Document ofThe World Bank

Report No: 20031 -GZ

PROJECT APPRAISAL DOCUMENT

ONNA

PROPOSED TRUST FUND CREDIT

IN THE AMOUNT OF US$7.5MILLION

TO THE

WEST BANK & GAZA

FOR THE

SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT PROJECT

May 16, 2000

Infrastructure Development GroupWest Bank and Gaza Country Management UnitMiddle East and North Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective May 1, 2000)

Currency Unit = ILS (New Israeli Sheqalim)ILS 1 = US$ 0.2472US$ I = ILS 4.0445

FISCAL YEARJanuary to December

ABBREVIATIONS AND ACRONYMSB2000 Bethlehem 2000 MOF Ministry of FinanceCA Israeli Civil Administration MOPIC Ministrv of Planning and International CooperationCAS Country Assistance Strategy MOTA Ministry of Tourism and AntiquitiesCBU Capacity Building Unit MOU Memorandum of UnderstandingCDP-1 First Community Development Project MPW Ministry of Public WorksCDP-2 Second Community Development Project MIDP-1 First Municipal Infrastructure Development ProjectCD Country Director MIDP-2 Second Municipal Infrastructure Development ProjectCG Consultative Group NCB National Competitive BiddingCOA Chart Of Accounts NPV Net Present ValueCQ Consultants Quality-Based NS National ShoppingDPAU Director Project Accounting Unit OPEC Oil Producing and Exporting CountriesDG Director General PA Palestinian AuthorityECU European Currency Unit PAU Project Accounting UnitEIB European Investment Bank PDP Palestinian Development PlanEMP Enviromnental Management Plan PECDAR Palestinian Economic Council for Development and

ReconstructionEMU Enviromnental Monitoring Unit PMR Project Management ReportERR Economic Rate of Return PWA Palestinian Water AuthorityERP-1 First Emergency Rehabilitation Project QBS Quality Based SelectionERP-2 Second Emergency Rehabilitation Project QCBS Quality and Cost Based SelectionESIMP Electric Sector Investment and Managernent Project RFP Request for ProposalEU European Union SA Special AccountFE Financial Expert SAWSIP Southern Area Water and Sanitation Improvement ProjectFMS Financial Management System SBD Standard Bidding DocumentGD General Director SFB Selection under Fixed BudgetGPN General Procurement Notice SMs Selected MunicipalitiesIBRD International Bank for Reconstruction and SOE Statement of Expenditures

DevelopmentICB International Competitive Bidding SPN Specific Procurement NoticeICR Implementation Completion Report SS Single Source SelectionIDA International Development Association TA Technical AssistanceIS International Shopping TOR Terns Of ReferenceLCS Least Cost Selection UNDB United Nations Development BusinessLG Local Government UNDP United Nations Development ProgramME Management Expert USAID United States Agency for International DevelopmentMEnA Ministry of Enviromental Affairs WA Withdrawal ApplicationMLG Ministry of Local Government WBG West Bank and Gaza

Vice President: Jean-Louis SarbibCountry Manager/Director: Joseph P. Saba

Sector Manager/Director: Jean-Claude VilliardTask Teamn Leader: Kingsley Robothiam

WEST BANK AND GAZASECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT PROJECT

CONTENTS

A. Project Development Objective Page

1. Project development objective 32. Key performance indicators 4

B. Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 52. Main sector issues and Government strategy 63. Sector issues to be addressed by the project and strategic choices 6

C. Project Description Summary

1. Project components 72. Key policy and institutional reforms supported by the project 83. Benefits and target population 84. Institutional and implementation arrangements 8

D. Project Rationale

1. Project alternatives considered and reasons for rejection 112. Major related projects financed by the Bank and other development agencies 113. Lessons learned and reflected in proposed project design 134. Indications of borrower commitrnent and ownership 145. Value added of Bank support in this project 14

E. Summary Project Analysis

1. Economic 152. Financial 153. Technical 164. Institutional 175. Environment 216. Social 227. Safeguard Policies 24

F. Sustainability and Risks

1. Sustainability 252. Critical risks 253. Possible controversial aspects 25

G. Main Trust Fund Credit Conditions

1. Effectiveness Condition 262. Other 26

H. Readiness for Implementation 27

I. Compliance with Bank Policies 27

Annexes

Annex 1: Project Design Summary 28Annex 2: Project Description and Responsibility Matrix 32Annex 3: Estimated Project Costs 38Annex 4: Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary 39Annex 5: Financial Summary for Revenue-Earning Project Entities, or Financial Summary 41Annex 6: Procurement and Disbursement Arrangements 42Annex 7: Project Processing Schedule 55Annex 8: Documents in the Project File 56Annex 9: Statement of Loans and Credits 57Annex 10: Country at a Glance 59Annex I1: MIDP- 1 Capacity Building Restructuring Plan 61Annex 12: Organogram, Implementation Responsibility Matrix and Work Plan 71Annex 13: Draft Implementation Agreement 76Annex 14: Letter of Road Maintenance Policy 80Annex 15: Social Assessment Summary 84Annex 16: Environmental Management Plan 91Annex 17: Detailed Estimated Project Costs 98

MAP(S)IBRD 27791

WEST BANK AND GAZA

SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT PROJECT

Project Appraisal Document

Middle East and North Africa RegionInfrastructure Development Group

Date: May 16, 2000 Team Leader: Kingsley 0. RobothamCountry Manager/Director: Joseph P. Saba Sector Manager/Director: Jean-Claude VilliardProject ID: P058683 Sector(s): UM - Urban ManagementLending Instrument: Specific Investment Loan (SIL) Theme(s): Urban

Poverty Targeted Intervention: N

Project Financing DataO Loan K] Credit KI Grant [ Guarantee 1Z Other (Specify)

Trust Fund Credit out of theTrust Fund for Gaza and West Bank

For Loans/Credits/Others:Amount (US$m): US$7.5 million

Proposed Terms:Grace period (years): 10 Years to maturity: 40Commitment fee: N/A Service charge: 0.75%

-FinmlngE 'ln Suc l.-c*.. ''v';' -';''oe;!2';;-''.GOVERNMENT 4.40 0.00 4.40

OTHER 3.30 10.80 14.10SPECIAL FINANCING 2.70 4.80 7.50

Total: 10.40 15.60 26.00

Borrower: PLO FOR BENEFIT OF PALESTINIAN AUTHORITYResponsible agency: MINISTRIES OF PUBLIC WORKS (MNW) AND LOCAL GOVERNMENT (MLG)AND PALESTINIAN WATER AUTHORITY (PWA)Address: RamallahContact Person: Ministry of Public Works (MPW) - Mr. Maher Ghnaim, Director GeneralTel: 02-2400771 Fax: 02-2400771 Email:

Other Agency(ies):

Ministry of Local Government (MLG)Address: RamallahContact Person: Dr. Hussein A'raj, Deputy Minister, MLGTel: 02-2402271 Fax: 02-2402271 Email:

Palestinian Water Authority (PWA)Address: RamallahContact Person: Mr. Fadel Ka!wash, Deputy HeadTel: 02-2959022 Fax: 02-2981341 Email:

Estimated disbursements Bank FYIUS$M_:

Annual 1.3 2.5 2.7 1.0Cumulative 1.3 3.8 6.5 7.5

Project implementation period: 4 yearsExpected effectiveness date: 07/01/2000 Expected closing date: 12/31/2004

OCS PAD Fo-n,: Ret March. 2X

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A. Project Development Objective

1. Project development objective: (see Annex 1)

M7DP-2 is a follow-on project. It utilizes the framework and builds on the initiatives of the on-going (first) Municipal Infrastructure Development Project (MIDP-1, FY96, US$40m). The latter focuses on highpriority infrastructure rehabilitation as well as municipal reform and capacity building in the West Bankand Gaza (WBG). MIDP-2 also focuses on high priority infrastructure rehabilitation and municipalcapacity building. It will tackle reforms in six new Selected Municipalities (SMs): Jabalia, Khan Younis(Gaza) and Tulkarem, Al Ram, Jericho and Tarqumia (West Bank). Further, it will begin buildinginfrastructure (roads) maintenance programming capacity in a new ministry, the Ministry of Public Works(MPW).

The on-going MIDP-1

The Infrastructure Component of MIDP-I focuses on the rehabilitation and improvement of roads,drainage, water and sewerage systems in major towns and villages of WBG. The Capacity BuildingComponent has a national as well as a local dimension. The national dimension focuses on systemiclegal, institutional and financial reform involving, for example, such issues as: decentralization(central/local relationships); revenue mobilization and sharing; regional investment programming; and therole, structure and capacity of the Ministry of Local Government (MLG). The local (municipal) dimensionfocuses on improving financial planning and management; modernizing accounting systems; improvingrevenue mobilization and cost recovery; strengthening service delivery; preserving existing infrastructuralassets; and rationalizing roles and responsibilities (including commercializing and privatizing serviceprovision). These local reforms are currently being piloted in five SMs: Nablus, Jenin, Hebron (WestBank), Gaza and Rafah (Gaza).

MIDP-1 was the third in a series of IDA supported Infrastructure Projects in WBG. It followed two projects which focusedon Emergency Rehabilitation, the Emergency Rehabilitation Projects one and two (ERP-1, FY '94 and ERP-2, FY 96). Thesetwo projects, the first and third of the IDA investment in WBG, aimed only on relieving bottlenecks and critical systemimprovement. They contained no significant sector reforms.

MIDP-2 also complements the Bethlehem 2000 project (FY '99) which supports similar institutional reforms in the fiveBethlehem Area Municipalities (Bethlehem, B. Sahour, B. Jala, Doha and Khader).

As appraised in FY97, MIDP- 1 was part of a much larger overall program of high priority infrastructurerehabilitation and improvement and LG capacity building. The cost of this program was estimated at$160m. Because of its many other commitments in WBG, the Bank was only able to fund $40m of thisrequirement, leaving the program 75 percent unfunded. A number of donors, notably Italy, Greece andOPEC have agreed to cofinance with the Bank, and a few others (mainly EIB and EU) have shown someinterest in providing infrastructure support. However, the needs of the municipalities and villages are greatand even with this new interest to provide funding for the sector is most inadequate. Some 50 percent ofthe roads in Gaza and 40 percent of the roads in the West Bank are either unpaved or below acceptableservice levels. Also, water consumption at 60 liters per capita per day is far below regional standards (forexample: 137 in Jordan; 113 in Tunisia). The problem is exacerbated by the wide geographical dispersionof the more than 600 villages and village councils which house some 40 percent of the population of theWest Bank. Here the problems of accessibility and reliable water supplies are particularly acute. Finally,to-date only one donor (USAID) has shown demonstrable interest in institutional reforrn and capacity

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building at central or local levels; and other Bank infrastructure sector projects focus on reforns in specificgeographical areas or, as is the case of the Community Development Project (CDP-1), on limited smallscale interventions. Hence the needfor this follow-on project: MIDP-2.

Current Status: MIDP- I is proceeding satisfactorily. As of end-March 2000, 78 percent of the availablefunding had been committed to some 238 physical sub-projects, and 77 percent of this funding had beendisbursed. The infrastructure component is ahead of schedule. The more complex capacity buildingcomponent, as anticipated, is progressing much more slowly. Still, significant progress is being made. TheSMs are in the process of preparing their three-year investment and development plans, and the plans forthe installation of modem accrual-based accounting systems are well advanced. The software has beenselected, and system implementation is in progress.

Following a lengthy review with MLG during the latter half of 1999, the national component wasrestructured. This restructuring will strengthen the framework for reform and provide better focus andsupport for the reform effort. An extract from the restructured reform program is presented in Annex 11.The complete document has been placed on the projectfile.

MIDP-2, Objectives and Strategies

Objectives: MIDP-2 will continue the effort begun under MIDP-1 to help:

i Improve infrastructural services (roads, water, drainage and sewerage) to and within villages andmunicipalities in WBG, and preserve existing infrastructural assets; and

e Strengthen municipal and central governmental capacity to plan, program, finance, manage andmaintain local services.

The Infrastructure Rehabilitation and Improvement Component focuses mainly on strengthening theregional road network, thus improving village and municipal accessibility, particularly in the West Bank. Italso assists in rehabilitating and improving water and sanitation services mainly within (but not limited to)villages and municipalities in the Northern West Bank. The backlog in this area is great and is notcurrently being adequately addressed by other IDA or other donor-supported projects.

The Capacity Building Component aims at continuing to strengthen MLG, and beginning to strengthen sixadditional municipalities and MPW. Support for the latter will focus on building systematic roadmaintenance programming capability. Until recently MPW was too weak to play its role effectively androad maintenance programming was non-existent. The proposed support will begin to help remedy this,and help lay a foundation for MPW's efficient development.

Strategy: The strategic framework for infrastructure improvement, institutional reform and capacitybuilding in the local government sector is already well defined in the on-going MIDP- I (see Annex 11).MIDP-2 utilizes this framework to continue to improve infrastructure and services in WBG and build localcapacity.

2. Key performance indicators: (see Annex 1)

The key performance indicators are:

* Improved Infrastructural Services: 1) km of main, access and internal roads rehabilitated and/ormaintained annually: yr 2: 50 (km); yr 3: 90 (km); yr 4: 126 (km); 2) km of water pipes laid annually:yr 2: 10 (km); yr 3: 25 (km); yr 4: 44.7 (km);

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* Improved Central Governmental Capacity (MPW): 1) Establishment of capable and well staffed roadmaintenance programming and management unit/department in MPW by the end of yr 3; 2) timelypreparation of realistic and sustainable annual road maintenance programs and plans by MPW by theend of yr 3; 3) percent of primary and secondary road network for which a long-tern maintenanceprogram has been developed: end yr 3: 50 (%); end yr 4: 100 (%); 4) percent of routine and periodicmaintenance on the primary and secondary road network done by contract: by end yr 3: 60-70 (%); endyr 4: 80-85 (%); 5) Establishment of an environmental monitoring unit by MPW within 2 months ofeffectiveness; 6) Preparation of environmental guidelines for contractors within 6 months ofeffectiveness; and 7) Completion of training workshops for MPW contractors by the end of year 1.

* Improved Municipal Capacity (MLG): 1) Installation of modem, computerized, accrual-basedaccounting systems in SMs by end yr 3; 2) preparation by SMs of realistic and sustainable annualinfrastructure investmnent programs end yr 3; 3) annual percent increase in cost recovery on municipalservices by end yr 4; and 4) beginning of corporatization of key municipal services (water, electricity,sanitation, etc.) by end yr 4;

These indicators were discussed and agreed at Negotiations.

B. Strategic Context1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)Document number: [----] Date of latest CAS discussion:

Context: The recent history of WBG has been one of occupation, under investment-neglectedinfrastructure, hopes of peace and political settlements, repeated political crises and attendant violence;increasing unemployment as a result of repeated border closures; severe restrictions on the movement ofpeople and goods; lack of authority over resource allocation; increasing disillusionment regarding politicalpossibilities; and economic decline brought about by political uncertainty. This is a context of highuncertainty and risk. The latter requires that the Bank continue to provide close on-ground support, andto be flexible and responsive to changing circumstances.

Country Strategy: The Bank's assistance strategy is outlined in the Board paper entitled "A World BankGroup Strategy for the West Bank and Gaza and a Request for Replenishment of the Trust Fundfor Gazaand the West Bank (R98-96 dated April 28, 1998). The strategy sets out the key themes around which thefuture work program will be focused. Two of these themes are of particular relevance here:

* Developing an environment conducive to private sector activity; and

* Setting the stage for the emergence of self-governing institutions on a sustainable basis.

MIDP-2 addresses these themes by continuing to help to improve high priority infrastructure; continuingthe local government (LG) institutional, financial and managerial refonns begun under MIDP-1 (includingencouragement of private provision of LG services where feasible); and beginning to strengthen the roadmaintenance planning and managerial capacity of MPW, thus helping to preserve existing public assets;and by improving service coverage, quality and reliability, increasing accessibility, and reducingtransportation costs. These initiatives will help improve the quality of life of the population and also helpcreate an enabling environment for private investment.

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2. Main sector issues and Government strategy:

The most relevant sector issues are:

* Infrastructure Rehabilitation: Reducing the huge backlog -- a legacy of 20 years of neglect; improvingaccessibility; preserving existing assets; establishing a sound strategic framework for development; anddeveloping a sustainable system for managing and financing improvements; and

* Local Governance and Service Delivery. Rationalizing central and local government roles andresponsibilities; developing an efficient, legal, institutional, fiscal and financial framework; andstrengthening investment and maintenance programming, finance, management and service deliverycapacity.

Infrastructure and services levels are far below Israel and significantly below regional standards. Localand national institutions are weak and under-funded, mandates are unclear, and the potential forprivatization largely unexplored.

Government Strategy: While the PA does not yet have fully developed strategy in any of the above areas,the 1998-2000 Palestinian Development Plan (PDP) presented to the December 1998 Consultative Group(CG) in Paris is an important step in this right direction. Rehabilitation and improvement of infrastructureare critical objectives of the PDP, together with increasing reliance on the private sector and improvinggovernance. Under MIDP, MLG is working to develop a strategy and a framework for the localgovernment sector, and work has begun by the Ministry of Planning and International Cooperation(MOPIC) and MPW on developing a strategy for the roads and transport sector. The latter is beingsupported by the Bank7.

3/

A Bank supported transport sector study has just been completed.

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

MIDP-2 seeks to support reforms at both central and local levels by engaging ministries and municipalitiesin a dialogue on the improvement and reform of local service delivery, and by initiating these localreforms where possible. In one key area, however, MIDP-2 is breaking new ground. This is in the longneglected area of maintenance programming in the road sector. But even here the objectives are relativelymodest. MIDP-2 does not seek to address LG policy reform at the national level. This is already beingaddressed under the on-going MIDP-1. Nor does MIDP-2 seek, by itself, to implement major reforms inthe areas of water and sanitation, electricity or transport. These are already being addressed or isscheduled to be addressed under other IDA projects (see below).

MIDP-2 complements the sector reform - focused projects such as MIDP-1, the Southern Area Water andSanitation Improvement project (SAWSIP, FY '99 US$21m), Electric Sector Investment and ManagementProject (ESIMP, FY '00, US$15m), and an envisaged future Transport Sector Reform project. It alsocomplements the ongoing Community Development projects (CDP-1, FY '97, US$10; and CDP-2, FY '99,US$8) which both focus on poverty and small scale sub-projects (US$50-150,000) in villages andmunicipalities.

Support to MPW: The question of which additional government infrastructural agencies to beginstrengthening under MIDP-2 was a key issue, and was examined in depth with Palestinian authorities.MPW was the obvious candidate. It has the political and administrative mandate for maintaining and

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improving the main, regional and village access road networks under Palestinian jurisdiction, but it isrelatively new, lacks resources and is struggling to deliver on its mandate. Also, over the last two years, ithas repeatedly requested Bank assistance in capacity building. Furthennore, MPW's request for assistanceis strongly supported by the Ministiy of Finance (MOF) and MOPIC. With respect to the choice of SMs,this was made by MLG and supported by the Bank. While other choices are possible, the SMs chosenrepresent a good and manageable selection within WVBG based on need, geographical distribution,population size and economic and political importance.

C. Project Description Summary

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

- -; Comni6pne -$-i ector i.s ;:@'

I. lnfrastructure Rehabilitation and 0.0 0.0Improvement (Works would beundertaken outside of as well aswithin SMs):

A. Rehabilitation and improvement Highways 18.10 69.6 2.80 37.3of regional road network, includingdrainage and essential services.

B. Rehabilitation and improvement Other Water 3.10 11.9 0.70 9.3of village and municipal water supply Supply &and sewerage networks. Sanitation

II. Capacity Building Support: 0.0 0.0A. to MPW for initiating systematic Institutional 1.90 7.3 1.60 21.3

road maintenance (including DevelopmentEnvironmental monitoring duringconstruction).

B. to MLG and SMs for continued Institutional 2.50 9.6 2.10 28.0SM investment and development Developmentprogramming; improving accountingsystems, revenue mobilization,management and service delivery.

III. Incremental Operational Expense 0.0 0.0Support:

A. To MPW 0.10 0.4 0.10 1.3B. To MLG 0.30 1.2 0.20 2.7

Total Project Costs 26.00 100.0 7.50 100.0Total Financing Required 26.00 100.0 7.50 100.0

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

MIDP-2 supports the following key reforms: 1) road maintenance programming and consolidatingresponsibility for road system planning and management at MPW; and 2) investrnent programming,accounting systems and service delivery reforms at the municipal level (see Section B-3 above).

3. Benefits and target population:

Significant benefits would accrue to the populations in the villages and SMs served. About 400,000persons in 35 communities in WBG are expected to benefit directly. Benefits would include: improvementsin infrastructural services, including reductions in vehicle operating costs and travel times; increase in thenumber of households provided with secure and reliable water and sanitation services; improvements inpublic health and environmental conditions; employment generation (about 700 person years directly);preservation of public assets; improvement in the conditions for private sector investment and development;and improvement in the fiscal efficiency of the SMs. National benefits would also accrue in the fonn ofreduced demands on the national budget as a result of SM efforts to improve cost recovery and mobilizerevenues, and there would be a general improvement in urban efficiency.

4. Institutional and implementation arrangements:

The project would be implemented over a four (4) year period beginning July 1, 2000 and ending [June 30,2004]. The closing date would be December 31, 2004. The proposed work plan is attached at Annex 12.Project implementation would be the responsibility of MPW, Palestinian Water Authority (PWA) andIVIILG, with MLG playing the overall coordinating role. A summary of the implementation arrangements ispresented below. An Organogram and a more detailed Responsibility Matrix are presented in Annex 12.

Component Sector Preparation and ImplementationResponsibility Responsibility

A. Infrastructure Rehabilitation

* Regional roads MPW * MPW, in consultation with MLG and MOPIC.* Municipal and village water and PWA . PWA, in consultation with MLG, municipalities

sanitation & villages.

B. Capacity Building

* MPW MPW * MPW. MLG MLG . MLG, in consultation with and with the support

of SMs.C. Incremental Operating Expenses

Support* Overall project monitoring, * MLG with cooperation and support from MPW,

accounting, auditing and reporting PWA & SMs.

MPW: MPW would be responsible for the identification, preparation, implementation, monitoring(including environmental monitoring during construction) and reporting on the regional road component.The specific roads have been selected in consultation with MLG and MOPIC. MPW would also beresponsible for road maintenance system development and programming, and for its own capacity buildingcomponents.

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PWA: PWA would implement the relatively small water and sanitation component.

MLG: MLG would be responsible for supporting and overseeing the capacity building program at the locallevel. Support to SMs would be provided by MLG's Capacity Building Unit (CBU) and the ProjectAccounting Unit (PAU) already established under MIDP-1. The stronger SMs would be encouraged andassisted to implement the sub-components in their domain on their own, but within a framework establishedby MILG. The latter would be documented in Implementation Agreements between MILG and each of theSMs (see draft Agreement in Annex 13). Execution of these Agreements on Terms and Conditionssatisfactory to IDA is a Condition of Effectiveness. MLG would also be responsible for overall project,management, accounting, auditing, monitoring and reporting. It is perhaps worth noting here that thesecapacities are not currently well developed at MLG. This is a relatively new area for them and it maytake some time before they are able to perform the above tasks without external assistance. Thus, inundertaking these responsibilities MILG would be assisted by competent consultants recruited on acompetitive basis acceptable to IDA and supported under the project. The employment of theseconsultants, the establishment by MLG of an effective project monitoring and accounting unit, and theappointment of auditors acceptable to IDA are a Condition of Effectiveness.

Financial Management

The Project will be managed by three implementing agencies, i.e, MLG, MPW and PWA, each for its partof the project components. Each of those agencies will manage its own Special Account and disbursementprocesses. However, for purposes of overall project management, consolidation of project accounts andfinancial statements will be undertaken by MLG's PAU (below). The Financial Management Systems atthe three agencies were assessed and found to be adequate for presenting the project to the Bank's Board.Details of the assessments of financial management system at the three entities and the disbursementarrangements are in Annex 6. A summary on each implementation agency is presented below.

MLG: The Project Accounting Unit (PAU) at MLG, which was established under MIDP-1, will be incharge of all project transactions and accounting for MLG's portion of the project and issue projectquarterly reports and annual financial statements. The financial management system at PAU includesadequate computerized accounting system, budgeting system, accounting policies and procedural manuals,intemnal auditing, and proper segregation of duties on all related functions, including disbursement. Theaccounting policies comply with International Accounting Standards and are based on accrual accounting,standard disclosures, assets and liability valuation, forex accounting etc. The PAU is well structured butneeds to be: (i) fully staffed to ensure the proper operation of project management and; (ii) set up separatechart of accounts for the project to allow automatic generation of PMRs. It was agreed that the hiring twoqualified accounting staff will be a Condition of Effectiveness; steps for completing the project chart ofaccounts are described in the FM Action Plan (Annex 6). A separate Special Account will be opened forthe MLG portion of the Credit, and this SA will be solely operated by MLG. MLG will prepare its ownwithdrawal applications and submit them to IDA for funds transfer.

In addition to accounting for MLG's transactions, the PAU will be responsible for the overall accountingand reporting of the project and coordinate with other implementing entities. In undertaking this task,MLG will need the support and cooperation of MPW and PWA; specific arrangements to ensure properflow of information are included in the Action Plan (Annex 6). PAU will maintain its project accounts andsubmit quarterly Project Management Reports (PMRs) to IDA starting July 1, 2001. MLG is also legallyobliged to uncommission annual audits of the project.

