89332
Ethiopia
Second Urban Local Government
Development Program (ULGDP II) as a
Program-for-Results (PforR) Operation
Technical Assessment Report
February 20, 2014
i
Table of Contents
List of Abbreviations ............................................................................................................................... iii
Executive Summary ................................................................................................................................ VI
A.
INTRODUCTION .............................................................................................................................. 1
B.
TECHNICAL ASSESSMENT ........................................................................................................... 1
I.
Program Description ........................................................................................................................... 6
II.
Description and Assessment of Program Strategic Relevance and Technical Soundness .............. 18
a.
Strategic Relevance...................................................................................................................... 18
b.
Program Technical Soundness .................................................................................................... 21
c.
Institutional Arrangements .......................................................................................................... 25
III.
Description and Assessment of Program Expenditure Framework ............................................... 30
IV. Description and Assessment of Program Results Framework and M&E....................................... 32
V. Program Economic Evaluation ........................................................................................................ 35
VI. Inputs to Program Action Plan ....................................................................................................... 40
VII. Technical Risk rating .................................................................................................................... 42
VIII. Bank Inputs to the Program Implementation Support Plan ......................................................... 42
Annexes ...................................................................................................................................................... 45
Annex 1: Disbursement against the Performance on the DLIs-Disbursement Linked Indicator Matrix 45
Annex 2: Result Framework ................................................................................................................... 53
Annex 3: ULGDP Performance-Based Grant Indicative Planning Figures (IPFs) ................................. 56
Annex 4: ULGDP – Investment Menu for the Performance-Based and CB Grants ............................... 58
Annex 5: MUDHCO – Organizational Structure of Ministry ................................................................. 62
Annex 6: MUDHCO – Overview of the Main Institutional Arrangements ............................................ 65
Annex 7: Minimum Conditions and Performance Measures .................................................................. 67
Annex 8: ULG staffing positions ............................................................................................................ 85
Annex 9: ULGDP II- Capacity Building Support –Design .................................................................... 87
ii
List of Abbreviations
AACG
Addis Ababa City Government
AF
Additional Finance
ARAP
Abbreviated Resettlement Action Plan
BOFED
Bureau of Finance and Economic Development (Regional)
BTIUD
Bureau of Trade, Industry and Urban Development (Regional)
CB
Capacity Building
CBDSD
Capacity Building for Decentralized Service Delivery Project
CD
Capacity Development
CIP
Capital Investment Plan
CSA
Central Statistics Agency
DDCA
Dire Dawa City Administration
DRS
Developing Regional States
EC
Ethiopian Calendar
ECPI
Ethiopian Cities Prosperity Initiative
EFY
Ethiopia fiscal year
EMP
Environmental management plan
EOI
Expression of Interest
ECPI
Ethiopian Cities Prosperity Initiative
ERCA
Ethiopian Revenues and Customs Authority
ESMF
Environmental and Social Management Framework
ETB
Ethiopian birr
GC
Gregorian calendar
GIZ
German Society for International Cooperation (Deutsche Gesellschaft für Internationale
Zusammenarbeit)
ICB
International Competitive Bidding
ICR
Implementation Completion Report
IDA
International Development Association
IPA
Independent Procurement Audit
iii
IFR
Interim Financial Report
IGFTS
Intergovernmental Fiscal Transfer System
IMF
International Monetary Fund
LG
Local governments
MC
Minimum (access) Conditions
MOFED
Ministry of Finance and Economic Development (Federal)
MTR
Midterm review
MUDHCo
Ministry of Urban Development, Housing and Construction (Federal)
NBE
National Bank of Ethiopia
O&M
Operations and maintenance
OFED
Office of Finance and Economic Development (city level)
APA
Annual Performance Assessments
CB
Capacity Building
FY
Fiscal Year
OM
Operational Manual for ULGDP
PBG
Performance-Based Grant
PBGS
Performance-Based Grant System
PBTS
Performance-Based Transfer System
PM
Performance Measures
PPA
Participation and Performance Agreement
PSCAP
Public Sector Capacity Building Program Support Program
QCBS
Quality and Cost Based Selection
RAP
Resettlement Action Plan
REOI
Request for Expressions of Interest
REP
Revenue Enhancement Plan (AACG)
REPA
Regional Environmental Protection Agency
RG
Regional Government
RPF
Resettlement Policy Framework
SME
Small and Medium Size Enterprises
SNNPR
Southern Nations, Nationalities, and People’s Region
SOE
Statement of Expenditure
iv
TA
Technical Assistance
TOR
Terms of Reference
UGCBB
Urban Governance and Capacity Building Bureau (Federal)
UGDP
Urban Governance and Decentralization Program
ULG
Urban Local Government
ULGDP
Urban Local Government Development Project
UNCDF
United Nations Capital Development Fund
USD
United States Dollar
WB
World Bank
v
Executive Summary
The second Urban Local Government Development Program (ULGDP II) is designed as Program for
Results (PforR), which scales up the ongoing ULGDP (2008/09-2013/14) – a performance-based grant
(PBG) program, with financing from the World Bank and Government of Ethiopia (GoE), in the form of
contributions from the regions and participating urban local governments (ULGs). The GoE has
expressed a strong wish and commitment to scale up the program to cover 44 major cities under its
second phase, as part of its urban development vision and strategy as outlined in the Growth and
Transformation Plan (GTP) for 2009/10-2014/15, the Urban Development Policy (2005), the Fiscal
Decentralization Policy (2004) and the Ethiopian Cities Prosperity Initiative (ECPI): “Building Green
Resilient and Well Governed Cities 2013/14-2015”.
The second phase of ULGDP (ULGDP II, the Program) will be based on the lessons learnt from the first
phase, which was successful in getting funds out to the local (city) level for investments in core urban
infrastructure and services, delivery of numerous infrastructure investments, and in enhancing the
capacity of the participating cities in planning, budgeting, financial management, procurement,
accountability and social and environmental systems management. The Program will also address the
challenges identified in the first phase such as the timing of the annual performance assessments (APAs),
the need to involve and strengthen the regional governments, and the need to supplement the supply
driven capacity building support with a more demand-driven approach, ensuring that cities can respond
to the capacity weaknesses identified and the incentives provided in the performance-based allocations,
the need to strengthen own source revenue mobilization, and the need to strengthen the intragovernmental coordination, monitoring, evaluation and oversight in this area. It will also further
strengthen the incentives of all actors in the Program through the result-based budget allocations.
ULGDP II will enhance the institutional performance of participating ULGs 1 in developing and
sustaining urban infrastructure and services, through provision of three interlinked and mutually
strengthening tools: (i) Performance-based investment grants, (ii) objective and neutral annual
performance assessments, linked to the size of allocations and (iii) comprehensive capacity building
support to the cities and to the regions to enhance their capacity in supporting ULGs as well as support
to the implementing agency. The Ministry of Urban Development, Housing and Construction (MUDHCo,
the Ministry) will be the agency in charge of the Program, as under ULGDP. The Ministry will be
supported in areas of capacity building framework for regions, monitoring, reporting and project
management and the Program also encompass capacity building to the Ministry to perform its core role
related with the Program objectives.
This technical assessment report is structured in the following way: First, follows a brief overview of the
country and sector context, followed by the description of the ongoing program. It then introduces the
proposed PforR and reviews the Program’s strategic relevance, technical soundness and assesses the
expenditure framework, results framework and the M&E system and capacity. It then reviews the
Program’s economic rationale, expected impacts and associated technical risks. The Program action
plan is presented to mitigate those risks and finally the assessment encloses the implementation support
plan.
1
Also referred to as “cities”.
VI
Second Urban Local Government Development Program
(ULGDP II) - Technical Assessment
A.
INTRODUCTION
1.
This technical assessment has been prepared for the proposed Second Urban Local Government
Development Program (ULGDP-II) as a Program-for-Results (PforR) operation, in accordance with
Operational Policy/ Bank Procedures (OP/BP 9.00), Program-for-Results Financing.
2.
The technical assessment is carried out within the limited scope of the proposed ULGDP-II
Program, and provides an assessment and a summary of the main issues, which are relevant for the
successful implementation of the Program. The support is based on previous experiences from Bank
operations with support to ULGs in Ethiopia, and the assessment is based on the review of experiences
with implementation of the first ULGDP in the period from 2008/09-2013/14, including the results from
the Midterm Review in 20112, and other studies, see below.
Box 1. Analytical work which underpins this analysis
The analysis in this report draws upon a large body of analytical work conducted on the ULGDP and the urban
sector in Ethiopia to date. These include: (i) the annual ULGDP independent performance assessments of the
performance in 2008/09 (EFY2001), 2009/10 (EFY2002), 2010/11 (EFY2003) and 2011/12 (EFY2004); (ii)
evaluation of municipal service delivery of cities participating in ULGDP commissioned by the ministry and
undertaken independently; (iii) annual reports of related programs; (iv) ULG audit reports; (v) value for the money
reports supported by GIZ (2011); (vi) field data collected by SuDCA consultants in connection with the Program’s
fiduciary systems assessment; (vii) and a large number of monitoring reports and data from the ULGDP data base.
In addition to this existing body of knowledge, a separate detailed study was undertaken which collected detailed
field-level data from a sample of 12 ULGs under the “Analysis of urban Local Government Fiscal Position in
Ethiopia” non-lending technical assistance activity3.
B.
TECHNICAL ASSESSMENT
Country and Sector Context for the Program
3.
Ethiopia is a large and diverse country. It is located in the Horn of Africa and is a land-locked
country with an area of 1.1 million square kilometers—about the size of Bolivia. Its bio-physical
environment includes a variety of contrasting ecosystems, with significant differences in climate, soil
properties, vegetation types, agricultural potential, biodiversity and water resources. Ethiopia is a country
of many nations, nationalities and peoples, with a total population of 91.7 million (2012). 4 Only 17
percent of the population lives in urban centers, the great majority of them in Addis Ababa. At a current
annual growth rate of 2.6 percent, Ethiopia’s population is estimated to reach 130 million by 2025, and is
projected by the UN to be among the world’s top ten, by 2050. Ethiopia is vulnerable to terms of trade
2
Note that additional funding was added to this project in 2011, based on the successful and fast implementation rate, see Project
Paper on an Proposed Additional Credit in the amount of SDR 94.7 Million (USD 150 Million equivalent) to the Federal
Democratic Republic of Ethiopia for the Urban Local Government Development Project, June 2011, World Bank.
3 Dege Consult (www.dege.dk) in cooperation with Urban Institute and SuDCA, named Ethiopian Local Government Revenue
Study (ELGRS) in this assessment.
4
Source: United Nations. According to the Ethiopian Central Statistical Agency, the population is 82.6 million .
1
shocks from international food and fuel prices, and to large domestic weather-related shocks as the
2011/12 East Africa drought demonstrated.
4.
Ethiopia has experienced strong economic growth over the past decade. Economic growth
averaged 10.7 percent per year in 2003/04 to 2011/12 compared to the regional average of 5.4 percent.
Growth reflected a mix of factors, including agricultural modernization, the development of new export
sectors, strong global commodity demand, and government-led development investments. Private
consumption and public investment have driven demand side growth, with the latter assuming an
increasingly important role in recent years. On the supply side, growth was driven by an expansion of the
services and agricultural sectors, while the role of the industrial sector was relatively modest. More
recently annual growth rates have declined slightly, but still remain at high single-digit levels. Growth in
the export of goods has also moderated in recent years and a decline was observed in 2012/13 for the first
time since 2008/09. There have been bouts of high inflation in recent years and, while inflation is
currently much lower, keeping it down remains a major objective for monetary policy.
5.
Ethiopia is one of the world's poorest countries, but has made substantial progress on social
and human development over the past decade. The country’s per capita income of US$370 is
substantially lower than the regional average of US$1,257 and among the ten lowest worldwide. 5
Ethiopia is ranked 173 out of 187 countries in the Human Development Index (HDI) of the United
Nations Development Program (UNDP). However, high economic growth has helped reduce poverty, in
both urban and rural areas. Since 2005, 2.5 million people have been lifted out of poverty, and the share
of the population below the poverty line has fallen from 38.7 percent in 2004/05 to 29.6 percent in
2010/11 (using a poverty line of US$0.6/day). However, because of high population growth the absolute
number of poor (about 25 million) has remained unchanged over the past fifteen years. Ethiopia is among
the countries that have made the fastest progress on the Millennium Development Goals (MDGs) and
HDI ranking over the past decade. It is on track to achieve the MDGs related to gender parity in
education, child mortality, HIV/AIDS, and malaria. Good progress has been achieved in universal
primary education, although the MDG target may not be met. The reduction of maternal mortality
remains a key challenge.
6.
The Government of Ethiopia is currently implementing its ambitious Growth and
Transformation Plan (GTP) 2010/11–2014/15, which sets a long-term goal of becoming a middleincome country by 2023, with growth rates of at least 11.2 percent per annum during the plan period. To
achieve the GTP goals and objectives, the government has followed a “developmental state” model with a
strong role for the government in many aspects of the economy. It has prioritized key sectors such as
industry and agriculture, as drivers of sustained economic growth and job creation. The GTP also
reaffirms the government’s commitment to human development. Development partners have programs
that are broadly aligned with GTP priorities.
7.
Ethiopia’s constitution creates a highly
decentralized,
federal
structure.
Formally
promulgated in 1995 following the end of the
military junta -the Derg-, the constitution’s
decentralization framework presents a fundamental
shift from the highly centralized system under the
Derg. The federal structure takes into consideration
the rich ethno-linguistic and multi-cultural diversity
of Ethiopian nations, nationalities and peoples. The
5
Gross National Income, World Bank Atlas Method.
2
constitution recognizes and assigns powers, functions and revenues between the federal government and
the nine member states of the federation 6 . These entities are generally referred to as ‘regional
governments (RG)’. In addition, two cities—Addis Ababa and Dire Dawa—are chartered by federal
proclamation (law) as state-level city7 governments.
8.
Although the federal constitution formally establishes two government levels, in practice,
Ethiopia has three main government levels: Federal, regional, and local government 8 . Each regional
government (RG) can create its own local
Institutional structure of the public sector in Ethiopia
government structure and while there are slight
variations in the sub-regional structures among
RGs, the most prevalent local government level
is formed by elected woredas or district-level
governments. Regional states are typically
subdivided into administrative zones, which are
deconcentrated territorial levels (see figure).
Woredas are generally semi-autonomous local
government entities, which have a separate
legal status as corporate bodies with their own
political leadership (council) and their own
budget accounts. The woreda council members
Dark blue indicates government jurisdictions with their own
are directly elected to represent each kebele
budget sources; grey indicates de-concentrated entities.
(ward) in the district. In practice, the
terminology used to designate
local
governments varies: some use the term woreda strictly to refer to rural districts, whereas others consider
district-level urban units also to be woredas.
9.
RGs have the power to create urban local governments (ULG) either at the woreda, or at the subworeda level, while the general practice is to establish them at woreda-level. There are 84 ULGs in
Ethiopia with populations of over 20,000 (excl. Addis Ababa),- Addis Ababa as the primate city with a
population of over 3 million9. ULGs are managed by city administrations and have a long list of mandates
and responsibilities, which include both the woreda-level functions, which are concurrent state functions,
as well as city affairs of delivering services and providing urban infrastructure.
10.
A unique feature of the expenditure assignments in Ethiopia, which has important implications on
the delivery of infrastructure and services to citizens, is the distinction between “state” and “municipal”
functions. State functions include most social services such as education and health, among others, and
municipal functions comprise most infrastructure and other services such as urban transport, urban roads,
solid waste management and abattoirs. In urban areas, both functions are administered by ULGs. State
functions are delegated from RGs to ULGs, whereas municipal functions are considered to be the
exclusive functions of ULGs. This conceptual distinction has important funding implications, which
directly affect service and infrastructure delivery: ULGs generally receive transfers in the form of block
grants/allocations from RGs in order to fund state functions. However, they are expected to fully fund
their municipal functions from municipal revenues.
6
These nine regional governments are Tigray, Afar, Amhara, Oromia, Somalia, Benishangul Gumuz, the State of the
Southern Nations, Nationalities and Peoples (SNNP), Gambela and Harar.
7
As each regional government in Ethiopia is authorized to issue city proclamations as they see fit, there is no formal
common definition of what constitutes a city. Therefore, the words “city” and “ULGs” are used interchangeably
throughout this document.
8
9
The constitution refers to “member states”.
Addis’ population is 10 times larger than Dire Dawa, the second largest city in the country.
3
11.
To meet these municipal functions, ULGs are largely enabled to set their own local tax rates
within the context of regional law and raise revenues. However, as discussed in more detail in the
Strategic Relevance section below, these revenues are simply not sufficient to meet the rapidly growing
municipal functions. The rapid growth in municipal functions is associated with the rapid urbanization in
the country: Ethiopia is one of the most populous countries in the World10 and is urbanizing rapidly at
about 4.1 percent per year11. The UN estimates that Ethiopia’s urban population will expand from 17% in
2013 to 19.0 % in 2020, reaching 23% in 2030. As an indication of rapid urban growth, the capital city,
Addis Ababa, more than doubled its population in 23 years, from 1.4 million in 1984 to 3.1 million in
2012.
12.
Given the consistent increase in the number of Ethiopians living in cities on the one hand and the
lack of municipal revenues to meet the growing financing needs on the other, significant gaps emerge in
access to basic services and infrastructure in cities. This prevents cities from maximizing the potential
productivity and agglomeration effects and limits their ability to contribute to economic growth even
further than their current level. As shown in the table below, an independent urban infrastructure study
conducted in 201312 indicated the significant gaps in services and infrastructure in essential core urban
services and infrastructure water supply, roads and sanitation in Addis and 18 other cities, which include
Ethiopia’s largest urban areas.
Table 1: Level of access to urban services and infrastructure in 19 ULGs
Service/Infrastructure
Level of service Provision/Coverage
Water supply coverage
59.1%
Sewerage and sanitation
57.3%
Solid waste Disposal collected of estimated waste
52.0%
Liquid Waste Disposal collection ratio
1.5%
Paved Road (Surfaced with Asphalt or cobblestone) of total roads
22.8%
Roads with Pedestrian Walkways
8%
13.
The GoE is fully aware of the importance of cities for the country’s growth and prioritizes urban
as an important sector in overall economic growth. Government’s effort to anchor urban in its core policy
and strategy notes started with the issuance of its first Urban Development Policy Note in 2005, continued
with its recognition of the urbanization agenda in the second Poverty Reduction Strategy Paper and later
in the Growth and Transformation Plan (GTP) for 2010/11-2014/15. GTP is a national medium term
strategy policy document, which articulates of the overarching national development goals and the
accompanying implementation strategy for the country. Most recently, the government has further
elaborated the importance of urban governance under MUDHCo’s new Initiative: “Ethiopian Cities
Prosperity Initiative (ECPI): Building Green, Resilient and Well Governed Cities 2013/14-2015”, which
aims to provide strategic guidance to city governance and management and align urban governance with
overall national policies. Collectively, these policy measures mark a robust focus on urban-based
industrialization, complemented by a growing service sector, and a focus on urban centers to stimulate
overall development.
14.
The World Bank and the international development community have been supporting the
decentralized service delivery framework and policy of GoE and its focus on and support to urbanization.
The Bank has been supporting the government’s efforts to build capacity across the country’s urban local
governments to enable them to effectively meet their important responsibilities. This partnership has been
10
With an official population of 86.6 million, Ethiopia is currently the 14th most populous country in the world.
World Bank Development Indicators (2012 figures), based on official estimates.
12 “Evaluation of Municipal Service Delivery of cities participating in ULGDP for EFY 2004”, SuDCA Development
Consultants, August 2013.
11
4
ongoing through a series of projects, starting with the Capacity Building for Decentralized Service
Delivery project (2003) and later the Public Sector Capacity Building program (2004).
15.
In this context, the government introduced its Urban Local Government Development program
(ULGDP) in 2008, henceforth the government’s program. ULGDP provides grants to 18 urban local
governments (ULGs) and Addis Ababa, based on their performance against a range of key urban
institutional areas such as participatory budgeting, fiduciary management, social and environmental
systems management, among others. The local governments, who receive funds from the program based
on their performance, use these funds on urban infrastructure such as urban roads, solid waste
management, drainage, water supply and others.
16.
ULGDP, the government program, is jointly funded by the government and the World Bank. Of
the total US$ 416 million program budget envelope, GoE provides 28% (US$ 116 million) and the World
Bank provides 72% (US$ 300 million). Half the government contribution comes from regional
governments and the other half comes from cities themselves. The program budget envelope, at the onset
in 2008, was US$208 million which comprised of US$58 million of government own sources and
US$150 IDA financing. As a result of program’s successful implementation and results, the program
budget was doubled in 2011 through an additional US$208 million (US$58 million government and
US$150 IDA funds). During additional financing in 2011, the program scope was adjusted to include
capacity building for an additional set of 18 ULGs, in anticipation of including these ULGs in the fiscal
transfer scheme in the future.
17.
GoE’s ULGDP is one of the key tools in implementing of its overall development strategy
discussed above as framed under the GTP and ECPI. The strategies, and the program, which is their key
implementation tool, collectively mark an important shift in focus from rural-based agricultural growth
which has been the focus of development in Ethiopia, to a more urban-based industrialization,
complemented by a growing service sector, and a focus on the urban growth centers to stimulate the
overall developed in a phased manner. The geographic scope of ULGDP has mostly comprised the
country’s most populous 18 urban centers and its capital, Addis. This scope marks the first phase of the
approach and strategy described above, and the government intends to ultimately expand the geographic
scope to cover all 85 cities in Ethiopia with a population of more than 20,000 people. Various
development partners, such as the French Development Agency and the European Investment Bank, have
expressed preliminary interest in supporting the government’s efforts in this respect.
18.
Consistently with its planned phased approach, the GoE wishes, after satisfactory track record of
program implementation since 2008, to expand the program, using its own funding and World Bank
financing through the use of the Program for Results (PforR) modality. The proposed PforR Program,
named the second ULGDP (ULGDP II), will add 26 new ULGs to the geographic scope of the current 18
(for a total of 44 ULGs), and the 9 regional governments (RGs). It will maintain the result/performancebased disbursement modality established under ULGDP to ULGs and expand this modality to its
financing of key results at the RG and the federal government levels. This expansion marks the second
phase in the GoE’s intension to roll out performance-based fiscal transfer modality to all 85 ULGs in the
country with more than 20,000 habitants. The Program will be based on successful experiences and
lessons learnt of the first phase under ULGDP (2008-2013). It will target, particularly at the ULG level,
the fiscal and capacity building gaps identified, in areas relevant for urban development.
5
I.
Program Description
The government program, ULGDP
19.
The ongoing program – the ULGDP- has a total budget envelope of US$ 416 million (US$ 300
million IDA, US$ 116 million GoE) and has the following three main elements:
i. Performance based grants (PBG) to 18 ULGs and Addis for urban infrastructure investments
($403 million);
ii. Capacity building to (US$7.5 million)
 This covered 36 ULGs (the 18 PBG recipient ULGs plus another set of 18 ULGs included in
the program at additional financing in 2011 as described above in paragraph 16)
 Implementing federal ministry, the Ministry of Urban Development, Housing and Construction
(MUDHCO) to strengthen their capacity to support and guide the cities through the regions;
iii. Implementation support to support, MUDHCo ($5.5 million)13.
20.
As mentioned above, the ULGDP was preceded by a series of Bank supported interventions,
which aimed to build capacity at urban local governments 14 . Based on local government capacity
enhanced through these projects, the ULGDP was introduced as a performance-based programmatic fiscal
transfer to urban local governments in 2008. The overall goal of the government program is to support
improved performance in the planning, delivery, and sustained provision of urban services and
infrastructure by local governments. It aims to fulfill this goal by providing grants to urban local
governments based on their performance across a range of areas including fiduciary management,
management of environmental and social systems, budgeting practices, governance, transparency and
participation, among others. The program funds are disbursed against institutional and implementation
performance and the size of the ULGs (number of inhabitants) and are earmarked for expenditure on local
urban infrastructure.
21.
All ULGDP funds are allocated according to a simple population-based formula. The actual
disbursement from these allocations to each local government is determined by the performance of that
local government, as measured in the annual local government performance, and takes into account the
population amount in the said local government. A simple average of US$ 16 per capita per annum has
been disbursed using IDA funds over the life of the program (2008/09-2013/14) 15 . These funds are
complemented by 20% matching funding from the ULGs and 20% from the regional governments.
Depending on the performance of ULGs in each program year, the specific per capita amount disbursed
for that year changes. For instance, in the most recent assessment year, the program disbursed a total of
US$ 68 million IDA funds to 17 ULGs, which passed the minimum set of conditions to qualify for the
grant for that year. The total amount, divided by the total population by these ULGs, indicate an average
US$ 26.4 per capita per annum disbursement for this year. The disbursement to each ULG in this year
13
Part of these funds was utilized for technical consultants who supported ULGs in procurement, engineering, environment and
social systems management. Additionally, these funds were used by MUDHCo to procure consultancy services for annual
performance assessment, environment and social audits, among other items.
14 The government and the Bank have been working in partnership since the early 2000s to help Ethiopia’s urban local
governments effectively meet their responsibilities. The partnership has been through a series of projects, starting with the
Capacity Building for Decentralized Service Delivery project (2003) and the Public Sector Capacity Building program (2004).
These projects also supported the establishment of an accredited master’s degree program in urban management at the Ethiopia
Civil Service College. To data more than 2000 students have graduated from this program, and the great majority of them are
working in the administrations of ULGs.
15 This amount is calculated by dividing the total funding disbursed over the life of the program to 18 ULGs by the population in
these local governments: A total of US$ 286,902,532 IDA funding has been disbursed to date as performance based grant under
ULGDP. US$20 million of this amount has been disbursed to Addis (in two program years) as explained in detail below. The
US$16 per capita is calculated by dividing the total IDA funding to the 18 program ULGs (except Addis) by the population in
these local governments (US$ 266,902,532/ 2,782,971/6 years = US$ 16).
6
varied between the highest amount of US$ 7.9 million to Mekele, and the lowest amount of US$ 1.6
million to Axum.
22.
Disbursement of the allocations is made after ULGs undergo an annual assessment. The
assessment is carried out by an independent private firm, procured by the government. The performance
of local governments is measured in the areas of financial management, participatory planning,
investment, operation and maintenance of infrastructure, and transparency and accountability in
operations. Under ULGDP, ULGs need to perform a certain level in order to access the program funds.
They cannot access the ULGDP funds if they fail to meet certain conditions, or perform below 50 percent
in the overall assessment. This is necessary to ensure that the funds are used effectively, efficiently, and
with integrity. Those ULGs, which fulfill this requirement, receive their full allocation. If they perform
above the expected target score, they are rewarded by an amount equal to their allocation plus a 20
percent acceleration. Through this system, the program was able to accelerate the use of funds compared
to the original targets.
ULGDP’s achievements and lessons learned
23.
Throughout the six year implementation period (starting in 2008/09, currently under
implementation), the program has recorded a number of tangible achievements in the following key areas:
i.
ii.
iii.
Institutional improvements at the ULG level;
Wider impact on the urban and economic development in line with the GoE’s urban
development policy;
Physical urban infrastructure investments.
24.
First, the program has made achievements in terms of ULG institutional capacity in areas such as
citizen participation in local government budgeting and project execution. Citizens are increasingly
actively involved in the planning process, with a doubling of the number of citizen groups taken part in
the annual planning process from 226 citizen groups in 2008/09 to 521 in 2012/13. All program cities
have increased the involvement of citizens by more than 85% from the baseline in 2008/09 as of 2012/13.
25.
The second area of institutional improvement pertains to budgeting and the production and use of
key local government planning documents. At the program’s onset in 2008/09, none of the ULGs had
urban development plans, rolling capital investment plans (CIP) or assets management plans. As of
2012/13, all 18 program ULGs produce timely annual plans, comprehensive 3-years rolling CIPs and
asset management plans, including budgeting for maintenance and operations, and related procurement
plans. Majority of program ULGs (12) are also able to establish proper links between all these core
planning and budgeting instruments and ensure consistency across the planning documents.
Improvements are needed in the remaining (6) ULGs to ensure robustness and consistency of the figures
across the various plans.
26.
Third, the level of overall local government transparency has increased. While at the program
onset in 2008/09 there was hardly a culture of making local government budgets public or sharing other
information pertaining to local governments, all program ULGs now disseminate information to citizens,
and 12 ULGs achieved highest score on the program’s transparency indicators by making public all core
