Community Based Urban Development Project Community Driven Development Country Financing Parameters Country Partnership Strategy Commercial Reorientation o f the Electricity Sector Toollut Distribution Business Units Development Credit Agreement Development Objective Federal Capital Territory Federal Government o f Nigeria Federal Ministry o f Housing and Urban Development Federal Project Coordination Unit International Development Association Implementation Progress Independent Power Producers Lagos Metropolitan Area Transport Authority Lagos State Traffic Management Authority Local Empowerment and Environmental Management Project Local Governments Lagos State Water Corporation Lagos Urban Transport Project Nigerian Mobile Telecommunications Limited National Competitive Bidding National Communications Commission National Economic Empowerment and Development Strategy National Electric Power Authority Nigerian Telecommunication Limited National Planning Commission Public Enterprises Project Steering Committee Privatization Support Project State Economic Empowerment and Development Strategy State Program Teams Universal Basic Education

Vice President: Country Director: Task Team Leader:

Gobind Nankani Hafez Ghanem Irene Xenakis

TABLE OF CONTENTS

I. INTRODUCTION 11. BACKGROUND AND COUNTRY CONTEXT 111. NIGERIA’S PORTFOLIO IV. V.

SUMMARY OF PROPOSED PROJECT AMENDMENTS PROPOSED PROJECT RESTRUCTURING SEEKING BOARD APPROVAL A. Privatization Support Project B. SUMMARY OF RESTRUCTURED PROJECTS APPROVED BY REGION A. Universal Basic Education Project B. HN/AIDS Program Development Project C. Transmission Development Project D. E. Lagos Urban Transport Project F.

Community Based Urban Development Project VI.

Second Health Systems Development Project

Community Based Poverty Reduction Project

ANNEXES Annex 1 : Privatization Support Project Recommended Amendments Annex 2: Community Based Urban Development Project Recommended Amendments

1 1 2 4 5 5 7 9 9

11 12 13 15 17

INTERNATIONAL DEVELOPMENT ASSOCIATION Proposed Project Restructuring and Amendment to the Credit Agreements

for the Privatization Support Project (Cr. 3520-UNI) and Community Based Urban Development Project (Cr. 3654-UNI) in the Context of Portfolio Restructuring and in Alignment with the Country Partnership Strategy for the Federal Republic o f Nigeria

I. INTRODUCTION

1. This memorandum seeks the approval o f the Executive Directors to amend the Development Credit Agreements (DCA) for the following projects: Privatization Support (Cr. 3520-UNI) and Community Based Urban Development (Cr.3654-UNI). Amendments to six other projects (see Table 1) have also been approved by the Region, per OP13.05. These amendments, and the on-going harmonization o f projects that use the Community Driven Development (CDD) approach, constitute a major restructuring o f the Nigeria portfolio. The main purpose o f the portfolio restructuring i s to improve the performance o f problem projects and other priority operations in alignment with the Country Partnership Strategy (CPS) for Nigeria and the National Economic Empowerment and Development Strategy (NEEDS) - Nigeria’s strategy for growth and poverty reduction. The CPS proposes specific activities to support the Federal Government and selected well-performing states (lead states), and targeted MDG-related action elsewhere. A results framework has been prepared to support the program towards three strategic objectives (improved service delivery for human development, improved environment and services for non-oil growth and enhanced transparency and accountability for better governance) and to reflect donor coordination in the country.

2. The World Bank (Bank) lending portfolio in Nigeria i s relatively young, includes significant IDA commitments available to support the attainment o f the CPS results, and has the potential to do so effectively. At the outset o f the CPS implementation, i t i s imperative to ensure that the existing projects are well positioned, have made necessary adjustments in the context o f the CPS, and have resolved implementation issues and constraints.

rr. BACKGROUND AND COUNTRY CONTEXT

3. President Obasanjo was elected to a second t e r m in April 2003 further consolidating the transition from military to democratic ru le that began in 1999. A new reform oriented economic team was appointed by President Obasanjo in June 2003 who are implementing policies to: (i) strengthen governance and fight corruption; (ii) grow the private sector; and (iii) empower people and improve social service delivery. Over the past two years, Nigeria has made good progress in implementing key elements o f the reform program particularly in macroeconomic management and the fight against corruption. The next two years leading up to the national elections scheduled for 2007 provide an unprecedented opportunity for Nigeria’s development.

4. The CPS has been prepared to assist Nigeria in the implementation o f the NEEDS program (and at the state level, SEEDS) to boost growth and to help achieve the MDGs. The CPS will be implemented over the period FY06-09, and one o f its key objectives will be to support the reform efforts and help ensure that they are sustainable over the medium term. The CPS i s based on the four principles of: (i) realism about opportunities and scope for change; (ii) responsiveness and Government ownership; (iii) selectivity for impact; and (iv) balancing a

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longer-term transformational agenda with the need for more direct, shorter-term impacts. The early results o f the CPS are likely to be achieved mainly through the existing portfolio.

111. NIGERIA’S PORTFOLIO

5. Notwithstanding the challenges, the young Nigeria portfolio presents opportunities. The Nigeria portfolio consists o f sixteen projects wi th a total net IDA commitment o f about US$1.48 billion. Of this amount, about US$258 mi l l ion has been disbursed as o f M a y 3, 2005 (of which more than hal f in FY05) and about US$1.40 bi l l ion i s undisbursed. The average age o f the Nigeria portfolio i s 2.6 years. The disbursement ratio in FY04 increased to about 13 % from about 3.5 % in FY03 and i s estimated to be about 15% in FY05. Fiduciary compliance in FY04 was 100%. About 31 percent o f the net commitments are in the social sectors, 37% percent in infrastructure (including mining), 11 percent in the rural sector, 11 percent in economic policy, and 10 percent in private sector development. About 42% o f the commitments are at-risk1 including six actual problem projects (Universal Basic Education, HIV/AIDS, Second Health Systems Development, Local Empowerment and Environmental Management (LEEMP), Community Based Urban Development, and Lagos Urban Transport) and one potential problem project (the Micro, Small and Medium Enterprises Project) with three r i sk flags o f which two flags are country related (Country Environment and Record) and one i s for late effectiveness. This portfolio restructuring includes all actual problem projects except for the LEEMP which i s being restructured under the harmonization o f the CDD projects.

6. Key factors that significantly affect the portfolio performance include: the country’s FederaVmulti-State structure, status o f institutional capacity and systems, the size o f the country, and socio-economic disparities. Among the issues that have hampered Nigeria’s project implementation since re-engagement with the country in 1999, the most frequently cited implementation impediments include: (i) complex project design, project management, and implementation procedures; (ii) effectiveness delays due to insufficient implementation readiness and underestimated implementation capacity; (iii) inadequateAate counterpart funding; (iv) weak results management due to often inadequate monitoring and evaluation systems and capacity; (vi) political interference, incentives issues, and rigidities in applying performance-based principles (including implications for less well performing states). Several projects seem to overlap (e.g.. in states, similar activities, approach-CDD) and, thus, provide opportunities for harmonization, consolidation, more efficient implementation, and lower transaction costs.

7. The improvement o f the Nigeria portfolio performance evidenced by visible results i s a top priority of both the Federal Government o f Nigeria (FGN) and the Bank. To this

ARPP FY04 Portfolio Definitions: Commitments ut risk: Commitments at risk o f not meeting their development objectives. Includes

Actual Problem Projects Projects for wluch Implementation Progress i s rated unsatisfactory and/or the

Potential Problem Projects: Projects which are rated satisfactory on IP and DO but have other risk factors

commitments associated with both actual and potential problem projects.

Development Objectives are rated as not likely to be achieved.

historically associated with unsatisfactory outcomes. Specifically, potential problem projects are identified as projects exhibiting three or more o f the projects at risk “flags”.