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PWA: Financial management of PWA's portion will be carried out by PWA's financial and accountingdepartment. The PWA is a revenue earning entity and uses commercial accounting for all its activities. Ithas well established accounting department staffed with five full time qualified accountants and has writtenaccounting policies and procedural manuals, budgeting manual, EDP system manual. Also, it has full-timeexperienced internal auditor and two computer IT specialists. The accounting system is computerized anduses local software (Bisan). The financial management system was designed and implemented throughprofessional services with a qualified consulting firm under previous IDA financed project, Southern AreaWater and Sanitation Project (SAWSIP). Similar to SAWSIP, a separate chart of accounts would be setup for MIDP-2 to allow automatic generation of PMRs (Action Plan; Annex 6). PWA is expected to startPMR-based disbursement under SAWSIP and start to submission of quarterly PMRs to IDA starting July1, 2000. Under MIDP-2 PWA will prepare quarterly PMRs and submit them to MLG for consolidationand submission to IDA. A separate Special Account will be opened for the PWA portion of the Credit andthis SA will be solely managed by PWA. PWA will prepare its own withdrawal applications and submitthem to IDA for funds transfer.

MPW: Financial management of MPW's portion will be carried out by MPW's financial and accountingdepartments, which will assume accounting and reporting responsibility. The FMS at MPW includedadequate semi-automated accounting system, accounting manual, project management manual, adequatestaffing, sufficient internal controls and proper segregation of duties and adequate reporting capacity. Theproject accounting follows IAS and recorded on double-entry accrual basis. Project reports are preparedperiodically to monitor progress. The finance department of MPW has adequately qualified staffed andsupported by qualified computer staff. Accordingly, there will be no need to set up separate PIU tomanage the accounting of the project. The finance department will assume the accounting and reportingresponsibility. MPW will prepare quarterly PMRs and submit them to MLG for consolidation andsubmission to IDA.

A separate Special Account will be opened for the MPW portion of the Credit and this SA will be solelymanaged by MPW. MPW will prepare its own withdrawal application (WA) and submit them to IDA forfunds transfer.

Project annual financial statements, Special Accounts and SOEs for all implementing agencies will beaudited annually by private independent auditors acceptable to IDA. The audited financial statements andreports will be submitted to IDA within six months after end of fiscal year. The first audit report is due forthe year 2000 on June 30, 2001. Appointment of Auditors to the project is the responsibility of MILG andwould be a Condition of Effectiveness. PWA, as revenue earning entity, will also submit annual financialstatements for the entity along with the audited financial statements for the Project accounts and the specialaccounts. Currently, PWA has a private auditor acceptable to IDA for the entity and the Special Accountand Project Accounts of SAWSIP.

The funds will flow from IDA to the Special Accounts of the related implementing agency (MPW, PWAand MLG) which will be opened at commercial banks with conditions and terms acceptable to IDA.Disbursement will be on traditional basis, including SOE which will be used for disbursements below$250,000. As PMRs, for all project components by the respective agencies, are expected to be generatedstarting July 1, 2001, The project would convert to PMIR based disbursement having all conversionrequirements are met and the borrower agree for the conversion.

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D. Project Rationale

1. Project alternatives considered and reasons for rejection:

Only two alternatives to the current design were considered relevant and seriously examined:

* ERP-3: A quick village roads project implemented largely by PECDAR as in EPR-1 and ERP-2, theinitial and successful Bank-supported infrastructure rehabilitation projects in WBG now coming to aclose; and

* Roads-1: A national roads - focused project implemented by MPW.

The decision to limit consideration to these two was informed by the urgency of responding to the problemsof the municipalities and villages as expressed by the Palestinian authorities (MOF, MLG and MPW), andknowledge of the focus and domain of ongoing and planned Bank-supported projects, see below.

Neither of the above-mentioned alternatives envisaged any significant policy reform or capacity buildingcontent-in contradiction to current country and sector development strategy. They were thus rejected.Further, the first alternative, "ERP-3", by relying heavily on existing capacity built up at PECDAR underprevious Bank projects, negated the possibility of initiating significant institutional and policy reform atMPW or MLG. In this context it is important to note that Bank strategy in WBG has evolved significantlysince its initial focus on emergency measures. Institutional reform and capacity building is now a corecomponent of strategy.

The second alternative, Roads-i, was considered too narrow given the urgent and widespread needs of themunicipalities and villages. Also, it was felt that such a full-fledged national roads project should await theoutcome of current road and transport sector studies which are expected to lay out a strategy for thedevelopment of the sector.

Finally, neither alternative addressed the strong and urgent demand coming from MLG and MPW for broadsector and capacity building support. Both ministries urgently desire to deliver on their political andadministrative mandates. MPW, in particular, feel very strongly that they have been neglected by IDA andthe rest of the donor community.

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

__~~~~~~~~~~~~~~~~~as _ i - rlisionSetor 1ssu_ - f8t--f; -at--pRQins:

Implementation DevelopmentBank-financed Progress (IP) Objective (DO)

Urban: Reducing basic infrastructure Municipal Infrastructure S Sand services backlog; generating Development Project (MIDP-1,employment in response to border FY96, US$40m).closures; Local Government sectorReform and Capacity Building.

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First Emergency Rehabilitation S SProject (ERP-1, FY94,US$30m; closed Dec. 1998).

Second Emergency S SRehabilitation Project (ERP-2,FY96, US$20m; closed June1999).

Urban, Tourism Development and Bethlehem 2000 Project S SCultural Heritage Preservation: (B2000, FY99, US$25m).Accelerate the development of tourismin the Bethlehem area and Palestine;strengthen the economic andinfrastructural base of area LGs andimprove financial and managerialcapacity; provide opportunities forprivate sector initiatives andinvestment.

Poverty and Community Dev.: Community Development S SReducing basic rural and community Project (CDP-1, FY97,infrastructure and services backlog; US$1 Om; closed Decembergenerating employment in response to 1999).border closures.

Community Development S SProject (CDP-2, FY99,US$8m).

Water and Sanitation: System Reform Water and Sanitation Services S Sand Capacity Building. Project, (FY97, US$25m).

Water Southern Area Water and S SSanitation Improvement Project(SAWSIP, FY99, US$21m).

Electricity: Sector Reform and Electric Sector Investment and S SCapacity Building. Management Project (ESIMP,

FY'00, US$15m). ____ ____

Other development agenciesEU: Municipal Support Program,Municipal road rehab. January 1996 (ECU25m).

UNDP: Local Rural DevelopmentVillage infra rehab. and capacity Fund, Jan. 1977 (cost NA).building.

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EIB: Roads Project, 1999 (cost NA).Municipal and village road rehab.

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

3. Lessons learned and reflected in the project design:

During the course of implementing projects in WBG, including the first five in the Bank (IDA) AssistanceProgram, the following key lessons have been learned:

* There must be strong ownership by and good dialogue with the PA and its constituent organizations, ifnecessary reform and implementation decisions are to be taken on a timely basis.

* Capacity building takes a long time and requires a substantial commitment of Bank staff time andsupervision resources. This is so because institutions are still in their formative stages. Also, the need,potential and options for reform are not fully appreciated.

* Planning and implementing in a highly unstable environment such as WBG requires a flexible andunconventional approach. Often decisions have to be made without adequate information or analysis.In this context there is a risk that misjudgments will be made. The challenge is not that of meetingsome rigidly predefined set of objectives. It is to act quickly on the basis of the best existinginformation and analysis, but to learn, learn quickly, and modify behavior based on learning feedback.This may require continual redefinition of objectives and even significant project redesign duringimplementation.

_ Close on-the-ground supervision by the Bank (IDA) and willingness to be flexible is essential inadapting the project to local realities.

* Adequate provisions must be made for issues such as border closures (political risks) which negativelyimpact project completion.

* It is critical that beneficiaries be adequately consulted during project preparation in order that theirneeds and priorities are properly reflected in project design.

= Communities are willing to participate in program formulation and contribute directly (up to 20% ofproject costs) for projects which directly benefit their communities.

* As the development program shifts from "emergency" operations and begins to tackle more complexissues, the Bank and implementing agencies must develop the capacity to undertake more sophisticatedproject appraisal.

* Greater attention needs to be paid by the borrower to the timely acquisition of land and buildingpermits if significant implementation delays are to be avoided.

* The provision of operating support to implementing units is critical to establishing managerial andtechnical capacity.

To the extent possible, these lessons have all been built into the current project design. In particular, verygood working relationships have been developed with MLG and MPW at the highest political andadministrative levels and strong commitments to project success exist (see below). Similarly strongrelationships are being formed with the SMs and the key stakeholders therein. Also, the project isscheduled over 4 years, providing for the vicissitudes of work in WBG and adequate time for the slow

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business of capacity building to take hold. Because the infrastructure program focuses largely on theregional road network it was not feasible to expect significant community contributions. However, thepossibility of these contributions will be explored during implementation with respect to municipal andvillage water supplies. Finally, with the supervision team on the ground, the project will be adjusted asnecessary, based on feedback during implementation.

4. Indications of borrower commitment and ownership:

The ministers in charge of MLG and MPW have both made very strong appeals to the Bank for help andhave committed themselves personally to the project. At his own initiative, the Minister of LocalGovernment has gone so far as to have personally initiated the drafting and signing of a Memorandum ofUnderstanding (MOU) with the Country Director for WBG in November 1998. This MOU commits MLGto entering into a long term relationship with the Bank in policy reform (through MIDP) and capacitybuilding in the following areas: 1) Project Planning, Investment Programming and Management; 2)Project Finance and Accounting; 3) Development Planning and Zoning; 4) Legal aspects of LocalGovernance and Planning.

With respect to the roads sector, in mid-1998 the Minister of Public Works also wrote to the CountryDirector requesting Bank assistance with funding and investment programming, and has given a writtenundertaking to execute the reforms requested by the Bank in the areas of road maintenance programming,project planning, programming and management. This undertaking is documented in a Letter of RoadMaintenance Policy which is attached at Annex 14.

At another level, MOF and the MOPIC have both repeatedly indicated their strong support for continuedmunicipal investment and capacity building efforts to strengthen the main infrastructure and LG sectorministries. Both ministers believe strongly that it is time for MLG and MPW to fully assure thatresponsibilities and begin delivering on their mandates, and that the Bank should assist in this maturationprocess.

5. Value added of Bank support in this project:

The Bank has been in the forefront of the donor effort to provide support to the Palestinians and has led theway in infrastructure rehabilitation, policy reform and capacity building. Under MIDP-1 a major reform\initiative is underway in the LG sector, and MIDP-1 now provides the framework for all of MLG'sinstitutional and policy reform and capacity building initiatives -- a framework within which all the majordonors have agreed to work. MIDP-2 continues these efforts, extending them to new ministries andmunicipalities.

The confidence reposed in the Bank's work by MLG and MPW is amply testified to in Section 4 above.Few donors are willing or have the capacity and patience to do this work which is vital to the sustainabledevelopment of the sectors involved. Here the Bank is both indispensable and unrivaled. With respect tothe road maintenance programming, this represents the first real attempt by the PA to begin to address theimportant infrastructure maintenance and recurrent cost problem systematically -- a long neglected issue.Here the Bank is again helping the PA to break new ground.

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

1. Economic (see Annex 4):

* Cost benefit NPV=TUS$ million; ERR = 47 % (see Annex 4)O Cost effectiveness0 Other (specify)

The objectives of MIDP-2 are to improve infrastructure services in local jurisdictions and to buildplanning, programming, financial, managerial and technical capacities in central and municipalgovernments. The project builds on the ongoing MIDP-1 by strengthening regional road networks,extending capacity building activities to six new municipalities and the MPW, while continuing tostrengthen the MLG.

The more easily measurable economic benefits are derived from the infrastructure investments thatconstitute 63 % of base project costs (without price and physical contingencies) and 76% of total projectcost when contingencies are added. Roads and a small component of key water supply projects make upthis component.

Roads: A list of projects totaling about $161 million was reduced to 14 candidates by eliminating: projectswhere other financing was available; tertiary (low volume) roads; urban roads; non-maintenance projects;projects requiring land acquisition or resettlement; and, projects requiring Israeli approval. These 14projects were subjected to cost benefit and internal rate of return analyses, and 11 projects totaling $14.0million (Base costs) were economically justified. Economic Rates of Return (ERR) ranged from 25% to80% with a weighted average of 50%. These ERR proved robust under sensitivity analysis; the worse casescenario required cost increase of 140% or a reduction in benefits of 25% in the most vulnerable project forit to be rejected.

Water: Four out of six projects examined provided economically acceptable rates of return, ranging from24% to 42%, and averaging 29% for the total investment. Even the lowest of these remained acceptableunder sensitivity testing, yielding 18% after cost increases of 10% and simultaneous 10% reduction inbenefits.

Summary: The combined investments in roads and water supply yielded the weighted average 46%internal rate of return. Annex 4 lists and summarizes ERR for the individual infrastructure investments.

Level of Risk: It is an accepted reality that all projects in West Bank/Gaza face a significant level of risk(see Sections B 1 & F). The major risks are associated with inadequate capacities at MLG and MPW and,of course, political turmoil. On the former are subject to mitigation by Bank-financed project intervention.In this case, technical assistance and training include specific focus on this vulnerability.

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

The estimated total cost of the project is US$26m, including contingencies and taxes. The proposed Creditof US$7.5m would cover about 30% of total project costs. The balance would be covered from donorcofinancing contributions (estimated at US$14.lm equivalent), and the PA (mainly VAT, estimated at

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US$4.4m equivalent). The foreign exchange component is estimated at about US$9.4m, 36% of the totalproject cost. Physical contingencies have been allowed for at 10% of base costs and price contingencies at3% per annum in accordance with World Bank/IDA guidelines over the four-year implementation periodbeginning July 1, 2000. The closing date would be December 31, 2004.

Approximately 47% (US$3.5m) of the proposed IDA Credit would be used to finance the rehabilitation andimprovement of high-priority infrastructure assets; 49% (US$3.7m) would be used to support capacitybuilding in MPW and MLG; and 0.3% (US$0.3m) would be used for overall project managementmonitoring, accounting and reporting.

A number of Donors including the Saudi Fund and Italy have shown interest in cofinancing jointly or inparallel. The Saudi Fund has tentatively agreed to provide US$5.Om for roads, and Italy is currently in theprocess of defining its contribution.

(Details on project costs and financing are presented in Annexes 2, 3, 5 & 17.)

Fiscal Impact:

The most direct measure of fiscal impact is the taxes that the Government has to forego (around US$4.4m)as its contribution to the total project costs. It is anticipated that the maintenance requirements for the waterinvestments can be met without undue stress, especially in view of the ongoing municipal finance andmanagement reforns. However, meeting the significant periodic funding requirements of the roadmaintenance program will require special measures. As a consequence, the MPW in its Letter of RoadMaintenance Policy (discussed and agreed at Negotiations; see Annex 14) has undertaken to establish aroads fund from which investments such as these may be made.

3. Technical:

The project is technically sound. Preliminary technical assessments were made of some [40] roadsub-projects valued at about $30m. These were selected from the 1999-2003 Palestinian DevelopmentPlan which cites numerous sub-projects valued in excess of $160m. Each Road sub-project was visitedand reviewed with MPW for priority in terms of importance in improving regional accessibility (to villagesand municipalities), technical feasibility, economic feasibility, political and social priority, regional balance(West Bank/Gaza, and West Bank North/Central/South), and readiness for implementation. Based on thesecriteria, eleven 11 sub-projects valued at $16.9m were selected for detailed consideration under MIDP-2.These sub-projects were then subjected to further detailed technical and economic evaluation and confirmedwith MPW and MLG. (See Annex 2 for a description of the sub-projects). On August 16, 1999 aworkshop was held at MPW with all the key ministries and agencies involved in or potentially affected bythe proposed project. At this workshop the infrastructure and other components were discussed and agreed.

Ten (10) water and wastewater and sanitation sub-projects were initially selected from a long list submittedby PWA. This list was subject to a similar review with PWA. Four sub-projects were finally selected fordetailed review. All met the economic assessment criteria (ERR > 14%). They also met distributionalcriteria as well. An Environmental Assessment will be performed prior to the implementation of the waterprojects.

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The MPW Capacity Building Sub-Component: This sub-component which focuses on developing a RoadMaintenance Management System is a fairly standard one and draws on the Bank's long experience withsimilar components worldwide. Essentially, it will rely on the employment of reputable internationallyrecruited consultants. The details of this sub-component have been discussed and agreed with MPW. Thedraft terms of reference for this consultancy have been prepared and is on the projectfile.

The MLG Capacity Building Sub-component is based essentially on similar work already on-going infour of the five SMs under MIDP-1, and work scheduled to begin shortly in the five SMs under B2000.The task in each SM involves: 1) undertaking detailed analyses of municipal services including reviews ofrevenues, expenditures, performance, structure, beneficiary assessment, needs and option for the future;and 2) preparing a feasible and cost effective 3- year investment/development plans, having regard to theneed to improve service delivery and cost recovery and place the municipality on a sound and sustainablefinancial and institutional foundation. There is nothing new or noteworthy here, except that the new SMscan now draw on the already very positive experience of the current MIDP-I SMs, thus reducing thelearning time. Draft terms of reference for the employment of consultants and the implementation of thesub-component have been prepared and are on the Project File.

4. Institutional:

4.1 Executing agencies:

The key organizations involved in the project are MPW, MLG, and PWA. MPW and MLG are brieflydiscussed below (see organogram in Annex 12).

The PWA has a relatively small role to play. It is a well established organization which is already working veiy closely withIDA on implementing Water and Sanitation projects in WBG. Since it has already been evaluated in detail under theseprojects, it is thus not discussed here.

The Ministry of Public Works

The MPW is responsible for the planning, development and management of the main, regional, and villageand municipal access roads under Palestinian jurisdiction. It was established in 1994 from elements of theformer Israeli Civil Administration (CA) in West Bank and in Gaza, and inherited a considerable numberof technical and non-technical Palestinian staff from the CA, particularly in Gaza.

Until recently MPW was neglected, relatively weak and short of funds for investment and operations. Also,its role vis-a-vis PECDAR has been (and remains) relatively undefined -- PECDAR having preceded theformation of MPW and having been the major vehicle for road sector funding by donors. Within the lastyear or so, MPW has moved quickly to take control of the sector and to discharge the responsibilities thatflow from its mandate. However, despite having an agreed budget, it does not receive funding for works ona regular and predictable basis from MOF. Also, it only receives a very limited amount of developmentfunding from donor agencies. Within the same period MPW has received significant amounts ofroad-building equipment from a number of donors but is unable to efficiently deploy this equipmentbecause of the above mentioned lack of regular funding to purchase materials and supplies. This is so quiteapart from the well established fact that it is inefficient for the Ministry to build up this large pool ofequipment and to attempt to execute development and maintenance work by force account. Furthercomplicating the above issue is the significant pool of skilled technical and laborer inherited from the CA.In the face of high levels on unemployment, particularly in but not limited to Gaza, MPW is under political

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and social pressure to deploy the recently obtained equipment to occupy the inherited labor pool. The netresult of the above factors is an inefficient allocation of resources.

With respect to the structure of MPW, its head quarters are located in the West Bank. This office isheaded by the Minister and the Director General for the entire ministry. There is a separate and largeroffice in Gaza which appears to have a fair degree of operational authority. This office is headed by aDeputy Minister.

A list of the main departments and their staffing is presented in the table below.

Department/Office StaffingWest Bank Gaza Total

I Executive 2 3 52 Technical Affairs 50 322 3723 Management & Financial Affairs 24 45 694 Planning & Studies 3 35 Provinces 3 11 14

Total 82 381 463

In addition to the executive, there are four main departments: Technical Affairs, Management and FinancialAffairs, Planning and Studies, and Provinces. The total staffing is about 463 persons, with the Gaza officeaccounting for 82% of the staff. Within each region and MPW as a whole, the Technical Departmentpredominates, accounting for most of the staff -- 80% overall, 61% in the West Bank and 85% in Gaza.

Within the Technical Affairs department the distribution of staff by skill and function is as follows:

Category West Bank Gaza Total

1 Prof. & Technical 40 145 1852 Support staff 10 3 133 Skilled labor 171 1714 Unskilled labor 3 3

Total 50 322 372

It can be seen from the above that the Gaza office dominates in tenns of professional and technical staff(145 out of a total of 372), and that there are a large number of skilled labor (171 out of the departmentaltotal of 372). It is this high build up of professional and technical staff and skilled labor in Gaza --largely inherited, as noted above, from the Israeli CA -- that is partly driving the current policy offorceaccount within MPW.

The project would not aim to restructure MNPW. This must await the result of the more detailed sector andinstitutional studies currently underway. What the project would try to do, however, is to assist MPW to:

1. Establish and begin implementing an effective road maintenance management system including, thetechnical, institutional and financial dimensions;

2. Help develop the system of contracting out for routine and periodic maintenance, using the privatesector to the greatest possible extent; and

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3. Begin to redeploy the pool of professional and technical staff, skilled labor and plant on a worseefficient basis. This could include "plant-pooling" with the private sector on a commercial basis,and encouraging excess staff to go into business on their own.

Roads Maintenance Policy: MPW has documented the above issues and objectives in their "Letter ofRoad Maintenance Policy" (see Annex 14). The Ministry's commitments with respect to the above werediscussed and agreed at Negotiations.

The Ministry of Local Government and the SMs

These institutions are both relatively weak. However, MLG is receiving a major capacity building supportunder MIDP- 1 from a number of other donors, including USAID, UNDP and the Netherlands. If properlyutilized, this assistance should enable MLG to effectively exercise its responsibilities under the project.While MLG is a large organization with many departnents and regional offices, only two departments ofMLG are particularly relevant in the current context: the Capacity Building Unit (CBTL9 and the ProjectAccounting Unit (PA U). These are briefly discussed below and an organogram is presented at the end ofAnnex 11. The details are presented in the MIDP- 1 Restructuring Plan which is on the Project File (seealso extract at Annex 11).

CBU: The CBU is responsible for assisting MLG to implement the reform process and to provide supportto SMs. The Unit has had problems and is currently being restructured to improve its effectiveness. Inparticular, international recruitment is now underway for the three top posts: General Director (GD) LG,Finance Expert (FE) and LG Management Expert (ME). The CBU GD reports to the Director General(DG) of MIG who, in turn, reports to the Deputy Minister. He/She is responsible for managing the CBUand the coordination of the national reform effort on a day-to-day basis. The FE reports to the GD andwould be responsible for finance policy reform. The ME also reports to the GD and would mainly beresponsible for supporting the SM program. The GDs post became vacant because the previous incumbentproved unsuitable and has been transferred to other duties in MEG. The posts of FE and ME werepreviously unfilled.

The recruitment of the above three senior staff for CBU on terns and conditions acceptable to IDAwas discussed and agreed at Negotiations. The employment by MLG of the three professionals and theeffective operationalization of the CBU on ter.ns and conditions satisfactory to IDA are a condition ofdisbursement on the MLG Capacity Building Component.

Effective operationalization means that staffing, systems, procedures and logistics support are in place, have been tested andare ready to be utilized for project management, monitoring, reporting, accounting and auditing.

PAU: The PAU is a new unit recently established at MLG under MIDP- 1 and Bethlehem 2000 (B2000).This unit has two key responsibilities: (i) to coordinate the accounting systems reform component ofMIDP-1; and (ii) undertake overall project accounting, monitoring, reporting and auditing for B2000 andthis proposed project. The unit is currently staffed by two qualified accountants, one of whom is theDirector (DPAU). The DPAU reports to the Director General of MLG, advises MLG and the SMs onaccounting systems reform issues, and oversees the work of the unit. The accountant currently in the unitis responsible for overseeing the routine project accounting work related to B2000 and MIDP. Twoadditional qualified accountants will be recruited for the PAU, bringing the accounting strength to three

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professionals plus the Director. Two of these accountants would focus on project accounting work, whilethe other would provide support to the Director on system reform issues.

The recruitment of the above two qualif ied accountants for PA U on terms and conditions acceptable toIDA and the establishment of project accounting monitoring and reporting systems acceptable to IDAwas discussed and agreed at Negotiations. The employment by MLG of these two accountants and theeffective operationalization of PA U on terms and conditions acceptable to IDA are conditions ofEffectiveness.

SMs: With respect to the six new SMs, an extensive program of support is planned. This support wouldbe delivered with the assistance of MLG (CBU), and under Implementation Agreements to be enteredbetween MLG and the SMs.

The execution of these Implementation Agreements by MLG and each of the SMs is a condition ofdisbursement on the MLG Capacity Building Component

4.2 Project management:

As indicated in Section C.4 and E.4 above, there are two main implementing agencies: MPW and MLG.(PWA has an important implementing role with respect to the Water and Sanitation component but thiscomponent is relatively small -- about 12% of total project costs).

MPW is responsible for some 78% of total project cost and would thus have the main responsibility forproject management. While it has a large technical department, MPW lacks adequate managementsystems. Thus sub-project supervision would mainly be contracted out to private consulting firms on termsand conditions satisfactory to IDA. At the same time, the project would support efforts to developadequate managerial systems within MPW with the help of private consultants.

MLG would be directly responsible for managing about 10% of total project costs -- mainly capacitybuilding. This would be done using managerial capacity already being built up under MIDP-1. In additionto the above, because of its experience developed under MIDP-1 and B2000, AEG would be responsiblefor overall project monitoring accounting and reporting. This would be undertaken by the PAU. WhilePAU has had some experience in discharging responsibilities similar to the above under B2000, it is stillrelatively weak. Thus funding would be provided under the project to employ consultants to help MLGfurther develop PAU's capacity.

The task of overall coordination has been allotted to MLG instead of MPW because this capacity is already being developedat MLG under MIDP-1 and B2000. MPW, on the other hand, is a relative new comer and its systems are un-tested. However,as MPW gains capacity it is expected to take on an increasing share of this task.