documents for the citizens which include plans, budgets, bid evaluations and physical progress on
infrastructure investments.
7
27.
Fourth, ULGDP has supported management and incentives around own source revenues (OSR)16.
All ULGs are now able to produce revenue enhancement plans and the focus on OSR has increased with
improved collection, which has doubled from 2008/09 to 2012/13. The aggregate nominal OSR amounts
of all program ULGs has increased by 135% over the period. In inflation adjusted real terms, however,
aggregate OSR has been stable over the five years, with 11 ULGs recording a net increase while the
remaining ULGs have recorded stable or slightly lower OSRs. There is, therefore, a need to continue
focusing on improvements in this area, particularly through stronger involvement of the regional
government tier, which regulates the local government OSR legal and regulatory framework, and through
strengthening of the performance measures on OSR and stronger targeting on the municipal revenues17.
28.
Fifth, financial management has improved over the implementation period, indicated by number
of ULGs, which can produce financial reports, which increased from zero in 2008/09 to all program
ULGs in 2012/13. In the most recent program annual assessment, 14 ULGs received the top score with all
reports submitted on time. The reason why four other ULGs did not get top score was only because they
missed one of the annual submission deadlines, for one quarter. A similar track record is observed on
financial audit status: At the program onset, nearly all ULGs had long backlog of audit reports, many of
them with adverse audit opinion. As of 2012/13, 18 out of the 19 program ULGs had cleared the audit
backlog of the last six years, with one ULG clearing up its backlog of five years. Importantly, whereas 6
ULGs had adverse audit opinions as recently as 2009/10, none of them had adverse audit opinion in the
most recent audit round, with all ULGs obtaining qualified audit opinions.
29.
In terms of wider impact on the urban and economic development, ULGDP has enhanced
financing for urban infrastructure by ULGs by providing financial reward to the institutional
improvements recorded above. By providing an average of US$16 per capita per annum additional
financing to 18 ULGs, the program has more than doubled the amounts available for urban capital
investments in these local governments. A rough estimate of the average funds available for urban
investments countrywide -excluding funding from ULGDP- indicates that the spending has been in the
tune of US$11.0 per urban resident per annum for the entire country, excluding Addis18. The bulk of this
amount comes from ULG own source revenues (US$8.7 per urban resident excluding Addis) and the
remaining US$2.3 is regional spending and investments by woredas. In the 18 ULGDP ULGs (excluding
Addis), per capital own source revenue in 2011/12 was on average US$12.9. Thus, the ULGDP IDA
funding (average 16 US$ per capita) augmented the discretionary funding in program ULGs by
approximately 124% or 149%, if the amounts from the regional co-funding (US$ 3.2 on average) are
factored in.19
30.
Physical urban infrastructure investments have been achieved as a result of the program’s design,
which mandates ULGs to invest these enhanced funds in areas with high rate of economic return, such as
roads, water and sanitation. To date, 33% of ULGDP funds have been invested in cobblestone roads, 15%
on drainage and 10% on gravel roads, with the remaining 43% on a range of other urban infrastructure
investments. It is estimated that the urban investment projects funded through ULGDP have created
312,460 jobs and that these are targeting areas of high unemployment. Importantly, a large number of
small and micro enterprises have been involved in project execution, contributing to future local
economic development. Of particular note among urban infrastructure investments is the use of funds for
cobblestone streets and drainage systems. To date, 670 kilometers of roads, 588 kilometers of drainage
16
The net increase in actual OSR in real terms has been constrained by the legal framework and the lack of sufficient support
from the regions, including lack of consultations on the changes/setting of tax rates/tariffs.
17 The existing performance measures are focusing only on revenue enhancement planning and achievement of planned targets.
18 This figure goes up to US$16.7 per capita if Addis is included, where the OSR from cities were estimated at US$ 11.2 and the
expenditures by regions and woredas at US$ 5.5 per capita.
19 Figures based on the recent study – Ethiopian Local Government Revenue Study (abbreviated: “ELGRS”) conducted by Dege
Consult, Urban Institute and SUDCA, Component 2a Final Report, November 2013.
8
system, 171 latrines and 110 community water points have been constructed, with 29,000 people given
access to improved water sources. As a result of the roads built by program funds, particularly
cobblestone, mobility for residents has increased, flooding has diminished, property values and small
enterprises have increased. These changes are transforming city centers into lively and welcoming places
in which to live and work.
Program’s challenges
31.
The ULGDP is not without challenges. The chief shortcoming of the system has been the delay in
the procurement of the independent annual performance assessment (APA) by the government,
specifically by the Ministry of Urban Development, Housing and Construction (MUDHCo). Since the
findings of the assessment determine the amount of program funds to be allocated to local governments,
the delay in the procurement of the assessment has caused significant challenges with aligning the
allocation with the budgeting cycle and the regional and city council approval of the overall budget
including ULGDP funding on time (i.e. June of each year). Additionally, while the performance
orientation of the program has been a major strength, some of the indicators used to measure
performance, and determine disbursements have, at times, been complex for the assessors to determine20
and/or not been sufficiently targeted at core development objectives of the program. There is, therefore, a
need to carry out the performance assessment on time, sync the grant cycle with local government
budgeting period (ensure that results are ready prior to the start of the ULG planning and budgeting
process), streamline and sharpen the performance measures to eliminate subjectivity and to provide a
stronger focus.
32.
Secondly, differently than the 18 ULGs, the program has faced a challenge in leveraging the
intended institutional performance of Addis. The primary reason is that while the level of financial
incentive the program has offered has been attractive in these 18 ULGs, it has remained too low for
Addis. Due to this factor, Addis has recorded satisfactory performance only twice over the
implementation period, each time with relatively low scores (score of 51 over 100 in 2008/09 and 61 over
100 in 2011/12).
33.
Thirdly, while capacity in the 18 program local governments has increased, there is need for
further improvements particularly in the areas of (i) municipal planning and budgeting – in ensuring the
quality of and consistency among local government budgeting and planning tools such as CIP, revenue
enhancement plans and budgets, (ii) OSR enhancement, (iii) social and environmental systems
management and (iv) procurement.
34.
Fourthly, while the program fund transfers are captured in the national public financial
management system at the federal level and the expenditure of funds are tracked, it is often done by using
an excel based system, which runs parallel to the national public financial management system, IBEX.
This makes it challenging to centrally track the use of funds at the decentralized level. Therefore, there is
a need to further integrate program funds expenditures at the regional and ULG levels in IBEX, with an
accompanying coding system to capture main local government expenditures.
35.
Finally, there is a need for a stronger involvement of the regions in capacity building of ULGs
and supporting and monitoring their core mandates such as municipal revenues, financial audit and
compliance with the national environmental and social safeguards regulations, and to strengthen the entire
capacity building support to ULGs from the Program in the light of the expansion of the Program and the
end of other CB programs such as the previous PSCAP.
20
In the most recent assessment, more than 70 data collection points were applied.
9
36.
In sum, the government program has made tangible progress in enhancing the institutional
capacity of urban local governments for service delivery, while a number of areas including the
administration of the performance assessments, refinement of performance measures, capacity at the local
level, reporting structure of program expenditures and a more direct involvement of regional governments
require continued focus and improvement. These are reflected in the design of ULGDP II.
Proposed ULGDP II, the PforR Program
37.
In this context, the government wishes to continue the program’s support to the 18 ULGs and
expand the geographic coverage to include 26 new ULGs. The main policy reason for the government’s
decision to scale up the program comes from its goal of rolling out the performance based fiscal transfer
instrument as the main vehicle for promoting institutional and infrastructure results to all the country’s 85
ULGs over time, in a phased matter. The 18 ULGs under the program represent the first phase of the
implementation of this policy, while the 44 ULGs (along with the new 26) under the proposed expansion
represent phase two. Ultimately, the government wishes to include all 85 ULGs in the country as part of
the program. These 26 ULGs represent the next tier of important cities in the country with the highest
populations, following the top 18 already included, and they had been receiving capacity support21 to help
them respond to the performance incentives.
38.
In addition to increasing geographic coverage to a total of 44 ULGs, the government also wishes
to include the country’s nine regional governments (RG) in the proposed second phase. Regional
governments in Ethiopia have a legislative mandate to backstop and support ULGs in carrying out core
local government functions. They also monitor the compliance of ULGs with various fiduciary, social and
environmental systems management rules and regulations. The regional audit offices (ORAG), for
example, are tasked with carrying out external financial audits of local government in their jurisdictions,
while the regional environmental protection agencies (REPA) are mandated with ensuring compliance at
the ULG level with environmental and social regulations. To date, only four RGs have been involved in
ULGDP and their involvement has been limited to (i) transferring program funds which they receive from
the federal government to ULGs and (ii) providing matching contribution (20% of the annual IDA
amount) for program financing to the ULGs in their constituency, as described above on paragraph 14.
The government, in the proposed second phase, wishes to deepen the involvement of RGs and include
technical areas to be leveraged.
39.
i.
ii.
iii.
Thus, the Program’s boundaries will be defined as follows:
Program duration: July 2014 through December 2019;
Program budget envelope: US$ 556.53 million22;
Main expenditure items;
i.
Performance-based grants to 44 ULGs for infrastructure investments as listed under
Program investment menu - US$ 499.53 million23;
ii.
Capacity building and ULG support by regional governments – US$ 30.00 million;
iii.
Federal support and capacity building Program administration – US$ 27.00 million.
40.
The Program Development Objective (PDO) is to enhance the institutional performance of
participating urban local governments in developing and sustaining urban infrastructure and services. The
21
18 of the 26 ULGs have been supported under ULGDP and 8 under a separate GIZ program under close cooperation with the
ULGDP.
22 This financing framework will comprise US$176.53 million GoE resources and US$ 380.00 million IDA funds.
23 This is made up of US$ 176.53 million GoE and US$ 323.00 million IDA funds.
10
PDO for ULGDP II is a slightly refined version of that of ULGDP. The refinement has been made to
reflect the changes brought under PforR. Key results of the institutional performance improvements will
be (i) enhanced participation of citizens in ULG planning and budgeting, (ii) efficient fiduciary
management and procurement, (iii) increased amount of own source revenues at the ULG level; (iv)
improved infrastructure, service delivery and O&M systems, (v) strengthened accountability and
oversight systems and improvements on environmental and social safeguards.
41.
Similar to ULGDP, the Program financing framework will comprise IDA and GoE funds. Under
ULGDP II, however, there will be a differentiated approach to the contribution from ULGs. While the 18
ULGDP ULGs will continue to provide a higher level additional to the IDA financing for the performance
based fiscal transfer element, the new 26 ULGs will be required to match at lower levels in line with their
financial resources. This nuance reflects the realistic analysis of the budget position of the new ULGs and
indicates how much they can contribute from their own source revenues. The funding contribution rates
of ULGs to the Program will range from 30% of the IDA funding for existing 18 ULGs (increase from the
current level of 20% under ULGDP) to 20% for the 22 new ULGs in the four ULGDP regions and 10%
for 4 new ULGs in the emerging DRS. These will be minimum requirements, which will be monitored by
the independent assessment annually. If, in any year, a ULG exceeds these minimum levels, and matches
IDA amount at a higher rate, than that will be reflected as a performance enhancement and will be
rewarded under the follow year’s performance-based grant cycle. The contribution of regional
governments will continue to be 30% of the IDA funding amount in the existing regions and 20% in the
DRS regions. Dira Dawa and Harar will contribute with 50% of the IDA funding amount, each.
42.
The Program will maintain the existing design features of ULGDP such as the performance
orientation and the measurement of progress and results through independent annual and performance
assessments (APA). The APA will assess (i) a set of minimum conditions (MCs) which each ULG will be
required to fulfill each year of the Program and (ii) a list of performance measures (PMs) which will
determine the ULG’s progress each year. MCs will function like green and red lights and the PMs will
determine the ULG’s score and the actual disbursement.
43.
In order to keep the system simple and to ensure a strong link between performance, absorption
capacity and allocation, the system will be based on a common set of minimum conditions and
performance measures. However to ensure that new ULGs have sufficient capacity to be enrolled in the
full system, they will be introduced in the phase manner where only the MCs will apply in the first fiscal
year and the related allocations, as explained in further detail in paragraph 50, below. Prior to the first
allocation and in the first year of the program, the 26 new ULGs will receive a substantial capacity
building and technical assistance from mobile teams, from training courses at the ECSU and from the
supply driven capacity building support, as explained in detail in Annex 8.
44.
ULGDP II will also provide improvements to the challenges discussed above including the timing
of the APA alignment of the grant cycle more closely with local budgeting cycle24; streamlining and
sharpening the indictors used in APA to strengthen the focus on the key results areas25; continuing to
build the capacity of ULGs and the inclusion of local government expenditures in IBEX. ULGDP II will
ensure full alignment of the APA with the ULG budgeting process and the integration of ULG
expenditures in the national budgeting and accounting system.
24
Timely APAs will be supported by DLI 9.
An example of this is within the area of municipal revenue mobilization where the previous APA only focused on the planning
of the revenues (state and municipal) and achievement of planned targets. The new APA will strengthen these performance
measures through focusing on the quality of these plans, actual results made in revenue mobilization (focusing on municipal
revenues) and contribution by the ULGs to their urban investments from these collected OSR (rewarding matching contribution
to the PB grant investments). These initiatives will strengthen accountability and longer term sustainability of the Program, and
will be further supported through a specific DLI focusing on the regional support to the ULGs within this pertinent area.
25
11
45.
The scope of ULGDP II will not include Addis. As indicated above, the institutional,
infrastructure and financial needs of Addis are distinctly different than all the other ULGs in Ethiopia.
Therefore, a possible Addis-specific project with the goal of responding to the capital city’s specific
institutional and infrastructure needs is currently being discussed between GoE and the World Bank.
46.
Importantly, under ULGDP II, financing for the regional governments and federal government
entities, including the implementing ministry, MUDHCO, will no longer be input-based as ULGDP, but
will also be results based. As detailed in the disbursement-linked indicators (DLIs), which target these
two levels of government, Program funds will be disbursed to these entities only after the verification of
the results for which they are responsible.
47.
ULGDP II is expected to run for a period of five years – from 2014/15 (Ethiopian FY2007) to
2018/19 (EFY2011) with the first disbursement year 2014/15 (EFY 2007). As explained above, the focus
of the performance grant to ULGs will be the country’s most populated 44 cities of the total 85 ULGs
(except Addis Ababa) with a total population of 4,348,853 26 , which is about 26% of the total urban
population. The Program also covers all nine regions in the country.
48.
Like under ULGDP, the ULGDP II expenditure framework will comprise three following
major items.
i. Performance based funding for 44 ULGs’ urban infrastructure investments US$ 499.53 million
(of which US$ 176.53 is from contributions from regions and cities and US$ 323.00 is from the
IDA funding);
ii. Capacity building and ULG support by regional governments (US$ 30.00 million);
iii. Federal support and capacity building Program administration (US$ 27.00 million).
Performance Grants to ULGs
49.
As shown in detail in the table below, performance-based grants (PBG) to ULGs will be the
biggest item of program expenditure, and are expected to total US$ 499.53 million, including the
contributions from the regions and the ULGs (US$176.53). As under ULGDP, these funds will be
allocated using a simple formula based on population size and the performance of the ULGs.
Disbursements will flow through the regular treasury system, similar to the current ULGDP, but with a
clear timing and in two annual tranches.
50.
The Program will provide capital discretionary financing a simple per capita per annum average
of US$ 14.85 through IDA funds. When disaggregated, the simple average for the new 26 ULGs will be
US$13.38 and US$15.69 for the 18 ULGs currently participating in ULGDP (see table below for details).
When the financing from the ULGs and RGs are taken into account, which are expected to total
US$176.53 million, the per capita per annum amount will be US$24.88 and US$19.58 for the current 18
and new 26 ULGs, respectively.
26
The most recent official national census dates back to 2007. The official Central Statistics Agency (CSA) has provided an
estimate to this in 2013. As agreed with GoE, the Program uses these figures.
12
ULGDP II detailed performance based fiscal transfer amounts over the life of Program – 5 years
Current
18 ULGs
New 26
ULGs
Total for
44 ULGs
Population
(CSA
2013)
IDA
allocation
2014/15 (For
Program
year # 1)
EFY 2007
2015/16
(EFY 2008)
onwards
(For 4
years)
Total IDA
allocation
during
Program life
(EFY 2007EFY 2011)
Average
per
capita
per
annum
IDA
GoE Funding27
2,782,971
$43,653,775
$43,653,775
$218,268,873
$15.69
1,565,882
$6,481,211
$24,562,477
$104,731,127
4,348,853
$51,134,995
$68,216,251
$323,000,000
Total
IDA+ GoE
IDA+
GoE
per
capita
per
annum
$127,965,958
$346,234,831
$24.88
$13.38
$48,565,356
$153,296,483
$19.58
$14.85
$176,531,315
$499,531,315
$22.97
51. The size of this amount has been determined as a function of various factors: International good practice
from an expanding number of countries with performance-based grant allocations and considerations on
the costs of investments, expenditure needs and current level of investments. Experiences from e.g.
Uganda, Tanzania, Ghana, Nepal and Bangladesh show that in order for a performance-based grant
function to work well, the size of the transfer needs to be adequate to create response from LGs and their
constituents28 . In other words, the potential financing should be attractive enough to bring about the
institutional change sought at the local government level. Specifically in the Ethiopian urban context
where there are significant urban infrastructure gaps, and costs of urban investments, the annual allocation
needs to be adequate to fund urban investments in order for the LGs to respond to the incentive
mechanism, within their absorptive capacity constraints. In the context of this Program, a band around
approximately US$13-16 per capita per annum has been determined to be the optimal level by a
comprehensive review of local government fiscal and revenue position by the study mentioned above in
box 1, which has included extensive field-work across sample Program ULGs29.
52.
The system of allocations takes into the fact that the 26 new ULGs have not been part of a
performance-based grant system before and the larger capacity gaps in these ULGs. Therefore, the PBG
element of the Program will be introduced gradually. In Program year 1, the 18 current ULGDP cities will
be measured against Program’s minimum conditions and performance measures. The new 26 cities,
however, will only be subject to minimum conditions in this year. From Program year two onwards, all
44 ULGs will be measured against all minimum conditions and performance indicators and will get
access to similar amount of average funding per capita. This will mean that allocation to the new 26
ULGs will start from a lower level in Program year 1, with an increase later on in tandem with the
capacity building activities (see table above for the differentiated amounts for the new 26 ULGs vs
existing 18 ULGs in year 1). This will create the per capita amounts of US$15.69 and US$13.38 for the
existing and new ULGs, respectively, over the life of the Program. This will mean that in aggregate terms,
the per capital allocation of IDA funds to existing 18 ULGs under ULGDP II will be slightly lower than
the average allocation to these ULGs under ULGDP, which is US$16. The US$0.31 difference has been
assessed to be negligible and it is expected that the Program will continue to leverage performance and
results. The phased introduction of the performance system, while capacity is built, and the allocations
against performance determined in the APA, will ensure that allocations are provided to ULGs with
sufficient capacity to handle the discretionary funds.
53.
This formula and the resulting per capita amounts will broadly maintain the level of discretionary
spending provided to 18 ULGs under ULGDP. In terms of its impact on the development budget of the 26
27
As explained above, funding will be provided by regional governments and cities with various levels depending on the location
and time for enrollment in the ULGDP.
28 UNCDF: Performance-Based Grants- Concept and International Experience, 2010 for a review of the experiences from 15
countries in Africa, Asia and the Pacific.
29 Dege Consult, Urban Institute and SuDCA Development Consultants, Analysis of Urban Local Government Fiscal Position in
Ethiopia, November 2013 (ELGRS).
13
new ULGs, the US$13.38 average per capita per annum allocation to these new ULGDP local
governments will come in addition to the funding available for investments from existing sources of
revenues for capital investments. OSR and the actual capital expenditure of sample of new ULGs in
2011/12 (EFY 2004) were per capita US$5.87 and US$7.07, respectively30.
54.
In terms of the total ULG allocations, the Program’s first year allocates a simple average of US$
1.1 million to ULGs, with a range of US$ 108,583 allocation to the smallest ULG and US$4,495,993
allocation to the largest Program ULG (see Annex 3 for exact figures per ULG). When the Program
reaches full cycle starting in year 2, the simple average amount will rise to US$ 1.6 million, with a range
of approximately US$ 411,507 to the smallest ULG and approximately US$ 4,495,993 to the largest
Program ULG. As the Program funds will be based on actual performance, the actual grant disbursement
from these allocations will be determined by the annual performance of ULGs.
55.
The allocations are based on estimated targets for ULGs’ performance. If they achieve more that
these annual targets (as determined in the annual performance assessments), the allocations can be
accelerated and the funds in the program utilized earlier than the five-year program period. In this case, it
is expected that additional funding may be mobilized.
56.
The basis to determine these allocations will be the annual performance assessments (APA). The
ministry will procure an independence private firm to conduct the annual assessment, as under ULGDP to
ensure independence of results. Because the Program will leverage institutional strengthening of ULGs
for sustainable provision of urban services, the assessments will focus on measuring ULG capacity
improvements in planning, budgeting, assets management, fiduciary, environmental and social systems
management, revenue generation, good governance and transparency areas (see Annex 6 for a detailed list
of the performance areas, and the section below on DLIs and verification protocols for more information
on how the APA results will be verified).
57.
Similar to ULGDP, once ULGs receive Program funds, they will be mandated to use these to only
finance core infrastructure investments –spelled out in detail in Program’s investment menu (see Annex
4) – such as roads, water supply, sanitation, solid waste, greenery, street lighting, etc. Compliance with
the investment menu will be a minimum condition and be verified by APA each Program year. If a ULG
has not invested Program funds in full compliance with the investment menu, it will be sanctioned in the
following year.
58.
ULGs will be required to prepare the project in a participatory manner and use the planning tools
developed under ULGDP, the assets management system, capital investment plans, annual plans and
budgets. Participatory approach and proper planning and budgeting will be promoted through the annual
assessments.
Capacity building support
59.
Under ULGDP II, a structured and systematic approach will be adopted for CB activities and
focuses on all three government levels – federal, regional and local. Firstly, CB activities for all levels
throughout the program period will be supported by dedicated federal and regional mobile teams. In
addition, CB support will be tailored to the needs of federal, regional and local levels: (i) for ULGs, both
supply and demand side interventions will be provided to raise their general capacity and enable them to
respond to the performance incentive mechanism; (ii) regions will be supported to strengthen their urban
governance and management roles and in turn, provide CB support to ULGs under their charge; and (iii)
30
Based on data collected under the ELGRS, Dege Consult, UI and SuDCA, November 2013.
14
for the federal level, CB support will aim to strengthen their capacity building coordination, oversight and
backstopping functions in serving the regional and local governments.
60.
In terms of the demand-driven CB support, all ULGs will be allowed to spend up to 5 % of the
investment grants on CB, supported within a defined menu of activities, see Annex on Investment Menu.
The supply driven CB for the 44 ULGs will focus on the distinctly different needs of Program ULGs,
with a more comprehensive support to the newly enrolled ULGs. The 18 ULGs have benefitted from
capacity building through CBDSD, PSCAP, ULGDP and GIZ for almost a decade and the 4 well
established regions, have a higher capacity and several cities to support under the coming program.
Therefore, in addition to the general CB from the program, the new 26 ULGs will be provided with a 8modules CB support at the ECSU in the first half year of the program, covering core areas such as
planning, budgeting, financial management, procurement, etc.
61.
Technical assistance from the federal/regional government will be organized differently for the
new DRS regions, Diwa Dira and Harar, with CB delivered directly from the federal mobile team
comprising experts in multi-sectoral core areas of urban development and the established 4 regions, with
multiple ULGs to support – Amhara (10 ULGs), Oromia (11 ULGs), SNNPR (9 ULGs) and Tigray (8
ULGs). In those established areas, regional mobile capacity buildings teams will provide the supply
driven CB support to ULGs, with backstop from MUDHCo, see Annex 8 for further details on the CB
design.
Capacity Building to ULGs
62.
Assessment of capacity building activities under the ULGDP shows that current ULG capacity
building activities largely focus on backstopping support from the federal MUDHCO contracted team
(engineers, procurement and M&E experts) and training –formal training in particular. Under ULGDP II,
this type of supply-driven support will be provided to the ULGs by the regions progressively overtime to
align the actual practice with the functional mandates of regional governments, which is to provide
support ULGs. This supply-driven CB support will be supplemented with the opportunity for ULG for
more demand-driven activities through use of up to 5 % of the PB grants on CB activities within a defined
allowed investment menu to address the gaps and weaknesses identified during the APA. Using a
combination of supply and demand-driven CB support reflects global good practice, which shows that
such approach helps to ensure that ULGs address their unique needs and build their ability to plan for and
procure capacity building services, while the higher tiers of government ensure the core areas of urban
management are addressed. To ensure that the demand-driven CB funds are planned for and utilized
properly by ULGs, the Program, through the federal and regional teams as well as backstopping from the
centre ensures that ULGs conduct proper planning of their capacity building activities, are reporting on
these, and use certified service providers. The CB support will be applied and follow-up in the areas
measured in the APA, including planning, budgeting, revenue mobilization, assets management,
procurement, PFM, accountability and environmental and social safeguards. The demand-driven CB
support, funding from the performance-based grants can also be used for equipment, installations related
with the focal areas of the Program.
Capacity Building to RGs
63.
In line with the increased responsibility of RGs under the Program, support to the RGs will be
increased to help raise capacity to backstop ULGs. Through RG focused DLIs, they will be incentivized
and support the various technical aspects of ULG management and capacity building support. RGs will be
required to develop CB plans for the planned support to ULGs. Implementation of these plans will be part
of the DLI verification process. The support of mobile teams from the federal level to support this will
continue with the transfer of responsibilities to the regions over time. For the four most developed
15
regions/regions with many ULGDP ULGs – Amhara (10), Tigray (8), Oromia (11) and SNRP (9 ULGs),
those regions will be in charge of regional mobile capacity building teams to support the ULGs directly
from the regional level.
64.
The main focus of capacity building architecture is to enhance urban governance and
management to achieve better service delivery. Due to the cross-cutting nature of the subject, CB will aim
to strengthen the governments’ capacity in a variety of subject matters, such as participatory planning,
budgeting, revenue mobilization, financial management, procurement, infrastructure asset management,
contract management and execution, urban planning, environmental and social safeguards, audit, ethics,
fraud & corruption, monitoring & evaluation among others. The intention is both to strengthen the human
capital capabilities as well as systems improvements in these related areas (such as IT system, accounting
system etc.). The APA, integral to the ULGDP II, will provide a comprehensive, regular check on the
capacity improvement and achievement or identify gaps and weaknesses to be improved upon in these
areas (such as e.g. procurement and financial management) for each ULG.
65.
The CB activities will be carried out in two phases considering the transition between ULGDP
and ULGDP II and the key activities are captured in the table below:
Table: Main Capacity Building Activities in Each Phase
Phase 1 (Nov 2013 – Dec 2014)
1. Federal mobile team
2. Two technical consultant teams with CB support
for ULGs (phased out by end of period)
3. CB support to ULGs under program funded by
GIZ (phased out by end of period)
Phase 2 (Aug 2014 – Dec 2019)
1. Expanded federal mobile team and
functions
2. Four new regional mobile teams
3. New urban management course for ULGs
4. Demand-driven CB for ULGs
66.
Further details on the overall design of capacity building activities under ULGDP II are included
in Annex 8.
Choice of instrument
67.
Choice and justification of instrument - the Program will be financed through the Bank’s PforR
instrument. There are three primary reasons for this. First, the ULGDP II is the extension of the current
Government program and forms a core part of the existing intergovernmental fiscal architecture. The
program will continue on a permanent basis, as an ongoing fiscal program leveraging GoE resources.
Second, the basic goal of the ULGDP II is to leverage the institutional performance of the local
governments it will target in an enhanced manner, while ensuring that expanded local urban infrastructure
is developed. Because of the direct relationship between the local government institutional results, and the
Program disbursements to federal and then to local governments, the PforR instrument allows for a
directly incentive-driven approach to achieve the PDO. Through the use of DLIs targeted specifically at
federal and at the regional government actions required to optimize the administration and execution of
local governments, ULGDP II ensures that incentives of the federal, regional and local levels of
government are effectively aligned around the goals of the Program. Finally, the Program will use,
improve and integrate GoE and local government systems, including public financial management, social
and environmental systems management and procurement systems.
16
Program’s Disbursement Linked Indicators
68.
All Program funds will be provided through disbursement-linked indicators (DLI). The first
set of DLIs (1 through 3) will aim to strengthen institutions and delivery of infrastructure and services by
ULGs and will be supported by US$ 323 million from IDA funds over the Program implementation
period. These three DLIs will target ULGs. Each of these DLIs will represent a composite index of
different minimum conditions and performance measures:



DLI 1: ULGs have achieved Program Minimum Conditions (MCs) in the annual performance
assessments 31;
DLI2: ULGs have strengthened Institutional performance as scored in the annual performance
assessments;
DLI 3: ULGs have delivered infrastructure, maintenance and supported job creation as per their
annual plans, as scored in the annual performance assessments, and ensured that value for the
money audits are conducted.
69.
These three DLIs in particular build on ULGDP performance assessment system and will aim to
ensure that;
a. Basic fiduciary, project planning and execution, and environmental and social
management conditions are in place such that local governments can absorb the Program
funding;
b. ULGs continue to strengthen their institutions of urban management;
c. ULGs use program funds effectively in creating infrastructure and delivering services,
achieve the targets in infrastructure delivery, maintenance and development and to
promote the GoE’s strategy on urban development at the city level.
70.
The disbursement system for DLI 1, 2 and 3 is flexible towards actual performance of ULGs. It is
particularly important to note that if Program ULGs perform better (or poorer) that expected (as set out in
the disbursement related targets in the DLI matrix), disbursements will be adjusted accordingly. This
means that if Program ULGDs perform higher than expected they will receive higher than expected
disbursements. If this continues throughout the Program, then additional financing will be needed.
71.
The second set of DLIs (4 through 9) will target strengthening of regional and federal government
capacity so that they can properly fulfill their respective roles towards ULGs. These DLIs (with allocation
in the tune of US$ 57.0 million) will leverage, and disburse according to results achieved by (i) RGs in
providing support to ULGs, and (ii) MUDHCO in strengthening the capacity of and backstopping regions
and the regional support to ULGs as well as annual assessment and audits:




DLI 4: Regional government capacity building and support teams in place and support urban
service delivery;
DLI 5: Regional Government Audit Agencies (ORAG) carry out ULG audits on time. This
addressed a very important area of the program and timely audits is crucial for reduction of
fiduciary risks as well as for the performance assessments:
DLI 6: Regional environmental protection agencies (REPA) review of ULG safeguards on
environmental and social management compliance in a timely fashion;
DLI 7: Regional Revenue Authorities’ support to ULG revenue mobilization, - indicated through
annual consultative meetings on municipal OSR, and up-dated tariff/tax proclamations in order to
address and support the longer-term sustainability of the investments;
31
It should be noted that ULGs will have to comply with the MCs to get access to the allocations from DLIs II and III as well, as
the MCs are the basic safeguards for handling of larger discretionary funds.
17


DLI 8: Completion of annual MUDCHo capacity building activities for program ULGs, RGs and
the Ministry. This promotes that MUDHCo strengthens its capacity to service ULGs and provide
CB support to regions to enable them to provide support to cities, addressing the action plan
outlined for the program;
DLI 9: Timely launch and completion of Program Annual Performance Assessments
(APA)/independent Procurement Audits (IPAs) and Value for the Money (VfM)32. MUDHCo
ensures timely completion of the independent annual performance assessment, and VFM audits,
and establish body for approval and complaints handling – an area which is core for the resultbased budget allocations.
72.
Collectively the DLIs address the PDO. Performance against the first three DLIs is core to the
performance of the ULGs under the ULGDP design and overall disbursement from the Bank under the
Program. DLIs 4, 5, 6, 7, 8 and 9 are intended to leverage the roles to be played by MUDHCo and
regional governments in strengthening the capacity of ULGs for urban development generally, and
specifically for the delivery of Program results. These DLIs are designed to address the challenges and
bottlenecks experiences in the implementation of the current ULG and will provide incentives to address
the core issues on timely audit, social and environmental reviews/audits, revenue mobilization support to
ULGs and strengthening of the entire system and procedures for capacity building.
73.
The independent verification of results to trigger disbursement is key to Program. As per the
current ULGDP, MUDHCo will recruit an independent firm to verify Program results on a timely manner
to provide the basis for disbursements of funds under the Program to the participating ULGs – which is a
specific DLI for the ministry. To mitigate the risk of subjective assessment by the assessment firm, the
assessment results will be shared simultaneously with the World Bank and the government, and will
undergo a quality assurance by MUDHCO (under a technical sub-committee established), and reviewed
by the World Bank. Annexes 1 and 2 provide a detailed overview of the DLIs and links with
disbursements. The Bank will retain a right to make the final decision whether a DLI has been achieved
or not. In addition, the Bank will undertake regular independent quality assurance of the APAs to ensure
continued robustness.
II.
Description and Assessment of Program Strategic Relevance and
Technical Soundness
a. Strategic Relevance
74.
Ethiopia is urbanization rapidly – with its urban population having doubled in 35 years, from
8.5% in 1967 to 17.4% in 2012. In addition, the rapid rates of urbanization are expected to continue. The
UN expects the rate of urban growth to average 3.57 per cent per annum between 2010 and 2015 placing
Ethiopia among the fastest urbanizing countries in SSA. According to UN’s medium variant projection,
the urban population is expected to reach 23 per cent in 2030. This is an opportunity for the country, as
urbanization will be the key to Ethiopia’s transition to a middle-income country, as it will help provide
the ground for the transformation of the country’s economy. Timmer and Akkus (2008) find that rapid
urbanization is a necessary condition for structural change. Financing and sustaining effective
urbanization will be crucial to sustaining the high rates of economic growth Ethiopia has been recording
for the past decade. Ethiopia needs to shift its focus to building its urban economy, not only because this
will be the source of growing competitiveness, but also because of its impact on the macroeconomic
environment, livelihood improvement and poverty reduction.
32
The VfM audit will be introduced from the third assessment and will review the cost effectiveness of the ULG investments
made, the benefits and targets achieved in a standardized manner with an agreed and standardized TOR. The results will fit in the
performance indicators under the DLI 3 (and the results will be integrated in the results from the APAs).
18
75.
However, there are serious challenges to effective urbanization, and this limits the country’s
overall economic growth. These limitations broadly comprise; (i) infrastructure and service delivery gaps
and urban administrations institutional capacity weaknesses, as indicated above in the country and sector
context section; (ii) an increasing urban population and higher demand for the already limited services
and infrastructure, and (iii) a significant fiscal gap to help ULGs overcome these challenges. The fiscal
gap is due mainly to the inadequacy of the current fiscal system in Ethiopia to meet the financing needs of
these fast growing ULGs. As explained above in the Context section, within the fiscal system, ULGs
receive recurrent support from regions through block grants to meet their mandate to carry out the state
functions which have been delegated to them from the regional governments and some financing for core
public sector employee salaries. In addition to these resources, there is almost no support for capital
investments. In most cases, ULGs have to meet the infrastructure investment financing through their own
source revenues, see table below which presents the financing sources for urban development in the
country.
Urban development spending at different government levels, 2011/12 (EFY 2004)
Urban
Total Public
Urban dev. as
development
Spending
% of total
(ETB million)
(ETB million)
Urban dev. as pct
of total urban dev.
Federal
232.7
52,893.8
0.4
F/R Unassigned Capital
223.7
15,532.2
1.4
4.4
Regional (Bureau)
869.6
28,534.2
3.0
17.0
Woreda Level
658.3
27,456.5
2.4
12.8
3,148.1
3,148.1
100.0
61.3
Municipal (OSR)
4.5
TOTAL
5.132.3
127,564.8
3.7
100.0
Source: Based on data from IBEX/MOFED. As consolidated budget accounts only report on spending from
treasury sources (i.e., federal/state revenues and block grants) and external sources (international grants and
loans), but exclude local expenditures funded from municipal own source revenues. In order to get a view that is
as comprehensive as possible, it is assumed that municipal own sources are fully spent on urban development.
Caution should be used in interpreting these data, as there is sometimes inconsistencies in categorization and/or
coding of the underlying budget data, which makes it difficult to consistently isolate urban development spending.
76.
Analysis of ULG fiscal position confirms this fiscal gap: Study of 12 sample ULGs shows that
even with future improvement in revenue mobilization at current growth levels, ULGs will need
substantive support in order to achieve the GoE urban development objectives: Revenues of these ULGs
vary within a board range of ETB 27 (US$ 1.5) and ETB 400 (US$ 22.2) per capita. At the national level,
as indicated in the table below, all municipal revenue constitutes only about 3% of total public revenues
in the country33. The most significant revenue assignments are at the federal and regional levels. Given
the specific figures in the sample ULGs and the aggregate national picture, the current system of relying
on ULG own source revenues to meet most, if not all, ULG institutional and infrastructure/service
delivery mandates is not feasible. Without additional funding, ULGs will operate at a sub-optimal level
and not fulfill their roles as economic growth engines for the country.
33
Dege Consult, UI and SuDCA, ELGRS, Component 2a, November 2013.
19
Revenue profile for Ethiopia (actual revenue collections, 2011/12, EFY 2004
ETB (million)
Percent
102,863.7
97.0
o/w Federally Collected Revenues
85,879.7
81.0
o/w Regionally Collected Revenues
16,983.9
16.0
3,910.2
3.7
13,073.7
12.3
3,148.1
3.0
106,011.7
100.0
Consolidated (Fed / Regional) Revenue
o/w Collected at Bureau Level
o/w Collected at Woreda Level
Municipal Revenue
Total Public Revenues (excluding Grants)
Source: MOFED/IBEX
77.
ULGDP II is intended to address these in the context of the overall evolution of the government’s
program and the intergovernmental fiscal system in Ethiopia. The Program rationale is to address the
current urban infrastructure gaps and strengthen the institutions of both the ULGs involved in service
delivery and the regions and the MUDHCO for support for urban management and improved urban
services. The Program will be an important continuation of the improvement of infrastructure and
services in the 18 cities currently participating in the program, through performance based capital grants,
as well as an important kick-start on urban development in the new 26 ULGs. The Program will address
urban poverty through the provision of employment opportunities during civil works activities in the
ULGs, improved infrastructure important for private growth, markets opportunities and improvement of
service in core areas of importance for urban development. It will also catalyze enhanced contributions
from the regional and city level for core infrastructure and services.
78.
To address the fiscal gap, the IDA contribution to the Program will significantly increase the
resources for urban infrastructure and service delivery. The contribution of IDA to the annual
performance grant of the Program, which will be around on average US$ 64.6 million p.a. (US$ 323
million /5 years) or 1,214,480,000 ETB constitutes about 24 % of the estimated spending on urban
development.34
79.
Importantly, the institutional focus and goals of the Program whereby resources to ULGs will be
made available only as a result of proven enhancements in their institutional performance address the core
issues facing the urban system. This approach is appropriate in the current policy environment where GoE
is significantly enhancing its focus on and support to ULG management and service delivery.
80.
There is a strong case for public funding for the Program. The types of public goods supported by
the program would never be provided at a sufficient level without the ULG interventions. Private
financing for key urban service delivery and infrastructure services, through public-private partnership
(PPP) schemes, is an important option to consider and will play a role. However PPPs are limited in
nature – they cannot be used for all urban services or infrastructure-, they require significant local
government institutional capacity to formulate, contract out, properly supervise implementation and
mitigate various risks of failure by the private companies contracted – which currently does not exist in
the majority of local governments; and they can only be implemented in national environments where the
overall legal and regulatory framework is conducive and friendly towards PPPs. Given these limitations,
34
Ibid, ELGRS, Component 2a, Table 4.5 As is the case with all reports generated by IBEX, we should be cautious in
interpreting these data. For instance, it is possible (in fact, it is likely) that inconsistencies in the coding of the underlying budget
data allows to identify some—but not all—urban development spending. (Exchange rate: 1 US$ =18.8 Birr to US$ is applied in
this case).
20
among others, in the targeted 44 ULGs in the Program, public financing is assessed to be the optimal
decision.
81.
The proposed Program will contribute directly to the GoE’s Growth and Transformation Plan
(GTP), especially the pillar on enhancing expansion and quality of infrastructure development, enhancing
expansion and quality of social development (e.g. through creation of services and employment
opportunities) and building capacity and deepening good governance and the new ECPI, where the
performance measures in the APA is designed in a manner closely related with the objectives of the new
strategy. Urban development is a major tool for ensuring that there are efficient growth centers for the
country-wide development and creation of employment opportunities through investments in
infrastructure and the benefits of this afterwards for private development in other sectors. The laborintensive investments funded under the ULGDP, and promotion of the activities of micro and small
enterprise development through involvement in the execution of Program infrastructure investments, are
key priorities. The focus on improved OSR in the incentive system and CB support elements are also
important in providing a strong, consistent and buoyant ULG revenue base and improved future levels of
infrastructure investments. Finally, the Program will provide strong incentives for ULGs to focus on
improved service delivery and urban infrastructure through incentives for matching funding for urban
investments, improved maintenance of the constructed infrastructure and performance measures on
provision of service standards/citizens’ charter and achievement of these.
82.
Given the importance of urbanization and the role of ULGs for Ethiopia’s overall economic
growth on the one hand, and the current fiscal gap which prevents ULGs from fulfilling this role on the
other, the Program is assessed to be strategically relevant. In addition to helping reduce the fiscal gap by
raising local government institutional capacity, the Program is also fully aligned with the GoE’s policy
priorities.
83.
The World Bank, as a global development institution, can, together with its partners, be an
effective broker of knowledge and play a catalytic role as facilitator for the urban reform process in
Ethiopia. The Bank is particularly well positioned to assist the GoE with the evolution of its urban
infrastructure finance and management system, due to the long standing partnership in the urban sphere
(see paragraphs 14 and 15), its regional -particularly through the design and implementation of urban
focused PBGs in Tanzania, Uganda and Ghana, among other eastern and southern African countries- and
international experience on similar programs and their potential to provide long-term financing as
required.
b. Program Technical Soundness
84.
The technical design of ULGDP II draws heavily from the extensive experiences of Bank – GoE
partnership in the urban sector, most recently the ULGDP. The four annual performance assessments of
the ULGs supported by the program, a program midterm review in 2011, as well as a number of specific
technical design studies, including a comprehensive LG revenue enhancement study 35 and a recent
benchmarking study of urban service delivery needs and coverage36are among the body of knowledge
produced to determine the technical elements of the Program.
85.
The proposed design and the activities to be implemented under the proposed ULGDP will
contribute to the realization of the Program results and development objective. Experiences from the first
phase of the program and from other similar projects in relevant countries with the similar modalities
have proved that the types of activities to be implemented using the Program funds at the ULG, regional
35
36
Dege Consult, Urban Institute and SuDCA Development Consultants: ELGRS, Component 2a Report, November 2013.
SUDCA, August 2013.
21
and at the MUDHCO levels are highly likely to produce results of improved coverage and quality of core
urban services and of strengthening of the institutional capacity of the participating ULGs, regions and the
federal agencies involved.
86.
The Program aims to strengthen relevant stakeholder incentives to contribute to Program
objectives, through the application of the following elements embedded in its design:
 Use of enhanced government systems to strengthen capacity at both the federal, regional at city
level (the participating ULGs) for urban development 37 , within flow of funds, financial
management and operations;
 Focus on ULGs as the main implementing bodies - The ULGs will be responsible for the
implementation of the Program activities at their level. The Program therefore provides an
opportunity for the participating ULGs to improve their capacity – thus contributing to the
achievement of the Program objective;
 Place natural incentives through focus on performance – although each ULG will be given a
tentative allocation (also referred to as indicative planning figure (IPFs) for the duration of the
Program period, the actual amount of funds they receive will be based on them meeting and
maintaining the minimum condition throughout the Program period and their performance
outcomes. The performance assessment system is at the core of Program design since it will be
the main driver for ULG capacity building and is directly linked to the Program results and
disbursements. The assessment tool, which is based on the experiences from the current ULGDP
and from other relevant cases in different countries, has been refined during preparation, and will
be reviewed during implementation, if necessary. By the end of the Program most ULGs are
likely to receive less or more than their tentative allocations, or IPFs, depending on their results.
The annual performance assessment has therefore adequate inbuilt sanctions and incentives
mechanisms;
 Get the focus areas right. The incentives will support core urban management areas of such as
proper planning and budgeting, revenue mobilization, asset management planning, procurement
and PFM, as well as strengthening of good governance and accountability;
 Provide a flexible capacity building to allow ULGs to respond to the incentive mechanism. All
participating ULGs will benefit from municipal capacity building, to prepare them to receive the
significant performance grants during the next assessment and ensure improved capacity for all
ULGs by end of Program period;
 Strengthen the links between investments, incentives and capacity building support, whereby the
CB support and support is applied in a targeted manner to address identified gaps in the annual
performance assessments;
 Support the incentives of federal and regional level for backstopping support, CB, oversight and
performance of roles vis-à-vis the ULGs through result-oriented allocations.
 Introduce the PBG element gradually for the new ULGs, with a smaller grant funding in the first
year linked with compliance with MCs;
 Strengthen longer-term sustainability of the investments made and the entire ULG funding system
by strengthening of the focus on improved municipal revenue mobilization through introduction
of strong incentives for improved ULG own source revenues and strengthening of the
backstopping support and guidance from the regional and federal level of government;
37
ULGDP has developed a number of guidelines issues by MUDHCo, including for Assets Management, PFM, Capital
investment planning, the program operational manual etc, which with slight up-date and refinement, will be used for the second
phase as well.
22