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end, they have: undertaken rigorous joint analysis and monitoring; conducted two portfolio reviews in June and December 2004; set strategic priorities for the sustained portfolio performance improvement; and are following on the implementation o f agreed time-bound actions. Key among these actions are the portfolio restructuring, harmonization o f the CDD projects, and resolution o f systemic issues through the following immediate steps: (i) new operations will strive for design simplification and flexibility and implementation readiness (a readiness guide i s now used during preparation to ensure that the project i s reasonably ready for implementation and to reduce effectiveness delays); (ii) country financing parameters (CFP) have been approved to help harmonize and rationalize the financing o f the totality o f the country program, especially when counterpart financing issues are acute while potential rewards are high, e.g. social sector and CDD projects may be financed up to loo%, when appropriate, including selected on-going projects for disbursements going forward; (iii) more flexible and simplified Bank procedures are being introduced including disbursement simplification, increased procurement thresholds for prior reviews, and harmonized implementation arrangements; (iv) project monitoring and evaluation systems are being strengthened; (v) capacity building and scaling up good practices are enhanced; and (vi) projects will continue to be reworked in alignment with the CPS, as needed.

8. There i s need for enhanced partnerships, mutual accountability and harmonization. The above steps notwithstanding, both the Federal Government and the Bank recognize the magnitude o f the challenges and the need for a renewed business model o f enhanced partnership that i s based on mutual trust and accountability for results. The CPS and the on-going portfolio are the main and mutually reinforcing instruments for such partnership. The CPS also provides the basis for project and donor harmonization. A t the project level, harmonization and gradual consolidation o f the five CDD operations in the Nigeria portfolio has been initated. In FY06, an evaluation will be undertaken o f these projects (Community Based Poverty Reduction, Community Based Urban Development, Local Empowerment and Environmental Management, Fadama I1 and HIV/AIDS). At the donor level, the CPS provides a solid basis for Wher harmonizing donor activities which i s based on the strong country-led framework o f the NEEDS and SEEDS.

9. Short and medium-term prospects for portfolio improvements - realistic optimism and vigilance. As a result o f the last two portfolio reviews (June and December 2004) and the consultations during the CPS preparation, there are now encouraging signals that the portfolio i s being repositioned in the context o f the NEEDS. The portfolio restructuring and improvement measures (along with continued vigilance and support) are expected to trigger: (i) incremental improvements in the short term (e.g. faster implementation pace, increased disbursements, better M&E , especially in the performance o f well positioned states and federal units); and (ii) visible and sustained gains in the medium term (e.g. intermediate resultdquick wins, harmonization, program cohesion at Federal and State level, and further streamlining o f the existing projects). As the restructured projects are relatively young and have only disbursed a small percentage o f net commitments, they stand a good chance to use effectively the undisbursed credit balance. As a result, the project outcomes o f the closing projects as evaluated by OED also have a good chance to gradually improve and, thus, reverse Nigeria’s country record on outcomes in the near future. Decentralization and staff organization around the CPS, as well as the DFIDBank partnership, are essential factors for significantly improved portfolio performance.

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Iv. SUMMARY OF PROPOSED PROJECT AMENDMENTS

Y

83 E a a . 2 5;

Revisions

10. Considering advice from the AFR Legal Department, the Region determined that the changes concerning the Privatization Support Project and the Community Based Urban Development Project are significant and warrant Board approval on a non-objection basis; and that the restructuring o f the other six projects fe l l within the authority o f the RVP or CD. To expedite implementation o f the restructured projects, relevant amendments were approved as they were completed. Section V in this document includes the amendments that require Board approval. Summaries on restructured projects approved by the Region are included for information in Section VI. Unless explicitly noted in the amendments, revisions to the K p I s and/or targets are reflected in the respective Project Implementation Manuals (PIMs). All together, the eight restructured projects represent about 54% o f the current net commitments, and the upcoming harmonization o f the CDD projects an additional 11%.

Table 1 summarizes the key changes to the eight priority projects.

Table 1 : Summary of Portfolio Restructuring Highlights by Project

eaJ * 3 apk Y

s : : Q .I 8 8 s Y E 2: 8 .p g VJ

E $ z 3 - h

0 0

VJ h

W Y v1 Y

.f 4 8 r $ 5 L 8 - r : cd L

8 & g &$ 6 4 4

as V J Q ) c, .= ,o m l 2 a

6 2 6 #" * e u o

O Q k u.9u a

1. Privatization No Support Project 2. Community Yes BasedUrban I I I I I I I I I

Yes Yes Yes N o Yes Yes N o Board

Yes Yes Yes Yes Yes Yes No Board

Development MENDMENTS APPROVEDITO BE APPROVED BY THE REGION (SECTION VI)

Development 3. Community Based Poverty Reduction

N o Yes N o Yes Yes N o Yes N o CD

4

v. PROPOSED PROJECT RESTRUCTURING FOR BOARD APPROVAL

11. A. Privatization Support Proiect (PSP) (Cr. 3520-UNI) SDR 90.2 million JUS114.29 million equivalent): The project was approved by the Board on June 14, 2001 and became effective on November 21,2001. The project’s closing date i s June 30,2006.

12. The project’s development objectives are: (1) to support transparent and effective implementation o f the FGN’s privatization program, as a basis for fostering accelerated economic growth, through expanded private investment and improved efficiency in the productive sectors, and in infrastructure; and (2) to create an enabling environment for private sector participation and competition in infrastructure services, notably in telecommunications and electric power.

13. Status: About US$32.02 mi l l ion o f project funds have been disbursed as o f M a y 3, 2005. The project’s implementation performance i s rated moderately satisfactory. The project has uneven implementation performance and mixed achievements o f different components. The proposed restructuring aims to: (i) scale up the telecommunications sector reform component; (ii) consolidate the emergency recovery o f the Lagos State Water Corporation (LSWC) and supporting additional c iv i l works that are key to increase access and the quality o f services at LSWC and other urban water utilities; (iii) retrofit IDA’S privatization support to improve the program’s effectiveness through specific benchmarks to track performance and results; and (iv) streamline the project’s support to the electric power sector reform component and provide selected technical assistance to promote public-private partnerships in gas power development.

(a) The Telecommunications Sector Reform component has been highly satisfactory as a result o f important and positive developments in the sector over the last four years and the sound management o f this component by the National Communications Commission (NCC). During the second hal f o f implementation, the project will continue to help implement relevant provisions o f the Telecommunications Bill, strengthen the regulatory framework and NCC’s institutional capacities, modernize the frequency management system, advise on options for the fbture privatization o f Nigerian Telecommunication Limited (NITEL) and Nigerian Mobi le Telecommunications Limited (M-Tel), and carry out pilot projects on ruralhiversa1 access. The proposed re-allocation o f the Credit would increase the project’s financing o f this component by about US$9.6 mil l ion to US$26.56 mi l l ion to cover the additional expenses for rural access programs (US$7.2 million), radio spectrum monitoring and management support (US$0.4 million), regulatory work and technical assistance (US$ 1.2 million), market studies and management information systems (US$0.8 million).

(b) The implementation o f the Privatization Program component by the Bureau o f Public Enterprises (BPE) has achieved significant progress over the last year and i s now rated satisfactory. In July 2004, a Bank mission reviewed with BPE Management the status o f performance benchmarks, and noted that BPE has achieved strong progress towards meeting the key criteria for High Case Scenario o f IDA’S support to the privatization program. To date, BPE has divested over 33 Public Enterprises (PES), which generated about NGN 44 bi l l ion o f revenues to the Treasury and time-bound action plans are in place to complete eight pending transactions up to financial closure in the short run, and about 30 other longer-term operations during the remainder o f the project. BPE has also produced a draft national transport policy, a

principal pillar o f which i s the transformation o f the sector into one that i s private sector driven. In this regard, a draft sector regulatory framework has been prepared. In addition, under i t s high- case scenario, BPE has on-going detailed work programs for divesting the railways, concessioning the airport management, restructuring the postal services, and privatizing the telecommunications company. Overall BPE i s expected to prepare and execute divesture transactions for about 71 enterprises under the PSP. This, however, i s about 30 percent less than the number targeted at the outset o f the project. It i s now proposed to include activities for establishing a transport sector regulator and the promotion o f further private sector participation in the road and related infrastructure development, rehabilitation and maintenance. On the basis o f the revised work programs and procurement plans, US$40.65 will be allocated for BPE’s activities. This however represents a reduction o f about US$20.44 mi l l ion from init ial allocations in the Project Appraisal Document.