Disbursement Special Accounts (SAs): Three SAs would be established under the project, one for eachimplementing agency, with deposit limits as follows:

Agency Account Deposit Limits* MPW SA-1 $0.5m* PWA SA-2 $0.05m* MLG SA-3 $0.1m

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(For further details see Organogram and Responsibility Matrix in Annex 12. See also discussion ondisbursement in Annex 6.)

4.3 Procurement issues:

There are no significant procurement issues. The Procurement Plan is presented in Annex 6. TheProcurement A uditfor MPW, the main Implementing Agency, has been placed on the Project File.

4.4 Financial management issues:

For IDA-financed projects currently being implemented by MLG and PWA (i.e., SAWSIP) annual auditreports are received on time and there is no outstanding audit reports under any of those projects; equally,auditing performance under those projects is satisfactory. This is MPW first IDA-financed project;however, given the adequate system in place and past record, audit reports are expected to be received ontime.

The main risk identified in the financial management was: (i) non-compliance with hiring of required stafffor the PAU on time, a matter which may delay the project effectiveness; and (ii) insufficient cooperationby MPW and PWA with MLG for consolidation of project accounts. Both risks are considered asmanageable and mitigation measures impeded in the project FM Action Plan and close monitoringfollowing Board approval and during project implementation as part of supervision.

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

The proposed project supports environmental improvements through rehabilitation of roads and watersupply systems in the West Bank and Gaza. Potential adverse environmental impacts have beensummarized in Table 1 of the Environmental Management Plan (EMP) (see Annex 16). These risks can beeffectively anticipated in advance of project implementation and addressed by direct mitigation activities inthe design, planning and construction process. Since most of the investment activities to be supported bythe proposed Project deal with rehabilitation/improvements of existing infrastructure, and since the projectsdo not involve issues such as land acquisition or resettlement, the project is rated a category "B" inaccordance with World Bank Operational Policy 4.01 (January 1998) and requires the preparation andimplementation of an Environmental Management Plan.

A rapid environmental audit was conducted on a sample of projects implemented under MIDP-1. Thefindings showed that for the most part, the projects contributed to positive environmental impacts. Thepositive impacts with regard to road rehabilitation included the following: road and sidewalk projectsreduced amount of dust, increased road safety, drainage has been improved, all municipal roadsrehabilitation included (where appropriate) installation of sewers and street lightning, and most obstacleshave been removed from the public right of way. Tree planting especially in the Gaza municipality willrapidly improve the quality of life in the urban areas. Nevertheless, the audit also identified areas needingimprovements. In various locations garbage containers are blocking part of the road, traffic signs are notadequate, considering the increase in vehicular speeds after road have been rehabilitated. Main pedestriancrossings, especially near schools and cross roads need to be made safe. The quality of paint used for roadmarks is often inferior. Semi urban and rural roads shoulders could be planted with trees which willstrengthen the shoulders and have a general positive environmental impact. It was noted that the roadmaintenance program needs a stronger emphasis on environmental issues, in particular with respect to road

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cleaning. More attention is needed in design and construction of shoulders outside the cities. On variouslocation shoulders were too narrow or blocked. Though the improvement of drainage has been a majorfocus of attention of MIDP-1, its importance can not be underestimated and will need special attention dueto the topography, especially in the West Bank. Random garbage disposal is the most frequently recordedenvironmental problem associated with the roads.

The EMP has been prepared to integrate environmental concerns into the design and implementation of theproposed MIDP-2 Project. It would support: a) site-specific environmental screening of road rehabilitationand water network projects; b) training staff/contractors involved in Project implementation; c) monitoringand evaluation of mitigation measures identified during site-specific reviews; d) involvement of the publicin monitoring environmental impact during and after road construction, through the distribution of acomplaint form to municipalities and village councils; e) and perfonnance of Environmental Assessment forthe water projects. All activities related to the EMP will be closely coordinated with Ministry ofEnvironmental Affairs (MEnA), MPW and PWA.

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

The EMP is adequate and has been included in full as Annex 16. See comment above.

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

See EMP at Annex 16.

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

Stakeholders were consulted through focus group discussion, semi-structured interviews and observationtechnique.

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

An Environmental Monitoring Unit (EMU) is to be established at MPW. This unit will ensure that therecommended mitigation measures are taken on a timely and effective basis. The key indicators are: 1)establishment of the unit within 2 months of project effectiveness; 2) the preparation of guidelines forcontractors within 6 months of project effectiveness; and 3) the completion of workshops with contractorsby the end of year 1. These indicators reflect the objectives and results of the EMP.

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

1) Community involvement in project identification and at the local level. 2) Responsiveness ofmunicipalities to citizen concerns.

Roads: A detailed social assessment of the rehabilitation and improvement was not deemed necessary sinceabout 70% of the project cost is allocated to existing regional roads serving many different communities,and the focus is on rehabilitation and maintenance. Plus, the Implementation Completion Reports (ICRs)for ERP-1 and ERP-2 have recently been completed, and during the review of these projects extensive

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discussions were held with stakeholders in the municipalities and villages, including the convening of astakeholder workshop. A short video including detailed interviews with beneficiaries and potentialbeneficiaries was also made. In general, the social impacts have been highly positive. The lessons fromthese two recently completed projects (not repeated here, but see Section D.3) provided a solid basis for thedesign of MIDP-2. Beneficiary assessment has now become a standard part of project design andmonitoring in WBG and this would be supported under the project.

Water and Sanitation: With respect to the Water and Sanitation component, as noted earlier the concernedcommunities have been consulted and Social Assessment has been done. The findings have been verypositive. However, they indicate a need for closer consultation between the implementing agency and thecommunities at an earlier stage in the project cycle. A summary of the Social Assessment is presented inAnnex 15. Current indications are that there may be some changes in the final list of sub-projects prior toimplementation -- due mainly to uncertainties with Israeli permits and negotiations with other donors,notably USAID. If there should be such a change, social assessment would be undertaken of the concernedcommunities prior to final selection and implementation.

During final PAD preparation the list of sub-projects was modified by PWA and the list seems subject to further change.The current assessment only covers 2 of the four currently proposed projects. The other having been shifted to other donors byPWA. The new projects are currently under review. Indications are that their social impacts will be similarly positive.

MLG Capacity Building: With respect to the MLG capacity building component, the SM sub-componentin particular requires extensive community consultation as part of the assessment of service delivery andthe preparation of the 3-year investment/development plan for each SM. From the feedback currently beingobtained under MIDP-1, community consultations have been very effective, social impact of thiscomponent has been quite positive.

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

The regional road improvement and maintenance component does not easily lend itself to a participatoryapproach. However, all the key Govenument Ministries and agencies have been consulted, and a workshopwas held in November 1999 to review this component. One of the main concerns of this workshop was therelative focus on capacity building and infrastructure. The predominant view was that relatively lessmoney should go to capacity building. However, after an extensive review of the longer term implicationsof the neglect of capacity building the focus of the project remained almost unchanged.

With respect to the MLG capacity building component, numerous workshops have been held with theproposed SMs. In fact, every effort has been made over the last 9-12 months to include them in allsignificant discussion under MIDP-1 and B2000. This participation will intensify as the componentdevelops.

A summary of the participatory framework is presented below:

Party Identification/Preparation Implementation Operation

Infrastructure* Roads

MPW E E E

MLG CL CL CLMOPIC C C CMOT C C CMOF C C C

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Other Beneficiary/ Community Groups CL/N CL/N CL/N

* Water & SanitationPWA E E EMLG CL CL CLMOPIC CMOF CMunicipalities & Villages CL/N CL/N CL/NOther Beneficiary/ Community Groups CL/N CLIN CL/N

* Capacity BuildingMPW E E EMOPIC C C CMOT C C CMOF C C COther Beneficiary/ Community Groups CL/N CL/N CL/N

* MLG Capacity BuildingMLG E E ESMs CL/N CL/N CL/NOther Beneficiary/ Community Groups CL/N CL/N CL/N

Notes: E=Execute; C=Consult; CL=Collaborate; N=Notify. (See also Section E5).

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

Not Applicable.

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

Not Applicable.

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

Not Applicable.

7. Safeguard Policies:7.1 Do any of the following safeguard policies apply to the project?

a fi 0g Rld=

O Environmental Assessment (OP 4.01, BP 4.01, GP 4.01) l Yes L NoO Natural habitats (OP 4.04, BP 4.04, GP 4.04) O Yes Z NoB Forestry (OP 4.36, GP 4.362 O Yes Z No

B Pest Management (OP 4.09) O Yes Z NoB Cultural Property (OPN 11.03) El Yes X No

O Indigenous Peoples (OD 4.20) B Yes 1 NoB Involuntary Resettlement (OD 4.30) El Yes Z NoB Safety of Dams (OP 4.37, BP 4.37) J Yes Z No

B Projects in International Waters (OP 7.50. BP 7.50, GP 7.50) B Yes Z NoB Projects in Disputed Areas (OP 7.60. BP 7.60, GP 7.60) Bl Yes Z No

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

An EMP has been prepared, and an environmental monitoring unit is to be established in MPW, the keyImplementing Agency.

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F. Sustainability and Risks

1. Sustainability:

The reformns being developed and implemented under MIDP-1 (See Section 1) provides the framework forthis project. To the extent that these reforms are successfully implemented, the sustainability of MIDP-2 isassured. The main risks are associated with failure of MLG and MOF to implement the MIDP-1 reformsnoted above, and the SMs failure to implement the reforms proposed in this project. Other risks are largelyimplementation risks associated with lack of capacity at MLG and MPW and political turnoil-all veryreal. Worthy of note in this context is the fact that the project accounting and financial management andreporting capability of MLG (PAU), while steadily increasing, still requires further development. Thisfurther development should be seen as part of the capacity building role of the project. TechnicalAssistance is being provided to under the project to improve MLG's capacity to effectively play its part.(Risk mitigation measures are noted in the table below.)

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

Risk Risk tin Risk Minimization MeasureFrom Outputs to Objective1. Inability of MLG and MOF to prepare S Provide TA, close supervision and include datedand monitor projects on a timely basis. covenants.

2. Delays due to border closures could M Allow sufficient "slack" in construction programsignificantly affect timely completion of and stockpile key construction materials.sub-projects.

From Components to Outputs1. Failure by MLG and SMs to devote S Deepen the dialogue with MLG; provide TA;sufficient time and resources to reform undertake close supervision; and include datedmeasures. covenants.

2. Insufficient financial and managerial S Provide TA, a framework for reform, trainingcapacity at MLG and MPW. and operational support.

Overall Risk Rating

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

3. Possible Controversial Aspects:

There are no controversial aspects.

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G. Main Loan Conditions

1. Effectiveness Condition

Negotiations: The following were discussed and agreed at Negotiations:

1. The effective operationalization of CBU and PAU;

2. The letter of Road Maintenance Policy, including the dated actions to be undertaken by MPW;

3. The draft Implementation Agreements;

4. The detailed Project Implementation Plan, including potential sub-project changes;

5. The monitoring indicators; and

6. The detailed arrangements for financial management, monitoring, reporting and auditing.

Board: None.

Effectiveness: The following are conditions:

1. The employment by MLG of: a) two accountants for the PAU; or b) a competent professionalaccounting firm to undertake the responsibilities of the PAU;

9/

2. The effective operationalization by MLG of the PAU on terms and conditions satisfactory toIDA; and

3. The appointment of project auditors on terms and conditions satisfactory to IDA.

In this context effective operationalization means that staffing, systems, procedures and logistics support are in place, havebeen tested and are ready to be utilized for project management, monitoring, reporting, accounting and auditing.

Disbursement: The following are conditions:

1. On the MLG Capacity Building Component only:

a) The employment by MLG of: (i) Director; (ii) Finance Expert; and (iii) Management Expert forthe CBU;

b) The effective operationalization by MLG of the CBU;

c) Execution by MLG of the Implementation Agreements with each of the six SMs on terms andconditions satisfactory to IDA; and

2. On each PWA sub-project: The completion of an Environmental Assessment acceptable to IDA.

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

There are no other conditions. However, the undertakings given by MPW in its "Letter of RoadMaintenance Policy" are an important part of MPW's commitments under the project (see Annex 14).

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H. Readiness for Implementation

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

1l 1. b) Not applicable.

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

1 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.

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

1. Compliance with Bank Policies

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

all other applicable Bank policies.

J ingsley 0. Robotham -Ja-h-Claude Villiard gePa /Team Leader Sector ManagerlDirmctor zountry M6nager[Director

-27 -

Annex 1: Project Design SummaryWEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT

PROJECTiey P5rform,d;4,_nce 77

Sector-related CAS Goal: Sector Indicators: Sectorl country reports: (from Goal to Bank Mission)Developing an environment More efficient, reliable and Annual statistical surveys by Continued Bank's program ofconducive to private sector widespread infrastructural Palestine Bureau of Statistics support to the Peace Process;activity. services; increasing private (PBS); on-ground. Bank favorable political climate.

sect. invest. in provision of supervision and quarterlygoods and services, incl. LG reports.services.

Setting the stage for the Increasing LG financial The leadership in the PNA,emergence of self governing autonomy and capacity; MPW, PWA, MLG and MOFinstitutions on a sustainable increase of LG invest. are serious about municipaleconomic basis. planning and capacity; and central govt. reform and

increasing decentralization of decentralization.LG service delivery.

Project Development Outcome / Impact Project reports: (from Objective to Goal)Objective: Indicators:Within the already establishedMIDP- I framework, tocontinue to help:'

Improved municipal Reduced transportation costs; Annual statistical surveys by MPW, PWA and MLG ableinfrastructure service coverage increased km of main and Palestine Bureau of Statistics to plan and overseeand quality; increased villages access rd. network in (PBS); on-ground. Bank implementation effectively;accessibility. Improved good condition; reduced water supervision and quarterly recurrent political crises doenvironment for private supply costs; increase in reports. not suppress economicinvestment. period (hrs/day) of reliable activity.

supply.

Build municipal and central Increased LG revenue and cost The leadership in the SMs,governmental capacity; and recovery; Incr. MPW, MLG and MOF takereform and strengthen decentralization and their MIDP- 1 and currentmunicipal systems. corporatization of services project responsibilities

provision and deliv.; seriously, and devote adequateImproved maintenance resources to project.programming at central(MPW) and local levels(SMs).

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Key Perod1acHI4archy of Objeciees inoqcator Monitoring A Evaluation Critin Assumptlos

Output from each Output Indicators: Project reports: (from Outputs to Objective)component:Improved Infrastructure and Roads: 1) Incr. in % of On-ground. Bank supervision MPW and MLG able to planservices regional roads regional road network in and quarterly reports; and oversee implementationnetwork; water supply, good condition; 2) Km of periodic special surveys; effectively; recurrent politicaldrainage and sanitation main, access and internal crises do not suppressservices; roads rehabilitated; and/or 3) economic activity.

maintained annually: yr 2: 50(km); yr 3: 90 (km); 4) yr 4:126 (kIn);

Water & Sanitation: 1) km ofwater pipes laid ann.yr 2: 10(km); 2) yr 3: 25 (km); 3) yr4: 44.7 (km);

Increased central Gov. MPW: A. 1) Establishment of The leadership in MPW takecapacity: MPW capacity to capable and well staffed road their responsibilities seriously,manage and maintain the road maintenance programming, and devote adequate resourcesnetwork under its jurisdiction, management and monitoring to project.including Enviromnental units/departments in MPW byManagement; end yr 3; 2) timely preparation

of realistic and sustainableannual road maintenance byMPW, by end yr 3; 3) percentof primary & secondary roadnetwork for which a long-termmaintenance program hasbeen developed: endyr 3: 50(%); yr 4: 100 (%); 4) percentof routine & periodicmaintenance on the primary &secondary road network doneby contract: by endyr 3: 60-70(%); end yr 4: 80-85 (%);B. 1) Establishment of anEnvironmental MonitoringUnit by MPW within 2months of Effectiveness; 2)Preparation of environmentalGuidelines for contractorswithin 6 months ofEffectiveness; and 3)Completion of trainingworkshop for MPWcontractors by the end of year

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Improved municipal capacity: SMs: 1) Installation of The leadership in MLG andSM systems; increased SM modem, computerized, the SMs, take theirrevenue mobilization and cost accrual-based accounting responsibilities seriously,recovery; improved systems by end yr 3; 2) build a constituency forinvestment programming; preparation of realistic and reform, and devote adequateIncr. efficiency of services sustainable annual resources to project.provision and deliv.; infrastructure investmentimproved invest. programs by end yr 3; 3)Programming. annual % increase in cost

recovery on municipal servicesby end yr 3; 4)beginning ofcorporatization of key services(water, elec. sanitation) by endyr 3.

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Project Components I Inputs: (budget for each Project reports: (from Components toSub-components: component) Outputs)A. InfrastructureRehabilitation andImprovement:

Rehabilitation and US$1 8.1m; total; Bank supervision and Cofmancing available toimprovement of regional road IDA:US$2.8m. disbursement reports. MPW; MLG and MPW able tonetwork, including essential manage procurement,drainage, sewage and water disbursement and accountingsupply. processes effectively.

Rehabilitation and US$3.1m total; Cofinancing available toimprovement of village and IDA: US$0.7m. PWA; MLG and MPW ablemunicipal water supply and manage disbursement andsewerage networks. accounting process effectively.

B. Capacity building supportto:

MPW for developing and US$1 .9m total; MLG and MPW able manageinitiating systematic road IDA: US$1.6m. disbursement and accountingmaintenance program, and process effectively.environmental monitoring.

MLG and SMs for continued US$2.5m total; MNG and MPW able toinstitutional reform; IDA: US$2.1m. manage disbursement andimproving SM investment and accounting process effectively.development programming;improving SM revenuemobilization, managementand service delivery.

C. Incremental operating US$0.4m total; MLG able manageexpense support to: disbursement and accounting

process effectively.MPW US$0.Im total;

IDA: US$0.lm.

MLG US$0.3m total;IDA: US$0.2m.

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Annex 2: Project DescriptionWEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT

PROJECT

The proposed project has two main components and a supporting component as follows:

* Infrastructure Rehabilitation and Improvement (US$21.20m - 82% of totalproject cost);

* Capacity Building Support (US$4.40m - 17% of total project cost); and

* Incremental Operating Expense Support (Recurrent Costs) (US$0.40m - 1% of total project cost)

Each component is briefly summarized below. A description of the key sub-projects is also providedbelow.

By Component:

Project Component I - US$21.20 millionL Infrastructure Rehabilitation and Improvement

This component supports physical improvement rehabilitation works and includes two sub-components.These are described below. Both sub-components include technical assistance for design and supervision ofworks.

I. (A) Rehabilitation and Improvement of the Regional Road Network (US$18.1m, 70% of totalproject cost): This component would help improve high priority sections of the regional road network in theWest Bank and Gaza. This regional network serves villages and municipalities, and is to be distinguishedfrom the major arterials which are generally not under Palestinian control. It is also to be distinguishedfrom internal village and municipal roads.

I. (B) Rehabilitation and Improvement of Village and Municipal Water, Waste Water and SewageSystems Networks (US$3.1m, 12% of total project cost): This component would help improve existinghigh priority systems and networks as well as develop new systems networks.

[Further details on sub-projects are presented below.]

Project Component 2 - US$4.40 millionIH Capacity Building Support

This component supports capacity building in the Ministry of Public Works and the Ministry of LocalGovernment as summarized below.

II. (A) Road Maintenance Programming (US$1.9m, 7% of total project cost): Support to MPW for:a) developing and implementing a systematic approach to road maintenance for the sections of the main andregional road network under Palestinian jurisdiction. This includes: (i) technical assistance and theemployment of consultants to develop and implement a road maintenance management system; (ii) trainingfor MPW staff; (iii) supporting software; and (iv) supporting hardware including essential equipment(computers mainly), vehicles, supplies and spares, etc; b) establishing an Environmental Monitoring Unit(EMU) to prepare guidelines for contractors, train them in good practice and mitigation techniques, andmonitor their performance during construction.

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II. (B) Local Government Capacity Building (US$2.5m, 10% of total project cost): This componenthas two sub-components as follows: (i) Accounting System Reform; and (ii) SM Investment/DevelopmentProgramming.

The Accounting System Reform Sub-component supports the continuation of the work already begun underMIDP-1 to modernize LG accounting systems throughout WBG. Thus includes: a) the employment ofconsultants to help develop and install new accrual-based systems for financial accounting, managementaccounting, and the integration of these systems to facilitate analysis, policy-making and planning, billingand collection, and the development of a citizen data basis; b) training for accounting and system staff ofMLG and municipalities; c) supporting software; d) supporting hardware; and e) essential vehicles,equipment, supplies and spares.

The SM Investment/Development Programming Sub-component supports the extension of the work alsobeing undertaken under MIDP- I and B2000 to the six new SMs (Jabalia, Khan Younis (in Gaza)Tulkarem, Al-Ram, Jericho and Tarqumia (in West Bank)). It includes support for: a) the employment ofconsultants to help analyze the operations, financing, structure, needs and future prospects of the SMs, andthe development of a feasible and cost effective 3 year investment/development plan for each SM havingregard to the need to improve local service delivery, recover costs and mobilize local resources; b) trainingfor SM staff to improve their capacity to plan, manage, finance and maintain LG services and systems; c)supporting software; and d) supporting hardware; and e) essential vehicles, equipment, supplies and spares.

Project Component 3 - US$ 0.40 millionIII. Incremental Operating Expense Support.This component provides essential operating support for MPW and MLG. It is divided into twosub-components.

HI. (A) Ministry of Public Works (MPW) (US$0.lm): This provides support to MPW for projectimplementation including administrative support, monitoring and reporting. It consist of support for: (i)the employment of consultants; (ii) software, systems and training, essential office equipment (computers,photocopiers, etc.); and (iii) operating expenses, including: rent, utilities, essential supplies and spares.

II. (B) Ministry of Local Government (MLG) (US$0.3m): This provides support to MLG for projectimplementation including administrative support overall project monitoring, accounting, auditing andreporting. It consists of support for: (i) the employment of consultants to establish an effective projectaccounting, monitoring and reporting system; (ii) accounting software and training support; (iii) essentialoffice equipment (computers, photocopiers, etc.); and (iv) operating expenses, including rent, utilities,essential supplies and spares.

Description of Infrastructure Sub-Projects (Component 1): Each of the infrastructure sub-projects isbriefly described below.

L (A) (i) Road Projects in the West Bank (US$11.6 million)

1) Northern Entrance to Nablus (US$1.5 million): There are two roads in this project. The first is a 1.0km dual carriageway that is highly damaged, and the second is a 1.7 km narrow road with a pavementwidth of only 3.0 m. The project involves reconstruction of the dual carriageway section, including properpedestrian facilities, and provision for water, sewerage and storm drainage, as well as the widening to 6.0m of the existing single lane road, with 1.0 m shoulders on each side.

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2) Jenin - Haifa Road (US$2.1 million): The project involves the rehabilitation of pavement andupgrading of intersections on 10.0 km of this major road that provides a link with Israel. Provision forwater, sewerage and electricity are included, as well as lateral drainage. The project also involves theinstallation of traffic control devices, namely pavement markings and traffic signs.

3) Azzun - Masha Road (US$1.1 million): The existing road has a narrow pavement (3.0 m) and noshoulders. The project involves the rehabilitation and upgrading to a pavement width of 6.0 m, with 1.0 mshoulders on each side, of 10.0 km section, including earthworks, pavement, drainage systems, markingsand traffic signs, and guardrails and retaining walls, as well as the upgrading of intersections.

4) Sureef - Beit Awwa Road (UJS$3.5 million): This is a regional road with a substandard pavementwidth varying between 4.0 and 5.0 m and a heavily damaged pavement. The project includes therehabilitation of a section of 30.0 km of that road, including earthworks, pavement, drainage systems,markings and traffic signs, guardrails and retaining walls, as well as the upgrading of intersections.

5) Nilin - Bordus Road (US$1.5 million): This is a very narrow road, with a carriageway of 3.Om andheavily damaged pavement and shoulders. The project involves the rehabilitation and upgrading of asection of 15.0 km connecting many villages, namely Nileen, Budrus, Qibya, Shuqba and Shibtin. Thecarriageway will be widened to 6.0m. The work includes rehabilitation of poor pavement sections andwidening of good sections, including earthworks, pavement, drainage systems, markings and traffic signs.

6) Falamia - Qalqalia Road (US$0.7 million): This unpaved rural road, with a carriageway width of 4.5to 5.0 m connects major towns (Tulkarem and Qalqilia). It is proposed to upgrade a section of 4.0 km to apaved road with a carriageway of 6.0 m and shoulders on both sides. The works will -include earthworks,pavement, drainage systems, markings and traffic signs, and guardrails.

7) Sureef - Beit Hummar Road (US$0.6 million): This is a very narrow road, with a carriageway of 3.0m and heavily damaged pavement and shoulders. The project involves the rehabilitation and upgrading of asection of 5.4 km between the towns of Sureef and Beit Hummar to a carriageway of 7.0 m, includingearthworks, pavement, drainage systems, markings and traffic signs, and guardrails.

8) Zabda - Barta'a Road (US$0.7 million): This is also a very narrow road, with a carriageway of 3.0 mand heavily damaged pavement and shoulders where existing. The project involves the rehabilitation andupgrading of a section of 5.0 km between the villages of Zabda and Barta'a, to a carriageway of 5.0 m,including earthworks, culverts, pavement, drainage systems, markings and traffic signs.

I. (A) (ii) Road Projects in the Gaza Strip (US$5.3 million)

1) Beit Hanoun - Wadi Gaza Bridge Road (US$2.3 million): This main road in the Gaza Strip(Highway #4), with heavy traffic, has a 6.0 m carriageway without shoulders, and its pavement is in poorcondition. The project involves the rehabilitation of a 10.0 km section, including the construction of propershoulders and the installation of pavement markings and traffic signs.