Strengthen the oversight, audit and safeguard procedures at all tiers of government, and address
the few bottlenecks identified in the first ULGDP.
87.
Program design builds on the experience of ULGDP, and addresses the challenges of ULGDP
raised in the earlier section of this work. These include ensuring that the annual assessments are
undertaken on time, strengthening the capacity building support (supply and demand side), taking Addis
out of the Program scope to ensure the unique circumstances of the primate city are addressed properly
under a possible Addis specific project, and the expansion of the incentives to support at all tiers of
governance (especially the involvement of the regional governments). In addition, the design of the
Program has benefitted from the knowledge and experiences of internal and external experts and the
experiences from performance-based grant systems from various countries. An increasing number of
countries have introduced performance-based fiscal transfers to local governments, and most recently
linked to PforR operations with focus on urban investments, such as Uganda and Tanzania.
Box: Implementation lesson learnt thus far of the Tanzania Urban Local Government Strengthening ULGSP
PforR
The design of this Program incorporates key lessons learnt of the one-year implementation track record of the
Tanzania ULGSP PforR. The overall design of ULGSP is similar to ULGDP II. Under ULGSP, the objective is to
improve institutional performance for urban service delivery in 18 local governments across Tanzania. Similar to
ULGSP, the Tanzania Program links disbursements to the achievement of verified results in key areas of urban
management and service provision, municipalities can use the funds to prepare and build basic urban infrastructure.
The Tanzania Program also includes capacity building support to local governments to help them achieve the
performance targets. Experience in the first year of implementation shows that the Program is on track with: (i)
independent performance assessment mechanism functioning well, (ii) the first round of performance-based
disbursements already made on schedule, (iii) new opportunities introduced for training and to strengthen the
community of practices between municipalities, and (iv) the first phase of municipal investments already under
construction. Three lessons learnt of from the implementation of the Tanzania PforR, which have been incorporated
into the design of this operation, are: (i) that a randomized field-based quality assurance review of the independent
assessment by the Bank is critical for good governance and to verify the accuracy of the independent assessment - a
desk top review is not sufficient; (ii) given that the quality assurance review can be a sensitive process, there is
benefit in utilizing members outside of the core Bank task team for the quality assurance review and obtain a fresh
perspective and (iii) ensuring that all performance based indicators are unambiguous and designed in a way that is
not subject to interpretation.
88.
Furthermore, to ensure the sustainability of investments created by using Program funds and of
the existing stock, each ULG will be supported in undertaking assets management, capital investment
planning, operational and maintenance planning, and revenue enhancement planning. The support to
improvement of OSR will include the update of revenue data base by source and revenue targets, billing,
collection, enforcement, complain resolution, and information, communication and capacity building
systems.
89.
The basic features of the current assessment system have been refined to enhance ULG capacity
in OSR generation, management of fiduciary, social and environmental systems, project implementation,
operations and maintenance. Minimum conditions, comprising requirements in planning, PFM, social and
environmental systems management and procurement must be achieved and maintained by participating
ULGs throughout the Program and are put in place to ensure minimum capacity of the ULGs to handle
the Program funds in full compliance with Program’s fiduciary and safeguards requirements. If ULGs do
not comply with the minimum conditions, they will not get access to the funds from DLIs I, II and III, but
will be supported through the capacity building activities. In addition to the minimum conditions, a set of
performance measures target urban institutional performance in core areas such as planning, budgeting,
PFM, OSR, procurement, assets management and governance as well as infrastructure delivery. These
23
measures are detailed in a transparent performance assessment manual (as part of the Program
Operational Manual/guidelines), prepared by the government for the Program. The performance results
approval and verification protocol process will be formalized through systems and procedures for
approval, complaint handling and publication and the assessments will be conducted in due time to fit
with the ULGs budgeting and planning cycle, which will be supported through federal incentives for
timely completion. The performance assessments will continue to be outsourced to a private, neutral and
objective company to ensure that results are objectively measured, credible and that the general credibility
of the entire system is maintained.
90.
The Program will maintain the systems and procedures developed under ULGDP with the
following refinement and improvements:
How ULGDP II incorporates lessons learnt from ULGDP in its design
Area
Annual performance
assessment cycle
synchronized with
ULG planning and
budgeting cycle.
Performance
measures sharpened
and targeted
Lessons learned
Important to ensure that results fit with
the ULG planning and budgeting
process
Action taken
This will be ensured with a clear time-plan and
linked with the DLI on timeliness of the APA
and VFM audits. This will be monitored and
disbursed against a DLI (currently, DLI 9).
Although there were a limited number
of performance measures under
ULGDP, the system of registration,
data collection was very
comprehensive with more than 70 data
collection points.
System of
performance
incentives
strengthened
Performance-based grant allocations
incentivises performance, but can be
strengthened through a system where
every incremental improvement is
rewarded.
Focus on municipal
own source revenue
improvement and
longer term
State revenues have improved faster
than municipal revenues, and not all
ULGs managed to improve the real
value of the collected municipal
The system will be simplified, with the number
of measures reduced; and with clear description
of how these are measured in the APA manual,
which is annexed to the Program operation
manual. The new indicators focus on results,
such as delivery of infrastructure targets, value
for money and actual improvements in the ULGs
sustainability, such as increase in own source
revenues38. Second, the system of approval of
results will be formalized with the technical
program committee and the Steering Committee
under the leadership of MUDCo.
The current static system, where ULGs are
grouped into (1) non-access, (2) static allocation
and (3) accelerated allocation (+ 20 percent) will
be improved and the system of performance will
be fully integrated with the allocation formula
on a continuous scale where incentives are kept
on all levels of performance, on a scale between
0–100, and where every point has an impact on
the allocation.
Strengthening of the incentives to improve
municipal core revenue mobilization (though the
MCs and PMs in the annual assessment system),
and strengthening of the environment for this
38
An example on how performance measures in the coming Program have been strengthened is within the area of
ULG own source (OSR) mobilization. Whereas the current APA system focus on availability of revenue
enhancement plans and achieved targets (state and municipal), the future system will add assessment of the actual
results – i.e. improved OSRs, improved use of these sources on municipal capital investments (reward of matching
funding), and focusing on the core important municipal revenue sources, instead of the total of state/municipal
revenues. Second, the OSR is supported through measures to incentivise the regional efforts to create a conducive
environment for ULG OSR mobilization. Finally, the capacity building and guidance to ULGs on OSR will be
strengthened from the regional and federal levels.
24
Area
sustainability
strengthened
Lessons learned
revenues.
Capacity building
support strengthened
Mostly supply driven, with one federal
team under ULGDP.
Involvement of the
regions in core areas
of importance for
Program objectives
The ULGDP has proved the
importance of the regions in the
support of cities
The importance of
timely audit
ULGDP has improved the coverage
and timeliness of audit of cities’ final
accounts
Flow of funds and
reporting improved
ULGDP has proved the importance of
timely and up-front grant allocations
and disbursements to ULGs to ensure
that absorption and utilization of grants
is strengthened
Action taken
through improved dialogue between regions and
municipalities and through strengthening of the
CB support to ULGs within this area.
Supply side capacity building will be
strengthened and supplemented with a demand
driven element. As well, regional governments
will be strong involved in the capacity building
support, especially in the 4 regions where many
ULGs are involved. This will also be supported
by DLIs for the regional and federal CB support
to ULGs.
Regions will be technically involved and
incentivized to take active part in the CB
support, facilitation of cities OSR, social and
environmental safeguards, audits, and
backstopping support as well as mentoring and
monitoring. Supported by regional-government
specific DLIs (DLIs 4,5,6 and 7).
This will be further strengthened in the ULGDP
II through a specific DLI focusing on timeliness
of the audit (DLI 5), and through strengthening
of the minimum conditions to focus on audit
results.
A more simple, timely and predictable system of
disbursements of grants will be introduced with
bi-annual equal installments and improved
classification of the expenditures to track actual
use of funds.
91.
Based on the above, the technical design of the Program will contribute to the overall goal of
efficiently producing results and reaching the Program’s objectives. The Program technical design reflects
international good practice in the overall urban sector and specifically in technical standards and typology
of Program activities. Furthermore, the design ensures, to the extent possible, that the incentives are in
place for Program stakeholders to effectively contribute to the Program’s success. Therefore, the Program
is assessed to be technically sound.
c. Institutional Arrangements
92.
The institutional arrangements will be based on the experiences from the current ULGDP, with
clear division of tasks and responsibilities between involved parties, as per the GoE structure and
consistent with existing legal provisions, regulations and guidelines. An additional enhancement under
the Program to the institutional arrangements established under ULGDP, as discussed earlier, will be the
technical involvement of the regional governments in implementation, see Annex 5 for a diagram of the
main agencies involved.
25
Federal level
93.
At the federal level,
i.
MUDHCo will have the following main tasks:
 Capacity building architecture of the Program, including direct support to
regional and urban local governments;
 Establishment and operation of the federal mobile teams as described in the
annex on capacity building;
 Monitoring and backstopping support of the regional mobile teams;
 Program management, including the procurement and management of the annual
performance assessment and value for the money audits;
 Monitoring and evaluation;
 Program reporting, including the mid-year year and annual program reports.
 Backstopping and guidance on issues such as ULG planning, assets management,
service delivery standards, and own source revenue mobilization (standard
proclamations, guidelines, best practices, etc.).
 Accounting for the use of ULGDP II funds to the MoFED.
ii.
iii.
iv.
MoFED will have the responsibility for transfer of funds, financial management,
including reporting and compilation of federal fiscal reports;
The Office of the Auditor General (OFAG) will be in charge of the annual Program audit,
which will include all Program entities (44 ULGs, 9 RGs and MUDHCo) to ensure that
Program resources are budgeted for and disbursed according to the Program’s
expenditure framework, and that Program accounts are audited as per statutory
requirements;
Support to FEAC to strengthen their role in the Program.
94.
As per the current ULGDP, MUDHCo will have the overall responsibility for accounting the
ULGDP II funds to MoFED. Day-to-day coordination of the Program will be handled by the Urban
Governance and Capacity Building Bureau (UGCBB) as per current practice (see Annex VII for
organizational structure of MUDHCo) and the diagram with an overview of the main institutional
arrangements. The division of tasks will be clearly outlined in the ULGDP-II Program Operational
Manual, which is currently being updated to be ready for the start of the second phase.
95.
As explained above in the capacity building section and in the annex on capacity building,
MUDHCo will also be responsible for the capacity building architecture, the federal capacity building
team, backstopping of the regional teams, and of the Program and management of the annual performance
assessments/value for the money audits. The technical focus of the capacity building support will
primarily be the gaps identified at the Program’s annual performance assessment. The results of the
ministry’s capacity building support to RGs and ULGs will be annually measured through a distinct DLI
(see the DLI section on this for further details).
96.
MUDHCo will be responsible for overall Program reporting. It will consolidate and analyze the
field data submitted by regions and ULGs and update the Program’s results framework twice a year. It
will also produce and submit to the World Bank a midyear and an annual Program report, with
information on the following:
97.
The midyear will cover the following issues:

Summary of aggregate Program expenditures and Program infrastructure delivered by
ULGs.
26




98.
Execution of the MUDHCo capacity building plan.
Summary of aggregate capacity building activities undertaken by ULGs and regional
governments.
Summary of aggregate environmental and social performance reports from each ULG,
including information on grievances.
Summary of progress against Program’s performance indicators.
The annual Program report will include all the above, plus:



Summary of the assessment results, including the performance of Program ULGs and the
disbursed amounts.
Summary of aggregate information on procurement grievances.
Summary of aggregate information on fraud and corruption issues.
99.
MUDHCO has been implementing the current program in a satisfactory way and is to be
commended for the program’s achievements highlighted above. Importantly, however, there staffing gaps
in the ministry, where 73% of positions in UGCBB and 64% of positions in the program management
department are filled. The ministry is also implementing other operations in the country, in addition to the
ULGDP, with similar degrees of high capacity and staffing demands. The significant geographic and
technical scale up of the ULGDP under the proposed PforR, and the existing staffing gaps, if
unaddressed, bring considerable risk to the achievement of the operation’s development objective.
Therefore there is a serious need to fill the personnel gaps and further strengthen capacity of UGCBB.
The specific actions on this area are detailed in the Program Action Plan below, and the strengthening of
the federal capacity through the mobile teams to provide support to regions and ULGs.
100.
As per ULGDP, MoFED will be responsible for handling the flow of funds to the regions and
Program ULGs. It will also prepare semi-annual and annual financial reports. The flow of funds will be
simplified compared to the existing system, with two tranches per year, based on results of annual
performance assessments.
Regional level
101.
At the regional government level,
i.
Regional government Bureaus of Trade, Industry and Urban Development (BTIUD) will
be the core coordinating office. They will be responsible for the following:
 Capacity building of the ULGs in their jurisdiction;
 Consolidation of progress reports from ULGs;
 Oversight functions and backstopping support on various tasks related with the
Program.
ii.
Regional audit offices (ORAG) will conduct, either directly or through delegated
authority, the external audit of ULG audits;
iii.
Regional environmental protection agencies (REPA) will ensure compliance at the ULG
level with the environmental regulations;
iv.
Bureaus of Finance and Economic Development (BOFED) will manage flow of funds at
this level, and consolidate the fiscal reporting from the ULGs for onward submission to
the federal level;
v.
Regional revenue authorities (RRAs) will provide support and guidance to cities within
urban revenue mobilization;
27
vi.
Capacity building support to the ULGs, especially organized by the 4 regions Amhara,
Tigray, Oromia and SNNPR where there is a stronger capacity available, and where there
are several ULGs enrolled, where regional mobile teams will be established to support
ULGs.
102.
The track record of RG support to ULGs to date has been mixed. While some regions have been
executing their capacity building and oversight mandates vis-à-vis the ULGs in a satisfactory and even
sometimes proactive manner, other RGs have not performed as well, exemplified by delayed external
audits, or lack of response to ULG request for the approval of bringing flexibility to tariff and tax
structures. Given this mixed track record and the increase, under ULGDP II, in the technical role to be
played by RGs, particularly their role for supporting the enhancement of ULG capacity, and the addition
of four more RGs who did not participate in the ULGDP, collectively increase the risk at this tier of
government against the achievement of Program PDO. It should be underlined, however, that the four
new RGs (Afar, Benishangul Gumz, Gambella and Somali) will only have one Program ULG each in
their jurisdiction, with a total population of 284,093, which constitutes 6.5% of the total population in 44
ULGs. Therefore, the addition of new four RGs to the Program is expected to add a marginal risk to the
overall risk at the regional government level. The four regions will be supported by the Federal Mobile
team, which will also provide support to Diwa Dawa and Harar. The Program design takes these risks into
account and mitigates them, to the extent possible, through (i) DLIs which target results at the RG level
and Federal level CB and backstopping support, and (ii) Program action plan elements which target this
tier of government.
ULG level
103.
At the ULG level, the mayor’s office will be responsible for the overall performance of the ULG,
and based on a signed Program participation agreement, the tasks will be clearly defined in areas of
matching funding, compliance with MCs, performance criteria, accountability requirements and
operations. The project selection and approval will be done at the city council level after involvement of
citizens in the process of identification and prioritization and the established appraisal committees with
heads of departments, chaired by the mayor or the city manager. ULGs will also ensure compliance with
all financial management, procurement and environmental and social safeguards and regulations. If key
parts of these areas are not complied with as stated in the Program’s minimum conditions, no Program
funds will flow under DLIs 1, 2 and 3.
104.
Analysis of the current staffing positions at the ULG level shows that they are substantially filled,
in most of core areas of importance for the operations of the ULGDP, although there are some gaps to be
addressed39. Based on data from 27 ULGs, staffing at OFEDs is 82% filled, with an average staffing
number of 39. 84% of core financial management and procurement positions are filled, with an average
number of 22 staff. Audit and inspection roles are 85% filled, with an average number of 5 staff. In
budgeting and planning, a review of data from 15 ULGs shows gaps with 64% of the positions filled, at
39
Analysis based on a review of the following: 1) Field data collected on required vs filled staff positions for ULGDP II IFA; 2)
review of the general situation in the 12 sample ULGs as part of the review under the Ethiopian LG Revenue Enhancement
Study; 3) review of previous studies, e.g. supported by GTZ on the baseline for the coming ULGDP CB/Technical Assistance
support and the Worda and City Benchmarking studies. It should be noted that the ELGRS did not collect quantitative data on
staffing positions, but the interviews and meetings with the 12 ULGs confirmed the situation, reflected in the quantitative figures
presented here and the challenges with staff turn-over and shortage of engineers/technical staff. Second, prior to the start of the
ULGDP technical assistance for the preparation of cities for ULGDP II, a review was undertaken of the strengths and weaknesses
of the cities in areas of PFM, procurement, environmental safeguards, internal audit, etc. (GIZ supported, un-dated documents),
which has benefitted the assessment as well). Also, the Woreda Benchmarking Study WCBS V 2013: Results of the supply-side
evaluation of local government in Ethiopia Draft report as of June, 1st 2013 Alexander Wegener:
https://dl.dropboxusercontent.com/u/7492328/WCBS V Supply Side Report.pdf provides important information about the
staffing situation and challenges at the city and woreda levels.
28
an average of 4 positions filled. For 19 ULGs where data is available, the average number of
engineers/similar positions is 7. In terms of educational level, the average number of staff with BA/Bsc or
higher education is 15 positions but with a great variation from 3 (Motta) - 44 (Hawassa). The 26 new
ULGs have a lower number of filled positions (77 % are filled (31 staff) against 86% (47 staff) for the 18
existing ULGs, and less capacity in the various core positions, see Annex 7, and the summary table
below:
Table: Summary of staffing positions required and filled
City
Required
OFED
positions
(#)
Actual
OFED
filled (#)
Position filled
(average, %)
Position filled
Finance/
Procurement
(%)
Position Filled
Audit /
Inspection
(%)
All sample
50
39
82 %
84%
ULGDP
57
47
86%
NonULGDP
42
31
77%
N= 27
N = 27
N= 27
No. in the
sample
Position Filled Technical
Staff
(engineers etc.) (#)
85%
Position
Filled
Budget &
Planning
(%)
64 %
7
Staff
with
BA/Bcs
(filled)
(#)
15
88%
86%
89%
8
17
79%
85%
61%
5
12
N=26
N=26
N=15
N =19
N= 27
Source: Data based on collected data from 27 ULGs by SuDCA for the ULGDP IFA preparatory work and processed for by the Technical
Assistance. For some positions, only data from a lower “N” is available. For the technical staff, data is not available on the official required
positions.
105.
Given the substantial increase in the funds which will be made available to the new 26 ULGDP
ULGs under the Program, having key staff, particularly in these new ULGs, becomes critical to ensure
that the funds are used in the appropriate fiduciary, budgeting, planning, consultation and other Program
framework and rules. The design of Program will mitigate this risk by making core staffing a Program
minimum condition. It is the agreed with the ministry that the Program ULGs should have the following
requisite staff by Program effectiveness; (i) city administrator, who is also the main coordinator of the
ULGDP II operations, or another dedicated officer (ii) finance officer, (iii) 2 procurement officers, (iv)
municipal engineer, (v) physical/urban planner, (vi) environmental and social systems management
officers.
Coordination arrangements
106.
A program coordination committee (Steering Committee) will be established with representatives
from MUDHCo and MOFED to ensure strong coordination of issues on planning, allocations, flow of
funds, compilation of data and approval of the results from the annual performance assessments (APAs).
A Program technical sub-committee (PTC) comprising key technical staff of MUDHCo and MOFED will
be formed under this committee, which will, among other things, review the results of the APA and
provide quality assurance of the results, as well as handling of complaints in a streamlined manner. The
PTC will meet quarterly and also carry out periodic evaluation of program implementation against
objectives and provide technical guidance with support from the World Bank. It will bring policy issues
to the larger and higher-level coordination committee and ensure that the Program is implemented in line
with the Program Operation Manual.
Fraud and Corruption
107.
Fraud and corruption during Program implementation that may affect achievement of results will
be addressed by strengthening the implementation of existing fraud and corruption policies and measures
available at the ULGs level. The detailed discussions of fraud and corruption within the country context,
and mitigating safeguards are included in the IFA, and the program design contains a number of core
initiatives to address the risks of this, such as especially the: i) minimum access conditions for the PB29
grants, which also encompasses a grievance/complaint mechanism; and conditions for financial
management; ii) performance measures on core areas of importance for F&C such as participation,
financial management, procurement, accountability and transparency, iii) procurement audits (first as
covered by the APA, and from the 3rd assessment as conducted separately by the PPRA, with results
which impact on the level of funding for each ULG; value-for-the-money audits (from the 3rd APA), and
iv) comprehensive CB support from the federal and regional level, including team members in the TA
support with expertise on participation, accountability and ethics.
108.
The Program has high levels of ownership at all levels of government (federal, regional and
local). The coordinating ministry (MUDHCo) has been the lead entity in the implementation of ULGDP.
The project management aspect of ULGDP has been consistently rated satisfactory – with the challenge
of the timeliness of APA. The ministry, particularly the minister, is the main driver of the policy to scale
up ULGDP. Regional and local governments of ULGDP also have a strong commitment to the Program,
indicated by their past performance of signing participation agreements annually and having contributed a
significant amount of their own revenues as counterpart funding to match the IDA funds. The new 26
urban local governments are equally committed to the Program and have expressed strong wish to be
included over the various rounds of discussions during preparation.
III.
Description and Assessment of Program Expenditure Framework
109.
The expenditure framework of the Program will be a total of US$ 556.53 million. US$ 499.53
million will constitute the performance-based allocations for investments and will go directly to Program
ULGs for investments specified under the investment menu (Annex 4). US$ 30 million will be for the
results for which the regional governments will deliver (of which US$ 13 million are related with capacity
building support to the ULGs) and finally US$ 27 million will support and leverage MUDHCO activities
and results directly linked to the execution of the performance-based grants especially for capacity
building at federal, regional and ULG levels as well as for program management, especially the
APAs/VfM audits. The table below provides the overview of the main elements in the program
expenditure framework.
Program expenditure framework (US$, million)
Classification
Performance based -fiscal transfers to 44 ULGs
(DLIs 1, 2 and 3 which measure Program
minimum conditions and performance measures)
Of which from regions and cities*
Of which from regions only
Of which from cities only
Capacity building and ULG support by regional
governments (linked to DLIs 4, 5, 6 and 7)
Federal support and capacity building Program
administration (DLIs 8 and 9)
Total
40
41
FY2015
(EFY
2007)
78.7340
FY2016
(EFY
2008)
105.2041
FY2017
(EFY
2009)
105.20
FY2018
(EFY
2010)
105.20
FY2019
(EFY
2011)
105.20
Total
499.53
28.60
13.13
15.47
5.20
36.98
18.22
18.76
5.20
36.98
18.22
18.76
7.20
36.98
18.22
18.76
5.20
36.98
18.22
18.76
7.20
176.53
86.01
90.52
30.00
5.40
5.40
5.40
5.40
5.40
27.00
89.33
115.80
117.80
115.80
117,80
556.53
Comprised of US$50.13 million IDA and 28.60 US$ million GoE funds from regions and ULGs.
Comprised of US$68.22 million IDA and US$ 36.98 million GoE funds from regions and ULGs.
30
* Regions and cities contribute to the performance based transfers in the following manner: Amhara, Oromiya,
SNNPR, and Tigray: 30% funding in addition to IDA funded grants, DRS regions: 20%. Existing 18 ULGDP ULGs:
30%, new cities in the DRS regions 10% and other new cities: 20%. Harar and Diwa Dawa contribute 50% in
addition to the IDA funded grants.
110.
Expenditure performance under ULGDP has been satisfactory, with no major expenditure
performance issues throughout implementation since 2008. Due to satisfactory implementation and higher
than expected disbursements, additional IDA and counterpart funding were added to the Program in 2011.
It is expected, albeit with some potential delays in the final completion, that all funds from the current
ULGDP will have been exhausted by June 2014, as the ULG commitments are above the available
funding from the ULGDP grants whereby ULGs will have to contribute more from OSRs and/or other
sources. The new system of disbursement linked allocations linked directly with the results of the APAs,
advanced timing of the APAs, and higher reliance on GoE systems and procedures, is expected to further
enhance the current implementation and absorption rates.
111.
The simple population based allocation formula of the ULGDP, which is adjusted according to
the performance of the ULG as determined in the APAs will be maintained. The disbursement model will
build on and further refine the current system, and be based on the relative performance of ULGs, where
every point will count in the calculations of the disbursement amounts, and will ensure that each ULG is
compared with the average performance, and rewarded if above this average. The current static system,
where ULGs are grouped into 1) non-access, 2) static allocation and 3) accelerated allocation (+ 20%)
will thus be improved and fully integrated with the allocation formula on a continuous scale where
incentives are kept on all levels of performance, on a scale between 0-100.
112.
Disbursements of Program funds from IDA to government will be in one tranche, and from
government to ULGs in two predictable tranches per annum, based on the results from the DLIs linked to
the assessment results42 (flows to ULGs will be in the beginning of July and January of each year). The
annual disbursement amount will be predictable as determined in the APAs. Program funding will be
predictable and in full sync with local government budgeting cycle. To ensure predictability, ULGDP
indicative planning figures (see Annex 3) will be shared with ULGs and RGs the entire period, although
actual annual disbursements will be based on performance assessment results and compliance with the
DLIs. Like the current ULGDP, the Program funds will be protected from any budget cuts. Cities will be
informed about their actual disbursement for the following year in Nov./Dec. of each year (preliminary
figures, and in January after the results of the final audit reports have been incorporated), immediately
after the assessment exercise, so as to give the ULGs ample time for their planning and budgeting process
which is completed in May of each year.
113.
The current ULGDP is included in the national budget and it is proclaimed at the federal level
under revenue and expenditures for MUDHCo. To ensure that the reporting of the Program expenditures
are integrated into the national PFM system codes will be established in the charts of accounts for regions
and cities. This will bring greater ease in accounting for expenditure from the Program, consolidating
aggregate ULG figures and strengthening the use of the national PFM system, IBEX. Ethiopia has a welldeveloped budget classification and charts of accounts, which the Program will make use of, and few
additional codes will be established for the main expenditure items in the GoE’s Charts of Accounts.
114.
Program grants (performance-based capital grants and capacity building funds) are to be seen as
specific purpose grants in the GoE Fiscal Decentralisation Strategy, 2004 and will target specific
outcomes in terms institutional improvements and infrastructure and service delivery, although these are
42
Instead of the current systems of fund requests and replenishments, based on actual use of funds.
31
not sector specific, but multi-sectoral reflecting the needs for urban development across sectors. It will
promote the future roll out of support to ULGs as a genuine part of the intergovernmental fiscal
framework.
115.
As explained in detail above in Performance Grants to ULGs section, ULGDP PBG grant will
have indicative allocations -– see Annex 3 for detailed amounts per each Program ULG. The actual
annual disbursement to a given local government will depend on that local government’s performance as
determined by the annual performance assessments. The graph below shows the typical range of per
capita disbursement depending on the performance of a ULG against the average performance (in this
example set as 60 points on a scale from 0-100), and the allocation is the first year 2014/15 with an
average of US$ 15.69 per capita (for the existing ULGDP ULGs), and with examples of what average
performance scores on the three ULG performance-related DLIs will result in. New 26 Program ULGs
will only get access to the DLI I, the MC linked allocations in the first Program year, to ensure that they
gradually build up the capacity to handle and absorb funds. The allocation will range between noncompliance (US$ 0), compliance with the MCs (only US$4.14 US per capita), and top performance
US$22.83 per capita in 2014/15. The system is designed in manner in which every point has an impact on
the allocation. An average size ULG with a relatively small increase in average performance, e.g. on 3
point from 60 to 63 points due to improvement in the level of own source revenues collected for the
2014/15 assessment (all other ULGs equal) will receive an extra per capita allocation on 0.40 USD (3.55
%) or a significant amount: US$39,535 US.
Range of annual per capita allocation for a typical ULG depending on performance on the minimum
conditions and performance measures in the assessment for EFY 2007 (2014/15)
25
20
15
10
5
0
Allocation per capita US$ p.a. against performance
IV.
Description and Assessment of Program Results Framework and M&E
116.
The Program will be monitored, and evaluated through the use of number of M&E tools
throughout implementation including regularly reports from ULGs to MUDHCo, the Annual Performance
Assessments/independent procurement audit, Value- for-the Money Audits and Midterm Review.
117.
The Program data (revenues and expenditures), including physical investments to be financed,
will be captured using the national PFM system, IBEX. This financial reporting tool will be supplemented
by the national ULGDP M&E system managed by MUDHCO which track, among other things, progress
across ULGs towards Program’s indicators. Practice under ULGDP will be maintained where the ULGs
32
collect key data and share it with MUDHCo. The ministry consolidates and analyzes the field data
submitted by ULGs and updates the Program’s results framework twice a year. As per current practice,
MUDHCO will continue to share the monitoring information and analysis with the Bank on a regular
basis. As explained above in paragraph 50, it will also use this as part of the mid-year and annual Program
report. The ministry will also develop reporting formats for the use of the capacity building funds (under
the general PB grant) for ULGs and RGs. These reports will be aggregated and included in the annual
Program report. The ministry, in addition to the regular updates of Program’s results framework, also uses
the data from the national monitoring system to commission independent reviews and a series of studies
of service delivery, benchmarking of services etc. This practice, established under ULGDP, will be
maintained under the Program.
118.
As under ULGDP, MUDHCO is also responsible for planning and supervising the
implementation of the annual performance assessment, which is the major M&E tool to verify the
performance of the ULGs. The annual assessment will be carried out by an independent firm to ensure the
objectivity of the process. The assessment will be carried out in line with the Program Operational
Manual/Performance Assessment Manual/Guidelines, which is being developed by the ministry, with its
content and quality acceptable to the Bank. The manual will provide clear definitions for each indicator as
well as guidance on the scoring. Adjustments, which might be needed to the performance indicators and
scoring, will be done throughout implementation and particularly at the mid-term review to address any
possible shortcomings or changes on the ground. The internal MUDHCo M&E system will capture key
data that will allow an assessment of the decentralization support structure, e.g. capacity of MUDHCo to
ensure timely and agreed transfers of funds to the ULGs and the institutions’ ability to provide needed
capacity development and technical assistance to the ULGs.
119.
The results of the annual audits conducted by the Office of Auditor General and the Value-for-the
Money Audits which the ministry will commission and will be included in the annual performance
assessments, will also be important tools in tracking the institutional and infrastructure performance
improvements. As well, the Program monitoring system will include and leverage the results of the
internal audit for internal control and the external audits done by (or on behalf of) the Office of the
Auditor General (OAG). Internal audit will play an important monitoring role, going beyond fiduciary
aspects and, will include adherence to the Program implementation framework as set in the operational
manual. In addition the internal auditors report to the council and their reports are generally acted upon.
Proper functioning of the ULG internal audit will be a performance indicator to promote improved
performance in this area. Finally, the annual external audit reports by the OAG are tabled to the councils
and at the regional level. Analysis of external audit shows that they generally adhere with international
standards43 and practices.
120.
MUDHCo has been monitoring and reporting on the ULGDP successfully. However, given the
increase in the scope of the Program, there will be a need to strengthen the M&E unit of the MUDHCO
with additional staff and capacity, which is included in the Program action plan. The focus areas of the
ministry’s M&E department for the Program will be (i) generation of regular consolidated data on unit
costs, spending across sectors and types of investments, as well as benefits of these investments; (ii)
provision of support to 44 ULGs (focusing mainly on the new 26 ULGs) and RGs on the use of the
reporting formats, application of M&E information for planning and budgeting purposes etc. and related
M&E system to capture activities and impact, and (iii) production of high quality analysis regarding
trends and development within ULG own source revenues.
121.
The current ULGDP has shown ULGs capacity to provide physical and financial reports on a
regular basis (although sometimes with delays), although the quality of these reports needs improvement.
43
See Dege Consultant, UI, and SuDCA Development Consultants: ELGRS, November 2013, Report on Component 2a.
33
There will be need for a capacity building support within this area in ULGDP II, especially to the 26 new
ULGs. M&E capacity at federal, regional and ULG level will be enhanced through training of staff in
M&E, engineering, finance and procurement so that they are able to compile timely progress reports for
monitoring the implementation progress of the various activities under the Program. The additional M&E
specialist to be recruited under the Program at the ministry will provide hands on support and mentoring
to the MUDHCO staff and to the regions in M&E issues related with urban development and the
implementation of the ULGDP.
122.
The Program PDO is to enhance institutional capacity of participating cities in developing and
sustaining urban infrastructure and services. The Program will produce enhanced institutional
performance in core areas such as: i) enhanced community participation in local government budgeting
and planning; ii) efficient fiduciary management, iii) increased amount of own source revenues, iv)
improved infrastructure, service delivery and operational and maintenance systems; iv) strengthening of
accountability and oversight systems and v) environmental and social safeguards. Program’s specific
outcomes, outputs and targets are included in the PAD. The annual performance assessment system and
the adjustment in the allocations are designed in a manner, which ensure that the allocations can be
accelerated if the average performance of the ULGs is above the expected levels. Second, each ULG has
incentives to improve performance as every point is counting in the result-based allocations.
123.
The Program DLIs pertaining to ULGs (the first 3 DLIs) capture the ULG’s performance in
relationship with the PDO. These will be measured by: (i) number of cities in compliance with the
minimum access conditions; (ii) the percentage/number of cities with strengthened performance in core
areas such as planning, PFM, procurement, OSR, safeguards and accountability; (iii) percentage of total
planned infrastructure completed by participating cities, and % planned capital investment plans actually
implemented, maintenance performance and performance in job creation against planned targets. The
federal and regional DLIs will closely monitor the federal and regional performance under the program in
areas of timely annual performance assessments, CB support, oversight and timely audit.
124.
First, the annual performance assessments will be synchronized with the ULG planning and
budgeting processes, and will be advanced so the results are ready by November of each year with final
incorporation of the results from the annual audit reports in January. Second, the M&E framework will be
strengthened to ensure comprehensive information on employment generated, number of beneficiaries,
and outputs of the investments in a manner, which can be quantified across the ULGs, and the physical
progress reporting system will be standardardized44 and computerized.
125.
Table below presents the various inter-linked tools which will be used to monitor and report on
the Program:
Type of information
Implementation experience,
institutional performance, physical
progress and outputs, technical aspects
of the Program, and achievement of
the key performance indicators.
Means
ULGs, regional governments, and
MUDHCo, each with responsibilities as
described above.
APA
Frequency
Two reports a year, with
the content as laid out
below in paragraphs 58
and 59.
Annually
Achievements of infrastructure plans
and targets
Value for the money
APA
Annually
Value for the money audits, results to feed
Every year starting in the
44
The existing manual system of consolidation of M&E reports will be upgraded to a computerized electronic data system, using
access, excel, or similar tools.
34
Type of information
Means
into the APA and impact on allocations
Financial reporting (use of funds,
expenditure composition, and the like)
Annual financial statements, semiannual
financial reports, internal audit reports,
annual external audit reports
Midterm review.
Detailed review of implementation
experience, achievement of the key
performance indicators, and progress
towards the PDOs.
V.
Frequency
2nd year as part of the
third APA.
Semiannually
Annually
Once in the Program
(20117)
Program Economic Evaluation
126.
Economic evaluation of performance based fiscal transfer programs internationally indicates that
the economic benefits are wide-ranging and mutually strengthening. Moreover, a number of ULGDP
specific reviews of the major investments show: (i) a high level value for the money; (ii) that the
investment are highly labor intensive/ conducive to job creation, and income-generating for local
communities; (iii) that the modalities for delivery are efficient compared to other modes of service
delivery; (iv) general high levels of economic rate of return (ERR) on investments. Finally, the review
under the recently conducted revenue enhancement study shows that ULGs have a strong ownership in
the operations, and that the incentives provided improve performance and capacity in core areas of ULG
operations and management such as procurement, revenue mobilization and assets management. The box
below summarizes some of these findings.
Key core benefits of ULGDP investments
 Coverage of significant infrastructure and service delivery gaps with more than a doubling of the resource
available at the ULG level for urban investments;
 Significant employment creation, i.e. more than 300,000 new jobs are expected based on experiences from
phase one;
 High economic rate of return in areas where most of the funds are utilized, and competitive costs compared to
other modalities and investments;
 Strong support of institutional improvements, incentives and longer-term sustainability in terms of
strengthening of core institutions, planning, PFM, procurement, and safeguard management.
127.
Analytical work45 shows strong economic benefits of ULGDP investments, with strong focus on
cobblestone road construction. The key benefits of this and other ULGDP investments include reduced
transport costs, small and micro enterprise (private sector) development, and income and job creation
activities.
128.
A specific economic analysis, with cost benefit analysis, has been undertaken for the cobblestone
investment. With and without project scenarios have been defined in order to identify the net benefits of
the investment, with cash flow discounted at 10.23 percent (a discount rate developed by MoFED as a
proxy for the opportunity cost of capital in Ethiopia, which is consistent with the 10-12 percent notional
figure used for evaluating Bank financed projects). The analysis considers the stream of costs and benefits
over a 20-year period (2015-2039). There are several other potential benefits that are not factored into the
cost-benefit analysis because of lack of reliable data. Therefore, the estimated benefits from the
cobblestone investments can be considered conservative, and it can reasonably be assumed that the actual
See GIZ: “Making Good Governance Tangible, GIZ, 2011” and the Draft Report: “Assignment on Money for Investment of
ULGDP, Assessment and Evaluation Report”, Volume 1, Main Report for GIZ, 2011. See also Dege Consult, UI and SuDCA
Development Consultants, “ELGRS”, Component 2a, Part One Main Report, November, 2013 for examples of the benefits.
45
35
benefits will be much higher. Results of the project economic viability as measured by the NPV and ERR
and its sensitivity analysis to changes in cost and benefit streams are summarized below:
Summary of Economic Analysis
Description
Base case
20% cost increase
20% revenue reduction
NPV million US$
98.7
72.7
52.9
ERR (%)
20%
16%
15%
129.
The NPV amounting to US$ 98.7 million and ERR of 20% indicates that cobblestone investments
are economically viable, even without considering other non-quantifiable benefits. The economic impacts
of the project for all economic agents, including the transport users as well as the residents of the Program
cities is significant. An analysis of the project sensitivity test results at 20 percent increase in cost and 20
percent reduction in benefits shows that the rate of return and the net present value remain at acceptable
levels. The internal rate of return remains higher than the 10 percent opportunity cost of capital in all
cases and NPVs are found to be positive, thus confirming the viability of the project under various
scenarios.
130.
The economic benefit of the program towards private sector development is particularly
significant. This is because a large part of ULGDP infrastructure investments, including the key
infrastructure investment, which is cobblestone road construction, are executed by local small and micro
enterprises at the ULG level, with the involvement of the local community. The box below illustration
some of the benefits within the most important investment area: cobblestone roadwork.
Box: Example of benefits from cobblestone roads
Although many benefits were obtained by the construction of a cobblestone (CS) road, the main one resonates
around the benefit related to the streamlined transport that came after its completion. Along with this is a reduction
in transportation cost for the citizens living in the cities and surrounding areas. A study commissioned by the GIZ
(2011 (1) and (2))46 provides detailed evidence of the benefits of this.
According to this study, residents of a locality in the city of Adama have enjoyed a significant reduction in
transportation cost as a result of the introduction of a cobblestone road to the vicinity. The report further indicates
that more than 7,200 people have directly benefited from this road in different ways. Taking the 4.8 average family
size, it can be concluded that more than 1500 families are benefiting from the intervention. The report is sufficiently
detailed in identifying the benefits of the road in relation to the saved cost of transport. As to this report, the
transport cost of a single trip made out of this neighborhood used to be about ETB 40 (US$ 2.25) before the
commencement of this project (people were contracting taxis to move from one place to another). However, after its
completion the cost fell down to ETB 2 (US$ 0.15) per same trip, as they started to use shared taxis. (NB: the
exchange rate during the 2005 EFY or 2012/2013 is $1= ETB 17.8 and this conversion has been used in this
example).
In a conservatively assumed case, that a family makes an unavoidable single trip per week, the annual cost of
transportation in this locality used to be (estimated) about US$ 175,500 yearly (US$ 2.25 X 1500 X 52). However,
after the construction of the cobblestone road, the high transportation cost has significantly fallen to US$11,700
(US$0.15 X 1500 X 52). The difference between the two, therefore, highlights the benefit in the form of a saved
46
Ibid (2).
36
cost, about US$163,800 (or equivalent to ETB 2,915,607) per year, that goes to the society per annum as a direct
result of this project. If it is further assumed that the economic life of this road is 20 years, then the total benefit that
will go to the society will be around US$ 3,276,000 or ETB 58,312,145. At the time, the construction cost of 1m 2 of
cobblestone was ETB 365 (US $20.5). Hence, it took the city only ETB 5,110,000 (2000 X 7 X 365) or US$
287,000 (2000 X 7 X 20.5) to construct a 7 meter wide, 2km road to benefit the society.
The conclusion from the above figures is that the society can reap a benefit topping around ETB 50 million ($2.8
million) just from the saved transportation costs during the economic life of the road. In addition, the benefit does
not come only in the form of saved transportation cost, but also takes many other forms, some of which are
discussed below.
The second common benefit that comes with many of the ULGDP projects, particularly with cobblestone projects is
the increase in value of land and even a change in the land use as a result of better accessibility that comes with the
commencement of the project. GIZ (2011, (2)) indicates that there is a very common pattern of change in land use
that comes with the construction of a cobblestone road. Many units that used to be residential are seen changing to
commercial as a result of the projects. In addition to this, there is also a notable increase in the price of land adjacent
to the projects. This increase in price of land, on top of benefiting the owners, could go to the coffers of the city if
they revise their property tax and land lease prices commensurate with the introduction of such projects. If harnessed
properly, this has the capacity to significantly enhance the revenue of the host cities. However, experiences have
shown that there is still untapped revenue potential whereby the cities could link the investments with various taxes
related to its use.
Source: Based on VFM study commissioned by GIZ, 2011 (2).
131.
ULGDP investments are highly labor intensive and support job creation. The independent studies
financed by the GIZ, which analyzed the ULGDP investments and MUDHCo data and monitoring reports
indicate the significant impact on employment generation impact of the ULGDP investments. The
MUDHCO reports show significant full and part time jobs created by the program: A total 312,460 jobs
have been created in 19 Program cities between 2008/09 and 2012/13 as a result of the investments
initiated and funded by ULGDP, supporting the objectives to focus on job-creation in the GoE’s
development policy, the GTP, especially for the local youth and unskilled workers. It should be
underlined that most infrastructure investments have a large share of women, youth and un-skilled labor,
involved in project implementation as well, the figure below.47
47
Based on M&E reports from MUDHCO, 2013.
37
Employment Creation by ULGDP Investments from 2008/09 – 2012/13
No. of Employment Created by ULGDP
92,294
100,000
65,803
80,000
47,554
60,000
40,000
87502
No. of Employment…
19,307
20,000
-
132.
Economic rate of return (ERR) reviewed by international institutions show the benefits of
investing in areas targeted by the ULGDP grants. First, a study undertaking by “Sanitation and Water for
All” indicates that the ERR is high, and in the range of 15-20 % for urban investment projects in Ethiopia.
Within the most important sector for ULGDP - the road sector- gravel roads have an ERR ranging from 7
to 60%, depending on the length of the road, with the highest on the shortest length of the roads, which is
typical the target of the urban ULGDP investments, exactly the types of roads to be supported by the
Program48. Furthermore, cost-effectiveness analysis for the roads sector on the basis of data collected
under the current ULGDP shows that unit costs for ULGDP projects are generally lower than nonULGDP projects, and that the costs of e.g. cobblestone project costs (supported under ULGDP) are much
lower than similar sized asphalt roads, but that ULGDP supported roads are creating similar benefits will
less maintenance costs and other related benefits, see table below.
Cost comparison of Coble stone roads with Asphalt roads
City
CS Road Cost (ETB/m2)-2003
Asphalt Cost (ETB/m2)
Adama
400-500
1,428.57
Hawassa
320
1,086.31
Mekelle
300
1,000.00
320
1,298.70
Axum
Source: GIZ (2011)
133.
ULGDP modality of incentive based allocations promote planning, PFM, and governance
improvements across a broad range of core areas, and has introduced a good sense of competition and
awareness across the ULGs. Compared to the baselines, there are significant improvements in areas of
audit reports, planning documents (CIP, procurement plans, revenue enhancement plans, planning and
budgeting for maintenance and operations), as well as in accountability and involvement of citizen groups
48
Similar investment profiles from other countries show high IRR for urban investments in core infrastructure, see technical
assessments for USMID (Uganda, 2012) and ULGSP (Tanzania, 2012).
38
in local planning. The potential for improving the ULG performance in those core areas will be further
tapped with strengthening of the targeting of performance incentives under the PforR support.
134.
The exact composition of investments, which will be undertaken across Program ULGs, are not
known a priory since they will be determined, like under the first ULGDP, through a participatory
bottom-up planning process in ULGs. The experience of the current program and other similar
interventions indicate several potential benefits, which will be quantifiable after conducting postconstruction evaluation. At this stage of design, baseline data and appropriate assumptions on the stream
of benefits and costs over the life of the Program can be made to estimate quantifiable benefits for sample
category of sub-projects which will be most likely chosen by the ULGs, like the example above of the
cobblestone project and the IRR of water and sanitation projects. These results will be validated after the
post construction evaluations of the sub-projects are subjected to VFM (from September 2015), cost
effectiveness and cost benefit analyses are done. Assessment of (i) the counterfactual scenario where
Program is not introduced and the fiscal gap mentioned above continues, and (ii) the potential economic
impact of the Program discussed above, shows strong rationale for the proposed intervention.
135.
Under the counterfactual scenario without the Bank supported Program, the target ULGs would
continue to face the large urban fiscal gap explained above, where, as a result of the absence of necessary
investments in infrastructure and institutional capacity needed to keep up with rapid urbanization and the
increase in urban residents in the targeted ULGs, would hinder the economic development of Ethiopia.
This alternative route will mean that the Program ULGs will face a serious challenge in meeting their
ever- increasing residents’ expectations of delivering reliable urban services, as well as a possible
deterioration, and in some cases, collapse of existing infrastructure. It is evident that without the proposed
Bank supported Program, the support to ULGs under the existing intergovernmental fiscal architecture
would be severely inadequate in achieving the proposed objective in the GTP and urban policies of
increased ULGs performance in expanding urban infrastructure.
136.
To the extent possible and appropriate, the Program will promote local private sector
development. As under ULGDP, the implementation of almost all Program activities will be contracted
out to the private sector. More than 2000 MSE were involved in the construction of investment projects
from ULGDP from 2008-2011 and this is expected to expand with the proposed investment menu and
likely investments49. ULGs, as implementing agencies, will retain supervisory role and the MUDHCo, as
the main executing ministry, will retain oversight and quality assurance role for Program implementation.
These arrangements are considered adequate in terms of economy, efficiency and effectiveness in
addressing the urban development issues at hand.
137.
The investments supported under the Program are core urban public goods/services such as roads,
drainage, sanitation and solid waste management, which would not be provided without significant public
interventions. The World Bank’s expertise within support of those areas in Ethiopia and elsewhere are
comprehensive, and the experiences from ULGDP-I shows that in addition to the necessary support for
financing of these interventions, the expertise the Bank can offer in the support of the design, technical
advise, monitoring and backstopping, is highly appreciated and valuable for the GoE and the GoE’s urban
program. Experiences from value for money audits from e.g. Uganda, also show strong VfM in
investment modalities like the proposed Program. 50
49
GIZ, 2011.
E.g. the Value for Money Audit in Uganda: “Technical and Value for Money Audit of LGDP II, Synthesis Report, December
2007, Ministry of Local Government, Uganda.
50
39
VI.
Inputs to Program Action Plan
138.
The Program action plan (PAP) will pursue a risk-based approach and will outline the main
measures through which risks to the achievement of Program’s PDO will be mitigated. These risks are
broadly associated with the three tiers of government involved in the Program:

Federal government. MUDHCO, as the implementing ministry, has a significant responsibility for
ensuring the various technical elements of the Program are implemented on time, the capacity of
ULG and RGs are strengthened sufficiently, that guidance and regulations are issued in core areas
such as revenue mobilization, assets management and service delivery standards, and the
achievements under and challenges facing the Program are pro-actively monitored, flagged and acted
on. The strong track record of the ministry under the satisfactory implementation of ULGDP is a
strong foundation. However, given the technical and geographic scale-up of the Program, the
importance of the role of MUDHCo will significantly increase, and naturally, the risks carried by it.
As per below, the PAP will, to the extent possible, have measures to mitigate this risk;

RGs are the tier of government which will (i) provide capacity building, monitoring and support on
own source revenue enhancement, and (ii) execute important functions for vis-à-vis ULGs such as
external audit, providing the necessary financing for the Program, and environmental and social
systems management supervision. Because these are key areas for the achievement of Program PDO,
the importance of role to be played by RGs carries an equal amount of risk. The risk is heightened by
the fact that four new RGs which have not thus far been involved will now be part of the Program,
though the risk of this factor is considered to be low due to the fact that each of these new RGs have
one Program ULG under its jurisdictions, the total of which is 6.5% of the total Program ULG
population. The approach will be to differentiate the role of the regions in accordance with their
capacity (four stronger and currently involved regions will have a greater role in CB support), and
through a more focused backstopping support of the regions from the federal government
(MUDHCo);

ULGs will be the direct implementers of the Program and the most significant risk to the achievement
of Program PDO will be in this tier of government. The main risk at this level will be capacity as the
lack of sufficient capacity could manifest itself in all areas of Program implementation. An important
positive factor in this respect is that in preparation of the Program, all 44 ULGs, as highlighted above,
received capacity building, albeit at different levels: 18 have been receiving capacity building and
performance based fiscal transfers under the current program, an additional 18 have been receiving
capacity building -though limited- under the current program, and the final 8 have been served by the
GIZ technical assistance program. Despite these efforts to raise the capacity of ULGs, gaps,
particularly among the 26 new ULGs, highlighted throughout this assessment, bring considerable
risk. While these risks are important, it should be remembered that these risks were prevalent,
arguably in a more profound way, when the program was initially started in 2008. At that point, none
of the ULGs had received performance based fiscal transfers and almost none had managed
decentralized service delivery. Despite these, the program has been implemented in a satisfactory
success and with tangible achievements at the ULG level. ULGDP II is being designed on this
foundation, while taking into account the core risks at the ULG level in its technical design and PAP.
139.
These key areas, and other risks are addressed through (i) Program’s technical design and (ii)
items in the Program action plan.
140.
Program’s technical design mitigates main risks through the use of its performance measures and
DLIs:
40





A DLI, which targets MUDHCo are the main tools to minimize the risks of delayed procurement
and completion of the APA, and the risk that the ministry fails to provide the needed capacity
building to RGs and ULGs;
A DLI which focuses on the regional roles in CB of ULGs and 3 DLIs focusing on core regional
functions such as timely audits, social and environmental safeguards/audits and support to ULGs
in OSR mobilization through consultations, guidance and up-date of tariff proclamations
(ensuring a conducive environment) for cities’ own source revenues. These four DLIs target the
main risk at the RG level by incentivizing RGs to provide the needed capacity building, support
on own source revenue enhancement of ULGs, carry out ULG external audit on time and provide
the necessary environmental and social systems management supervision and will address some
of the bottlenecks experiences in the current program, and based on these results provides the
result-based funding and incentives;
Program’s minimum conditions which require that each Program ULG has the basic sufficient
staff in order to access Program funds target the risks brought by staffing weakness;
Program’s minimum conditions which require that each Program ULG has a complaint handling
mechanism to ensue enhanced transparency;
Program’s combination of supply and demand side capacity building, which targets all three tiers
of government, with a particular focus on the 26 new ULGs aims to reduce the risk of capacity
across the various tier of government.
141.
In addition to these key Program design elements, the following items to be included in the PAP
address other Program risks.
For MUDHCO (and MoFED) some of the core activities will be to:
 Fill the current staffing gaps at MUDHCO and provide additional staffing to ensure the scale up
of the technical and geographic scope under the PforR is properly staffed;
 Establish the Program coordination committee/Steering Committee for ULGDP with
representatives for MUDHCo and MOFED and with a sub-technical group (PTC) to review and
verify APA results and address other coordination issues, by Program effectiveness;
 Produce the Performance Assessment Manual/Guidelines, and share with 44 ULGs prior to the
launch of the first APA;
 Produce mid-year and annual program reports and convene an annual Program stakeholder
review meeting, which will be attended by MUDHCo, RGs, ULGs, World Bank and other
development partners;
 Establish for formal approval of performance results and complaint handling as part of the above
Manual/Guidelines51;
 Review and fine-tune the reporting formats on physical progress reports and computerization of
the system of compilation and consolidation, as well as of the reports to be submitted to MoFED
to reflect the new system of flow of funds;
 Develop formats for reporting on the ULG CB support as part of the Operational Manual;
 MoFED in cooperation with MUDHCO: Establish a system of flow of funds based on half-yearly
equal installments, and classification of the main expenditure areas of urban investments;

Update ULGDP Operational Manual and financial management guidelines;

Agree with OAG that if ORAGs delay ULG external audits, independent auditors, certified by
OAG will be commissioned to carry out the necessary external audits (supported by a DLI);

Support to MUDCHO to issue standard tax/tariff declarations on ULG revenues and other core
guidelines such as assets management guidelines and standards on municipal service delivery.
51
See Dege Consult, UI and SuDCA Development Consultants, ELGRS, Report Component 2b, Part One, November 2013 for
further details.
41
For RGs
 Fill staffing gaps in core positions such as procurement, M&E and engineering support;
 Sign a Program Participation Agreement (PPA) with the federal government committing to the
Program’s rules and regulations, including the necessary financial contribution to the Program’s
performance-based grants for ULGs;
 Ensure that the offices of the auditor general are supported and that agreements are made to cover
all the enrolled cities on an annual basis, and to deal urgently with any backlogs in audits;
 CB plan for support to ULGs (one for each of the four regions which will have regional mobile
teams – Amhara, Oromia, Tigray and SNNPR);
 Support to implementation of the tax declaration mentioned about and provision of a conducive
environment of ULG revenue mobilization (dialogue on tax ceilings, support to revenue
enhancement plans, and dialogue and consultations on taxes with ULGs);
 Support for the regions to roll out guidance, support and monitoring of service delivery standards
for cities.
Cross-cutting
 Ensure the objectivity of APA results by requiring the APA firm to share the first draft results
simultaneously with MUDHCo and the World Bank;
 Agree that as part of its verification responsibility, that the World Bank can launch spot check
audits to complement the APA if and when needed. The TOR of these assessments have to be
accepted by the Bank, and neither party can modify results except for factual errors, and for
disbursement purposes, the Bank will retain the right to make the final decision whether a DLI
has been achieved or not.
VII.
Technical Risk rating
142.
Based on the findings of assessments undertaken for the preparation of the Program, the overall
technical risk rating is substantial. The overarching measures to mitigate these risks will be firstly the
series of institutional enhancement activities, which will be financed by the two elements of the Program,
and secondly the incentive mechanism under the performance-based disbursement mechanism.
VIII.
Bank Inputs to the Program Implementation Support Plan
143.
The strategic approach for the implementation support (IS) has four objectives: to (i) monitor the
implementation of the risk mitigation defined in the technical, fiduciary, and safeguard assessments, (ii)
provide technical advice, as necessary, to GoE in facilitating the achievement of the PDO; (iii) monitor
Program implementation progress and to contribute to the quality of the capacity building of stakeholders
by providing best practices and benchmarks, and (iv) ensure compliance with the provisions of legal
covenants.
144.
Implementation support will focus on implementation of the Program Action Plan, providing the
necessary World Bank value added discussed above and monitoring progress towards the achievement of
the PDO. The Bank will be primarily responsible for;
 Monitoring and Evaluation: Review APA, verification protocol and provide technical input;
 Environmental and social: Provide the necessary training and support during implementation on
the implementation of the program operational manual which currently being produced by the
Government for the Program.
 Fraud and corruption: Supervise the implementation of the agreed fraud and anti-corruption
measures under the program and provide guidance in resolving any issues identified;
42