(c) The Urban Water Sector Restructuring component has also been rated satisfactory. Although the L S W C has continued to accumulate operational deficits, i t has drastically reduced i ts losses by over 77 percent annually since 2001, compared to init ial projections at project appraisal. I t s emergency rehabilitation plan has helped prevent a system failure and maintain the viability o f the company. The LSWC i s on track to achieve i t s key operational and commercial performance targets agreed upon under the project. In this context, implementation o f LSWC’s emergency rehabilitation plan will be consolidated during the remainder o f the PSP implementation period. The proposed reallocation o f the Credit would increase IDA funding o f this component by about US$3.6 mi l l ion to US$15.22 mi l l ion in order to provide adequate financing for critical spare parts required for emergency repairs and maintenance (US$2.5 million), to cover additional expenses for stakeholder and customer communications (US$O.9 million) and for training and capacity building (US$0.2 million). I t i s also proposed to add a category o f c iv i l works to the Credit Agreement for urban water supply infrastructure, engineering and construction supervision which would build upon the progress achieved under the project with LSWC and other urban water ut i l i t ies contemplating significant PSP involvement. The main objective o f this component, estimated at US$30 million, i s to support critical investments needed to sustain adequate access and quality o f services until more suitable and durable solutions are implemented with private sector participation. I t s implementation will be closely coordinated with other related operations, notably the forthcoming Second National Urban Water Reform Project.

14. However, the above achievements have been offset by the unsatisfactory performance o f the Electric Power Sector Reform component which was due to delays in the adoption o f the new Electric Power Sector Reform Bill upon which the whole sector reform and project’s activities largely depended. The Bill has now been enacted into law which i s three years later than expected at the outset o f the project. Some progress has been made in carrying out National Electric Power Authority (NEPA) restructuring, expanding i t s electric power capacities, and strengthening i t s commercial operations but substantive improvements across the sector are required for the enabling policy, legal and regulatory framework to be spelled out in the new bill. In light o f the implementation delays in the Electric Power Sector Reform component, agreement was reached with the Government to restructure and focus the BPE component on key activities estimated at US$l1.45 million, necessary for consistent progress on sector policy reforms. These activities consist o f advisory services for NEPA unbundling, corporate restructuring and blueprint implementation (US$2.85 million); legal work stream, labor relations, financial, technical assistance, and communication strategy for setting up the new business units (US$0.45

6

million); hands-on assistance to the newly-established system operator (US$3.0 million); capacity building o f the electricity regulatory agency (US$3 S O million); and other related studies and TA, rural energy policy work, and training o f a manger o f the new companies (US$1.65 million). Moreover, and in order to accelerate the pace, it was agreed to move the activities o f a more technical nature to be implemented by NEPA through the Project Management Unit established for the Transmission Development Project. These activities are estimated at US$3.65 mi l l ion and include: implementation o f the business plan for the new transmission system company (US1.4 million); MIS and software systems for Transysco and the 11 Distribution Companies (US$1 .O million); transmission pricing study (US$0.25 million); and load Demand and Forecast Study (US$l.O million). The amendment provides for the NEPA-PMU to be established as the executing agency under the PSP and to have a separate Special Account to implement these activities.

15. Government Request: The Government has requested IDA to amend the D C A in order to reallocate the proceeds o f the Credit. In addition, the FGN has requested IDA to add a sub- component to the PSP to provide technical assistance for a feasibility study o f a gas pipeline and independent power production project. This project aims to: (a) attract private sector investors to undertake the gas transmission infrastructure critical for Independent Power Producers (IPPs) to invest in power generation; (b) survey and identify potential sites for IPPs in the central and northern parts o f the country; and (c) produce minimum standard o f the basic requirements for foreign participation in the PP’s to guide prospective investors, noting that these activities fit within the overall PSP’s development objectives. Accordingly, an amount o f US$lO mi l l ion will be allocated for the technical assistance and advisory services to launch the sequence o f studies and preparatory work required for this project. The FGN has also requested the inclusion o f additional procurement methods for consultant services, through least cost selection and consultant qualification, to enable the implementing agencies to more appropriately procure consultant services, particularly to carry out the project environmental and financial audits and other specialized technical work. A request has also been made for the inclusion o f procurement methods for c iv i l works to enable the executing agencies to carry out the proposed water supply infrastructure, engineering and construction supervision and to improve quality and access o f these basic services.

16. Recommended Amendments. The amendments for which Board approval i s sought include: (i) Article I General Conditions; Definitions; (ii) Article I11 Execution o f the Project; (iii) Schedule 1 Withdrawal o f the Proceeds o f the Credit; (iv) Annex A to Schedule 1 Operation of Special Account When Withdrawals A r e Not Made On The Basis o f Project Management Reports; (v) Schedule 2 Description o f the Project; and (vi) Schedule 3 Procurement and Consultants’ Services. The recommended amendments are in Annex 1.

17. B. Community Based Urban Development Proiect (CBUDP) (Cr. 3654-UNI) SDR 88.1 million (US$110 million equivalent): The project was approved by the Board on June 6, 2002 and declared effective on June 23,2003. The project i s scheduled to close on June 30,2009.

18. The Project Development Objectives are: (i) to establish partnerships between communities and their Local Governments (LGs) so that subproject proposals are developed jo int ly by them; (ii) to deliver basic municipal services in poor urban settlements; and (iii) to demonstrate viable approaches to infrastructure development and service delivery that enable

7

LGs to move away from a culture o f total financial dependency for infrastructure investment and even recurrent expenditures for infrastructure operation and maintenance.

19. Status: The CBUDP i s designed to be implemented in two phases. In Phase I, one city each in seven states - Uyo in Akwa %om, Bauchi City in Bauchi, Abakaliki in Ebonyi, Benin in Edo, Hadejia in Jigawa, Karu in Nasarawa, and Abeokuta in Ogunin Ogun would start implementing their subproject packages prepared before project appraisal from pre-allocated h d s as soon as the project became effective. Using the unallocated pool o f funds o f the Upgrading Fund, in Phase I1 six additional cities from six additional states would j o in the project at effectiveness and prepare and implement their first subproject package (Abia, Adamawa, Kaduna, Ondo, Rivers and Sokoto). Only one state in the Phase 11, Ondo, has accessed the project and consultants for detailed engineering are expected to be mobilized by June 2005. I t was envisaged that Phase I would have been completed by now and the seven cities in the seven states would have finished implementing their f irst subproject packages and started accessing the Upgrading Fund to prepare the second round o f sub-project packages. I t was also expected that six additional cities in six states would have accessed the Upgrading Fund for preparation o f their first subproject packages and would be about to start implementation. Thirteen cities were to have been accessing funds from the Upgrading Fund by now however this i s not the case.

20. and IP are rated unsatisfactory.

As o f M a y 3, 2005, the project has disbursed US$8.90 million. Both the project’s DO

21. There are several factors that have led to the project’s restructuring and to addressing the bottlenecks that have impeded project performance. First, only eight cities have demonstrated demand and accessed the project. More resources are available for the participating cities because the number has declined from thirteen to eight cities, and the appreciation o f the SDR has been substantial. This amounts to an additional US$23 mi l l ion o f the IDA Credit. To disburse more funds from a project with fewer cities, requires substantial modification to the project’s design to ensure the project i s completed within three and a ha l f years. Second, political interference has caused substantial delays, both during the bid evaluation process, and, in some cases, even after awards had been cleared by IDA. The latter has resulted in delayed signing o f cleared contracts, in some cases, delays o f as much as six to eight months. The project will not disburse unless there i s a major change in implementation arrangements. Third, the Federal Project Coordination Unit (FPCU) has not been functional, and there i s no entity coordinating, monitoring, or providing support to the State Project Implementation Units to proactively mitigate against implementation delays. Fourth, the 20 percent counterpart fund requirement in CBUDP i s high, given the low per capita GDP o f Nigeria. Finally, the lack o f incentives for performance has affected PIU staff morale, worsened by the delays in implementation, and the consequent slow results on the ground.

22. Government request: The Government has requested: (i) a reduction in counterpart fund contributions; (ii) 100 percent financing o f goods, training, and operating costs; (iii) modification o f eligibility criteria for subprojects to finance more trunk infrastructure in addition to upgrading activities in new communities and additional works and goods procurement in communities where implementation i s under way, especially with respect to sanitation; (iv) focusing project activities from unallocated funds in those cities that are already actively participating in the project to ensure impact o f investments and scaling-up o f upgrading; (v) broadening the scope o f training and capacity building activities to include overseas trips that

8

contribute to relevant exposure; (vi) performance bonus packages for performing staff; (vii) re- defining the FPCU to be under the Federal Ministry o f Housing and Urban Development (FMHUD); and (viii) allocation o f funds to support the FPCU.