2) Wadi Gaza Bridge - Rafah Entry Point (US$2.2 million): This is also part of Highway #4, withheavy traffic. The project involves the rehabilitation of 30.0 out of 60.0 km that are damaged. Itsdescription is the same as project A.2. 1. above.

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3) El Bahar - Soudania Road (US$0.9 million): This major paved road in the city of Gaza is heavilydamaged. The project will rehabilitate a section of 4.0 km, with a carriageway width of 7.0 to 9.0 m, and2.0 m shoulders on each side, including earthworks, culverts, pavement, drainage systems, and pavementmarkings and traffic signs.

I. (A) (iii) Design and Construction Supervision (US$1.2million)

I. (B) Waterworks Projects in the West Bank (US$2.9 million)

I. (B) (i) Works

1) Awarta Water Project (US$1.2 million): Awarta village has no water network. The people of thevillage cany water from far areas and also using rain water collected during winter time which implicatingpublic health problems. The cost of carried water is high (about US$4/mr). The Municipality of Nablushas agreed to supply the village with water from Oudalah well owned by the Municipality through a 12"diameter main pipeline passing close to the village. It is estimated that per capita consumption will beincreased from about 20-25 Vc/d to about 60-70 lI/c/d after project implementation. The project involvesconstruction of a transmission pipeline of 150mm diameter and length of 3.5km and a network of pipeswith diameter and length respectively; 150mm: Ikm, 100mm: 1.5km; 75mm: 3km, and 50mm: 6km. Thusthe total length of network is 15km of pipes. The project also includes construction of a reinforcedconcrete on ground tank of 500m capacity and a booster station with a balance tank and a chlorinatingsystem. This project includes the engineering design and construction of a main pipeline, a water tank anda water network to serve the village of Awarta, whose 6,000 inhabitants presently have no running water.

2) Bidia Water Project (US$0.5m): Bidia has a very deteriorated water network which was built about 20years ago. The estimated losses is 40%. The pipes are undersized and do not cope with the existingdemand. New developed area (1000 people) is not served with piped water. People purchase water(through tanks) about 30,000 m3/year. The estimated cost per m3 though tanks is 15 NIS. Phase II wassubmitted for France for finance. Phase II includes a 500 m water tank. The project involves installing ofabout 11.5km of pipes of different sizes (200 to 50mm diameter).

3) Kufur Qallil Water Project (US$0.6m): Kufur Qallil village has no water network. The people of thevillage carry water from far areas and also using rain water collected during winter time with implicatingpublic health problems. The cost of carried water is high (about NIS 15/im). The Municipality of Nablushas agreed to supply the village with water from Oudalah well owned by the Municipality through a 12"diameter main pipeline passing close to the village. It is estimated that per capita consumption will beincreased from about 20-25 llc/d to about 60-70 VIc/d after project implementation. The project involvesconstruction of a water network of 150mm, 100, 75mm and 50mm diameter pipes with length of 400m,650m, 2500m and 4000m respectively. The project also includes construction of a 300m on groundreinforced concrete tank and a booster station.

4) Faqua 'a Water Network (US$0.6 million): Faqua'a village has no water network. Water is distributedto the village by tanks with implicating public health problems. Also the people of the village use rainwater collected in cisterns during winter time for domestic purposes which has a high risk of contamination.The cost of carried water is high (about US$4/mr). PWA has requested from the Israeli to supply thevillage with 3OOm /d through Mekkerot. It is estimated that per capita consumption will be increased from

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about 20-25 UIc/d to about 60-70 Uc/d after project implementation and the cost of cubic meter to be aboutUS$0.6. This project includes the construction of a water network and a connection to the Mekkerot outletat the border with Israel. Permit from the Israeli authorities has been secured.

L (B) (ii) Design and Construction Supervision (US$0.2 million)

(A summary of projects costs and estimates of ERRs, beneficiaries, employment generation and status ofreadiness is presented in the table below.)

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Table 1: Component 1, Summary of Sub-Project Quantity, Costs, Rates of Return, Beneficiaries,Employment Generation and Readiness StatusDescription Unit Qua. Cost ERR Benef. Direct Status

($m) % ('00) Employ, of Readiness(person-

days)('000)

I.(A) (i) Roads - West Bank

1. Nablus, Northem Entrance km 2.7 1.5 41 110 15 Ready in 2-3 months

2. Jenin, Haifa Road km 10.0 2.1 80 70 20 Ready in 2-3 months

3. Azzun, MashaRoad km 10 1.1 35 5 10 Ready

4. Sureef, Beit Awwa Road km 30 3.4 56 80 35 Ready in 2-3 months

5. Nilin, Bordus Road km 15 1.5 73 15 15 Ready in 2-3 months

6. Falamia, Qalqilia Road km 4 0.7 47 35 5 Ready in 2-3 months

7. Sureef, Beit Hummar Road km 5.4 0.6 28 20 5 Ready in 2-3 months

8. Zabda, Barta'a Road km 5.0 0.7 25 15 5 Ready

Sub-total km 82.1 11.6 350 110

I.(A) (ii) Roads- Gaza

1. Beit Hanoun, Wadi Gaza Bridge Road km 10 2.2 28 35 30 Ready

2. Wadi Gaza Bridge, Rafah Entry Point km 30 2.2 47 5 30 Ready

3. El Bahar, Soudania Road km 4 0.9 53 5 15 Ready

Sub-total km 44 5.3 45 75

Sub-total (Roads) km 126.1 16.9 395 185

L(A) Ciii) Design & Supervision - 1.2 - -

TOTAL Roads kn 126.1 18.1 395 185

I.(B) (i) Water, Waste Water and Sanitation

West Bank Works

1. Awarta Water Project km 15 1.2 27 5 10 Ready in 2-3months

2. Bidia Water Project km 11.5 0.5 42 6 7.5 Ready

3. Kufur Qalil Water Project km 7.5 0.6 27 2 5 Ready in 2-3 months

4. Faqua'a Water Network km 10.7 0.6 24 3 7 Ready in 2-3 months

Sub-total (Works) km 44.7 2.9 16 29.5

I.(B) (ii) Design and Supervision - - 0.2 - -

TOTAL Water, WasteWater & Sanitation km 44.7 3.1 16 29.5

TOTAL Component 1 21.2 411 214.5

Note: Calculation of Employment Generation is based on the following assumptions:* Road Rehabilitation without infrastructure: labor content: 15% of total project cost @ $15 person per day in

West Bank and $10 ppd in Gaza* Water pipe laying: labor content: 10% of total project cost ( $15 ppd in West Bank and $10 ppd in Gaza* Design & Supervision: labor content: 1.5 - 2% of total project cost @ $40 person per day in West Bank and

$30 ppd in Gaza* Totals may not add because of roundings.* Costs include contingencies.

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Annex 3: Estimated Project CostsWEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT

PROJECT

1. Civil Works: 0.00a. Roads 6.30 8.80 15.10b. Water and Sanitation 1.10 1.50 2.60

II. Capacity Building: 0.00a. MPW 0.40 1.10 1.50b. MLG 0.80 1.60 2.40

(a) Accounting Systems Reform(b) 3-Yr Municipal Investment Plans (6 SMs)

III. Incr. Oper. Expenses: 0.30 0.10 0.40a. MPW 0.00 0.00b. MLG 0.00

Total Baseline Cost 8.90 13.10 22.00Physical Contingencies 1.10 1.70 2.80Price Contingencies 0.40 0.80 1.20

Total Project Costs 10.40 15.60 26.00Total Financing Required 10.40 15.60 26.00

Works 7.40 12.60 20.00Goods 0.40 0.80 1.20Services 2.30 2.10 4.40lncr. Oper. Exp. 0.30 0.10 0.40

Total Project Costs 10.40 15.60 26.00Total Financing Required 10.40 15.60 26.00

(A more ED detailed breakdown is presented in Additional Annex 17).

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Annex 4: Cost Benefit Analysis Summary

WEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENTPROJECT

[For projects with benefits that are measured in monetary terms]

Benefits:

Costs:

Net Benefits:

IRR:

Summary of Benefits and Costs:

Because of the large number of sub-projects which make up the components on which economic analysiswas performed, it is impractical to present the data in the format of the table above. Instead, the analysis issummarized in the table and explanation is presented below:

Table 1: Average Economic Rate of Return (Costs in $m)

Project Cost % of Project Cost ERR Base Case

Overall MIDP-2 26.0 100%

Cost of Quantifiable Benefits 14.0 54% 47%

Roads 11.8 46% 50%

Nablus entrance 1.0 41%

Jenin-Haifa 1.4 80%

Azzun-Masha 0.8 35%

Sureef-Beit Awwa 2.4 56%

Nilin-Shuqba 1.0 73%

Falamia-Qalqilia 0.5 47%

Beit Hummar-Sureef 0.4 28%

Zabda-Barta'a 0.5 25%

Beit Hanoun-Wadi Gaza Bridge 1.6 28%

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To Rafah Entry 1.5 47%

El Badar-Soudania 0.6 53%

Water 2.1 8.3% 28.9%

Bidia 0.4 42%

Kufur Qallil 0.5 27%

Faqua'a 0.5 24%

Awarta 0.8 27%

1/ Total cost includes contingencies and taxes.

Table 1 above presents the results of the analysis of the economic rate of return of the elements of theproject with quantifiable benefits. These elements, the roads and water supply investments, constituteabout two thirds of the total base project costs (three quarters of total project cost, mainly prices andquantity contingencies) and provide a high - 46 percent - average internal rate of return. In addition, thesensitivity analyses indicate that these rates of return are quite robust. An analysis of the switching valuesshowed that the worst case with regard to roads (Beit Hanoun - Wadi Gaza), initial investment costs wouldhave to increase by 140 percent to generate a null net present value (NPV), and expected benefits wouldhave to be reduced by 25 percent to produce the same result. Similarly, in reference to water, the worsecase scenario (Faqua'a), reducing economic benefits by 10 percent and simultaneously increasing costs by10 percent would nevertheless result in a 18 percent rate of return, well above the threshold rate of 12percent. These analyses were based on standard Bank methodology. Details are in the project files.

Main Assumptions:

Sensitivity analysis / Switching values of critical items:

If the difference between the present value of financial and economic flows is large and cannot be explained bytaxes and subsidies, a brief explanation of the difference is warranted, e.g. "The value of financial benefits is lessthan that of economic benefits because of controls on electricity tariffs."

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Annex 5: Financial Summary

WEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENTPROJECT

Years Ending

Year 1 | Year2 I Year3 I Year4 | Year5 I Year6 |Year7Total Financing RequiredProject CostsInvestrnent Costs 2.1 6.6 10.7 5.2 1.0 0.0 0.0Recurrent Costs 0.1 0.1 0.1 0.1 0.0 0.0 0.0

Total Project Costs 2.2 6.7 10.8 5.3 1.0 0.0 0.0Total Financing 2.2 6.7 10.8 5.3 1.0 0.0 0.0

FinancingIBRD/IDA 1.3 2.5 2.7 1.0 0.0 0.0 0.0Government 0.4 1.1 1.9 0.9 0.1 0.0 0.0

Central 0.4 1.1 1.9 0.9 0.1 0.0 0.0Provincial 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Co-financiers 0.5 3.1 6.2 3.4 0.9 0.0 0.0User Fees/Beneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Financing 2.2 6.7 10.8 5.3 1.0 0.0 0.0

- .

Year 1 Year 2 Year 3 Year 4 Year 5 |Year 6 | Year 7Total Financing RequiredProject Costs

Investment Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0Recurrent Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Costs 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0

FinancingIBRD/IDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0Government 0.0 0.0 0.0 0.0 0.0 0.0 0.0

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

Co-financiers 0.0 0.0 0.0 0.0 0.0 0.0 0.0User FeeslBeneficiaries 0.0 0.0 0.0 0.0 0.0 0.0 0.0Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Total Project Financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Main assumptions:The project would become effective in July 2000 and close on December 2004. IDA disbursements should becompleted by end June 2004.

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Annex 6: Procurement and Disbursement ArrangementsWEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT

PROJECT

Procurement

The Credit would finance selected activities requiring the procurement of: (a) works, i.e., the constructionor rehabilitation of roads and water; (b) goods, including computers, telecommunications, office equipment,vehicles and maintenance equipment for sub-projects; (c) consultancy services for studies, training andinstitutional reforms sub-projects; and (d) incremental operating expenses for MPW and MLG.Procurement under the Credit would be carried out in accordance with IDA's Guidelines for "Procurementunder IBRD Loans and Credits", January 1995, revised January and August 1996, September 1997 andJanuary 1999; "Selection and Employment of Consultants by World Bank Borrowers". January 1997,revised September 1997 and January 1999. IDA's Standard Bidding Documents (SBD) would be used forall procurement under International Competitive Bidding (ICB) and, with modifications acceptable to IDA,in Arabic language, also for National Competitive Bidding (NCB). Simplified documents would beprepared for use under the Credit and apply to National and International Shopping (NS/IS), relativelylow-value works contracts and low-value consulting contracts. The components not financed by IDAwould be procured in accordance with PA regulations or the guidelines of cofmancing institutions. AGeneral Procurement Notice (GPN) would be advertised in "United Nations Development Business"(UNDB) not less than eight weeks prior to the publication of the first Specific Procurement Notice (SPN)and bidders who have expressed an interest would be notified directly by MPW, PWA and/or MLG.

Works: Taking into account the nature of construction, state of the sub-project preparation and the goal offostering the development of the emerging local construction industry, several bid packages would beprepared according to the list of the sub-projects shown in Annex 2. Bid packages with an estimatedcontract value above US$3.Om equivalent would be procured using ICB procedures and documents andadvertisements in UNDB and in local newspapers. (With the exception of those works requiring specialconstruction expertise, contracts of less than US$3.0nm are not expected to attract International Bidders).Bid evaluations would be submitted on IDA's Standard Bid Evaluation Form: "Procurement of Goods andWorks" - April 1996. Bid packages with an estimated contract value above US$100,000 equivalent, up toan aggregate amount of approximately US$2.9m equivalent, would be procured using NCB procedures anddocuments and advertisements in at least two local newspapers. NCB contracts would be open to biddingby eligible foreign bidders if they wish to participate. Contracts below an estimated value of US$100,000equivalent, would be procured using simplified NCB procedures. It would require: (i) advertisements in alocal newspaper and announcements posted in a public place, (ii) simplified bidding documents andevaluation procedures agreed with IDA, (iii) public bid openings, (iv) and contract awards to the lowestevaluated bidder. Pre-qualification would be necessary for all contracts procured under ICB and allcontracts above US$1.0m equivalent procured under NCB procedures. For contracts below US$1.0mequivalent procured under NCB post-qualification will be used. An open pre-qualification process andexplicit qualification criteria would be used. Subject to prior agreement with IDA in each case andpractical considerations, works below an estimated value of US$50,000 up to an aggregate amount ofUS$0.1m equivalent may occasionally be implemented, instead, by obtaining quotations from at least threecontractors available in the area. If such contractors are not available, direct contracting with the nearestavailable source may be undertaken with prior consent of IDA. Force account construction through PApersonnel and equipment would be used in case where competitive bidding is not feasible, but only withIDA's prior agreement.

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Goods: To the possible extent, the procurement of goods would be carried out through bid packagescomprising several lots of similar items. Bid packages with an estimated contract value above US$500,000equivalent would be procured using ICB procedures and documents, and advertisements in UNDB and inlocal newspapers. Bidders would be subject to post-qualification in accordance with IDA's SBD for"Procurement of Goods" January 1995. Bid evaluations would be submitted on IDA's Standard BidEvaluation Form "Procurement of Goods and Works" - April 1996. Bid packages with an estimatedcontract value above US$50,000 equivalent, up to an aggregate of approximately US$1.0m equivalent,would be procured using NCB procedures and documents and advertisements in at least two localnewspapers. The procurement of goods and supplies below an estimated value of US$50,000 per contractor purchase order, up to an aggregate amount of approximately of US$300,000 equivalent, would followNS/IS procedures, using requests for quotations which would indicate the description, quantity andrequired delivery time of the procured goods. In case of National Shopping, at least three quotations wouldbe solicited from local suppliers, when these goods are readily available locally at competitive prices; incase of Intemational Shopping, quotations would be solicited from at least three intemational suppliers intwo different countries. The evaluation of quotations would follow procedures agreed with IDA.Incidental goods and supplies below a cost of US$5,000 per purchase, up to an aggregate amount ofapproximately US$100,000 equivalent would be purchased directly from the nearest available source or, ifavailable, through the PA Govemment Supply Catalogue maintained by MOF. Under ICB procedures,bids offering goods manufactured in West Bank/Gaza would be granted a margin of preference of 15%. Inthe comparison of bids to establish eligibility for Domestic Preference, the provisions of Appendix 2 ofIDA's Procurement Guidelines would be followed.

Services: For consultants' contracts equal to/or above an estimated value of US$100,000 equivalent, theselection method would be Quality and Cost-Based Selection (QCBS). For consultancies below estimatedcontract value of US$100,000 equivalent, the selection method would be Quality-Based- Selection (QBS) orLeast-Cost Selection (LCS) or Selection under a Fixed Budget (SFB) or Quality and Cost-Based Selection(QCBS). Consultants' Qualification-Based (CQ) and Single-Source Selection (SS) methods would be usedfor all specialized, short-term or low-cost contracts less than US$50,000 with consultants. Furthermore,all consultancies with an estimated contract value above US$200,000, request for interest would beadvertised in UNDB and in local newspapers.

Prior Review: The first three contracts in each category and each procurement method (works, goods andservices), irrespective of the estimated contract value, would be subject to IDA's prior review, inaccordance with the applicable guidelines. Thereafter, all procurement of works and goods, which issubject to ICB procedures, would be subject to IDA's prior review. Also, any contract for works with anestimated contract value above US$500,000 equivalent and any contract for goods with an estimatedcontract value above US$100,000 equivalent would be subject to IDA's prior review. All directcontracting, force account, IS/NS and direct purchase would be subject to IDA's prior review. Contractswith individual consultants in excess of US$50,000 equivalent and with consulting firms in excess ofUS$100,000 equivalent, as well as all single-source contracts, and first RFP of each consultancy contractwould be subject to prior review. The prior review process would cover about 80% of total works goodsand services contracts, which would be reasonably achievable under the circumstances. All other contractswould be subject to post-review on a random basis during supervision missions and procurement audits.

Procurement Responsibilities: The MPW would be responsible for all procurement activities related toComponents "1(a)" (Infrastructure Rehabilitation Works) and "2(a)" (MPW Capacity Building) and 3(a)(MPW Incremental Operating Expenses). PWA would be responsible for all procurement undercomponent "1(b)" (water, wastewater and sanitation). MLG's Capacity Building Unit (CBU) would be

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responsible for all procurement activities related to Components "2(b)" (MLG Capacity Building Support)and "3(b)" (MLG Incremental Operating Expenses) of the Project. The initial Procurement Plan is shownin Table [BI]. It would be updated periodically and jointly by MPW, PWA and MLG who would alsoprepare the standard bidding documents to be used for all sub-projects. Each unit would retainresponsibilities for advertising bids, issuing bidding documents, opening and evaluating bids and awardingcontracts with regard to its assigned components. The procurement skills of MPW, PWA and MLG staffwould be upgraded through a training program.

Procurement methods (Table A)

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

1. Works 0.00 2.90 0.10 16.80 19.80(0.00) (2.40) (0. 1 0) (0.00) (2.50)

2. Goods 0.00 1.00 0.40 0.00 1.40(0.00) (0.80) (0.40) (0 00) (1.20)

3. Services 0.00 0.00 4.00 0.40 4.40(0.00) (0.00) (3.50) (0.00) (3.50)

4. Incr. Oper. Expenses 0.00 0.00 0.40 0.00 0.40

(0.00) (0.00) (0.00) (0.30)

Total 0.00 3.90 4.90 17.20 26.00(0.00) (3.20) (4.30) (0.00) (7.50)

Figures in parenthesis are the amounts to be financed by the Bank Other (Specify). All costs includecontingencies

X Includes civil works and goods to be procured through national and international shopping, directcontracting, force account, simplified NCB, consulting services, services of contracted staff of the projectmanagement office, training, technical assistance services, and incremental operating costs related to (i)managing the project, and (ii) re-lending project funds to local government units.

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Prior review thresholds (Table B)

Table B: Thresholds for Procurement Methods and Prior Review

.,.orft- Value C6ntr40s $I' *CttOThrsbQld~ f Procisovemnlt pirRv

hx~eiidtuegf (>t~r (U$$ thoss). I L :hoX1. Works >= 3000 ICB All

>=100 NCB First three packages & allsubsequent contracts larger

than US$0.5m

< 100 NCB/Simplified First three packages

<= 50 Direct Contracting/Force AllAccount

2. Goods >= 500 ICB All> 50 NCB First three packages & all

subsequent contracts largerthan US$0.1m

< 50 NS/IS All

< 5 Direct Purchase All3. Services >= 100 QCBS All

> or < 50 QBSALCS/FBS/QCBS First RFP and then all TOR& Cost estimate

_________________ <50 CQ/SS All

Total value of contracts subject to prior review: US$6.00m (IDA)

Overall Procurement Risk Assessment

Average

Frequency of procurement supervision missions proposed: One every 6 months (includes specialprocurement supervision for post-review/audits)of MIDP-2 procurement activities that are subject to post review. This should not be confused with the

proposed procurement audit on a random basis, for MIDP-1 to be performed in conjunction with afinancial audit by a qualified accounting firm.

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Table B1- Procurement Plan (First Year)

Est. Estimated Schedule (month/year) |# of Cost Proc. Review

Description Type slices/ (US$ Method (Advance/Pritems/ '000) ior/Post)sub-

packagesPre- Invite. Bid Contract ContractWqua. to Bid Opening Award Comp.

Works

a) Roads* Design package I CF 5 0.01 QCBS Prior - 8/00 9/00 10/00 1/01

(WB)

* Azzun-Masha Road CW 2 1.1 NCB Prior 8/00 9/00 10/00 11/00 12/01

* Sureef-Beit Umar Road CW 1 0.6 NCB Prior - 8/00 9100 10/00 9/01

* Al Bahar-Sudania Road CW 1 0.9 NCB Prior - 8/00 9/00 10/00 7/01

b) Water* Kufur Qallil Water CW 1 0.5 NCB Prior - 8/00 9/00 10/00 8/01

Project__ _ _ _ _ _ _ __ _ _ _ _ _ _

Capacity Building* 3 Year investment Plan CF 2 0.2 CQ/ Prior 8/00 12/00 2/01 3/01 12/01

(1 package) QCBS

* Roads Maint. Mgt. Sys. CF I 0.8 QCBS Prior 8/00 9/00 11/00 12/00 2/03* CW for civil works, CF for consulting firns.

Thresholds generally differ by country and project. Consult OD 11.04 "Review of ProcurementDocumentation" and contact the Regional Procurement Adviser for guidance.

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Disbursement

Allocation of other (specify) proceeds (Table C)

Allocation of credit proceeds (Table C)

The project funds are expected to be disbursed over a period of four years beginning July 1, 2000 and ending June 30, 2004. The closing date for the credit would be December 31, 2004. It is estimated that MPWwould be able to disburse at average of US$0.08m per month during the first year of the project. All IDAfunded disbursements towards civil works are expected to be completed within two years from day ofproject effectiveness.

SpecialAccounts: To facilitate disbursement against eligible expenditures, MPW, PWA and MLG wouldestablish a Special Account under terms and conditions satisfactory to IDA. An initial deposit of the US$0.5m will be made into MPW Special Account SA-1); US$0.05m into the PWA special account (SA-2);and US$0. Im into the MLG Special Account (SA-3) from the IDA credit. MPW, PWA and MLG wouldmanage their respective SAs and submit replenishment applications on a monthly basis.

Operating Expenses: These project-related expenses would include salaries, office rent, utilities, vehicleoperating costs, stationery, consumables, printing, translation services, publications, audit fees, Bankcharges, communication services and travel expenses. Repair and replacement costs for office equipmentand vehicles would also be covered.

Table C: Allocation of Other (Specify) Proceeds

1. Works 85%a) MPW 2.00 itb) PWA 0.50 it

2. Goods including Software 100% of foreign expendituresand 85% of local expenditures

a) MPW 0.60b) MLG 0.60

3. Consultant Services, TA, Studies 100% of foreign expendituresand Training and 85% of local expenditures

a) MPW 1.80 tob) MLG 1.50 It

4. Consultant Services, PWA 0.20 100% of foreign expendituresand 85% of local expenditures

5. Incremental Operating Expenses 85%a) MPW 0.10b) MLG 0.20

Total Project Costs 7.50

Total 7.50

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Use of statements of expenditures (SOEs):

* All contracts for works below US$500,000* All contracts for goods below US$100,000* All consultancy contracts below US$100,000 for Consulting Firms and US$50,000 for Individual

Consultants, except single-source contracts* Local training, Seminars and workshops

(Note on Disbursement Percentage for local expenditures: If a contract has been executed "excludingVAT" then IDA would consider disbursing 100% of eligible expenditures.)

Special account:As noted above, three SAs are proposed, one for each of the main implementing agency as follows:

Agency Acct. Total Budget IDA Share Proposed SA Comment(US$m) (US$m) limit (US$m)

MPW SA-I 20.1 4.5 0.5 About 3-4 months project expenditureassuming a 2-3 yr. disb. period

PWA SA-2 3.1 0.7 0.05

MLG SA-3 2.8 2.3 0.1

TOTAL 26.0 7.5 -

Annex 6 (a)

Assessment of Financial Management System

The implementing agencies (MLG, MPW and PWA) are already established. Each has a role to play in thefinancial management of the project but the key responsibility of overall project financial administration,including accounting, monitoring, reporting, lies with MLG. Within MLG the PAU has the specificresponsibility. The financial management systems (FMS) of each implementing agency was assessedaccording to IDA guidelines (LIH, Annex 2) for the purpose of determining compliance with IDA minimumrequirements OB/PB310.02 and the ability to generate reliable quarterly project management reports(PMRs). The assessment concluded that the FMS at all agencies are adequate for presenting the Project tothe Board. A note on each implementing agency is presented below. The full FMS assessment report foreach agency has been placed on the project files.