I 23. The proposed project restructuring involves the following actions:

(i) Only eight cities will participate in the project. (ii) The project’s development objectives will be modified from three to one to make it easier to monitor the achievement o f development objectives. (iii) The project’s design and eligibility criteria for subproject packages will be modified to enable financing o f larger subproject packages, including trunk infrastructure to increase access to urban services. Subprojects will be packaged to reduce the number o f contracts for contract management purposes. Based on these modifications, disbursements are expected to peak in 2006 and 2007. (iv) The integrity o f the bid evaluation process will be strengthened in two ways. First, design engineering consulting f i r m s will provide bid evaluation services to the PIUS, changing the past practice o f the PIUs undertaking the bid evaluation themselves, leaving the process open to interference. Second, the role o f the Project Steering Committee (PSC) consisting o f the political leadership in each state, will be re-defined. PSC’s will review performance o f PIUs through post-review o f the activities, and not, as i s currently the case, o f prior review. This has led to enormous interference in the day to day operations o f the PIUS. (v) The Ministry to which the FPCU reported to in 2002, has changed from the Federal Ministry o f Works and Housing to the Federal Ministry o f Housing and Urban Development. This change will be reflected in the DCA. Technical Assistance will be provided to the FPCU to ensure that systematic project coordination and monitoring, preparation o f consolidated reports from states, and proactive support to states to mitigate against implementation delays, is in place as soon as possible. Monthly operating support will also be provided to the FPCU. (vi) The counterpart fund contribution from states will be reduced to only a 5 percent requirement for local costs o f c iv i l works, with IDA financing 100 percent o f foreign costs and 95 percent o f local costs o f c iv i l works. IDA will finance 100 percent o f all other costs.

24. Recommended Amendments. The amendments for which Board approval i s sought include: (i) Schedule 1 Withdrawal o f the Proceeds o f the Credit; (iii) Annex A to Schedule 1 Operation o f Special Accounts When Withdrawals A r e Not Made On the Basis o f Financial Monitoring Reports; (iv) Schedule 2 Description o f the Project; and (v) Schedule 4 Implementation Program. The recommended amendments are in Annex 2.

Article I General Conditions; Definitions; (ii)

VI. SUMMARY OF RESTRUCTURED PROJECTS APPROVED/TO BE APPROVED BY THE REGION

25. The following amendments have been, or will shortly be approved by the Region:

26. A. Universal Basic Education Project (Cr. 3711-UNI) SDR 76.3 (US$101 million): The project was approved by the Board on September 12, 2002, and declared effective on

I

9

November 10, 2003. A disbursement condition on the Federal component was met on M a y 20, 2004. The project's closing date i s June 30,2008.

27. The Project Development Objective i s to support the implementation o f the Government o f Nigeria's universal basic education (UBE) program. The specific objective o f the Bank's support i s to increase the capacity o f states and local governments to manage and implement the UBE program effectively and efficiently. The goals are to assist states and local governments to establish and manage schools with local participation and to build capacity in critical sk i l ls such as budgeting, participatory planning, financial management, procurement, and project implementation.

28. Status: Total disbursements are US$7.30 mi l l ion as o f May 3, 2005. The project has two main components. The f irst component, the State Programs for the Implementation o f Universal Basic Education, provides resources to each o f the 16 participating states in the amount o f up to US$5 million. The second component, the Federal Program Management and Monitoring, Policy Development and Systems Support, provides resources to the Federal Ministry o f Education and selected federal agencies in the amount o f US$21 million. There have been init ial delays in project implementation at both the state and federal levels due to the lack o f counterpart funds being deposited for the project. Weak implementation capacity has also hindered project performance. Although efforts over the past four months have been made by both the states and federal governments to improve project perfonnance, implementation progress remains unsatisfactory. It i s expected that the proposed restructuring will assist the government to improve project performance.

29. Government Request: The government has requested the following amendments to the DCA: (i) allocation o f US$2 mi l l ion out o f each participating State's Credit o f US$5 mi l l ion for the self-help project; (ii) inclusion o f the Federal Capital Territory as an additional participating entity in the project; and (iii) adjustments o f the Special Account thresholds to accommodate the new changes. The government also submitted a detailed draft restructuring proposed by the Federal Ministry o f Education.

30. The main amendments to the D C A are:

(i)

(ii)

(iii)

Addition of the Federal Capital Territory (FCT). The government has requested the inclusion o f the FCT to receive project finds. The FCT has a credible education sector plan, and i s committed to an accelerated implementation schedule.

Reallocation of Project Funds. Currently the project has allocated SDR13.7 mill ion for self-help sub-projects and the government has requested that this be increased to SDR 22.2 million. This will permit more schools to participate in the project and assist communities to access sufficient resources by increasing the amount o f school grants from N450,000 to N900,OOO. This reallocation o f project funds wil l require a transfer from Civ i l Works and Goods to the sub-projects category.

Increased Size of Special Accounts. With implementation accelerating, the size o f the Special Accounts i s insufficient to accommodate the demand for accelerated

10

disbursements. To alleviate liquidity problems, the govemment has requested that the State Special Account be increased from US$250,000 to US$500,000 and the Federal Special Account be increased from US$1 mi l l ion to US$2 million.

31. Federal Ministry o f Education are:

Two other key changes to the D C A based on the restructuring proposal sent by the

(i) Counterpart Funds. Currently counterpart funds are required to finance 20 percent o f works, 10 percent o f locally procured goods, 10 percent o f consultant services and 50 percent o f incremental operating costs. The govemment has requested that 100 percent o f all expenditure items be financed out o f the proceeds o f the Credit and that counterpart funds are no longer required for this project. The non-availability o f counterpart funds, together with weak project implementation capacity were the main reasons for the extremely long delays in project effectiveness and implementation. In l ine with the new Country Financing Parameters (CFP) for Nigeria, which provides the flexibility to finance project costs up to 100 percent, especially in the social sectors to facilitate project implementation and promote achievement o f development objectives, i t i s proposed that up to 100 percent o f project costs are financed out o f the Credit. This will remove the need for counterpart funds and enhance flexibility to accelerate project implementation to achieve the project’s development objective on time.

(ii) State Resource Allocation. The ‘govemment has requested that total credit for each participating state be adjusted from a minimum o f US$5 mi l l ion to US$2 million. This allocation must be utilized before December 31, 2005. Each state then has the potential to access additional pooled resources, above US$2 million, based on their improved project performance.

32. Recommended Amendments. The amendments approved by the Country Director include: (i) Article I General Conditions; Definitions; (ii) Schedule 1 Withdrawal o f the Proceeds o f the Credit; (iii) Annex A to Schedule 1 Operation o f Special Accounts When Withdrawals A r e Not Made On The Basis o f Financial Monitoring Reports; (iv) Schedule 2 Description o f the Project; (v) Schedule 3 Procurement and Consultants’ Services; (vi) Schedule 4 Implementation Program; (v) Schedule 5 Terms and Conditions o f Subsidiary Credit Agreements Wi th Participating States Required Pursuant to Section 3.10 (c) o f this Agreement.

33. B. HIV/AIDS Program Development Proiect (Cr. 3556-UNI) SDR 71 million (US$90.3 million equivalent): The project was approved by the Board on July 6, 2001 and became effective on April 26, 2002. The project’s closing date i s June 30,2006. The project f i t s within the Multi-Country HIV/AIDS Program for the Africa Region.

34. The Project Development Objective i s to assist Nigeria to reduce the spread and mitigate the impact o f HIV infection by strengthening i t s multi-sectoral response to the epidemic. This i s done through the implementation o f a comprehensive program that includes the creation o f an enabling environment for a large scale response, and laying the foundation for scaling up HIV/AIDS prevention, care, and treatment services at the federal, state, and local levels.

11

35. Status: Around US$26.15 mi l l ion has been disbursed as o f M a y 3, 2005. The project has been l isted as a problem project for almost two years. A restructuring mission was undertaken in September 2004. I t identified a number o f activities to improve project performance, some o f which involve changes to the DCA. However, no changes to the project development objective are needed.

36. Government Request: The Government has requested that the credit i s offered to al l states o f the Federation. The current D C A l is ts 16 states as potentially eligible to receive project funds and it i s proposed that all states o f the federation that meet the eligibility criteria be allowed to receive funds. The Government has also requested that resources be reallocated among the states (some unallocated hnds have been earmarked to be allocated to high performing entities during implementation). At the time o f project preparation, anti-retrovial drugs were not affordable. This has now changed and the Government has requested that anti- retroviral drugs (ARVs) be added as an eligible item o f expenditure. It i s proposed that the project establish ARV programs in interested and eligible states. Currently, funds going to the line ministries through the National Program Team and the State Program Teams (SPT) are reimbursable only when the expenses are incurred and accounted for. This practice has created a liquidity problem, particularly for the SPTs. The Government o f Nigeria has requested that these expenses be treated as grants which would allow the special accounts to be replenished as soon as funds were passed to the l ine ministries thus avoiding the liquidity problem. This government request was not considered feasible by the Bank’s Legal and Disbursement u n i t s so, to address the liquidity problem, special account amounts are being increased.

37. Recommended Amendments. The amendments approved by the Country Director include: (i) Article 1 General Conditions; Definitions; (ii) Table in Schedule 1 Withdrawal o f the Proceeds o f the Credit; (iii) Annex A to Schedule 1 Operation o f Special Accounts When Withdrawals A r e Not Made On the Basis o f Project Management Reports; and (iv) Schedule 2 Description o f the Project.

38. C. Transmission DeveloDment Project (Cr. 3559-UNI) SDR78.60 (USSlOO million equivalent): The project was approved by the Board on July 31, 2001 and declared effective on M a y 3 1 , 2002. The project i s scheduled to close on December 3 1 , 2006.

39. The Project Development Objective i s to support the Federal Government o f Nigeria’s overall program o f power sector reform and privatization by addressing the requirements o f the transmission and dispatch sub-sectors, specifically through: (i) facilitating NEPA unbundling; (ii) establishing a transparently-regulated, financially viable, commercially- operated Transmission and System Operation Company (TransysCo) with private participation; (iii) removing transmission network and system operation constraints on provision o f reliable power supply; and (iv) facilitating development o f an efficient wholesale power market to improve the long-term performance o f the power sector.

40. and JP are rated as satisfactory.

Status: About US$29.67 mi l l ion has been disbursed as o f M a y 3, 2005. Both the DO

41. Government Request: The Government requested the Bank to set aside US$15 mi l l ion under the Project to finance pressing distribution efficiency improvement measures. Recognizing that “adequate and reliable power to consumers” cannot be delivered without such

12

improvements in the efficiency o f the power supply and commercial services, the Bank agreed to the Government’s request. A t the time o f project preparation and approval, the distribution sub- sector had not been included for funding. There have been however several positive developments in the distribution sub-sector in the last 12 months that have provided an opportunity for rapid and sustainable change. Reforms have gained momentum wi th NEPA’s unbundling i t s distribution business into 11 distribution business units (DBUs) as o f January 1 , 2004. The DBUs have commenced operations as profit centers with a substantial devolution o f authority and responsibility. A new Electric Power Sector Reform Law has been enacted, which will enable the DBUs to be transformed into companies and seek private participation. The Bank has helped NEPA to evolve the Commercial Reorientation o f the Electricity Sector Toolkit (CREST) approach to achieve quick distribution efficiency impacts. CREST is a set o f initiatives that target loss reductions, energy accounting, commercial improvements and customer service enhancements. CREST pilots have been successfully implemented in 8 o f the 11 DBUs, and have yielded dramatic improvements including loss reductions that are eligible for carbon finance. The US$15 mi l l ion component will finance the scale up o f the CREST initiatives to all the Distribution Business Units/Companies.

42. Recommended Amendments. The amendments approved by the Regional Vice President include: (i) Table in Schedule 1 Withdrawal o f the Proceeds o f the Credit; (ii) Schedule 2 Description o f the Project; and (iii) performance indicators o f the annex to the Supplemental Letter dated August 23,2001.

43. D. Second Health Systems Development Proiect (Cr. 3653-UNI) SDR101.8 million (US$127 million equivalent: The project was approved by the Board on June 6, 2002 and became effective on May 23,2003. The project closing date i s July 1 , 2007.

44. The Project Development Objective i s to assist the Nigerian health authorities in their efforts to redress the serious deterioration in the delivery o f basic health care services following decades o f neglect and build institutional capacities, paving the way for a more sustained development o f the Nigerian health care system. More specifically, the project would: (i) strengthen capacities for system management at the state level and encourage an environment o f broad based consultation; (ii) support improvements in the delivery o f primary health care services wi th a particular focus on maternal and child health and reproductive health services; and (iii) assist the Federal Government to strengthen i t s policy formulation and further develop a system to monitor the health sector Performance.

45. Status: The project has disbursed US$27.67 mi l l ion as o f M a y 3, 2005. The DO i s rated unsatisfactory and the IP i s rated satisfactory. Init ial delays in project implementation at both the Federal and States levels were primarily due to weak implementation capacity and the lack o f the timely provision o f counterpart funds. The project’s implementation progress remains slow. However, there have been improvements over the last year at both the Federal and State levels reflected by increased disbursements. I t i s expected that the proposed restructuring will assist the government to accelerate project performance.

46. Government Request: The main amendments to the D C A include:

(i) Addition of Kano State. The project currently consists o f 35 states plus the FCT. The DCA l is ts 36 states that are eligible to receive project funds. The Government has

13

requested the inclusion o f Kano State which i s acceptable, given that Kano State i s h l ly committed to improving the delivery o f health services.

(ii) Reallocation of Project Funds. The Government has requested that project funds be reallocated from the less performing states to the better performing states. This will permit competition among states. There will be two unallocated “pools” o f b d s - one for the Federal Ministry o f Health and one for the states. The state pool will provide additional funding for states that exhaust their allocated resources.

(iii) Expenditure Categories. Currently the project has 4 expenditure categories for the federal and state. The Government has requested that there be two major disbursement categories which will alleviate the problems o f reallocation between categories for each o f the 36 states. This will allow for more flexibility in funding o f the priority activities which differ from state to state. For simplification purposes, goods, works, services and training are combined into one category.

(iv) Counterpart Funds. Currently counterpart funds are required to finance 20 percent o f works, o f locally procured goods, o f consultant services and incremental operating costs. The Government has requested that 100 percent o f a l l expenditure items be financed out o f the proceeds o f the Credit and that counterpart funds no longer be required for this project. The non-availability o f counterpart funds, together with weak project implementation capacity, were major reasons for the extremely long delays in project effectiveness and implementation. In l ine with the new CFP for Nigeria, which provides the flexibility to finance project costs up to 100 percent, especially in the social sectors to facilitate project implementation and promote achievement o f development objectives, i t proposes that up to 100 percent o f project costs are financed out o f the Credit. This will enhance flexibility to accelerate project implementation and achieve the project’s development objective on time.

47. In addition to the main amendments, the detailed draft restructuring proposal attached to the Borrower’s request included a list o f other proposed amendments to the DCA. Two further key changes are:

(i) Inclusion of Secondary Health Care. This amendment will enable both the States and Federal Ministry o f Health to carry out the Federal Government’s Presidential Initiative in Accelerating the Health MDGs. The Government has requested that the amount for each participating state be adjusted from a minimum o f US$5 mi l l ion to US$2 million. This allocation must be utilized before December 31, 2005. Each state then has the potential to access additional pooled resources, above US$2 mi l l ion amount, based on their improved project performance.

(ii) Creation of a New Project Activity for Vaccines. To accelerate the implementation o f Nigeria’s health MDG program, the Federal Government has requested an additional project activity for the procurement o f vaccines for childhood preventable diseases.

48. The amendments to be approved by the Country Director include: (i) Article I General Conditions; Definitions; (ii) Article I11 Execution o f the Project; (iii) Article V Effective Date; Termination; (iv) Schedule 1 Withdrawal o f the

Recommended Amendments.

14

Proceeds o f the Credit; (v) Section 2 Description o f the Project (vi) Schedule 5 Terms and Conditions o f the Subsidiary Agreements wi th Participating States Required Pursuant to Section 3.01 (c) o f this Agreement.