MLG

The Project Accounting Unit (PAU) at MLG will play a key role in the financial management of the projectbeing the accounting and reporting coordinator with other implementing agencies, MPW and PWA. TheMLG is already participating in the MIDP-1, which includes a technical assistance component to improvethe financial management system at the ministry and a separate Project Accounting Unit (PAU) was

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established to undertake this responsibility. The PAU is well structured and staffed. It has computerizedaccounting system named (Audit) developed by local software company. The system can accommodateseveral on-going projects and has good security log-in system. It also has flexible reporting tools which,with minor modification, allow generation of PMRs and with sitting proper chart of accounts for thispurpose. The system also facilitate proper budgeting as it links budgeting with accounting and showsmovements on budget lines. Budgeting system is in place and is separate from the government budgetingsystem. The PAU is adequately staffed after hiring additional two qualified accountants. There areproperly documented accounting procedural manual, clear segregation of duties among all incompatiblefunctions. Dual check signatory is in place. The FMS at the MLG was assessed by an external consultingfirm. The assessment was conducted according to TOR acceptable to IDA. The assessment had identifiedseveral weaknesses and a remedial action plan was agreed with MLG to ratify these weaknesses. However,MLG accounting department will not account for or manage any funds for the Project; hence the PAU willundertake this responsibility. Financial management of the project regarding MLG portion will be donethrough PAU only. MLG is subject to auditing from Central Auditing Bureau besides its internal auditdepartment. The MIDP- 1 is subject to external auditing by qualified auditors acceptable to IDA. MIDP-2accounts will be audited by private independent auditor acceptable to IDA with TORs acceptable to IDA.The audit report should be submitted to IDA within six months after fiscal year end, this includes last yearof project implementation. The PAU will be overall coordinator to the Project. PWA and MPW willsubmit their quarterly PMRs to PAU for consolidation. PAU will be responsible for the consolidation andsubmission of the consolidated reports to IDA. Also, it is MLG responsibility to appoint private auditorsto the Project with terms of reference acceptable to IDA.

PWA

The FMS at the PWA was assessed in 1999 by qualified external consultant with TOR acceptable to IDAfor the on-going project, Southern Area Water and Sanitation Project ("SAWSIP"),- a US$21.0 millioncredit. All significant deficiencies identified in the said assessment were ratified by PWA. Separatecomputerized accounting system and chart of accounts (COA) are set up for the project to allow automaticgeneration of PMiRs. SAWSIP contains legal covenant to submit quarterly PMRs to IDA starting July 1,2000. During the supervision mission made in April 2000, the financial management specialist assigned tothe project reviewed the progress in the action plan and reviewed the set up of the COA and reportingcapability of the system. It is concluded that the project is able to meet the legal covenant and submitquarterly PMRs to IDA starting July 1, 2000. The component of PWA in MIDP-2 is relatively smallcompared to SAWSIP. To account for MIDP-2 the PWA will set up separate chart of accounts andseparate accounting records within the PWA main accounting department. Generation of PMRs isavailable from beginning of the Project. However, PMR will be requested effective July 1. 2001. PMRsprepared by PWA will be submitted to IDA through PAU after being reviewed and consolidated by PAU.Also, PAU has supervisory role in the accounting and financial management of the project over PWA (andMPW) and will be conducting spot checks on the accounts in PWA records related to the Project.

PWA has full time internal auditor, subject to external auditing by the Central Audit Bureau and also,subject to external auditing by qualified private auditors acceptable to IDA. The TORs for the auditorsappointment for both SAWSIP and PWA in general (being revenue earning entity) are acceptable to IDA.The annual audit reports for the Special Account, SOE and project accounts will be audited by privateauditor acceptable to IDA, who will be appointed by MLG. The audit reports for the project and the entitywill be submitted not later than six months from end of fiscal year including the last year of the projectimplementation. Audit cost for the Special Account and the project accounts will be eligible expenditures.Audit costs for the entity accounts are the responsibility of PWA and will not be eligible expenditure underthe project. Detailed FMS assessment is included in the Project's permanent files.

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MPW

MPW will manage 78% of the total project's fund ($20 million). An assessment of the FMS at MPW wasconducted and documented by a financial management specialist and filed in the Project's permanent files.The assessment concluded that FMS at MLG meets IDA minimum requirements. The accounting system issemi-automated and in process of full automation. There are up-to-date accounting manual coveringaccounting policies and procedures. Budgeting system is basically the government system promulgated byMinistry of Finance. MPW has developed a separate budgeting system suitable for roads projectmanagement which enable the ministry to better plan and monitor execution of major road maintenance andconstruction projects. The new budgeting system is complementary to the governmental budgetary as itshows cost items by project component and sub-component; also it allows for monitoring physical progressof the projects. Main strength of the new budgetary system is that it is linked to accounting system whichenables simultaneous reliable comparative reports between budgeted and actual costs for any account orcost element. Also, MPW has developed efficient internal auditing system as being an integral part of theaccounting cycle and also performing independent verification of transactions. The accounting departmentemploys eight qualified staff supported by qualified computer staff. It is agreed that separate chart ofaccounts will be created and installed in the accounting system to allow automatic generation of PMRs.The mechanism to set up the chart of accounts is explained and documented by MLG accountingdepartment. According to our assessment, there will be no need to set up separate PIU to manage theaccounting of the project and the finance department will assume the accounting and reportingresponsibility. Separate Special Account will be opened for the MPW portion at a commercial bank andwill be solely managed by MPW. The MPW will prepare its PMRs and submit them to MLG forconsolidation and submission to IDA. MPW will prepare their own WA and submit them to IDA for fundtransfer to the Special Account. The Project's account and Special Account will be audited annually byindependent private auditor acceptable to IDA with TOR acceptable to IDA. The Auditor will be appointedby MLG (preferably the same auditor for the project accounts for all implementing agencies). The auditreport should be submitted to IDA within six months after year end. Also, all transactions are subject tointernal auditing and subsequent auditing by the Central Audit Bureau.

Flow of Funds: Each implementing agency will establish its own individual special account at acommercial bank according to IDA's terms and conditions. Each implementing agency will be responsiblefor management of its own Special Account, including preparation of application for withdrawal,reconciliation of the account to IDA's records, cooperate with IDA's supervision missions and coordinatewith external auditors. There will be no budgetary allocation to the project from the PA as the contributionof the PA is confined to waiver of VAT from the Project. Disbursement will be on traditional disbursementmethod using SOEs and summary sheet with full supporting documents. Each implementing agency willmaintain all supporting documents for year-end auditing and supervision missions reviews. All documentsshould be kept for at least one year after the completion of the project.

Information Flow for Accounting Purposes:

* Each implementing agency would generate and maintain vouchers and supporting documentation forexpenditures on activities directly managed by that agency.

* Each implementing agency would maintain supporting documentation for expenditures on activitiesmanaged by them. Books of accounts will be maintained on double-entry bookkeeping principles, fortheir activities under the project. Each implementing agency would provide a summary statement of

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expenditure monthly based on the books of accounts, along with other information and documents, toenable proper accounting for these expenditures.

* Implementing agencies would maintain separate books and records in respect of transactions foractivities under the project. They should not be commingled with transactions not related to theproject. Project records should be kept in auditable condition all the time.

* Although each implementing agency will performn its own accounting, PAU at MLG will playsupervisory role in the accounting and financial management in the Project. It will be responsible foraccounting coordination and consolidation of quarterly PMRs and submit them to IDA. Also, PAUwill be responsible to appoint auditors for the Project according to TOR acceptable to IDA. BothMPW and PWA are requested to cooperate with PAU to facilitate this role.

* Expenditures incurred by each implementing agency would be audited by the private independentauditors (Certified Public Accountants) for the Project accounts. PWA entity accounts would beaudited also.

* This FMS at each implementing agency would be reviewed by supervision missions and be annuallyreviewed by the external auditors to ensure consistent and efficient application of the system.

Internal Controls

Current policies and procedures have been already set in all implementing agencies to provide reasonableassurance of (a) a proper authorization of transactions; (b) access to and use of assets and records; and (c)separation of custody of cash from authorization and record keeping, and separation of authorization fromrecord keeping.

Specifically, the financial management system at each implementing agency includes the following internalcontrol mechanisms:

* Operation of a budgeting system, and regular monitoring of actual financial performance with budgetsand targets.

* Adoption and operation of simple, clear and transparent financial and accounting policies which wouldgovern financial management of and accounting for the project (as described earlier). These policiesand procedures are included in the Manual of Financial Accounting Procedures.

* At the transaction level, establishment and operation of policies, procedures and systems for ensuringstandard internal controls such as checking of expenditures, appropriate documentation, levels ofauthorization, bifurcation of duties, periodic reconciliation, physical verification, etc. These policiesand procedures are given in the existing Manual of TS and would be reviewed and updatedperiodically.

Financial Management Reports

Quarterly: Financial management reports for the project would be generated from the computerizedfinancial management system at each implementing agency starting January 1, 2001. These reports wouldbe management-oriented (i.e., summaries rather than transactional details) and would be used for projectmanagement by each implementing agency. The reports would include: (i) a comparison of budgeted andactual expenditure and analysis of major variances, including sources and application of funds (by

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components, expenditure categories and Ministry offices), and on physical parameters and unit rates forselected key items; (ii) expenditures by disbursement categories; and (iii) forecasts for the next 2 quarters.Formats of the reports are given in the Manual.

Annually: Audited Project Financial Statements (PFS) would be submitted to IDA. PFS would include:(i) a statement of sources and utilization of funds or Balance Sheet, indicating funds received from varioussources, project expenditures, and assets and liabilities of the project. This would also include appropriateschedules classifying project expenditures by components, expenditure categories, (ii) a Special AccountReconciliation Statement; and (iii) a Statement of Withdrawals from the IDA Credit made on the basis ofStatements of Expenditure (SOEs). Audited PFS would be submitted to IDA not later than 6 months afterthe end of the Fiscal Year (i.e., not later than June 30 for the fiscal year ended on December 31 of eachyear). This is required from every implementing agency.

Auditing Arrangements

Each implementing agency would engage a firm of Certified Public Accountants, who would be the ProjectAuditors, would audit the accounts and financial statements of the project. The annual project financialstatements audited by the firm of Certified Public Accountants would be submitted to IDA within 6 monthsof the close of the fiscal year. The Terms of Reference and qualifications of the firm of Certified PublicAccountants are included in the Financial Accounting Manual of Procedures and have been reviewed byIDA. The cost of the audit by the firm of Certified Public Accountants would not be eligible for financingfrom the IDA Credit. The Bank's Guidelines for selection of consultants would apply to the engagement ofthe firm of Certified Public Accountants.

The audit by the Project Auditor would be comprehensive and cover all aspects of the project (i.e., allsources and uses of funds, and expenditures incurred by all implementing agencies); The audit will becarried out in accordance with International Standards of Auditing. The Terns of Reference of theauditors includes both audit of financial transaction, and an assessment of the operation of the financialmanagement system per se, including review of internal control mechanisms. All sub-area offices wouldprovide the auditor with access to project-related documents and records, and information required by theauditor for the purposes of the audit. The audit would also cover any cost-based consultancy or othercontracts for which no supporting documentation is provided to the related implementing agency. TheProject Auditor would issue management letter to the implementing agency, to bring to management'sattention any issues, which may be required to be addressed. This would strengthen internal controls, andwould also facilitate proper completion of the project implementation.

The Project Auditor would be appointed before the start of the project. The firrn would preferably beappointed for the duration of the Project. If the auditor rendered unsatisfactory performance, the contractwould be terminated. It is acceptable to have the same audit firm for more than one implementing agency oreven all implementing agencies.

Staffing

Key Professional Staff. Currently, MPW and PWA are fully staffed and ready to assume theirresponsibility to run their portion of the project. PAU needs to hire two qualified accountants prior tonegotiation.

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Areas for Improvement

At the MPW, the semi-automated financial management system is working properly but the implementationof the fully computerized accounting system will provide for an efficient, more accurate accounting ofproject transactions. Some of the areas of improvement for all implementing agencies, including MPW are:(i) training of professional staff and the Ministry offices in financial planning and management, operationof 'system-based' internal controls, financial policies, etc., (ii) training of financial staff in basic computeroperations (spreadsheets, word processors, databases, operation of the computerized financial managementsystem, etc.); (iii) ensuring better linkages between physical and financial activities, including expandingthe items for which physical data is captured in the financial management system (e.g., number ofterminations, etc); (iv) developing better linkages between physical and financial functions in eachimplementing agency, especially since these functions are closely related (on aspects such as internalcontrols over projects, etc.); and (v) development and implementation of internal service standards for allfinance and accounting functions. These as well as other improvements would be addressed during projectimplementation on a continual basis.

Readiness for Implementation and Next Steps

Financial Management System: The design of the Financial Management System at MPW is expected tobe completed by September 30, 2000. PWA will complete set-up of separate accounting records and chartof accounts for the project by September 30, 2000.

Appointment of Auditors: Draft Terms of Reference for financial audit of the project have been prepared;process of recruitment of a firm of Certified Public Accountants as project auditors for the first year willstart on May 15, 2000. The auditors are expected to be appointed by September 30, 2000.

Recruitment of Key Staff. The process for recruitment of two additional key financial staff at PAU willbe completed before negotiation (selection in progress).

Risks

The main risk relating to financial management aspects is the unsatisfactory cooperation between PAU atMLG and other implementing agencies regarding supervisory role of the PAU at MLG. This risk isconsidered as manageable due to the various risk-mitigation measures taken. Nonetheless, these arehighlighted here in view of their potential for adversely affecting project performance. These aspects willbe monitored closely as part of project supervision.

The supervisory role of MLG were overemphasized during negotiation and full cooperation will berequested from all parties. Also, MLG will be committed to assist other implementing agencies to fulfilltheir FMS responsibilities when they seek its assistance.

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Action Plan

This is presented below.

Action Responsible Entity Completion Date

1. Recruit two accounting staff MLG Before Effectiveness

Scheduled for July 1,2000.

2. Open Special Accounts MPW, PWA, MLG Before Effectiveness

3. Appoint private auditors MPW, PWA, MLG Before Effectiveness

4. Upgrade computerized accounting system. MPW and Consultant September 30, 2000

5. Create separate project-specific, accounting MPW, PWA and PAU September 30, 2000records and chart of accounts

6. Test PMRs using data of 2000 Quarter 4 MPW, PWA, MLG December 31, 2000

7. First PMR generation MPW, PWA, MLG July 1, 2001

-54 -

Annex 7: Project Processing ScheduleWEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT

PROJECT

Projezt Sch#cttde Planned :tual _Time taken to prepare the project (months) 13First Bank mission (identification) 02/01/99 02/01/99Appraisal mission departure 02/14/2000 03/06/2000Negotations 02/21/2000 05/07/2000Planned Date of Effectiveness 07/01/2000

Prepared by:

Kingsley Robotham

Preparation assistance:

Claude Archambault, Majed El Bayya, Ibrahim Dajani and Khalida Qutob.

Peer Reviewer: Fitz Ford

Bank staff who worked on the project included:

IName Speciality1. Kingsley Robotham Principal Urban Planner2. Claude Archambault Transport Engineer3. Majed El-Bayya Water & Sanitation Engineer4. Kanthan Shankar Environmental Engineer5. Ibrahim Dajani Environmental Engineer6. Ayman Abu Haija Financial Management Specialist7. Hisham Labadi Roads Engineer8. Khalida Qutob Program Assistant9. Terni Michelle Wells Program Assistant10. Marie Ange Le Operations Analyst11. Alexandra C. Bezeredi Board Operations Officer

- 55 -

Annex 8: Documents in the Project File*

WEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENTPROJECT

A. Project Implementation Plan

1. MIDP- 1, MLG Capacity Building Restructuring Plan.2. TOR for Road Maintenance Management System Consultancy.3. TOR for SM Capacity Building Consultancy.4. Details of Economic Analysis.5. Financial Management Review.6. MPW Procurement Audit.7. MPW: Various documents on road sector issues, work program and MPW organization and staffing.

B. Bank Staff Assessments

1. SARs: MIDP-1, ERP-1, ERP-2 and B20002. ICR's: ERP- l and ERP-23. Draft Transport Sector Study4. MIDP- 1 Capacity Building Component Restructuring Plan

C. Other

*Including electronic files

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Annex 9: Statement of Loans and CreditsWEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT

PROJECT

Difference between expectedand actual

Original Amount in US$ Millions disbursements

Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd

GZ-SF-53985 1999 PLO FOR BENEFIT OF BETHLEHEM 2000 25.00 0.00 0.00 20.75 6.04 0.00GZ-SF-58684 1999 PALEST COMMUNITY DEV. II 8.00 0.00 000 6.50 1.50 0.00

GZ-SF-40503 1998 PLOFORTHEBENEFITOF GAZAINDUSTRIALEST. 11.00 0.00 1.00 9.04 2.75 0.00

GZ-SF-47067 1998 TH PALESTINIAN NGO PROJ 14.55 0.00 0.00 10.76 -0.99 1 48GZ-SF40505 1997 GOVERNMENT WATER&SAN.SERV.IGAZA 25.00 0.00 0.00 7.46 7.09 0.00GZ-SF-43338 1997 WELFAREASSOCIATION HOUSING 25.00 0.00 0.00 24.95 725 0.00GZ-SF-47065 1997 PLO (FOR BENEFIT OF MICROENTERPRISES-IFC 5.00 0.00 0.00 4.29 2.09 0.79

GZ-SF47110 1997 PALES COMMUNITYDEVELOPMNT 10.00 0.00 0.00 0.32 0.66 0.00GZ-SF471 11 1997 PALESTINLAN AUTHORITY LEGAL DEVELOPMENT 5.50 0.00 0.00 4.43 3.06 0.00GZ-SF49708 1997 PECDAR PAL.EXPAT.PROF.PROGRAM 3.00 0.00 0.00 2.85 1.05 0.00

GZ-SF-43339 1996 PALESTINIAN AUTHORITY MUNICIPAL DEV. 40.00 0.00 0.00 9 54 2.86 0.00PLOIPALESTINIANAUTHORrfY

Total: 172.05 0.00 1.00 100.89 33.36 2.27

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WEST BANK AND GAZASTATEMENT OF IFC's

Held and Disbursed Portfolio31-Jul-1999

In Millions US Dollars

Committed DisbursedIFC IFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic

1994 APIB 0.00 0.00 3.73 0.00 0.00 0.00 3.73 0.001997 Arab Bank 0.00 3.00 0.00 0.00 0.00 0.30 0.00 0.001997 ComBank Palestin 0.00 1.50 0.00 0.00 0.00 0.23 0.00 0.001997 Jordan National 0.00 3.00 0.00 0.00 0.00 0.80 0.00 0.001997 PIECO 8.00 0.00 1.00 0.00 0.00 0.00 1.00 0.001997 SEF Arab Concret 0.80 0.00 0.00 0.00 0.47 0.00 0.00 0.001997 SEF Nabahin 0.50 0.00 0.00 0.00 0.50 0.00 0.00 0.001998 PTF 0.00 0.00 11.90 0.00 0.00 0.00 2.38 0.001998 PTF-Mgt Co. 0.00 0.00 0.20 0.00 0.00 0.00 0.04 0.001998 SEF Al-Ayyam 1.80 0.00 0.00 0.00 1.80 0.00 0.00 0.001998 SEF Pharmacare 0.41 0.00 0.00 0.00 0.41 0.00 0.00 0.001999 PMhHC 0.00 0.00 4.00 0.00 0.00 0.00 0.00 0.001999 PTIC 8.00 0.00 1.35 0.00 0.00 0.00 0.00 0.001999 SEF Cold Storage 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total Portfolio: 19.71 7.50 22.18 0.00 3.18 1.33 7.15 0.00

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic

Total Pending Commitment: 0.00 0.00 0.00 0.00

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Annex 10: Country at a GlanceWEST BANK AND GAZA: SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT

PROJECTWest M. East Lower- 10/13/9

POVERTY and SOCIAL Bank & North mtddle-& Gaza Africa Income Development diamond

1997Population, mid-year (millions) 24 283 2.285 Life expectancyGNP per capita (Atlas method, US$) 2,060 1.230GNP (Alas method, USS billions) .. 583 2.818

Average anrual growth. 1991-97

Population (%) 5.6 2.3 12Labor force (%) 6.3 3.2 13 GNP Gross

per H K- primaryMost recent estimate (latest Year available. 1994-97) capita enrollmentPoverty M% of popelation below natronaf poverty tfine 24urban population ̀ % oatotatoopulation) 70 57 42Life expectancy at birth (years) 70 67 69Infant mortality (pet /O00 live biths) 28 48 36Chid malnutrition fSo of children under ) .. Access to safe waterAccess to, safe water (% ot popuatlon) 90 71 84llltteracy (% o population age 184) 16 39 19Gross ptinary enrollment (% of school-age poptlaton) 91 97 111 - WestBankandGaza

Male 91 102 116 Lower-middle-income groupFemate 92 91 113

KEY ECONOMIC RATIOS an4 LONG-TERM TRENDS

1985 1905 1996 1997Economic ratlos'

GDP (USS billions) 1.0 3.3 3.4 3,3Gross domestic investmentGDP 28.6 3864 34.1 34.1 TradeExports of goods and serviee4/GDP 30.5 17,0 17.5 175 Gross domestl savings/GbP -31,1 -8.0 -17,7 -17,7Gross fational avings/GOP 2.5 1S.9 9S. 9.4

Current accountt balancetGOP -11.0 .17.65 -24.6 -24,6 Domestic ,Interest paymentsiGOP Savings \ InvestmentTrotal debtlGOP SavngTotal debt service/exportsPresent value of debt/GOPPresent value of debt/exports ..

Indebtedness1955.94 1*03 19S6 1997 199S42

(average annal grogwthjGDP 7.3 -5.2 0.-8 -08 - West Bank and GazaGNP per capita 1.1 -9.9 -8.2 -3.7 .. Lower-middle-income groupExports of goods and services 2.7 -19,6 14.4 -0.8

STRUCTURE of the ECONOMY1985 1995 1996 1997 Growth rates of output and investment 1%)

(% of GDP)Agriculture 19.7 14.5 16.3 15.9Industry 24.9 26.8 24.4 24.2 20

Construction 16.9 9.7 9.4 8.8 10Services 55.4 58.6 59.3 60.0 o _ _ _ _!

Private consumption 118.2 94.1 95.8 98.4 10 9 2 9 3 94 97General government consumption 12.9 13.9 22.0 19.4 -GDI 5*GDPImports of goods and services 90.2 61.4 69.3 69.3

(average annual growth) 1985-94 1995 1996 1997 Growth rates of exports and Imports (%l

Agriculture 13.9 -8.5 11.9 -0.8 4Manufacturing 9.7 31.0 -12.4 4.2Construction 9.2 8.3 -3.8 -4.5 20Private services 10.5 -12.7 -8.0 3.0 o -Public services 4.7 3.6 17.9 3.0 92 94 9 97

Private consumption 4.3 -0.6 10.6 2.1 -20General government consumption 7.1 -24.4 56.4 -12.4Gross domestic investment 0.2 11.6 -4.5 -0.8 -40Imports of goods and services 8.4 -16.9 24.3 -0.8 - Exports 0 ImportsGross national product 5.3 -4.4 -2.6 2.2

Note: 1997 data are preliminary estimates.

The diamonds show four key indicators in the countrv fin bold) comDared with its income-orouo averaae. If data are missino. the diamond willbe incomplete.

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West Bank and Gaza

PRICES and GOVERNMENT FINANCE

Domestic prices 11985 1995 1996 1997 Inflation I%)

(% change) 30Consumer prices 289.5 10.1 11.0 7.6 20

Implicit GDP deflator .. 12.6 12.3 7.6 1 D

Government finance x 7

(% of GDP, includes current grants) o 93 94 95 9S 97Current revenue 11.0 15.6 20.0 24.7 -10Current budget balance 2.0 -2.0 -2.8 -1.1 -G OP deflator - CPIOverall surplus/deficit -0.9

TRADE

(US$ millions) 1985 1995 1996 1997 Export and Import levels (US$ millions)Total exports (fob) 272 414 450 .. 2,500

n.a.n.a. 2.000

Manufactures .. .. .. .. .500Total imports (cif) 668 1,784 2,123

FoodFuel and energy s5: _Capital goods o 94 a _o 9

Export price index (1995=100) .91 92 93 94 95 93 97Import price index (1995=100) .. .. E. .. mExports U ImportsTerms of trade (1995=100) ..

BALANCE of PAYMENTS

(US$ millions) 1985 1995 1996 1997 Current account balance to GDP ratio (%)Exports of goods and services 305 558 598 585 0Imports of goods and services 750 2,014 2,369 2,317 91 94

Resource balance -446 -1,456 -1,770 -1,732 IINet income 227 534 469 632 10

Net current transfers 108 349 461 276 15 I ICurrent account balance -110 -574 -841 -824 20

Financing items (net) 5. .. . . 2Changes in net reserves .30

Memo:Required reserves with PMA (USS millions) . 44 184 239Conversion rate (DEC, locaf/US$) 1.2 3.0 3.2 3.4

EXTERNAL DEBT and RESOURCE FLOWS1985 1995 1996 1997

(USS millions)Total debt outstanding and disbursed .. .. .. .