49. Lagos Urban Transport Project (LUTP) (Cr. 3720-UNI) SDR 75.5 million @JS$lOO million equivalent): The project supports the transport sector policy and strategy o f the Lagos State Government and was approved by the Board on November 21, 2002 and declared effective on October 30,2003. The project i s scheduled to close on June 30,2008.

E.

50. The Project Development Objective i s to sustainably improve the capacity to manage the transport sector in the Lagos Metropolitan Area and enhance the efficiency o f the public transport network, such that it contributes measurably to poverty reduction.

51. Status: As o f May 3, 2005, LUTP has disbursed US$20.0 million. The DO i s rated moderately unsatisfactory and the IP i s rated moderately unsatisfactory. Both the DO and Ip are expected to be rated satisfactory as a result o f the project’s restructuring. Lagos Metropolitan Area Transport Authority (LAMATA) focused init ially in the project’s implementation on works for the maintenance and rehabilitation o f the roads o f the Declared Network, and the agency has been able to show a significant improvement in the quality o f the planning, procurement and works compared to the prevalent practice. During the 14 month period since project effectiveness, the project has committed US$29.5 mi l l ion almost entirely on the road maintenance activity and capacity building. In 2004, the Federal Ministry o f Works decided to carry out itself, using federal budget resources, the necessary rehabilitation and maintenance o f the federal roads in Lagos State instead o f authorizing LAMATA to undertake this work as was originally planned. The Federal roads represent approximately ha l f the size o f the Declared Road Network (343 km out o f a total length o f 635 km), the state roads covers 275 km and the local roads 15 km.

52. In addition, the road maintenance works done in 2004 resulted in a much higher cost than originally planned during the project’s preparation. The price o f he l , for example, that i s a major cost element o f the inputs doubled during this period. This led to a significant increase in the unit costs for physical works which i s expected to be the case for similar works to be carried out in the remaining period o f project implementation. Also, due to the heavy traffic volume, more roads than previously envisaged are due for overlay or rehabilitation.

53. N o direct transfer has yet been made from the user charges to the Transport Fund, but the study o f the Motor Vehicle Administration i s being procured and will be the f irst step in defining the mechanism for the transfer.

54. The Lagos State Government has reaffirmed i t s intention to implement the public transport regulatory reform. A draft bus franchise regulation has been prepared and i s expected to be signed by the Governor o f Lagos State in June 2005. Two pi lot bus franchises are being prepared, one by LAMATA under the project, and one by the State Ministry o f Transport. These franchise projects are expected to be under the same franchise regulation.

55. Disbursement has been very limited so far with regard to the studies and technical assistance project activities. As stated previously, LAMATA initially focused on getting the road works started. I t has progressively recruited quality staff on technical assistance and i t i s

15

now in a position to address more effectively these components. But this has translated into a late start for public transport activities, for the preparation o f the next phases, and for the capacity building o f other related State agencies.

56. The Government has requested IDA to remove from the project’s activities the recurrent and periodic maintenance as wel l as rehabilitation works o f the federal roads and federal bridges included in the Declared Road Networks, and to increase the amount o f periodic maintenance and rehabilitation works on State and Local Government roads in the same Declared Road Network, including drainage works. The identified overlay works for this additional package show economic rates o f return in the range o f 20 to 30%. O f these roads, nine are likely to require displacement. In most cases, the displacement will be temporary and no permanent structures will need to be replaced or compensated.

Government Request:

57. During project preparation, 38 junctions had been identified for treatment and improvement. After review, the treatment o f 70 junctions i s being proposed excluding junctions on federal roads. In several cases, the treatment o f these junctions will require more complex work than anticipated as i t i s necessary to improve the turning movements. Whi le the specific junctions to be included are subject to change at least six o f them involve some resettlement. The degree o f displacement and resettlement ranges from the temporary relocation o f traders while works are performed, or the rearrangement o f occupants to permit better pedestrian flow, to permanent removal to new locations.

58. The Government has requested IDA to finance the implementation o f the bus pi lot operation when i t i s ready. The Pilot Bus Franchise Project is being studied on the corridor Iyan- Ipaja to Ikotun, which differs from the one originally envisaged. The more moderate volume on this route i s expected to be amenable to the limited size o f the operation, while serving a rapidly growing area. There will be resettlement issues at junctions, termini and for a depot yet to be identified. The major displacement that can be anticipated i s likeIy to be vendors and traders, but some land acquisition could be necessary for the terminal and the depot. The financial mechanism to finance the franchise operation i s yet to be defined. The credit will finance the feasibility study and the design o f the Pilot Bus Franchise Project. Provided the design o f the project i s satisfactory to IDA, the credit will also finance the infrastructure works, the construction supervision and the technical assistance to the implementation, while the resettlement and the franchise operation will be financed by the Transport Fund.

59. The Extended Resettlement Policy Framework i s being completed and Resettlement Action Plans will be prepared and implemented accordingly as required for the road works or other project facilities.

60. The Government also requested to allow for the financing o f capacity building activities in the Lagos State Traffic Enforcement Authority (LASTMA). L A S T M A i s the traffic enforcement arm o f Lagos State in parallel with the Nigerian Traffic Police which i s a federal agency. LASTMA i s expected to have the main responsibility for traffic enforcement and road safety in Lagos.

61. The covenant mentioned in section 2.05 (a) o f the Project Agreement requires.that Lagos State contribute no less than the equivalent o f US$7 mi l l ion each fiscal year, commencing in 2003 (i.e. US$35,000,000 for the total duration o f the project) into the Transport Fund which

16

would fund the maintenance o f the roads that are the responsibility o f LAMATA. During the project’s appraisal, it was envisaged that the project would begin early in January 2003. However, the project became effective only on October 3lS‘, 2003 for reasons largely independent from Lagos State, and implementation did not begin before November 2003. For that reason, the Government requested to reschedule the related obligation o f Lagos State and to begin in 2004, including this year the amounts contributed since project effectiveness (i.e. in Novem b er-D ec emb er 2 0 03).

62. The Government has requested the cancellation o f section 2.05 (b) o f the Project Agreement with Lagos State. This covenant specifies the amounts to be directly transferred from user charges to be deposited in the Transport Fund starting from 2003. The covenant’s objective i s to measure the progress o f the financial sustainability o f the management o f the transport sector by LAMATA; the quicker the annual direct transfers from user charges reach the amount o f US$7,000,000 equivalent (which i s the estimated needed amount for the road maintenance), the quicker LAMATA’s activity i s financially sustainable. I t i s expected that these transfers will progressively replace the US$7,000,000 that Lagos State contributes annually to the Transport Fund. To fulfill this obligation, the Government will f i r s t carry out a set o f studies (the first one is presently procured and concems the organization o f the MVA) and wil l ho ld consultations with the c iv i l society and interested parties. Therefore, Lagos State Government will start later than expected to transfer money from user charges, but will then catch up with the delay. The mechanism for transferring US$7,000,000 from user charges to the Transport Fund wil l be in place before the end o f the project and will remain a project performance indicator.

63. The Government also requested to delete the performance indicator on the number o f traffic accidents related to pedestrians as the statistical data are not accurate enough to be relevant to the assessment o f the project’s performance. As part o f the capacity building component, the project will develop a strategy for improving the collection and analysis o f traffic accident data. The performance indicators for intermediate outcomes have also been revised to better take into account the expected outputs o f the project.

64. Recommended Amendments. The amendments to be approved by the Regional Vice President include: (i) Article I, General Conditions; Definitions; (ii) table in Schedule 1 Withdrawal o f the Proceeds o f the Credit; (iii) Schedule 2 Description o f the Project; (iv) Project Agreement Section 2.05; and (v) revised performance indicators to be included in the Project Implementation Manual.

65. Communitv Based Poverty Reduction Project (CBPRP) (Cr. 3447-UNI) SDR 47 million (US$60 million equivalent): The project was approved by the Board on December 20, 2000 and declared effective on September 28, 2001. The project i s scheduled to close on February 28,2006.

F.

66. The Project Development Objective i s to improve access o f the poor to social and economic infrastructure and increase the availability and management o f development resources at the community level.

67. Status: CBPRP i s a poverty-focused project that has established independent social fund agencies in the six states o f Abia, Cross River, Ekiti, Kebbi, Kog i and Yobe in the first phase. An additional six states will be included in the second phase, two states (Kwara and

17

Ebonyi) are to b e funded by the Wor ld Bank and the other four states by the Afr ican Development Bank. Although project implementation was in i t ia l ly slow, project performance has been satisfactory over the last two years. Over 1200 microprojects have been approved in more than 1000 communities in the six states that are currently disbursing. A s o f M a y 3, 2005 about US$38.79 m i l l i on has been disbursed. A mid-term review mission in October 2004 identified activities that needed to improve and further accelerate project performance. Some o f these activities require changes to the D C A . There are, however, no changes to the project’s development objective.

68. Government Request: The ma in amendments to the D C A include:

(9 Addition of Two States: The Government has requested the addition o f Ebonyi and Kwara to receive project h d s in the second phase as soon as they meet the el igibi l i ty criteria.

(ii) Reallocation of Project Resources to States and the National Planning Commission (NPC): The Government has requested that the credit b e reallocated based o n performance and revised disbursement projections, and the addition o f new states. Schedule 1 o f the D C A will be revised to reflect these changes.

(iii) Disbursement from the NPC to Key Agencies to be Treated as Special Allocations. Currently h d s going to the Federal Off ice o f Statistics, M in i s t r y o f Women Affairs and other units in the National Planning Commission for project related activities through the N P C are reimbursable only when the expenses are incurred and accounted for. This has created a liquidity problem for the NPC. The special account limit o f the N P C and state agencies will be increased to relieve the liquidity problem.

69. The amendments to be approved by the Country Director include: (i) Preamble o f the Agreement; (ii) Article I General Conditions; Definitions; (iii) Schedule 5 Special Accounts.

Recommended Amendments:

Schedule 1 Withdrawal o f the Proceeds o f the Credit; and (iv)

18

Annex 1

Privatization Support Project Recommended Amendments

To respond to Government’s request, i t i s recommended that the Development Credit Agreement (DCA) dated August 23,2001 between the Federal Republic o f Nigeria (the Borrower) and IDA be amended as follows:

(i) A new paragraph 1.02 (n) i s added to the Agreement to read as follows, and successive paragraphs are re-lettered correspondingly:

(n) “NEPA” means “National Electric Power Authority,” established and operating pursuant to the National Electric Power Authority Act 1972 (Act No. 24) o f the Borrower, as amended to the date o f this Agreement;

(ii) Section 3.01(a) i s amended to read as follows:

3.01(a) The Borrower declares i t s commitment to the objectives o f the Project as set forth in Schedule 2 to this Agreement and, to this end: (i) shall carry out Parts A, B (l), B (2), B (4), C (l), and C (3) through (6) o f the Project through BPE; Parts B (3), B (5) and B (6) o f the Project through NCC; Part C (2) o f the Project through NERC; and Part C(7) o f the Project through NEPA, al l with due diligence and efficiency and in conformity with appropriate administrative, financial, and management practices.

19

(iii) Paragraph 1 o f Part A o f Schedule 1 to the Agreement i s deleted and replaced by n e w Paragraph 1.

Category

Supply and Installation:

(a) Under part B(6) o f the project

(b) Under part D(2) O f the project

Goods

(a) Under part C(2) o f the project

(b) Under part D o f the project

Amount o f the Credit Allocated (Expressed in SDR Equivalent)

13,694,000

5,231,000

499,000

1,874,000

% o f Expenditures to be Financed

l O Q % o f foreign expenditures; 100% o f local (ex-factory cost); and 40% o f local expenditures for other items procured locally.

90%

20

Category

Consultants’ Services:

(b) Under parts B(3), B(5), and B(6) o f the project

(c) Under part C(2) o f the project

(d) Under part D o f the project

(d) Under part C(7) o f the project

Training and Study Tours

(a) Under parts A, B( l), B(21, B(4), CU), C(3)-(7) o f the project

(b) Under parts B(3), B(5), and B(6) o f the project

Amount o f the Credit Allocated (Expressed in SDR Ecluivalent)

32,618,000

2,077,000

665,000

2,734,000

2,390,000

3,075,000

997,000

% o f Expenditures to be Financed

100%

100%

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Category

Incremental operating costs,

(a) Under part A o f the project

(b) Under part C(2) o f the project

Refunding o f project preparation advance

Unallocated

Civil Works under Part D(3) o f the Proiect

TOTAL

Amount o f the Credit Allocated (Expressed in SDR Equivalent)

2,327,000

499,000

1,580,000

266,000

19,674,000

90,200,000

% o f Expenditures to be Financed

80% in 2001 70% in 2002 60% in 2003 50% in 2004 40% in 2005 and thereafter

90% in 200 1-3 70% in 2004 and thereafter

Amount due pursuant to Section 2.02 (b) o f this Agreement

90%

Paragraph 2(c) o f Part A o f Schedule 1 to the Agreement i s amended to read as follows:

(c) the term "Incremental Operating Costs" means the incremental operating costs arising under Parts A and C 2) o f the Project o n account o f maintenance o f equipment and vehicles, fuel, off ice supplies, utilities, bank charges and advertising expenditures, consumables, travel per diem and allowances, travel and accommodation, off ice rental, but excluding salaries o f c iv i l servants.

A new sub-paragraph (f) i s added to paragraph 3 in Part A o f Schedule 1 to the Agreement to read as follows:

(0 under Category 3(e) until: (i) NEPA has adopted the Financial Procedures Manual and i ts respective Project Implementation Manual, each in form and substance satisfactory to the Association and has appointed external auditors for the Project in accordance with Section I1 o f Schedule 3; and

A new sub-paragraph (g) i s added to paragraph 3 in Part A o f Schedule 1 to the Agreement to read as follows:

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(8) under Category 8 until an Environment and Social Management Framework and a Resettlement Policy Framework, satisfactory to the Association, has been adopted by the State in which such works are to be carried out, and such State has agreed to carry out such c iv i l works in accordance with the Environment and Social Management Framework and the Resettlement Policy Framework so adopted.

(vii) Paragraph 1 o f Part B o f Schedule 1 to the Agreement i s amended to read as follows:

1. The Borrower shall cause five separate special deposit accounts to be opened and maintained in U S Dollars: the BPE Special Account, the NCC Special Account, the NERC Special Account, the LSWC Special Account, and the NEPA Special Account in a commercial bank on terms and conditions satisfactory to the Association, including appropriate protection against set-off, seizure and attachment.

(viii) A new Paragraph (a)(v) i s added to Annex A to Schedule 1 to the Agreement to read as follows:

(v) in respect o f the NEPA Special Account, an amount equivalent to $200,000 to be withdrawn from the Credit Account and deposited into the Special Account pursuant to paragraph 2 o f this Annex.

(ix) Part A.l o f Schedule 2 to the Agreement i s amended to read as follows:

1. The carrying out o f the Privatization Program through the preparation and execution of divestiture transactions for about 70 Public Enterprises.

(x) Part C.2 and Part C.6 o f Schedule 2 to the Agreement are deleted and replaced by new Part C.2 and Part C.6 set forth below:

2. Establishment o f the NERC as an autonomous regulatory agency, preparation o f implementing rules and regulations, and support for commencement o f operation by NERC; and institutional support for setting up implementation arrangements for the gas pipeline and independent power production preparatory work.

6. Strengthening power generation by contracting out existing and new plants to private operators under “Rehabilitate-Operate-Transfer”, emergency power program and similar arrangements, based upon competitive bidding, and carrying out a feasibility study o f a gas pipeline and independent power production project, through provision o f advisory and consulting services.”

(xi) A new Paragraph C.7 i s added to Part C o f Schedule 2 to the Agreement to read as follows:

7. Development o f business plan for electric power transmission system company, management information system and sofhvare systems for transmission and distribution companies; and carrying out o f a transmission pricing study and a load demand and forecast study, through the provision o f advisory and consulting services.

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(xii)

(xiii)

(xiv)

(xv>

Part D o f Schedule 2 to the Agreement i s deleted and replaced by new Part D set forth below:

Part D: Lagos and other Urban Water Private Sector Participation

1. Private sector participation in the operation o f LSWC and other public water utilities, including strategic review o f the policies and regulatory framework for the urban water sector, due diligence, financial and legal restructuring, public relations programs, asset valuation o f LSWC and other utilities, and carrying out a labor program, through provision o f advisory and consulting services.