IBRDIDA .. 23 50 103

Total debt serviceIBRDIDA

Composition of net resource flowsOfficial grants .. 441 548 541Official creditors .. 21 27 54Private creditors .. .

Foreign direct investment ..Portfolio equity .. .

World Bank programCommitments .. 20 85 69Disbursements .. 21 27 53Principal repayments .. 0 0 0Net flows .. 21 27 53Interest payments .. 0 0 0Net transfers .. 21 27 53

World Bank Resident Mission: West Bank and Gaza 10113/98

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AdditionalAnnex No.: 11

Extract from

Municipal Infrastructure Development Project (MJDP-1)Capacity Building Component

Restructuring Plan

I. Introduction

The Ministry of Local Government (MLG) and the Bank have been concerned about the pace ofimplementation of the Capacity Building Component of the project for some time. It was apparent thatunless the component was restructured it would not achieve its objectives of a reformed Local Governmentsystem. While two of the three planned Technical Committees (TCs: legal and institutional, and fiscal andfinancial had been functioning for about two years and had produced a significant amount of work, the rateof output had not been able to keep pace with the original time table; (the third TC (managerial andtechnical) had been placed on hold pending a resolution of the issues relating to the other two). Onexamination, it became clear that the MLG Capacity Building Unit (CBU) which was supposed to haveprovided substantive analytic and other support to the program, had not been adequately staffed. Inaddition, work at the level of the selected municipalities (SMs) has been progressing reasonably well, butthe SMs needed support from and guidance by the MLG-CBU which had not been forthcoming alsobecause of its staffing limitations.

While the problems were known, it has taken a while to reach a consensus on a restructuring program.This program had to address the staffing problems effectively while maximizing Palestinian participationboth now and in the future. It also had to be consistent with MLGs own structure, operations and policiesand plans for the future. Further, the substantive program of work to be undertaken by the TCs needed tobe revised to take into account what was already done and changes in the Palestinian circumstances sincethe original conception of the program, and a new timetable established.

Consequently, the program is being revised to restructure and re-staff the MLG-CBU and establish a new,coherent framework for reform, integrating and coordinating the work of the operational TC's; andrecruiting competent consultants to execute essential studies.

These revisions are based on the outcomes of a Policy Workshop held on April 28-29 at the World BankResident Mission Office in al Ramn, Jerusalem. This workshop was opened by the Minister of LG, Dr. S.Erekat, and chaired by the Deputy Minister, Dr. H. Araj. It was attended by senior representatives ofMOF (Dep. Minister Dr. A. Alawneh), Ministry of Justice, the Legislative Council and a widecross-section of Municipalities (including the SMS involved in MIDP-1, Bethlehem 2000, and the proposedSecond Municipal Infrastructure Development Project (MIDP-2)). A number of Donor Agencies alsoparticipated (including USAID, UNDP and the Dutch). The Bank was represented by the Team Leader(Robotham) and the local project team as well as the visiting LG Finance Specialist Team Member fromWashington (Fitz Ford).

At the Bank's initiative, Professor Roy Bahl of Georgia State University (a world acknowledged expert onpublic finance) and Mr. Richard Winnie, a legal expert from Alemeda County, California, also attendedand provided advice. Lively, wide ranging and highly productive discussions were held over a two day

-61 -

period, and course of action for the future was agreed. Subsequent discussions were held with MLG Dep.Minister Dr. Araj on May 6, 1999 to confirm this course of action, and to develop a Restructuring Plan.

This note sets out what has been agreed. The Restructuring Plan focuses on the following issues:

* The Framework for Reform* The CBU* The New Project Accounting & MIS Units* The Budget

H. The Framework for Reform

The April workshop focused on the need to develop a suitable framework for guiding the LG reform effort.Such a framnework was outlined with the assistance of Prof. Bahl. This outline is set out below, and aresponsibility matrix and proposed work program are presented in Annexes 1 & 2 of this document.These will be used over the next 12 months as the basis for preparing a "White Paper" setting outMLGlMOF's proposed policies and plans for reform.

The White Paper would set out to answer the question: What kind of LG system does Palestine want nowand for the future and what is efficient and practicable? It would be discussed at conferences of keystakeholders, suitably amended and then presented to the PA and the Legislature for further review andapproval. The Paper would then form the basis for next stage of the process: the drafting new legislationfor the LG system.

Four main phases over a 27 month period are anticipated as follows:

Phase Duration Period

1. Preparatory Organizational 3 months Dec. 99 - Feb. 002. Preparation, Review and Approval of White Paper 12 months Feb. 00 - Feb. 013. Legal Drafting 9 months Dec. 00 - Aug. 014. Legislative Review and Approval 3 months Aug. 01 - Nov. 01

A. The "White Paper"

Key Elements: A summary of the key items that need to be addressed in White Paper is presented below.They include the following:

* Assignment of Functions* Taxation* User Charges and Cost Recovery* Transfers and Subsidies* National Pool of Funds and the Allocation Mechanism* Budgets and Budget Constraints* Building a Flexible and Dynamic System* Supporting Analytic Studies

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Each is briefly outlined below, together with a note on what needs to be done operationally.

1. Assignment of Functions

* Functions must be clearly assigned to each level and class of local government.

* Some functions may be required or mandated by the central government, others may be at the option ofthe local government. These functions have expenditure responsibility. As a consequence, revenues willbe assigned to every function to ensure that they can be carried out. These revenues may be in the formof authority to levy taxes or user changes or fees, or some form of transfer from the centralgovernment.

* Some mandated functions may be central government responsibilities for which local governments arethe executing agencies. In these cases the central government sets the standards for the delivery of theservices or functions. Direct payment by the central government is usually part of this arrangement.

2. Taxation

* Powers: It is important that local government have some taxing powers, not only so that they are ableto carry out particular functions, but also in order that they may be held accountable for theirperformance by their citizens. These powers may vary from the determination of the tax - this is oftenassociated with optional services - to determination of the tax rate for a tax that is otherwiseformulated by the central government and assigned to the local government.

* Assignment Strategy: Some taxes should clearly not be assigned to local governments. These includecorporate income taxes, VAT and foreign trade. The most desirable form of revenues for the functionsassigned to local governments are user charges for the services they provide.

* Type of Tax: Taxes need to be considered carefully as well. The property tax is often considered to bean ideal local government tax, but it is very difficult to administer; alternatives such as land taxes anddevelopment levies will be considered. Other taxes to be examined are motor vehicles, business licensesand income taxes. A local income tax may be readily levied and inexpensively administered as asurcharge on the national income tax.

3. User Charges and Cost Recovery

* To the maximum extent possible, each service should be associated with a user charge that is able torecover the cost of that service.

4. Transfers and Subsidies

* When the cost of delivering that service at a standard that the central government desires for all thepeople makes it difficult for the poor to afford, there is a case for the central government to provide atransfer to subsidize the poor.

* It is important that the form of the subsidy does not lessen incentives to be efficient in service delivery.

* Form of Transfers: Transfers by the central government also may be in the form of grants or shared

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taxes. The transfer system will be based on a careful assessment of the policy outcomes that thePalestinian government wants to achieve.

5. The National Pool of Funds and the Allocation Mechanism

The following will need to be decided:

* The size and source of the pool or pools that are to be divided.

* The primary concern will be to decide whether a particular pool will be based on a shared designatedtax or taxes, general revenues or cost reimbursement.

* Because every option has implications for macro-economic management the choices will have to becarefully considered.

* As predictability is an important objective of the system to be instituted, it is important that ad hocdetermination is avoided to the extent possible.

* In addition, the method for dividing the pool(s) will be recommended. The options to be consideredinclude relating a portion to the jurisdiction of origin, applying a formula or using cost reimbursement.An important principle that will be followed in deciding on tax and transfer systems is to keep themethodology and administration as simple as possible. It is recognized that precision is unlikely andseeking such precision often adds unmanageable complexity.

* A system of classification will be needed in order to permit differential treatment of local governments,both within and between levels, based on their exhibited characteristics and capabilities. In otherwords, the system has to allow municipalities which demonstrate the ability to perform better to havemore autonomy, responsibility and authority compared to weaker municipalities, and provision has tobe made to provide more assistance to weaker local governments.

6. Budgets and Budget Constraint

* Hard Budget Constraint: The intergovernmental fiscal system will impose a hard budget constrainton local governments. Local governments will not be allowed to operate unfinanced budget deficits, andthe central government will not bail out local governments that run such deficits.

* Borrowing: Local governments will be allowed to borrow under well-defined rules that ensure thatmacro stability is not jeopardized. Borrowing will primarily be for investments in order to matchfinancing to revenue streams.

* Safeguards: The system will include safeguards to ensure that both the central and the localgovernment will follow the rules established.

* Fit: Because municipal finance and intergovernmental fiscal relations constitute a system, it will beensured that all the parts fit and work together to achieve the overall policy objectives of thegovernment.

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7. Building a Flexible and Dynamic System

* An intergovernmental fiscal system is always in transition. As a result, an institutionalized arrangementwill be made to regularly review the structure, details and operations of the system. To facilitaterevision, the details of the system will not be enshrined in the Constitution, although its principles maybe.

8. Supporting Analytic Studies

A number of studies will be undertaken to support the above, including the following major analyses (Seeattached TORs):

* User Charges and Taxes Study: Analysis of the structure and performance current system and optionsfor the future.

* Intergovernmental Transfers and LG Investment Financing Study: Analysis of the present systems andtheir performance and options for the future

B. Drafting the Laws

Once the White Paper has been substantially agreed the next stage would be the drafting of laws. Theobjective of the drafting is to codify the agreements in the White Paper in language that the parties to theagreement understand.

Process: The following schema is proposed:

3 The drafters will first set out: a) what in the current arrangements between central and localgovernments will continue unchanged; and then b) what will be new agreements.

e The assignment of responsibilities will be specified along with the associated rights created.

* When the transcription of the understandings are confirned by the parties concerned, the laws will thenbe drafted.

* The basic laws to be drafted will be kept simple and clear, and will be consistent with other laws tocreate a system that is a consistent, practical vision.

* Responsibilities for implementation of all requirements under the laws will be assigned.

Basic Components of the Laws: Seven components will compose the basic body of the laws.

1. Structure ofLG System

This will describe the structure of local government institutions, establishing geographic boundaries;internal legislative and broad administrative structures; functions, distinguishing mandatory fromdiscretionary; rights of all elements within the system; and the relationships possible between localgovernments.

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2. The Local Fiscal System

This will describe the budget process, setting out principles; identifying sources of revenues; addressingquestions of equity; borrowing; reporting fiscal information and auditing.

3. Annual Budget

This describes the annual budget process which commits the government to specific expenditures andrevenue targets and sources for the year. It must be consistent with the fiscal system.

4. Taxes and Fees

This sets out local taxes and fees, and must be consistent with the assignment of functions.

5. Planning and Development

This sets out the arrangements concerning local planning, zoning and development, includingdevelopment controls, and must be consistent with the law on local taxes and fees, among others.

6. Local Courts

This sets out the structure, jurisdiction and functioning of local courts.

7. Employment:

This sets out the duties, rights, responsibilities and obligations of the local public employees.

The attached diagrams and tables indicate the organizational arrangements and responsibilities under theprogram, including the structure of the CBU and the PAU.

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M IDP-1, Restructuring Program, Responsibility Matrix

Phase Activitv R esDosibilitvMLG NCC FF CL AF AC DR

1.00 Preparatory Organizational: Establish New CommitteeOrganizational Arrangements

1.1 Establish National Coordinating Committee (NCC) E

1.2 Establish Technical Sub-Committee E1.3 Prepare first NCC meeting E1.4 PreDare first TSC meeting S E _

1.5 Hold first CTC meeting S E1.6 Hold first TSC meetine S S E E E E E1.7 Recruit consultants for Fiscal and Financial studies1.7.1 Invite proDosals E1.7.2 Review DroDosals E1.7.3 Award contract E

2.00 Prepare W hite Paper

2.1 Fiscal and Financial Analytic Work

2.1.1 Undertake Supporting Fiscal and Financial Studies

(Consultants)2.1.1.1 a) User charge and taxes E RA P N N N N

2.1.1.2 b) Inter-Governmental Transfers and financing LG E RA P N N N Ninvestment

2.1.2 Analyze functions N RA E N P N N2.1.3 Analyze costs of deliverv N RA E N N N N2.1.4 Classify functions according to most appropriate type of RA RA E P N N N

revenue source2.1.5 Analvze Potential transfer systems N RA E N N N N2.1.6 DeveloD DroDosals for subsidies. shared taxes & grants N RA E N N N N2.1.7 Develon parameters for local govt. borrowing N RA E N N N N2.1.8 Consult and agree on assignment of functions and RA E S P P P p

expenditure & revenue responsibility -_

2.1.9 Review finance & financial analytic work P E S P p p P2.20 Classification and Accountability2.2.1 Agree classification system & operating rules for various RA RA S E S N P

classes & levels of LG2.2.2 Devise and agree accountability systems, incl. Monitoring, RA RA P P P E P

evaluation, reporting & sanctions2.3 White Paper and National W orkshop - - = =2.3.1 Assemble White Paper S E P P P P P2.3.2 Arrange W orkshops E E S S S S S2.3.3 Hold W orkshops to Review White Paper E E P P P P P2.3.4 Amend White Paper on basis of discussion above RA E P P P P P

2.4 White Paper and PA and Legislative Approval2.4.1 Submit White Paper to PA and Legislature E N N N N N N2.4.2 PA and Legislature Review and Approval S S S S S S S

3.00 Laws and Regulations

3.1 Draft Structure of LG svstem RA RA R N N N E3.2 Draft Budget Drocess RA RA R N N N E3.3 Draft Components of the Annual Budget RA RA R N N N E3.4 Draft Local taxes and fees consistent with the above RA RA R N N N E3.5 Draft Planning, development and development procedures RA RA R N N N E

and standards3.6 Draft Structure, functions and iurisdictions of local courts RA RA R R R N E3.7 Draft Rights, duties, powers and obligations of local RA RA N N R N E

emplovees R3.8 Draft Accompanving regulations and bylaws RA RA R R R R E3.9 Review Legal framework and draft laws and bvlaws RA RA R R R R E3.10 Amend Legal framework and draft laws as appropriate RA RA I R R I E

4.00 PA and Legislative Approval

4.1 Submit Laws to PA and legislature 1E S s S S S S4.2 Review and aDDrove law , N S |s S s S |S4.3 End _ 1 [Key: A = approve; E = execute; N = notified; P = participate; R review; RA = review & approve; S = support.

67 -

MIDP-1Capacity Building Program

Oganization ChartInter-Governmental Reform Program

MM 68 - T-v

- 68 -

MJIDP-1Capacity Building Program

OrganogramSelected Municipalities' Program

69 -

MIDI-1 Capacity Building ProgramRestructuring Plan

OrganogramCapacity Building Unit(CBU), Project Accounting Unit (PAU) and

MIS Unit (MISU)

Deputy MinisterMLG

: I :Director General

Recruited ittemafionally as a group- _

CBUDirector

Finance Expert I PAU MISUDirector Director

|Management Expert| I

eSystmsAccountnt SystemsEngineer

| MIS Expert | | lll

Project Accountant SupportStaff(1)

F Support Staff 7

1Project Accou-ntant(2)

-Spport Staff

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AdditionalAnnex No.: 12

Organogram, Implementation Responsibilities and Work Plan

12 (a) MIDP-2 Organogram

< ~~~~~~~~Lending

II~~~~~~~~~~~~~~~~~~~~~

---------------------- ___ mlmnigAece

, ~~~ Imlmetn Agece

tSonitoring ~~~~~~~~Implementation

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2 (b) MIDP-2 Responsibilities Matrix: The following table outlines the roles and responsib lities of the key agencies involved in the project.Component Responsibility

MPW PWA MLGA. Infrastructure Rehabilitation

1. Regional Roads* Identification E N/C* Preparation E N* Implementation E . N

2. Municipal and Village Water & Sanitation* Identification E N/C* Preparation E N* Implementation _ E N

B. Capacity Building1. MPW

* Identification E N* Preparation E N* Implementation E N

2. MLG/SM* Identification E* Preparation E* Implementation E

C. Incremental Operating Expense Support1. MPW Component

* Monitoring E N/CL* Reporting E N/CL* Accounting & Fin. Admin

* Opening Special Account E N* Management of Special Accounts E N* Certification E N* Payment E N* Preparation of Withdrawal Applications & Submission to IDA E N* Maintaining Project Accounts E N* Preparing PMRs for submission to MLG E N* Submission of PMRs to MLG for consilidation on a quarterly basis E N

2. PWA Component* Monitoring E N/CL* Reporting E N/CL* Accounting & Fin. Admin.

* Opening Special Account E N* Managernent of Special Accounts E N* Certification E N* Payment E N* Preparation of Withdrawal Applications & Submission to IDA E N* Maintaining Project Accounts E N* Preparing PMRs for submission to MLG E N* Submission of PMRs to MLG for consilidation on a quarterly basis E N

3. MLG Component* Monitoring H* Reporting E* Accounting & Fin. Admin.

* Opening Special Account* Management of Special Accounts E* Certification E* Payment E* Preparation of Withdrawal Applications E* Mamtaining Project Accounts E* Preparing PMRs E

4. Overall Project* Financial Monitoring N/CL N/CL E* Reporting, including quarterly PMRs & Reports on physical progress N/CL N/CL E* Accounting & Fin. Admin.

* Consolidating & Maintaining overall Project Accounts N N E* Consolidation of PMRs for submission to IDA on a quarterly basis N N E* Appointrnent of Auditors N N E* Commission of annual audits N N E* Submission of annual audits to IDA on a timely basis N N E

ote: E=Main Exncuting Responsiliy; NWs Not*ed & Supplied by Agency with rloevant projea infonnation; C=consun with and Is confted by executing agency; CL=CobbNrates wn and sppolts agencywlh execut ngresponsibility.

- 72.-

12 (c) Work Plan

_ __~~,~_ ~~~~~~~~~~~~~~~~~~~De aJn

Prol Est. Bank Prep. Bank NO f Rec prop, Review & kd Loc. Sec. Description Dist. Value Financ. Design on TOR & prep. prep Eval N.O

(USS$) (USSm) TOR S.List prop. preiod Rep

__________ = WB Projects =

1 Qalqilia R Azzun-Masha Road (I) WB 0.550 0.450 _ _ _

2 Qalqilia R Azzun-Masha Road (II) WB 0.550 0.450

3 Hebron R Sureef-Beit Awwa Road (I) WB 1.750 Jun-00 Jul-00 Jul-00 Aug-00 Sep-00 Sep-00

4 Hebron R Sureef-Beit Awwa Road (II) WB 1.750 Jun-00 Jul-00 Jul-00 Aug-00 Sep-00 Sep-00

5 Jenin R Zabda-Barta'a Road WB 0.700 Jun-00 Jul-00 Jul-00 Aug-00 Sep-00 Sep-00

6 Jenin R lenin-Haifa Road WB 2.100 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Nov-00

7 Oalgilia R Falamia-Qalqalia Road WB 0.700 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Nov-00

8 Hebron R Sureef-Beit Hummar Road WB 0.600 0.500

9 Nablus R Northen Entrance to Nablus WB I1 500 Jul-00 Aug-00 Sep-O Oct-00 Nov-00 Nov-00

10 Ramal/Bira R Nilin-Budrus Road WB 1.500 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Nov-00

Total Road Projects 11.700 1.400

1 Nablus W Kufr Qallil Water Project WB 0.600 0.500

2 Nablus W Awarta Water Project WB T .100

3 Salfeet W Bidia Water Project WB 0.500

4 Jenin W Faqua Water Project Ws 0.600

Total Water Projects 2.800 0.500

Sub Total West Bank Projects 14.500 1.900_

Gaza Strip _ _ _ _

1 Jabalia R Al Bahaer-Sudania Road GZ 0900 0.700

2 Gaza Strip R Beit Hanoun-Wadi Gaza Road GZ 2.200 _ Jul-00 Aug-00 Sep-00 Sep-00

3 Gaza Strip R Wadi Gaza-Rafah Road GZ 2.200 Jul-00 Aug-00 Sep-00 Sep-00

Works Sub Total Gaza 5.300 0.700

Design & Supervision _ _____

1 WBG TA Roads Desipn WB/G t.200 0.700 Jul-00 AuP-OI Sepo-00 SeP-00

2 West Bank TA Water Projects design WB I 0.200 | 0.200 J Jul-01 Aug-01 Sep-01 Sep-01

_ ~~~~~~Design sub total 1.400 |0.900_

1 WBG TA Road Maintenance Program WBIG 1.400 1.300 Jul-00 Au -00 Sep-00 Nov-00 Dec-00 Dec-00

2 WBG G hardware & Equipment WB/G 0.500 0.300

_ _ ~~~~~MPW Sub Total Capacity Building |1.900 |1.600__

1 WBG TA Unified Accounting System WB/G | 0.600 0.500

3 Year Investment Plans for 1i700 15002 WBG TA municipalities WB/G Au -00 Dec-00 Dec-00 Feb-01 Mar-O1 Mar-01

3 WBG G Equipment WB/G 0.200 0.100

MLG Sub Total Capacity Building 2.500 2.100

_Sub Total Capacity Building 4.400 3.700 _ .

1 _______O&M O&M for PWA WB/G 0.100 0.100 _ _

2 O&M O&M for MLG WB/G 0.300 0.200

Sub Total O&M 0.400 0.300

Total Program WB/G 26.000 7.5DO

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_ ~~~~~~~~~~~~~~~~~~~~~~~Desicin Biddinac _

Pe Prprn Rve Cn.Prep Dsg Prepbi Req Rnk Banks_ Loc. Sec. Description prelin. dsin devin Aw ard w cos Design Pe p bid Banh

dsg design d ein Aad does. comts. does N-bidt N.0

_WB Projects I

1 Qalqilia R Azzun-Masha Road (I) Apr-00 May-00 May-OO May-OO May-00 Jul-00 Aug-00

2 Qaicilia R Azzun-Masha Road (11) Apr-00 May-00 May-00 May-00 May-00 Jul-00 Aug-00

3 Hebron R Sureef-Beit Awwa Road (l) Oct-00 Nov-00 Nov-00 Sep-O0 Nov-00 Nov-00 Nov-00 Jan-01 Jan-00

4 Hebron R Sureef-Beit Awwa Road (ll) Oct-00 Nov-00 Nov-00 Sep-00 Nov-00 Nov-00 Nov-00 Jan-01 Jan-00

5 Jenin R Zabda-Barta'a Road Oct-00 Nov-00 Nov-00 Sep-00 Nov-00 Nov-00 Nov-00 Jan-01 Jan-00

6 Jenin R Jenin-Haifa Road Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 Jan-01 May-01 May-01

7 Qalqilia R Falamia-Qalqalia Road Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 Jan-01 May-01 May-01

8 Hebron R Sureef-Beit Hummar Road Apr-O Ma Ma-00 Ma y--00 0 MaY00 Jul-00 Au -00

9 Nablus R Northen Entrance to Nablus Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 Nov-01 Nov-01

10 Ramal/Bira R Nilin-Budrus Road Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 Nov-00 May-02 May-02

Total Road Projects

1 Nablus w Kufr Qallil Water Project Jul-00 Jul-00 Jul-00

2 Nablus W Awarta Water Project I_ I T_=_Jul-01 Jul-01 Jul-01

3 iSalfeet W |Bidia Water Project _ _____T___=Jul-01 Jul-01 Jul-01

4 IJenin W Faqua Water Project _ Jul-01 Jul-01 Jul-01

I 0 Total Water Projects

Sub Total West Bank Projects _

Gaza Strip

1 Jabalia R Al Bahaer-Sudania Road Jul-00 Jul-00

2 Gaza Strip R Beit Hanoun-Wadi Gaza Road Oct-00 Nov-00 Nov-00 Sep-00 Nov-00 Nov-00 Nov-00 Dec-00 Dec-00

3 lGaza Strip R Wadi Gaza-Rafah Road Oct 00 Nov-00 Nov-00 SeP-00 Nov-00 Nov-00 Nov-00 Dec-01 Dec-01

Works Sub Total Gaza

Design & Supervisioss ____L_I_=_

1 WBG TA Roads Design Oct-00 Nov-00 Nov-00 Sep-00 Nov-00 Nov-00 Nov-00

2 Went Bank TA Water Projects design Oct01 Nov -01 Nov-01 Nov-01 Nov-01 Novt01

________ = >Design sub total ___

_ Capac~Buity R;ls . _ _ .dd _-

1 WBG TA Road Maintenance Program Jan-01

2 WBG 0G hardware & Equipment _ Mar-01 Mar-01 Mar-01

MPW Sub Total Capacity Building =_=

1 WBG TA Unified Accounting System Feb-01 _ _=

3 Year Investment Plans for

2 WBG TA municipalities Mar-01

3 WBG G Equipment _ Feb-01

_MLG Sub Total Capacity Building _ _

Sub Total Capacity Building

1 O&M O&M for PWA

2 O&M O&M for MLG - -

Sub Total O&M

Total Program

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__B _dina _mple I

Identify CO Invite to Bidding eB. Bid Bank Award Comp.Loc. Sec. Description S.List & Bid Period Bid open. & prep. N.O. Cont. work

Bank N.O Rep.

_ __________ WB Projects

1 Qalqilia R Azzun-Masha Road (1) Aug-00 30 davs Sep-00 Oct-00 Oct-00 Oct-00 Feb-02

2 Qalqilia R Azzun-Masha Road (II) Aug-00 30 days Sep-00 Oct-00 Oct-00 Oct-00 Feb-02

3 Hebron R Sureef-Beit Awwa Road (I) Jan-01 Feb-01 30 days Mar-01 Apr-01 Apr-0

4 Hebron R Sureef-Beit Awwa Road (11) Jan-01 Feb-01 30 days Mar-01 _Apr-l Apr-03

5 Jenin R Zabda-Barta'a Road Feb-01 30 davs Mar-01 = Apr-01 Aor02

6 Jenin R Jenin-Haifa Road May-01 Jul-01 30 davs Aua-01 Sep-01 Feb-03

7 Qa ilia R Falamia-Qalqalia Road Jul-01 30 days Au -01 Sep-01 Aug-02

B Hebron R Sureef-Beit Hummar Road Aua-00 30 da s Sep-00 Oct-00 Oct-00 Oct-00 Feb-02

9 Nablus R Northen Entrance to Nablus Dec-01 Jan-02 30 days Mar-02 Apr-02 Dec-03

10 Ramal/Bira R Nilin-Budrus Road Jun-02 Jul-02 30 davs Aug-02 Sep-02 Oct-03

Total Road Projects _

1 Nablus W Kufr Qallil Water Project Jul-00 Aug-00 30 days Sep-00 Aua-00 AuP-00 Oct-00 Aug-01

2 Nablus w Awarta Water Project Jul-01 Aug-01 30 days Sep-01 Aug-00 Aug-00 Oct-01 Aug-O

3 Salfeet w W Bidia Water Project Jul-01 Aug-01 30 days Sep-01 Aug-00 Aug-00 Oct-01 Aug-02

4 Jenin W Faqua Water Project Jul-01 Aug-01 30 days Sep-01 Aug-00 Aug-00 Oct-01 Aug-02

Total Water Projects

Sub Total West Bank Projects _ _=_=

Gaza Strip _ L_I

1 Jabalia R Al Bahaer-Sudania Road Jul-O0 Jul-00 30 days Aug-O0 Jul-00 Jul-00 Sep-00 Jul-O0

2 Gaza Strip R Beit Hanoun-Wadi Gaza Road Dec-00 Dec-00 30 davs Jan-01 Feb-01 Feb-02

3 Gaza StriP R Wadi Gaza-Rafah Road Dec-01 Dec-01 30 davs Jan-02 Feb-02 Feb-03Works Sub Total Gaza _ _ _

,Design & Supervision _ _ =_=

1 WBG TA Roads Design = Jan-03

2 West Bank TA Water Projects design Jan 03Design sub total

_ _. _ .~J

1 WBG TA Road Maintenance Program Feb-03

2 WBG G hardware & Equipment Mar-Ol Mar-01 30 davs Apr-0l May- 1 Feb-02

_MPW Sub Total Capacity Building I = =

1 WBG TA Unified Accounting System = = = Dec-03

3 Year Investment Plans for2 WBG TA municipalities ___ Dec-03

3 WBG G Equipm ent Mar-01 30 days Apr-O1 May-O1 Feb-02

MLG Sub Total Capacity Building = _________

_Sub Total Capacity Building = = =

1 O&M O&M for PWA _ =_=_ Dec-04

2 O&M O&M for MLG _ Dec-04

Sub Total O&M

Total Program

- 75 -

AdditionalAnnex No.: 13

SECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT PROJECT(MIDP-2)

DRAFT IMPLEMENTATION AGREEMENT

between

THE MINISTRY OF LOCAL GOVERNMENT

and each of the

MUNICIPALITIES OF

JABALIA, KHAN YOUNIS, TULKAREM, AL-RAM, JERICHO AND TARQUMIA(TIE PARTICIPATING MUNICIPALITIES)

MIDP-2 PROJECT

PM IMPLEMENTATION AGREEMENT

AGREEMENT dated --------------------, 2000, between the Ministry of Local Government (MLG)and, each of the Municipalities of Jabalia, Khan Younis, Tulkarem, Al-Ram, Jericho and Tarqumia (theParticipating Municipalities).

WHEREAS, the Palestinian Liberation Organization (PLO) has entered, for the benefit of the PA,into a trust fund credit agreement with the International Development Association (as Administrator ofthe Trust Fund for Gaza and West Bank) (IDA) dated November 2, 1998 (the Credit Agreement); and

WHEREAS, the Credit Agreement provides in its section 6.01 (e) & 6.02 and Schedule 4.A.1 forthe obligation of the PLO to cause MLG to enter with the Participating Municipalities into anImplementation Agreement (as this term is defined in the Credit Agreement) for purposes of ensuringeffective implementation of part C. 1 of the MIDP-2 Project (the Project).

NOW THEREFORE, the parties hereto hereby agree as follows:

1. The terms used in this Agreement shall have the same meaning ascribed to them in the CreditAgreement.

2. The Participating Municipalities, in consultation with MLG, shall be responsible for procuringgoods, consultant services, studies, training and incurring incremental expenditure under partC.1. of the Project. The responsibilities of each of the Participating Municipalities and MLG are

- 76 -

outlined in the table annexed to this Agreement (as Annex 1) and considered part and parcelhereof.

3. The Participating Municipalities shall carry out part Cl of the Project relative to theParticipating Municipalities in accordance with the table annexed hereto as Annex 1 andconsidered part and parcel hereof.

4. The Participating Municipalities shall assist MLG in a timely and effective manner, inundertaking its monitoring and reporting obligations under part D.1. of the Project, and shallparticipate with MLG, the MPW and PWA in the mid-term review provided for under Schedule4.B. of the Credit Agreement.

5. PA, through MLG shall, on an annual basis, review the Participating Municipalities' performanceunder this Agreement and shall, if need be, introduce modifications to this Agreement with IDA'sprior written approval.

IN WITNESS VVHEREOF, the parties hereto set their hands this day of2000.

MUNICIPALITY OF JABALIA

MUNICIPALITY OF KHAN YOUNIS

MUNICIPALITY OF TULKAREM

MUNICIPALITY OF AL-RAM

MUNICIPALITY OF JERICHO

MUNICIPALITY OF TARQUMIA

MINISTRY OF LOCAL GOVERNMENT

-77 -

MIDP-2 Project - West Bank and GazaResponsibility Matrix

Project Component: C.1 (Schedule 2, Trust Fund Credit Agreement)Summary Description: Capacity Building at the PM Level

Activity Responsibility

MLG PMs

Sector Policy, Priorities, Budgets and Managemcnt: LG Sector

I Establish National and Regional Capacity Building Objectives and Priorities E N

2 Prepare National and Regional Programs, Plans and Budgets E N

3 Make National and Regional Budget Allocations E N

4 Review Achievement of National and Regional Programs, Plans and Budgets E N

Working Group Operations

I Establish Working Groups N E

2 Finalize TORs for Operations of working Groups N E

3 Establish Detailed Schedule for Work of Working Groups N E

4 Establish Operating Budget for Work of Working Groups E

5 Review Outputs of Working Groups and Develop a Detailed Program and Budget for R EImplementation

6 Implement Recommendations of Working Groups R, A E

Capacity Building Studies and Training at PM Level

1 Finalize TORs for Institutional, Financial, Managerial and other Studies and Training N E

Develop Detailed Budget and Program for Studies, including Workshops N E

2 Invite Proposals for Institutional, Financial and Managerial Studies N E

3 Review Proposals for Institutional, Financial and Managerial Studies and Recommend Award N E

4 Award Contracts for Institutional, Financial and Managerial Studies R, A E

5 Review progress of Institutional, Financial and Managerial Studies R, A E

6 Review Reports on Institutional, Financial and Managerial Studies R, A E

7 Hold Workshops on Findings of Studies and to Agree on Actions N E

8 Develop Detailed Implementation Program and Budget for Findings of Studies N E

9 Implement Findings of Institutional, Financial and Managerial Studies, Including Any Necessary R, A EPrograms of Training

Project Finance and Accounting

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I Preparation of Certificates and Claims N E

2 Review of Claims and Payment Authorization E N

3 Authorizing Cost Variations: >+/- 10% on individual Sub-components E N

4 Payment E N

5 Accounting E N

6 Technical, Financial and Progress Reporting (Monthly, Quarterly and Annual) E N

Responsibility Codes: A = Approves; E = Executes; N = Is Notified; R = Reviews

- 79 -

AdditionalAnnex No.: 14

Palestinian National Authority AU 1J f11Ministry of Public Works - a,t 5DJI,

Minister's Office n A

Letter of Road Maintenance Policy

May 1, 2000

Mr Joseph SabaCountry DirectorWest Bank and Gaza OfficeMiddle East and North Afica Region

Subiect: Letter of Sector Policy for Road Maintenance in theWest Bank and Gaza

The Ministry of Public Works is the agency ofthe Palestinian National Authority responsible for theroads sector. This includes responsibility for the overall planning, development, management andmaintenance of roads in the Palestinian territories. This letter addresses one part of a broadertransport sector policy that the Ministry is developing through an on-going Bank-supported sectorstudy. The latter should lead to the establishment of a comprehensive tansport development strategyand plan within the next two years.

General Statement on Road Maintenance Policy

The Palestinian National Authority recognizes that the economic efficiency of all roads, whethernational, regional or local, hinges on the timely execution of routine and periodic maintenance works.It also recogizes that financing essential maintenance works requires an adequate and steady flow offunds. A rational road maintenance program will help in improving transport services, increasingaccessibility, and reducing tansportation costs, while improving the quality of life of the populationand helping create an enabling environment for private investment.

One of the major responsibilities the Ministry of Public Works is to maintain the national roadnetwork, including the major arterials and the regional road network serving municipalities andvillages in the West Bank and the Gaza Strip. The Ministry of Local Government shares with themunicipalities the responsibility for maintaining other road networks within municipal and villageboundaries.

The Ministry of Public Works intends to effectively discharge its responsibilities, and to coordinatevery closely with other ministries and agencies, particularly the Ministries of Finance and ofTransport and PECDAR, to ensure the sector's efficient management development. With thisobjective in mind, the Ministry has identified a number of road maintenance issues that it will addressover the next two-three years. These issues and the ministry's proposed strategy and targets are set outbelow.

Major Road Maintenance Issues

Role of the Ministry of Public Works. As noed above, the Ministry of Public Works is the Agency ofthe Palestinian National Authority responsible for the road sector. However, there is still a need toclarify the roles of the various other ministries and govermmental agencies involved in roadmaintenace and to develop a strategic framework to address the problems in the most efficient andcost-effective way possible.

Road Maintenance Funding Mechanism. There is a need to preserve existing road assets by ensuringa proper level of maintenance and to reduce the aumulated backlog of roads in poor conditions due

{ to the absence of proper maintenance during the past 30 years. To that effect, a funding mechanism

- 80 -

Palestinian National Authority U U I tl

Ministry of Public Works a~ juYl ;5jJMinister's Office iJj &

must be put in place to seme the required stable and adequate flow of find. However, before such amechanism as a Rsad Fund caa be established, an inim program has to be developed to obtainadequat trausf i tom rthe Minstry of Fnmance to at least preserve the current agsss.

Planning and Programmnng Tbere is a need to strengtben the pLming and programming capabiityof the Ministry of Public Works, so tbat mventory and classificatian of the road nework,establishment of pnormies, budgeig needs and allocation of hads, and technical expertise can beupdated on a continuous basis, aRd to unprove the disausment and accounting processes Thiswould permit the Mnisy to take camol of its operaons and cordinste its actvities with otherMinistries and govemmental agenie.

Execution of tde Mainrenance Workr. The Miistry of Public Wods owns and operates a lxge fBetof mairremance equipment, and iLs staf is p3thordc. TM leads, when funding for mtimas isavailable, to most manenance work being done by force accou, evn if its relative inefficiekcy iswell documented. There is a need to inodue mere contacting out for maint_ance works,including design and srvio byp consulig group.

Proposed Strateg to Attain a Proper Level of Road Maintenance

Without anticipating on the recommendan of bansport s=agy study referred to above, theMiistry of Public Works proposes to deg with these issues in a satiscwtry manner wibin the neafive years. To that efect, it iends to use a three-pronged appcoach to inprove the qualiy cftheroad nerwork under its jurisdiction:

(i) ;t will rationalize its own opemaios and reduce its unit ca of doing business by reIaczgforce account wih contracts -for mos outie and perodic _imnance. It wi caine,replacing Force Account withL contacts unil all main race werks are contracted

(ii) it will strengthfe its p7aning and managerial capacity by focusing on the trainiag of its stafand on transfer of knawledgebeih nei,ibormg counries mi e fst place, and with major roadresearch organizations and other major sources of information;

(ii) it will engage in discussions with the Ministry of Finace to secure a stable budget and tomanage its network on a commercial basis, whereby road usum are charged a fee for the use ofthe roads, in addition to the genal taxes that are transfenred to the Treasur

Proposed Action Plan in the Short Term

The Ministry will take the ad as the mam agency responsible for read development, impand maintenance, while coo g its activiies with other mins and agencies. Theactions to be taken m the coming six to nine months am as follows.

-81 -

Palestinian National Authority tAta. WS ze;jW n."Ministry of Public Works L-,Lu jiPl ;jjj

Minister's Office JLJ

# Action TargetCom#etioaDate

I Road Fund. To e proper fuathng of maintenane works on the July 1, 2000national network, the fiis*y will iniae taks With the Ministry ofFinance on the etablisbzu=z of a Read Fund and on the umerim measuresto put mplace before the Fund is opsatnl. It is fresenza rchawgeson gasoline and diesel fuels, tires, and vehicle liceses, will cofriutbe tothis fimd, in addition toisting tares-that ar xnsedto>ie-Treasury.

2 Road Maintenance Management. Throw~i internayiaally recruited Set. 1, 2000consultants, the yMistry wil3 lauach a stndy aimed at devegopiag a RoadsMaitenanmce Managemet Pha tat will also be of bae&it to ie Ministryof Local Government aud to muapaltes. The results ofthis studyshould lead the Minstry to COEMIt itself to a 5-year road -aente emaster plan, with yearly decaded eseaEseS to be defied each year ofthe program.

3 POCurAement, It wil inode so pocurement guideliaes for all July 1, 2001works and flr the acqu=moa of goods and services. e PalestiaiProcurement Law for Govemmena Works has been approved by theLegLslative council and simged by President Arafat

4 Environmental Managewt It wik ia =ate nn the use of appropriate July 1,2001environmental miatao measres i all of its works, with the sqpprt ofthe Ministry of Environmima Afias.

5 Internal ManagemerL The Nkmsay oofirms its contento deve-lp January 1,2002and support ts pram fimcions. It will enlist the colaboion ofother mnist-c, and g - agencies to supp is efforts mestablishing an efficiet and s e arganion resposib for

aintnaing national and regional roads&

6 Replacemera of Forc Accowant by Confraas. IteMinisry wi put in Januay 1, 2002place measures to improve the productivity and qualty of icwor-ks by commercialiig the opezous of as existig eqape t(i.e charging a fee to roads maierce units, muni tiep , or evenprivate contractors, for its usage),, and by c g out mostmaintenance operatons, im-Axding periodic and roue c.Commercializing the operations of i*e exiszng fleet of eqmprent needregulations before it can be approved. lowever, the Ministry will statdiscussing the ue with the concenedistions. The Miesywill asoa=expt to put n place an vcentve pacage compnsmg tragig programs,bonuses and early reiement so that exhadant pesonel can fd workoutside of the Ministy, possibly ia the public works easeixises thatshould develop in that new faework.

7 Overall System Planning The Miistry will in irat the use oftbe Roads January 1,Manltenance Management System t-o program its acivties, and will 2002update cm a pernasiat basis the inveory and fimntial c dassi&ar4 of2 fithe road network under ts jurisdiction.

82-

Palestinian National Authority I&.W eXb };t.l f

Ministry of Publc Works 4 kav JUL' ;;j jMinister's Office _AC.

8 Tnriffc SafCy. kI WilliI SOUom all Its qwatias cwpiecknws to Janumy 1, 2002make the natil and regwmai Eoad neworks a safer pace, both forpedestrim and for vehice conductors and passcngs, by aherig toproven design smdars for bodi project prepaation and execuim.

In closing, I wish to airm the Mhiszys commknent to workig closely with the World Bank andother donors m ensuing tbat the above smed objecaves and tazgets are achieved

Signed

Mr. Azzam- -AhMinisterMinistry of Public Works

-83 -

AdditionalAnnex No.: 15

Social Assessment SummaryExecutive Summary

The Second Municipal Infrastructure Development Project is designed to help improve infrastructureservices including roads, water, wastewater and drainage to and within villages and municipalities in theWest Bank and Gaza, in addition to preserve existing infrastructure assets.

1/ This assessment covers one sub-project which was subsequently dropped from consideration (Jenin villages) because it willbe financed by other donors. it excludes two projects (Bidia and Kufur Qallil) which were added recently. Assessments willbe undertaken for the latter prior to implementation.

One component of the project is to construct main water pipelines, internal networks and pumping stations.In order to meet the World Bank policies, an independent team of Palestinian social specialists has beencommissioned to perform a social assessment for the Project.

The overall objectives of this social assessment was to:

(i) Highlight social impacts of MIDP-2;(ii) Ensure that MIDP-2 objectives meet the local communities' priorities;

(iii) Provide feedback to PWA on:

* Beneficiary relationships to MIDP-2 and their perceptions of proposed benefits.

* Ways to improve interventions on the target population.

* PWA's process of project identification, promotion, appraisal, and supervision.

The Social Assessment focused on MIDP-2's water projects in 13 Palestinian municipalities and villagesbenefiting a population of close to 47,500 and as follows:

Name of Project Location Target Population

Main pipeline to North - Western Jenin 'Anin, Al-Araqa, Al-Hashimiyeh, Al-Yamun, Kufr Dan,Villages Kufr Qud, Rummaneh, Sileh El- Harthiyeh, T'enek,

Taybeh, Zbuba 39743

Awarta Water Project Awarta 4799

Faqu'a water project Faqu'a 2877

Main Findings:

Some of the main fndings from the social assessment can be summarized in the following points:

* Water is the first priority for the local community.* Local communities are willing to cooperate with the World Bank and other organizations in the

implementation of the project.

- 84 -

* People understand the Village Council's (VC) duties and responsibilities.* People are aware of water needs and are eager to connect their houses with healthy water, however,

they are unaware of the funding agency.* VC and local beneficiaries are willing to contribute to the project financially and in kind.* Beneficiaries are concerned about Israel's control over water source.* Beneficiaries are vulnerable to problems related to insufficient water supply.* Beneficiaries are not aware of the MIDP-2 proposed project.* All houses have the infrastructure system for water connection with the proposed water network, there

is no need for major changes in the building structure of the houses.

Positive Aspects

The assessment have identified many positive elements as a result of the project. The following highlightmain issues classified in categories including health, economy, social and agriculture.

A) Health:

* Improved hygiene for women and children. Reduced cases of Ameba among them.* Improved health condition (personal cleanness, domestic hygiene, sterilization of food and utensils).* Improved community environment, i.e. planting trees on roads, green surroundings.

B) Economical:

The project is expected to have a great impact on the water prices. The prices are expected to drop from anaverage of $3.5 to $1.75 per cubic meter. On average, the saving on water cost will be about 52% at 50liter/person/day and 28% at 100 liter/person/day. In addition, the project is expected to impact the villages'economy as follows:

3 It was clear to villagers that despite the reduced water costs, more consumption is anticipated.3 An increase in land value is also foreseen.3 The connectivity to water network will encourage local businesses and small scale industry.3 Increase agricultural production for local market consumption due to a shift in utilizing harvested

rainwater for drinking purposes to agriculture.Reduced costs related to medical care due to improved hygiene is also anticipated.

C) Social:

The lack of water is considered as cause of social problems in the villages. It leads people to look for othersources which gives the chance for tank drivers to exploit people socially (begging), healthily andeconomically.The coming project's impact would:

* Limit internal immigration from villages to cities.* Stabilize the social conditions, i.e. marriage, maintaining the extended family.* Ensure social equity in water distribution.* Improve relation between communities and VC in decision making, consultation, participation, etc.* Improve standards of living through creating employment opportunities during project

implementation.* Develop internal social relations between the different age groups through participating in promotional

activities.* Expose people to the usage of modern technology related to water. (washing machine, filters, etc.)

- 85 -

D) Agriculture:

* Since the supplied water from the network will be for domestic purposes, harvested rainwater will beused for developing domestic agriculture.

* Privately owned wells, previously used for supplying drinking water, would be used to develop theagricultural land.

* Improve farmning and cattle raising.

Negative Aspects

There were no significant negative consequences from the project. However, it is anticipated that the waterconnectivity would naturally increase water consumption and therefore increase expenditures on water.Additionally, privately run water transportation businesses would likely be affected due to the newnetworks. No detailed investigations were carried out to determine the level of this impact on the truckowners and their families.

Stakeholders' Concerns

One major concern that was identified is related to Israeli control over the source of water (water wellssituated in the West Bank) and the quantities to be supplied to the Palestinian communities. It is thoughtthat water would be used by the Israelis as a pressure tool on the Palestinian Authority and therefore be cutoff whenever political differences occur.

Report Summary

As a result of the social assessment of MIDP-2, the following table summarizes suggested actions for eachlocation based on the findings and communities recommendations.

Name of Project Location Suggested Action

ManaerP n. An* Connect the village with additional water source, through involving VC in projectMain Water Pipeline 1. Anin design.to North - WesterndeinJenio Nortblestern * Maintain the cisterns to be utilized for agricultural use and stand by.Jenmn Villages * Develop a clear monitoring system for future water consumption.

* Conduct awareness campaign on water consumption and importance of theavailability of water (amount/person/day).

* Connect the village with additional water source on continuous bases.2. Al-Araqa * Follow up street maintenance after implementation of the project.

* Involve VC, local community and NGO's in the project design.* Conduct awareness campaign on water consumption and importance of the

availability of water(amount/person/day).

3 . Al.Hamh * Ensure connecting their community with water through consulting VC about the3. AI-Hashimiyeh source of water and project design Conduct water tests for the cisterns and tanks.

* Conduct awareness campaign on water consumption and importance of theavailability of water (amount/person/day).

4. Al-Yamun * Ensure connecting their community with water.* Involve the VC in the project design.* Conduct water tests for the cisterns and tanks* Contract local companies in implementing the project.* Focus on sewage network as the future infrastructural project* Conduct awareness campaign on water consumption and importance of the

availability of water (amount/person/day).

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5. Kufr Dan * Ensure connecting their community with water.* Conduct water tests for the cisterns and tanks* Focus on sewage network, sanitation and roads as future infrastructural projects.* Involve local community in identifying their priorities and needs.* Conduct awareness campaign on water consumption and importance of the

availability of water (amountfpersonlday).

6. Kufr Qud * Connect the village with additional water source.* Maintain the cisterns to be utilized for agricultural use.* Connect the village with electricity network.* Involve the VC in the project design and management.* Conduct awareness campaign on water consumption and importance of the

availability of water (amount/person/day).

7. Rummaneh * Ensure connecting their community with additional water.* Conduct water tests for the cisterns and tanks.* Focus on sewage network, sanitation and roads as future infrastructural projects.* Involve local community in identifying their priorities and needs.* Maintain the cisterns and springs.* Consider population growth in the project design.* Contract local companies in carrying out the project.* Employ local unskilled labors.* Provide land prior to project implementation.* Mobilize local NGO's as partners in the project.

Conduct awareness campaign on water consumption and importance of the availability ofwater(amountlperson/day).

8. Sileh El- I Ensure connecting their community with water.Harthiyeh * Involve the VC in the project design.Harthiyeh * Conduct water tests for the cisterns and tanks.

* Contract local companies in implementing the project.* Focus on sewage network, sanitation and roads as future infrastructural projects.* Follow up of contractors, closely.* Conduct awareness campaign on water consumption and importance of the

availability of water(amount/person/day).

9. T'enek * Ensure connecting their community with water source.* Conduct water tests for the cisterns and tanks.* Involve local community in identifying their priorities and needs.* Maintain the cisterns.* Consider the socioeconomic situation for local communities in deciding the

percentage of contribution.* Conduct awareness campaign on water consumption and importance of the

availability of water (amountlperson/day).

10. Taybeh * Ensure connecting their community with water source. Involve local community inidentifying their priorities and needs.

* Consider the socioeconomic situation for local communities in deciding thepercentage of contribution.

* Consider population growth in the project design.* Ensure the revenue of the project for the VC.* Mobilize the role of VC in coordination with MLG.* Equity in distributing projects among the villages.* Conduct awareness campaign on water consumption and importance of the

availability of water (amount/person/day).

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I11. Zbuba. * Ensure connecting their community with water source. (with caution to source)* Consider the socioeconomic situation for local communities in deciding the

percentage of contribution.* Consider population growth in the project design..* Supervise the contractor's work.* Complete the internal Water Network to connect the excluded houses.* Focus on sewage network, electricity, roads and agricultural roads as future

infrastructural projects.* Conduct awareness campaign on water consumption and importance of the

availability of water (amount/person/day).

Awarta Water project Awartao* Ensure connecting their community with water source. Consider theAwarta Water project Awarta socioeconomic situation for local communities in deciding the percentage of

contribution.* Consider population growth in the project design.* Supervise the contractors work closely.* Focus on sewage network, develop electricity intemal network, agricultural roads

and schools as future projects.* Ensure powerful role for PWA in controlling water source.* Employ and train local personnel to sustain the project.* Conduct awareness campaign on water consumption and importance of the

availability of water (amount/person/day).

* Ensure connecting their community with water.Faqua Water project Faqua * Consult the VC in the project design.

* Conduct water tests for the cisterns and tanks.* Focus on sewage network, and roads as future infrastructural projects.* Conduct awareness campaign on the role of PWA.e Mobilize local NGO's as partners in the project.

Conduct awareness campaign on water consumption and importance of the availability ofwater(amountlperson/day).