2. Acquisition, installation and operation o f equipment for repair o f essential plant, and provision o f essential services, to enable continued production o f potable water, including improvement o f the customer database, billing and collections.

3. Civ i l works to rehabilitate treatment plant pumping stations, water storage facilities and distribution networks o f LSWC and other urban water utilities contemplating significant private sector participation.

Part C . l o f Section I o f Schedule 3 to the Agreement i s amended to read as follows:

1. Limited International Bidding

Works estimated to cost less than $100,000 equivalent per contract, up to an aggregate amount not to exceed $4.0 mi l l ion equivalent, and goods, which the Association agrees can only be purchased from a limited number o f suppliers, regardless o f the cost thereof, may be procured under contracts awarded in accordance with the provisions o f paragraph 3.2 o f the Guidelines.

A new Part C.5 i s added to Section I o f Schedule 3 to the Agreement to read as follows:

5. Force Account

Works which meet the requirements of paragraph 3.8 o f the Guidelines, and costing $50,000 equivalent or less in the aggregate, may, wi th the Association’s prior agreement, be carried out by force account in accordance with the provisions o f said paragraph o f the Guidelines.

New Part C.5 and Part C.6 are added to Section I1 o f Schedule 3 to the Agreement to read as follows:

5. Least-cost Selection

Services for assignments which the Association agrees meet the requirements o f paragraph 3.6 o f the Consultant Guidelines may be procured under contracts awarded on

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(xvi)

the basis o f Least-cost Selection in accordance with the provisions o f paragraphs 3.1 and 3.6 o f the Consultant Guidelines.”

6. Selection Based on Consultants’ Qualifications.

Services estimated to cost less than $100,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions o f paragraphs 3.1, 3.7 and 3.8 o f the Consultant Guidelines.

A new Section 111. i s added to Schedule 3 to the Agreement to read as follows:

Section 111. Civ i l Works

1. C iv i l works contracts estimated at U S $33.0 mi l l ion (of which IDA would finance go%), to rehabilitate treatment plant pumping stations, water storage facilities and distribution networks wil l be undertaken by the project. To the extent practicable, c iv i l works contracts shall be grouped in bid packages to take advantage o f bulk purchase. Therefore, all c iv i l works contract estimated to cost the equivalent o f U S $1,000,000 per bid package, shall be procured using International Competitive Bidding (ICB) procedures. Each c iv i l works contract package estimated to cost less than US$l,OOO,OOO equivalent may be procured using National Competitive Bidding procedure (NCB) acceptable to IDA. However, since there i s no National SBD acceptable to IDA for now in Nigeria, IDA SBD for procurement o f works (Smaller Contract) will be adapted by the project.

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

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

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Annex 2

Community Based Urban Development Project Recommended Amendments

To respond to the Government’s request, i t i s recommended that the Development Credit Agreement (DCA) dated June 2, 2002 between the Federal Republic o f Nigeria and IDA be amended as follows:

Section 1.02 (0 i s amended to read as follows, and al l references to “FMWH’ are changed to “FMHUD”:

“FMHUD” means the Borrower’s Federal Ministry o f Housing and Urban Development;

Section 1.02 (m) i s amended to read as follows:

“Participating State” means Akwa-Ibom, Bauchi, Ebonyi, Edo, Jigawa, Nasarawa, Ogun, and Ondo State.

Section 1.02 (r) i s amended to read as follows:

“PSC” means a Project Steering Committee established by a Participating State to provide overall policy guidance for urban development at the State level, and post-review performance o f the PIUs with respect to timely implementation o f project activities and bi-annual monitoring o f the budgeted expenditures in accordance with annual activity plans.

Section 1.02 (t) i s amended to read as follows:

“Subproject” means a Subproject to be carried out in a Participating State under Part C o f the Project, which satisfies the revised eligibility criteria in the Project Implementation Manual”

The first paragraph o f Schedule 2 to the Agreement i s amended to read as follows:

“The objective o f the Project i s to assist the Borrower to increase access to basic urban services in selected cities.”

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(vi) The table set forth in paragraph A.l o f Schedule 1 to the Credit Agreement i s amended to read as follows:

Category

(1) Civil works: (a) Federal (b) AkwaIbom (c) Bauchi (d) Ebonyi (e) Edo (9 Jigawa (8) Nassarawa (h) own

(2) Goods: (a) Federal (b) AkwaIbom (c) Bauchi (d) Ebonyi (e) Edo (9 Jigawa (g) Nassarawa

( i ) All Participating

(3) Training and Consultant

(h) own States

Services: (a) Federal (b) Akwa Ibom (c) Bauchi (d) Ebonyi (e) Edo (9 Jigawa (8) Nassarawa (h) o w (i) Ondo 0) Other Participating States

:4) Subprojects

Amount o f the Credit Allocated (Expressed in SDR Equivalent)

0 3,320,000 3,510,000 3,520,000 3,060,000 1,960,000 2,730,000 2,850,000

50,000 30,000 30,000 30,000 150,000 160,000 750,000 330,000

4,000,000

320,000 690,000 690,000 690,000 640,000 6 10,000 710,000 680,000 500,000

0 52,754,260

% of Expenditures to be Finance

100% o f foreign expenditures and 95% o f local expenditures

100%

100%

100% o f foreign expenditures and 95% o f local expenditures

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(5) Incremental Operating costs: (a) Federal (b) Akwa Ibom (c) Bauchi (d) Ebonyi (e) Edo (0 Jigawa (g) Nassarawa

(i) Other Participating States (h) ogun

(j) Ondo (6) Refunding o f

Project Preparation Advance

(7) Unallocated Total

130,000 130,000 130,000 130,000 130,000 130,000 130,000 130,000

0 100,000

100%

1,195,740 Amount due pursuant to Section 2.02 (b) o f this

(vii) Paragraph 2(c) o f Schedule 1 to the Agreement i s amended to read as follows:

“The term ‘Incremental Operating Costs’ means the incremental operating costs arising under the Project on account o f maintenance o f vehicles, h e l , equipment, of f ice supplies, utilities, consumables, travel per diem and allowances, travel and accommodation, advertising expenditures, bank charges, excluding salaries o f c i v i l servants .”

(viii) The authorized allocation o f the Federal Special Account set forth in sub-paragraph 1 (a)(i) o f Annex A to Schedule 1 i s increased f rom $20,000 to $50,000.

(ix) The objective o f the Project set forth in Schedule 2 is amended to read as follows:

“The objective o f the Project i s to assist the Borrower to increase access to basic urban services in eight cities.”

(x) Part B o f Schedule 2 to the Agreement i s amended to read as follows:

“1. Carrying out an information communication campaign to in form communities in which the Project i s to be carried out in accordance with revised el igibi l i ty criteria for infrastructure improvements.

2. Implementation o f pr ior i ty subprojects for infrastructure improvement in eight cities in Participating States that meet the technical and revised el igibi l i ty criteria as set forth in the Project Implementation Manual.”

(xi) Part C o f Schedule 2 to the Agreement i s amended to read as follows:

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“1. Provision o f training to the staff o f LGs, Participating States, PIU, CTC members, the FPCU, as well as to contractors and consultants, in procurement, financial management, administration, contract management, organizational management, change management and leadership training, technical capacity, participatory and community based development, and monitoring and evaluation.”

(xii) Part D o f Schedule 2 to the Agreement i s amended to read as follows:

“Part D: Implementation Support, Operation, Monitoring and Evaluation

Provision o f assistance to: (i) the Participating States for the establishment o f PIUS; and (ii) the Federal Coordination Unit under the FMHUD for coordination o f the Project, consolidation o f financial and technical progress reports, technical audits, monitoring, and facilitating an extemal impact evaluation under the Project.”

(xiii) Paragraph 1 o f Schedule 4 to the Agreement i s amended to read as follows:

“1. The Borrower shall maintain the FPCU in FMHUD, consisting o f three representatives from the FMHUD. The representatives shall be assigned to the FPCU for the duration o f Project implementation and shall not be reassigned without prior notice to the Association. Additional staff may be assigned to the FPCU as the need arises.”

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