General RecommendationsSpecific recommendations presented target specific issues on the "Summary of Findings". They are notprescriptive by nature but are based on the field fmdings and are aimed at creating better impact for theMIDP-2 on target population.

Specific recommendations are included under project design for PWA, VC and World Bank, and this willbe followed by the sustainability:

A) Project design RecommendationImplementingAgencv (Palestinian Water Authority):

Ensure updated plans to consider the population growth and changes on the ground.Ensure VC and beneficiary participation in the project inception, design, construction planning andduring construction.Ensure consultation with VC and beneficiaries regarding type and percentage of participation.Ensure adequate public awareness and education targeting adults, children, and women. The carnpaignshould properly address the following topics:

* Water usage and health* Effects of waste water* Water cost* Project cycle* Sustainability* Role of PWA & VC

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* Beneficiary contributions* Ensure adequate supervision during construction.* Ensure involvement or consultation of local companies in project design.* Ensure general health condition of wells and water connections.* Ensure employment of local NGO's programs.* To ensure strong ownership, consultants must discuss with recipients their priorities and

concems and incorporate them in the designs.* Improve coordination mechanism with donors.

Villa2e Council:The role of VC:

* Ensure local community contribution (land/aerial survey, land, in kind, financial)* Ensure monitoring the project implementation during construction.* Ensure local communities participation in solving problems, before, during and after the project

implementation.* Facilitation of awareness campaigns related to water.* Identification of local NGO's who could carry out water related activities.

The World Bank:

The role of World Bank:

Ensure designing an effective monitoring system.

Ensure timeline of project implementation.* Ensure community consultation prior to project inception.* Ensure communicative reporting system, before, during and after the project.* Ensure promotional projects of NGO's as extension to the water project.* Ensure coordination with other donors working in the same geographical area in the same sector.

B) Sustainability

The project should adopt proper mechanism to ensure its sustainability, including:

= Ensure close coordination and consultation between donors, VC and PWA.= The project design should take into consideration population growth and possible economic

development.* VC and PWA should prepare operation, management and maintenance plans to ensure

sustainability. Related costs should be clearly identified in the project document. The projectdocument should also address:* Water cost from source* Network and pump station maintenance and running expenses* Management and administrative cost* Capacity building and training

VC and PWA should promote transparency through:* Opening a special bank account for the project* Ensure a clear system of fee collection* Ensure periodical financial reporting and auditing

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Impact of the SA Study

The impact of the SA Study was:

* Better understanding of people's priorities in these villages.* Better understanding of the World Bank role.* Better understanding of the objectives of the project.* Better understanding of beneficiary's willingness to contribute to the project implementation.* Better understanding of the VC and PWA role.

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AdditionalAnnex No.: 16

WEST BANK AND GAZASECOND MUNICIPAL INFRASTRUCTURE DEVELOPMENT PROJECT

ENVIRONMENTAL MANAGEMENT PLAN

A. Background

1. Introduction. The MIDP-2 project will build on the achievements and experience of MIDP-1,and will continue to focus on high priority infrastructure rehabilitation and encourage furthermunicipal reform and increase capacity building within the Ministry of Local Government (MLG) andthe Ministry of Public Works (MPW). In addition to the municipalities that were served in MIDP-1,this project will tackle six new selected municipalities: Jabalia, Khan Younis (Gaza), Tulkarem, AlRam, Jericho and Tarqumia (West Bank). Similar to MIDP-1, MIDP-2 will continue to work withPalestinian Water Authority (PWA) on water related sub-projects.

2. Environmental Category. The proposed project supports environmental improvements throughrehabilitation of roads and water supply systems in the West Bank and Gaza. Potential adverseenvironmental impacts have been summarized in Table 1. These risks can be effectively anticipated inadvance of project implementation and addressed by direct mitigation activities in the design, planningand construction process. Since most of the investment activities to be supported by the proposedProject deal with rehabilitation/improvements of existing infrastructure, and since the projects do notinvolve issues such as land acquisition or resettlement, the project is rated a category "B" inaccordance with World Bank Operational Policy 4.01 (January 1998) and requires the preparation andimplementation of an Environmental Management plan (EMP).

3. Investment Components. The $17 million project will consist of the following main components:

One) Improve Infrastructure Services ($14 million): - roads (73%) and water networks (9%):Implementation of infrastructure projects, costing between US$0.2 million and US$2.8 million each,identified by LGUs and implemented through MPW and PWA in coordination with MLG. Such workswill mainly include rehabilitation and improvement of existing roads, and to a far lesser extentrehabilitation of existing water networks.

Two) Strengthen local and central municipal capacity ($2.5 million): Investment and developmentprogramming, improving accounting systems, revenue mobilization, management and service delivery(12%); and build the institutional capacity of the MPW (3%) with regard to road maintenanceprogram, planning, programming and project development, management and monitoring. Subcontractagreements with qualified firms or individuals to provide training to MPW, MLG and LGUs to ensuregood quality.

Three) Incremental Operational Support ($0.5 million): Supplemental operating costs for MLGand MPW, including vehicles, communications and other equipment, beneficiary impact studiesneeded by the implementing agency for project execution and management.

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4. Institutional Structure. The MIDP-2 project will be coordinated and implemented through theMPW in close cooperation with MLG. Rehabilitation of water networks falls under the mandate of thePWA.

5. The Ministry of Environmental Affairs (MEnA) is in the early stages of developing environmentalpolicies that allow monitoring of road construction and renovation. As such, they do not at presenthave the institutional know-how or the capacity, to supervise the MIDP-2 project or inspect the sites toenforce regulations. Therefore, the project will support the establishment of a MIDP project team thatconsists of a dedicated staff member of MEnA and MPW. Both employees will be working closelywith local municipal engineers and sector ministries to ensure the development and enforcement ofguidelines to mitigate the environmental impacts of the proposed sub-projects. As the Bank and otherbilateral donors are already contributing to capacity building at MEnA and MLG, the main focus of thetechnical assistance activities with respect to environmental protection will focus on MPW. Thetechnical assistance will make use of lessons learned from the MIDP-1 and CDP I project, and theexpert advisor/trainer will work closely with MEnA to develop guidelines relevant to the MIDP-2activities.

6. Environmental Audit of projects under MIDP I. A rapid environmental audit was conductedon a sample of projects implemented under MIDP-1. The findings showed that for the most part, theprojects contributed to positive environmental impacts. The positive impacts with regard to roadrehabilitation included the following: road and sidewalk projects reduced amount of dust, increasedroad safety, drainage has been improved, all municipal roads rehabilitation included (whereappropriate) installation of sewers and street lightning, and most obstacles have been removed from thepublic right of way. Tree planting especially in the Gaza municipality will rapidly improve the qualityof life in the urban areas. Nevertheless, the audit also identified areas needing improvements. Invarious locations garbage containers are blocking part of the road, traffic signs are not adequateconsidering the increase in vehicular speeds after road have been rehabilitated. Main pedestriancrossings, especially near schools and cross roads need to made safe. The quality of paint used forroad marks is often inferior. Semi urban and rural roads shoulders could be planted with trees whichwill strengthen the shoulders and have a general positive environmental impact. It was noted that theroad maintenance program needs a stronger emphasis on environment issues, in particular with respectto road cleaning. More attention is needed in design and construction of shoulders outside the cities. Onvarious location shoulders were to narrow or blocked. Though the improvement of drainage has been amajor focus of attention of MIDP-1, its importance can not be underestimated and will need specialattention due to the topography, especially in the West Bank. Random garbage disposal is the mostfrequent recorded environmental problem associated with the roads.

B. Environmental Management Plan

7. Environment Management Plan. The EMP has been prepared to integrate environmentalconcems into the design and implementation of the proposed MIDP-2 Project. It would support: a)site-specific environmental screening of road rehabilitation and environmental assessment of waternetwork projects; b) training staff/contractors involved in Project implementation; c) monitoring andevaluation of mitigation measures identified during site-specific reviews; d) and involvement of thepublic in monitoring environmental impact during and after road construction, through the distributionof a complaint form to municipalities and village councils. All activities related to the EMP will beclosely coordinated with MEnA, MPW and PWA.

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8. Site specific Environmental Screening, Review and Assessment. The screening and reviewprocess will be conducted in close cooperation with MEnA, MPW and PWA. Environmental review ofprojects will be conducted by special appointed staff member of MPW. She/he will be assisted by acounterpart of MEnA. Sub-projects that have been earmarked will be subjected to detailed site reviewand implementation of construction work will be closely monitored. A standard appraisal/mitigationform will be part of the specific specifications for the contractor, and will form the basis of regularmonitoring by both the contractor and the MPW staff. The form will consist of, but in no way limitedto: a) current environmental problems; b) potential environmental impacts, if any, due to the project; c)mitigation measures; and d) schedule. Table 2 is an example of such form based on the rapid three dayappraisal of the projects, and will the basis for further development by MPW. As all projects are onlyconcerned with rehabilitation, no unrecorded archaeological sites are expected to be uncovered.Nevertheless, special attention must be paid to historic sites. Accordingly, "chance find" procedureswill be established in close coordination with the Ministry of Tourism and Antiquities.

As for the proposed water projects which will be implemented through the Palestinian Water Authority(PWA), a site specific environmental assessment will be performed. The purpose of such assessmentwill be to ensure that cross contamination from sewage septic tanks and cesspools and other sources isavoided.

9. Strengthening Environmental Expertise through MIDP-2. Environmental expertise will beestablished within MPW for the coordination and supervision of environmental activities fundedthrough the MIDP II project. The expert will work in close coordination with MEnA and would: a)conduct environmental reviews of projects and monitoring; b) coordinate environmental trainingactivities for staff, engineers and contractors; and c) conduct site visits to review progress. TheMIDP-2 Unit will be supported where necessary by a part time expert environmental advisor,contracted through a local consulting firm.

10. Environmental Capacity Building and Training Program. Since there is limited capacity toundertake such actions within MEnA, the training program would be designed and implemented withassistance of local or intemational consultants. The training would target three levels:

One) On-the-job training of a dedicated MPW and MEnA staff member to direct road design,planning, implementation and maintenance with respect to environmental protection;

Two) Training for staff of sector ministries involved in the project, including one of two dayseminars on environmental awareness and other specific environmental aspects related to design andimplementation of roads rehabilitation and water supply networks. The training will be open to staff ofMEnA, cooperating sector Ministries and participating local government units (LGUs); and

Three) Training for contractors would be provided, including one or two day workshops for localcontractors, focusing on: use of environmental guidelines; implementation of mitigation measures; useof natural materials (stones) for road marking and (erosion) prevention; road safety for constructionworkers; proper waste disposal and cleaning measures during construction.

11. Project monitoring. All projects will be subjected to site specific environmental screening andreview process conducted by the MPW approx. 4 times a year. This process would minimizesite-specific environmental impacts. A monitoring plan is shown in Table 2.

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12. Reporting. The environmental staff member of MPW would prepare bi-annual reports outliningprogress of EMP implementation. The reports would include project findings (lessons learned);environmental issues, if any; status of the mitigation measures taken and next steps, if any. The reportswould be submitted to the MEnA and the World Bank as part of the progress report.

13. Project Supervision. The environmental issues including mitigation measures would besupervised by staff of the World Bank resident mission. Progress on mitigation measures will beincluded in regular Bank supervision reports including the Project Status report (PSR) updates, themid-term reviews.

14. EMP Cost Estimate and Schedule. It is estimated that EMP implementation would costUS$90,000 for staff, consultants, training activities and site specific assessment and protection,presented in Table 3. EMP implementation would be integrated into the overall schedule for, theproposed project and a preliminary schedule for key activities is provided as Table 4. The budget andimplementation schedule for the EMP would be discussed and agreed upon with the Borrower.

Table 1 - General Potential Environmental Impacts and Proposed Mitigation MeasuresCurrent Problems Potential Impacts Mitigation Measures Responsible Agency1. Roads Rehabilitationa). Dumping of construction Safety hazard Public awareness road signs MEnA; MPWwaste and garbage by road Guard rails at potential dumping locations (valleys)users. Decentralized small legal dumping sites

Uncontrolled dumping by contractors Guidelines in general specifications for contractors MPWDangers to road construction Guidelines in general specifications for contractors MPWWorkers

b.) Roads passing close to Increased traffic speed Public awareness; stringent traffic control; MPW, police and private sectorschoolsc). Narrow intersections Widening of road; improved road marking, extra lane MPW

Uprooting of trees Replanting of trees . MEnA, MPW and municipalitiesd). Lack of knowledge of Risk of damage to historic and 'chance find' procedures MPW, MEnAhistorical sites and cultural natural landscape Training for contractors; public awareness raising Min of Tourism & Antiquitiessites. through road signs referrng toe) Unprotected steep shoulders Safety hazard and accelerated soil Installation of guard rails with reflectors and proper MPW

erosion compaction of shoulders.d) Erosion as result of Clogging of drainage ditches Construction and maintenance of drainage ditches MPW, municipalitiesimproper drainage

e) Blockage of road by Safety hazard Special container parking municipalitiesgarbage containers

2. Water Supplya). Water contamination as Public health hazard Avoidance of cross contamination PWAresult of pipe corrosion andleakages.b.) Improper sewage and Sanitation insufficient to deal with Increase the separation of wastewater and populated MEnA, PWA.sludge disposal increased water consumption. Public areas in the short term.

health hazard

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Table 2 - Specific Potential Environmental Impacts and Proposed Mitigation Measures

Rd. # km $ in Potential Impacts Mitigation Measures Monitoring Responsiblemill. Frequency during Agency

Implementation(G2) Khan Yours - Rafah coastal 10 1.5 Potential negative Develop to preserve the Four times MEnA

road impacts on beaches authentic characterand coastal areas. surrounding. The Plan should

feed into the coastal zonemanagement plan.

G3 main road #4 through Gaza 7 0.5 none Semi-annual MPWStrip MEnA

(G4) el Bahar - Sudania road 4 0.6 Encroachment Compensation to land owners Four times MPWG5 Mirag road 3 0.3 Leakage from Reduction in leakages Four times Min. of

irrigation supply pipes Agriculture________ _ resulting in erosion.

G9 Road # I Sheikh Radwan 1.2 0.8 Public safety due to Propose widening side walks Four times Mun. GazaI_narrow side walk

G10 Sofa intersection - Rafah entry 4.5 0.3 none Semi-annual MPWpoint road MEnA

GII Jamal Abdel Nasser str. 3 2.8 none Semi-annual MPWKhan Younis MEnA

JI Zabda - Barta'a 5 0.5 Danger of destruction Plans to develop and preserve Four times MPWof very old olive trees; the authentic character MEnAuncontrolled garbage surrounding; compensation

_____________________ Xdumping; for land ownersJ6 Jaba'a intersection to Sanour 5 0.8 none none Semi-annual MPW

intersectionJ9 Jenin - Haifa road 10 1.0 none none Semi-annual MPWJ1O Bathan - Qabatia road 10 0.4 uncontrolled garbage Plans to prevent uncontrolled Four times MPW

______________dumping |as per Table I

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Rd. # km $ in Current Specific Mitigation Measures Monitoring Responsiblemill. Problems Frequency during Agency

Potential Impacts ImplementationNI Northem entrance Nablus I 1.0 none Semi-annual MPW

MEnAN2 Yasied - Beit Emrin road 2.5 0.2 none _ Semi-annual MPWN5 Bathan - Qabatia road 15 0.6 Soil erosion Special program to prevent Four times MPW

Damage to water pipe garbage dumping (see table MEnAline 1.) contractor should be heldUncontrolled garbage responsible for damage ofdumping water pipe and water losses

T I Shawaika - Baqa road 15 0.8 Weak eastem Safeguard natural drainage Four times MPWshoulders flow of the wadi.blockage of naturaldrainage

T3 Azun - Masha road 10 1.0 Removal of trees Replanting of trees, Four times MPWSteep shoulders compaction of shoulders andUncontrolled garbage special program to preventdumping garbage dumping (see table

1.)T5 Deir al Ghsoun by-pass 3 0.6 Destruction of olive Protection of Olive grooves Four times MPW

groove where feasible and in other MEnAcases a plan for replantingolive trees.

RI Nileen - Budrus - Qibya - 13.5 1.0 Destruction of trees Protection of trees where Four times MPWShuqba - Shibtin road feasible and plan for MEnA

I____I _______ replanting trees.R3 al-Bireh northern entrance 2 0.7 None Semi-annual MPW

MEnAR4 Bitounia main road 3 0.2 None Semi-annual MPW

MEnAH2 Sureef - Beit Awa - Beit 30 2.1 None Semi-annual MPW

Marsam road MEnAH3 al-Samoua access road 5 0.25 None Semi-annual MPW

= _ _ _ _ _ _ ___ ._ _ _ _ _ MEnA114 I a] Samoua - Yatta road 5.5 0.5 None Semi-annual MPW

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Table 3 - EMP Cost Estimates

Components of EMP LQ Unit Rate - Cost in US5'000Total Foreign Local

Environmental Expert hired in MPW for 2 Years 24 MM $1 500/MM 36 0.0 36Capacity Building and Training(a) Training for MPW staff, MEnA and Sector Ministries 8 $4000 24 10 24Seminars/Workshops

(b) Training for contractors 8 $2000 16 16Environmental Assessment for water projects (PWA will 1 $5000 5 0.0 5issue a lump sum contract to perform this task)Contingency budget for archaeological chance find support 4 4from Palestinian Department of Archaeology Miscellaneous _ __ S 5 5TOTAL I _ _ 90 10 80

Table 4 - EMP Implementation Schedule(tentative)

Major Project Activities Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug_____________ __ 00 00 00 00 01 01 01 01 O0 01 01 01

1. Hiring of Environmental Specialist x2. Capacity Building and Training:a) training for staff within implementing agencyand Sector Ministries - Seminars/Workshops x xb) training for contractors

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~~~ ~~~x x

3. Contingency budget for archeological chancefind support from Palestinian Department of x x x x x x x x x x x xArcheology

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AdditionalAnnex No.: 17

Detailed Estimates: Project Costs, Procurement and Disbursement

17 (a) Detailed Project CostsProject Cost by Component Local Foreign Total Total* IDA Govt Cofin

US$ m US$ m US$ m US$ m US$ m US$ m US$ mI. Civil Works: 7.40 10.30 17.70 21.2 3.5 3.6 14.1

a) Roads 6.30 8.80 15.10 18.1 2.8 3.1 12.2i) West Bank & Gaza Roads 5.10 8.80 13.90 16.9 2.0 2.9 12.0ii) Design & Supervision 1.20 0.00 1.20 1.2 0.8 0.2 0.2

b) Water & Sanitation 1.10 1.50 2.60 3.1 0.7 0.5 1.9i) West Bank Water & Sanitation 0.90 1.50 2.40 2.9 0.5 0.5 1.9

ii) Design & Supervision 0.20 0.00 0.20 0.2 0.2 0.0 0.0

II. Capacity Building: 1.20 2.70 3.90 4.4 3.7 0.7 0.0

a) MPW 0.40 1.10 1.50 1.9 1.6 0.3 0.0i) Road Maintenance Program 0.30 0.50 0.80 1.0 0.8 0.2 0.0ii) Software & Systems Support 0.00 0.10 0.10 0.1 0.1 0.0 0.0iii) Training Support 0.00 0.10 0.10 0.1 0.1 0.0 0.0iv) Environmental Monitoring Unit 0.00 0.10 0.10 0.1 0.1 0.0 0.0v) Equipment (Computers, copiers, etc.) 0.00 0.10 0.10 0.1 0.1 0.0 0.0vi) Vehicles 0.10 0.20 0.30 0.5 0.4 0.1 0.0

b) MLG 0.80 1.60 2.40 2.5 2.1 0.4 0.0

i) Accounting Systems Reform 0.20 0.50 0.70 0.7 0.6. 0.1 0.0a. Software & Systems 0.20 0.20 0.40 0.4 0.3 0.1 0.0b. Implementation 0.00 0.10 0.10 0.1 0.1 0.0 0.0c. Equipment (mostly computers) 0.00 0.10 0.10 0.1 0.1 0.0 0.0d. Vehicles 0.00 0.10 0.10 0.1 0.1 0.0 0.0

ii) 3-Yr Municipal Investment Plans (6 SMs) 0.60 1.10 1.70 1.8 1.5 0.3 0.0a. Consultants 0.50 0.90 1.40 1.5 1.2 0.3 0.0b. Studies 0.00 0.10 0.10 0.1 0.1 0.0 0.0c. Training 0.10 0.00 0.10 0.1 0.1 0.0 0.0d. Equipment (mostly computers) 0.00 0.10 0.10 0.1 0.1 0.0 0.0

Ill. Incr. Oper. Expenses: 0.30 0.10 0.40 0.4 0.3 0.1 0.0

a) MPW 0.10 0.00 0.10 0.1 0.1 0.0 0.0i) Accounting, Auditing & Reporting 0.10 0.00 0.10 0.1 0.1 0.0 0.0ii) Software & Training Support 0.00 0.00 0.00 0.0 0.0 0.0 0.0iii) Operational expenses 0.00 0.00 0.00 0.0 0.0 0.0 0.0

b) MLG 0.20 0.10 0.30 0.3 0.2 0.1 0.0i) Accounting, Auditing & Reporting 0.10 0.10 0.20 0.2 0.2 0.0 0.0ii) Software & Training Support 0.05 0.00 0.05 0.1 0.0 0.0 0.0iii) Operational expenses 0.05 0.00 0.05 0.1 0.0 0.0 0.0

Total Baseline Cost 8.90 13.10 22.00 26.00 7.5 4.4 14.1Physical Contingencies 1.10 1.70 2.80 0.00 0.00 0.00 0.00

Price Contingencies 0.40 0.80 1.20 0.00 0.00 0.00 0.00Total Prolect Costs 10.40 15.60 26.00 26.00 7.48 4.42 14.10

Total Financing Required 10.4 15.6 26.0 26.0 7.5 4.4 14.1* Includes Contingencies. Totals may not add because of rounding.

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17 (b) Detailed Project Costs by Procurement Arrangements

Project Cost by Category ICB NCB Other NBF Total

1. Works 0.0 2.9 0.1 16.8 19.8(0-0) (2.4) (0.1) (0.0) (2.5)

a) MPW 0.0 2.3 0.1 14.5 16.9(0.0) (1.9) (0.1) (0.0) (2.0)

b) PWA 0.0 0.6 0.0 2.3 2.9(0.0) (0.5) (0.0) (0.0) (0.5)

2. Goods 0.0 1.0 OA 0.0 1.4(0.0) (0.8) (OA) (0.0) (1.2)

a) MPW 0.0 0.5 0.2 0.0 0.7(0.0) (0.4) (0.2) (0.0) (0.6)

b) MLG 0.0 0.5 0.2 0.0 0.7(0.0) (0.4) (0.2) (0:0) (0.6)

3. Services 0.0 0.0 4.0 OA 4A(0.0) (0.0) (3.5) (0-0) (3.5)

a) MPW 0.0 0.0 2.0 0.4 2.4(0.0) (0.0) (1.8) (0.0) (1.8)

b) MLG 0.0 0.0 1.8 0.0 1.8(0.0) (0.0) (1.5) (0.0) (1.5)

c) PWA 0.0 0.0 0.2 0.0 0.2(0.0) (0.0) (0.2) (0.0) (0.2)

4. Incr. Op. Expenses 0.0 0.0 0.4 0.0 0.4(0-0) (0.0) (0.3) (0.0) (0.3)

a) MPW 0.0 0.0 0.1 0.0 0.1(0.0) (0.0) (0.1) (0.0) (0.1)

b) MLG 0.0 0.0 0.3 0.0 0.3(0.0) (0.0) (0.2) (0.0) (0.2)

Total 0.0 3.9 4.9 17.2 26.0

IDA Total (0.0) (3.2) (4.3) (0.0) (7.5)

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17 (c) Allocation of Credit Proceeds (includes "Unallocated")

Category Amount in Financing %US$m

(1) Civil Works 85%

(a) MPW 1.80

(b) PWA 0.45

(2) Goods 100% of foreignexpenditures and 85%of local expenditures

(a) MPW 0.54

(b) MLG 0.54

(3) Consultants' Services and Training 100% of foreignexpenditures and 85%

(a) MPW of local expenditures1.62

(b) MLG1.35

(4) Consultants' Services, PWA 0.18 100% of foreignexpenditures and 85%of local expenditures

(5) Incremental Operating Costs 85%

(a) MPW 0.09

(b) MLG 0.18

(6) Unallocated 0.75

TOTAL 7.50

- 100-

17 (d) Estimated Disbursements

(Annual)Yr I Yr.2 Yr. 3 Yr.4 Yr. 5 Total

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005Total 2.2 6.7 10.8 5.3 1.0 26.0IDA 1.3 2.5 2.7 1.0 0.0 7.5Non- IDA 0.9 4.2 8.1 4.3 1.0 18.5Govt. 0.4 1.1 1.9 0.9 0.1 4.4

Cofinancing 0.5 3.1 6.2 3.4 0.9 14.1

(( ummulative)Yr I Yr.2 Yr.3 Yr.4 Yr. 5 Total

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005Total 2.2 8.9 19.7 25.0 26.0 26.0IDA 1.3 3.8 6.5 7.5 7.5 7.5Non- IDA 0.9 5.1 13.2 17.5 18.5 18.5Govt. 0.4 1.5 3.4 4.3 4.4 4.4Cofinancine 0.5 3.6 9.8 13.2 14.1 14.1

MIDP-2: Disbursement

30.0

25.0

| .. | +~~~~~~~~~~~~~~~~~Total20.0 -:otA

~IDA15.0 -Non- IDA

10.0 _ Govt.

5.0 ~Cofinancing

0.0

FY 2001 FY 2002 FY 2003 FY 2004 FY 2005

fIDA Financial Yr

- 101 -

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