Procurement: (i) review of procurement performance from annual performance
assessments/independent procurement audits; and (ii) provide training and guidance on
Procurement to MUDHCO, RGs and ULGs; and
Financial Management: Review the financial reports and the assessment results reports as the
basis for disbursements, audit reports, and agreement on measures to address any audit
observation and monitoring their implementation;
145.
Most of Bank’s implementation support team members (fiduciary, environmental and social
systems, and fraud and anti-corruption), including the Task Team Leader, are based in the Ethiopia
Country Office. This will ensure timely, efficient and effective implementation support. Formal
implementation support missions and field visits will be carried out semi-annually, or as deemed
necessary.
146.
Tentative implementation support is summarized as follows:
Area
Procurement support
Skills Needed
Procurement Specialist
Procurement Training
FM training and supervision
Task Team Leadership
Financial Management,
disbursement and reporting
Procurement Specialist
FM Specialist
TTL
FM Specialist
Local Government
Specialist
Procurement Specialist
Municipal Engineer
1 SW
4 SWs
10 SWs
2 SWs
8 SWs
Environment Specialist
Social Specialist
Urban transport
Economist
2 SWs
2 SWs
3 SWs
5 SWs
Technical and Procurement
review of the bidding
documents
Environment/Social
monitoring
Urban transport
Fiscal flows/ fiscal
decentralization/ LG
performance measurement
147.
Estimate Staff Time Needed
5 SWs
4 SWs
4 SWs
Skill-mix needed:
Skill
Task Team Leader
Urban Specialist
Procurement
Number of
Staff Weeks
(annual)
20
15
10
Financial Management Specialist
6
Environment Specialist
4
Social Specialist
4
Senior Urban Economist
5
Travel Frequency
(annual)
4 field trips
4 field trips
2 and field trips as
required
2 and field trips as
required
2 and field trips as
required
2 and field trips as
required
2 and field trips as
Location
Country Office based
Country Office based
Country Office based
Country Office based
Country Office based
Country Office based
HQ based
43
Transport specialist
4
required
2 and field trips as
required
Country office based
44
Annexes
Annex 1: Disbursement against the Performance on the DLIs-Disbursement Linked Indicator Matrix
Disbursement-Linked Indicator Matrix
Total
financing
allocated to
DLI
As percent of
total
financing
amount
DLI 1
ULGs have achieved Program
minimum conditions in the
annual assessment
Allocated amount
0
$90 million
23.68%
DLI 2
ULGs have strengthened
institutional performance as
scored in the annual
performance assessment
Allocated amount
0
$158 million
41.58%
DLI 3
ULGs have delivered
infrastructure, maintenance and
supported job creation as per
their annual action plans and the
capital investment plans, as
scored in the annual
performance assessment, and
ensured value for the money
Allocated amount
DLI Baseline
0
$75 million
19.74%
Indicative timeline for DLI achievement
Year 1
FY15
Year 2
FY16
Year 3
FY17
Year 4
FY18
Year 5
FY19
44 ULGs
44 ULGs
44 ULGs
44 ULGs
44 ULGs
$18 million
$18 million
$18 million
$18 million
$18 million
60 (average
score)
65 (average
score)
70 (average
score)
75 (average
score)
80 (average
score)
$21.8
million52
$34.1 million
$34.1 million
$34.1 million
$34.1million
60 (average
score)
65 (average
score)
70 (average
score)
75 (average
score)
80 (average
score)
$10.3 million
$16.2 million
$16.2 million
$16.2 million
$16.2 million
52
In the first year, the performance measures will only be applicable to the 18 ULGDP cities. The assessment of progress against performance measures of all 44 ULGs
(including the new 26 ULGs) will begin in year 2.
45
DLI 4
Regional government capacity
building and support teams in
place and support urban service
delivery
Allocated amount
0
$13 million
3.42%
DLI 5
ORAGs carry out ULG audits on
time
Allocated amount
1.84%
DLI 6
Regional environmental
protection agencies (REPA)
review of ULG safeguards
compliance in a timely fashion.
Allocated amount
DLI 8
Completion of annual MUDHCo
capacity building activities for
Program ULGs, regional
governments and the ministry
44 ULG
audits
completed
$1.4 million
0
$6 million
1.58%
DLI 7
Regional revenue authority
support ULG revenue
mobilization55
Allocated amount
$2.6 million
554
$7 million
Capacity
building plan
of and terms
of reference
for regional
government
teams are
place.
$1.2 million
80 in
place%53
$2.6 million
44 ULG
audits
completed
0
80% in place
and 80 %
execution rate
$2.6 million
$2.6 million
$2.6 million
44 ULG
audits
completed
44 ULG
audits
completed
44 ULG
audits
completed
$1.4 million
$1.4 million
$1.4 million
44 ULG
safeguards
reviews/audits
completed
44 ULG
safeguards
reviews/audits
completed
44 ULG
safeguards
reviews/audits
completed
44 ULG
safeguards
reviews/audits
completed
$1.2 million
$1.2 million
$1.2 million
$1.2 million
1.05%
Comprehensive
annual
Program
capacity
building plan
80% in place
and 80 %
execution rate
$1.4 million
0
$4 million
80% in place
and 80 %
execution rate
Capacity
building plan
in place, 80%
of people in
place and
minimum
44 ULG
revenue
mobilization
supported
44 ULG
revenue
mobilization
supported
$2.0 million
$2.0 million
Capacity
building plan
in place, 80%
of people in
place and
minimum
Capacity
building plan
in place, 80%
of people in
place and
minimum
Capacity
building plan
in place, 80%
of people in
place and
minimum
53
See verification protocol and the Bank disbursement table for further details.
Five of the 18 cities currently participating in the ULGDP have received audits on time (by January 7, 2014) for financial year 2012/13 ((Ethiopian fiscal year 2005).
55
The regional revenue authorities will need time to build up the capacity within this area, and the tariff proclamations are expected to be up-dated only twice during the
program period, hence results will be measured for the third and the fifth year of the Program.
54
46
in place and
terms of
reference
developed
Allocated amount
$22 million
5.79%
DLI 9
Timely completion of Program
annual performance assessments
(APA) and value for money
audits
Allocated amount
Total Financing Allocated:
US$5 million
1.32%
US$380
million
100%
60% of the
plan
implemented
60% of the
plan
implemented
60% of the
plan
implemented
60% of the
plan
implemented
0
$4.4 million
$4.4 million
$4.4 million
$4.4 million
$4.4 million
0
APA
completed on
time
APA
completed on
time
APA and
value for
money
completed on
time
APA and
value for
money
completed on
time
APA and
value for
money
completed on
time
$1 million
$1 million
$1 million
$1 million
$1 million
$60.7 million
$78.8 million
$80.8 million
$78.8 million
$80.8 million
0
The details of the DLIs matrix, total disbursement amount for each DLI and the corresponding percentage to total disbursement (Program cost) are
presented in the table below.
Verification protocol – The above DLI will be verified by an independent firm which will be hired to conduct annual assessments of the
performances of ULGs using the verification protocol instrument (minimum conditions and performance assessment tool). In addition, the
verification will be reinforced by other technical assessment reports such as value for money audit and regular WB supervision missions. The
verification tool is presented in the table below.
47
Summary Protocol for Verifying Achievement of DLIs
DLI Verification Protocol Table
# DLI
1 ULGs have
achieved
Program
minimum
conditions in
the annual
assessment
Definition/
Description of
achievement
The indicator will be
satisfied when:
Scalability
Yes
The annual performance
assessment, using only the
minimum conditions, has
been completed and the
disbursements to Program
ULGs have been
determined on this basis.
Data Source
Verification Entity
Procedure
ULG compliance
with Program
minimum
conditions (MCs)
assessed by
independent
performance
assessment.
Independent private firm
carrying out the annual
performance assessment.
(Note: The terms of
reference of the firm must
be acceptable to the World
Bank)
MUDHCo hires a reputable private sector
consulting/audit firm (whose terms of reference
will be acceptable to the Bank) to carry out the
independent annual performance assessment
(APA) to measure the performance of each
ULG against the Program’s minimum
conditions and performance indicators.
Draft verification reports
are submitted for review by
the verification entity (APA
firm) simultaneously to the
government (technical subcommittee*) and the Bank.
Neither party can modify
such reports except for
factual errors.
APA determines whether all minimum
conditions have been met.
* TSC will have
representation from
MUDHCo (chair), MoFED
and other agencies as
appropriate
2 ULGs have
strengthened
institutional
performance
as scored in
the annual
performance
assessment
The indicator will be
satisfied when the annual
performance assessment
has been completed
(based on the minimum
conditions and
performance indicators)
and the allocation based
on the score of all ULGs
has been determined.
Yes
ULG progress
against Program
performance
measures
(performance
measures)
assessed by
independent
performance
assessment.
Same as above (DLI 1)
The APA firm calculates the allocation to each
ULG as per the formula in the Bank
Disbursement Table, and provides the
aggregate disbursement amount (along with the
full assessment report and its findings)
simultaneously to government and the Bank for
review.
As part of implementation support, Bank will
review the assessment results. The Bank retains
the right to make the final decision whether a
DLI has been achieved or not.
Same as in DLI 1, MUDHCo hires a reputable
private sector firm to carry out the independent
annual performance assessment to measure the
performance of each ULG against the
Program’s performance measures. APA assigns
a score to each ULG. The private firm will
calculate the allocation to each ULG as per the
formula in the Bank Disbursement Table, and
provide the aggregate disbursement amount
simultaneously to the government and the
Bank for review.
As part of implementation support, Bank will
review the assessment results. The Bank retains
48
the right to make the final decision whether a
DLI has been achieved or not.
3 ULGs have
delivered
infrastructure,
maintenance
and supported
job creation
as per their
annual action
plans and the
capital
investment
plans, as
scored in the
annual
performance
assessment,
and ensured
value for the
money
4 Regional
government
Achievement under this
indicator for the first two
Program years will be
measured on the basis of
actual delivery of
infrastructure against
targets laid out in the plan
for the former year using
Program funds,
maintenance performance
and performance in jobcreation. Starting in
Program year three the
achievement of the DLI
will also include the
outcome of the value for
money audits.
Achievement of the DLI
will be determined on the
Yes
Yes
(allocatio
ULG progress
against Program
performance
measures assessed
by independent
performance
assessment and
performance as
assessed by the
independent value
for money audits
(which will start
in year 3 of the
Program)
Regional
government
For Program years 1 and 2,
same as above (DLIs 1 and
2).
Starting in Program year 3,
in addition to the above, a
private firm, which will be
contracted, will verify the
value for money aspects.
The private firm, which
will carry out the APA will
include the findings on the
value for money audits to
the overall data.
Same as above (DLIs 1,2
and 3)
Similar to DLIs 1 and 2 above, in Program
years 1 and 2, this DLI will also be measured
through the annual assessment and therefore
the same process will apply. For these two
years, as in DLIs 1 and 2, MUDHCo hires a
reputable private sector firm to carry out the
independent annual performance assessment to
measure the performance of each ULG against
the Program’s performance measures. APA
assigns a score to each ULG. The private firm
will calculate the allocation to each ULG as per
the formula in the Bank Disbursement Table,
and provide the aggregate disbursement
amount simultaneously to government and the
Bank for review. As part of implementation
support, Bank will review the assessment
results. The Bank retains the right to make the
final decision whether a DLI has been achieved
or not.
Starting in Program year 3, in addition to the
above, MUDHCo hires a reputable private
sector firm to carry out the value for money
audits to measure the quality of infrastructure
built by using Program funds. The result of this
will be shared with the firm, which will carry
out the APA. Then, as under DLIs 1 and 2, the
private firm will calculate the allocation to
each ULG as per the formula in the Bank
Disbursement Table, taking into account the
findings of the value for money audits, and
provide the aggregate disbursement amount
simultaneously to government and the Bank for
review. As part of implementation support,
Bank will review the assessment results. The
Bank retains the right to make the final
decision whether a DLI has been achieved or
not.
In Program year 1, the annual performance
assessment will check that the capacity
49
capacity
building and
support teams
in place and
support urban
service
delivery
basis of execution of
capacity building
activities specified in the
regional government
capacity building plan of
the four regional support
teams to be established
which will have 10 staff
in each team.
n per
region,
which is
calibrate
d)
performance
against capacity
plan, assessed by
independent
performance
assessment.
building plan and TOR for regional
government teams are in place.
In Program’s second disbursement year (FY
2015/16), the annual performance assessment
(conducted in 2014) will verify that the
(i)
regional government teams are in
place and are operating, and
(ii)
regional governments have
adopted service delivery
standards (as issued by
MUDHCo*) and issued those for
the cities, and provided guidance
in implementation (reports).
In Program’s third disbursement (FY2016/17)
onwards: The annual performance assessment
will verify that the
(i)
regional government has
developed Capacity building plan
for the ongoing FY
(ii)
regional government teams are in
place
(iii)
capacity building plans for the
previous year have been executed
(iv)
regional governments have
adopted service delivery
standards (as issued by
MUDHCo*) and issued those for
the cities, and provided guidance
in implementation (reports).
5 Regional
government
audit agencies
(ORAG)
carry out
ULG audits
on time
This indicator will be
fulfilled when the
regional audit entities, or
their delegated agencies,
which includes certified
private audit firms, carry
out and complete the
financial audits of ULGs
in their jurisdictions by
Yes
Annual
performance
assessment
Same as above (DLIs 1,2, 3
and 4)
* This condition is only valid if MUDHCo has
issued the service delivery standards to the
regions.
The reputable private sector consulting/audit
firm (whose terms of reference will be
acceptable to the Bank) which will be hired by
MUDHCo to carry out the independent annual
performance assessment, will verify the results
against this indicator, following the same
process as in the DLIs above.
50
6 REPAs
review of
ULG
safeguards
compliance in
a timely
fashion.
7 Regional
Revenue
Authorities
(RRAs)
support ULG
revenue
mobilization
8 Completion
of annual
MUDHCo
capacity
building
activities for
Program
ULGs,
regional
governments
and the
ministry.
January 7 of each year.
This indicator will be
fulfilled when the
regional environmental
protection agencies have
carried out the safeguards
reviews/audits of ULGs in
their jurisdictions before
the start of the annual
performance assessment
in each year.
This indicator will be
fulfilled when
RRA/BOFEDs have
conducted consultations
with the ULGs on tax
rates and bands, with
review of revenue
enhancement plans and
have updated the tariff
proclamations for the
ULGs
Achievement of this DLI
will be determined on the
basis of execution of
activities specified in the
MUDHCo capacity
building plan for the
federal, regional and
urban local governments.
Yes
Annual
performance
assessment
Same as above (DLIs 1,2,
3, 4 and 5)
The reputable private sector consulting/audit
firm (whose terms of reference will be
acceptable to the Bank) which will be hired by
MUDHCo to carry out the independent annual
performance assessment, will verify the results
against this indicator, following the same
process as in the DLIs above.
Yes
Annual
performance
assessment
Same as above (DLIs 1,2,
3, 4, 5 and 6)
Yes
Comprehensive
annual Program
capacity building
plan, which will
include TOR of
capacity building,
and details of
activities planned,
and staffing
positions.
MUDHCo provides
information and
documentation to the
World Bank, which
verifies.
The reputable private sector consulting/audit
firm (whose terms of reference will be
acceptable to the Bank) which will be hired by
MUDHCo to carry out the independent annual
performance assessment, will verify the results
against this indicator, following the same
process as in the DLIs above. The APA will
review whether there have been consultations,
documented with minutes, in the previous
financial year. The assessments will be
conducted as part of the third and the fifth
APA, and regions will have to: i) complete the
consultations, ii) reviewed the REPs with the
ULGs, and iii) up-dated the tariff
proclamations prior to each of these APAs (all
3 issues will have to be achieved in the
previous financial year in order to fulfill the
conditions for the DLI).
MUDHCo will put in place an annual plan to
build capacity of ULGs, regional governments
and the ministry. Among other things, the plan
will specify the activity, its objective, the
resources assigned and the implementation
timeline. The template for the plan will be
included in the Program operations manual.
60 days prior to the beginning of the
forthcoming fiscal year, MUDHCo will submit
the plan to the World Bank, which will verify
that the plan is in the agreed format and is
satisfactory.
Within 30 days of the beginning of the fiscal
year, MUDHCo will submit a report of the
51
implementation of the annual capacity building
plan for the previous year to the World Bank.
World Bank will verify the extent to which the
plan has been executed and determine the DLI
amount to be disbursed.
In the first Program year, the plan will include
guideline/framework on municipal service
delivery standards, job creation measurement,
and land development and supply
In the second release (FY 2015/16): The
assessment will include the ECSU course
delivered for 26 ULGs which will have been
implemented before the end of FY 2014/15.
9 Timely
completion of
Program
annual
performance
assessments
(APA) and
Value for the
Money
Audits (value
for money)
Achievement of this DLI
will be determined on the
basis of completion of
APA by June 2014 in the
first Program year, and
then by November with
incorporation of the audit
results in January of each
year thereafter, by
MUDHCo. Starting in
year three of the Program,
MUDHCo will also
launch the value for
money audits, by August
of each year to feed into
the APA cycle.
Yes
Documentation
showing that the
APA, and later in
the Program, the
value for moneys
have been
launched and
completed on
time.
MUDHCo provides
information and
documentation to the
World Bank, which
verifies. The Bank will
have the right to join the
APA and/or value for
money audits in the field,
as part of its
implementation support.
World Bank will review the compliance of the
timeliness of the APA and later of the value for
money, with the following timeline;
APA
For Program year one: completed by June
2014.
For subsequent Program years; APA to be
completed by November of the same year with
incorporation of audit results in January prior
to the FY for which the results will impact.
Value for money
Starting on August 2015 to be completed by
November 2015 and the same timeline
thereafter for each year.
52
Annex 2: Result Framework
Program Development Objective: Enhance institutional capacity of participating ULGs in developing and sustaining urban infrastructure and services.
DLI
Core
PDO Level Results
Indicators
Unit of
Measure
Baseline
Target Values
Frequency
Data Source/
Methodology
Responsibility
for Data
Collection
FY14
FY1556
FY16
FY17
FY18
FY19
1. Score in the APA for
institutional performance of
participating ULGs, averaged
across all cities.57
2
Number
0
60
65
70
75
80
Annually
APA
APA firm collects
the basic data on
performance.
The MUDHCo
and the Bank
verify the index.
2. Score in the APA for
achievement of urban
infrastructure targets by ULGs,
averaged across all cities.
3
Number
0
60
65
70
75
80
Annually
APA
See above.
Intermediate Results Area 1: Institutional Performance
1. ULGs that achieve an
increase of own source
municipal revenue of at least
10% over the previous year
under ULGDP II.58
2
Number
0
10
18
24
30
36
Annually
APA
Firm collects the
data and the
MUDHCo and
the Bank review
and confirm.
2. ULGs with timely audit559.
8
Number
5
18
32
38
44
44
Annually
APA
Same as above.
3. ULGs with clean
(unqualified) audit under
2
Number
0
5
8
12
16
20
Annually
APA
Same as above.
56
Fiscal 2015 is taken as year zero.
In the areas of planning and budgeting, assets management, public financial management, procurement, own source revenue, accountability and transparency, environment
and social safeguards, land management, and urban planning. The performance of ULGs ranges between 0–100. The percentage reflects the score.
58
The increase is measured in nominal figures.
59
Five of the 18 cities currently participating in the ULGDP have received audits on time (by January 7, 2014) for financial year 2012/13 ((Ethiopian fiscal year 2005).
57
53
DLI
Core
PDO Level Results
Indicators
Unit of
Measure
Baseline
Target Values
Frequency
Data Source/
Methodology
Responsibility
for Data
Collection
FY14
FY1556
FY16
FY17
FY18
FY19
ULGDP II.
Intermediate Results Area 2: Infrastructure and Maintenance
1. Direct Program
beneficiaries under the
ULGDP II
√
1.a. Of which female
√
2. People in participating
urban local governments
provided with access to allseason roads within a 500
meter range provided under
the ULGDP II60
√
Number
0
2.85 million
3 million
4.4 million
4.4 million
4.4 million
Annually
Census and
APA
MUDHCo
Percent
0
50%
50%
50%
50%
50%
Annually
Census and
APA
MUDHCo
3
Number
0
1 million
2 million
3 million
4 million
4.2 million
Annually
Census and
APA
MUDHCo
3. Urban cobblestone roads
built or rehabilitated under
ULGDP II
3
Kilometers
0
120
270
420
570
730
Annually
APA
Firm collects the
data and the
MUDHCo and
the Bank review
and confirm.
4. Urban gravel roads built or
rehabilitated under ULGDP II
3
Kilometers
0
15
45
75
105
135
Annually
APA
Same as above.
5. Serviced land for industry,
MSEs, and housing.
2
Hectares
0
300
680
1,060
1,440
1,820
Annually
APA
Same as above.
6. New controlled or sanitary
landfills supported under the
project under the ULGDP II
3
Number
0
0
2
5
9
13
Annually
APA
Same as above.
60
na
Numbers are indicative only, because the number of kilometers of roads to be constructed with Program funds will not be known until ULGs prepare and execute their CIPs.
54
DLI
Core
PDO Level Results
Indicators
Unit of
Measure
Baseline
Target Values
Frequency
Data Source/
Methodology
Responsibility
for Data
Collection
FY14
FY1556
FY16
FY17
FY18
FY19
7. Public parks and greenery
under the ULGDP II
3
Hectares
0
5
15
25
40
55
Annually
APA
Same as above.
8. ULGs that execute at least
80 percent of their O&M
budget under the ULGDP II.
3
Number
0
9
22
30
35
40
Annually
APA
Same as above.
Number
0
9
22
30
35
40
Annually
APA
Same as above.
Intermediate Results Area 3: Capacity Building
1. ULGs that implement at
least 80% of the budget
presented in the annual
capacity building plans.
2. Regions that implement at
least 80% of the budget
presented in the annual
capacity building plans.
4
Number
0
0
3
4
4
4
Annually
APA
Same as above.
3. MUDHCo utilizes the
budget presented in the annual
capacity building plans.
8
Percent
0
60%
80%
95%
95%
95%
Annually
APA
Same as above.
55
Annex 3: ULGDP Performance-Based Grant Indicative Planning Figures (IPFs)
Table 1: Overview of the Performance-Based Grants for the entire period
56
Table 2: Overview of the Performance-Based Grant and Funding Sources for the entire Program
Period
57
Annex 4: ULGDP – Investment Menu for the Performance-Based and CB Grants
List of Eligible Investments under ULGDP II
Infrastructure/Service
Type
Roads
Expenditure group 1.
 Cobblestone, gravel and red ash roads
Expenditure group 2.
 Rehabilitation of roads
 Bridges, fords and culverts
 Pedestrian walkways
 Street lighting, etc.
Roads, which require significant resettlement of people (more than 200
people), will not be eligible with funding from the ULGDP II PB grants.
Integrated multiple
infrastructure and land
services (residential,
micro and small
enterprises, industrial
zones)
Expenditure group 3.
 Servicing of land with utilities (water supply, electricity,
telecommunications, roads and drains (within existing right of way),
solid and liquid waste collection and disposal, and other core urban
infrastructure).
Sanitation (liquid waste)
Expenditure group 4.
 Sewer reticulation systems (no large canals (note*)
 Wastewater treatment ponds
 Sludge ponds
 Community soak away pit and septic tanks
 Community latrines: dry pit, ventilated improved pit, ecosan,
composting
 Vacuum trucks, vacuum handcarts, and the like.
Expenditure group 5.
 Collection trucks and other collection equipment, collection bins,
transfer stations, collection points
 Landfills (of the size of maximum 10 hectares and minimum design
criteria as per the SWM Manual)
 Biogas and composting plants
 Landfill site equipment including compaction vehicles, etc.
Expenditure group 6.
 Spring catchments and gravity distribution system
 River intake (run of river/dam), treatment works and pressure
distribution
 Wells with submersible pumps, treatment works, and pressure
distribution
 Rehabilitation or expansion of existing system, communal standpipes,
etc.
Expenditure group 7.
Solid waste management
Water supply (schemes to
be financed under the
program will follow the
policies and principles of
those of the Ministry of
Water and Irrigation and
Energy MWIE)
Urban drainage
58
 Drainage systems
 Flood control systems, etc.
Expenditure group 8.
Built facilities
 Urban markets with associated services (water supply, drainage, access
roads, and the like)
 Development of production and market centers for small businesses
 Slaughter houses (abattoirs), with by-products and processing facilities.
Urban parks and greenery Expenditure group 9.
 Support to urban parks and greenery development projects for
beautification.
Expenditure group 10.
Consultancy services for
design and contract
 For studies relating to preliminary and detailed design, contract
documentation and supervision relating to the above infrastructure
management
and services, and the like.
Expenditure group 11.
Capacity Building
Up to 5 % of investment grants can be utilized on CB support, see menu for
Support** (see below)
CB support below.
*Note: Sewer reticulation systems canals (primary canal) shall not exceed a diameter of 1000mm and
shall not exceed 10 km.
The investment menu for the CB support is as follows:
Training, seminar, and
conferences









Technical assistance and
organizational
development, system
development etc.
 Consultancy fees and related operating expenses
 Printed Material & Stationery
Equipment
Short- term local training and related operating expenses
Selected short- term training (up-to duration of 3 months)
Peer to peer support across ULGs
Study tours as planned by the ULGs and approved by the Ministry
(study tours will have to be approved)
Seminars/Conferences/Workshops/Meetings Expenses
Training Materials
Hire of Venue /Hotel Accommodation
Refreshments
Equipment related with the capacity building support (not vehicles and buildings)
including:







Server (computing)
Networking and ICT equipment and software
Computers and accessories
Printer, photocopy machine, scanner
Binding machine
Air conditioner/ fan
Filling cabinet/ shelf
Notes on CB investment menu:
1. Total costs should not to exceed 5 percent of total performance-based grant received.
59
2. Compliance with the capacity building activities menu will be a minimum condition for access to the
performance grant.
Current maintenance and operational costs, including salaries, should not be funded by the ULGDP
grant. Other ULG sources, including OSR should be used for these expenditures. The performance
system will promote planning and actual provision for this to ensure longer-term sustainability.
Investments, which according to the WB Operational Manual for Environmental Assessment (OP 4.01)
are classified in Category A are explicitly excluded from the Program. These “…are projects which are
likely to have significant adverse environmental impacts that are sensitive, diverse, or unprecedented.
These impacts may affect and area broader than the sites or facilities subject to physical works”.
Category A projects are not supported by PforR operations and ULGs cannot use the ULGDP II grants
for these types investments.
The investment menu above explicitly excludes possible high-risk activities and Category “A”
types of activities. The infrastructure investments that will be supported by the ULGDP II will remain at
the municipal level and the procedures for preparing sub-projects projects will, as per current practice,
include criteria to screen for significant negative impacts that are sensitive, diverse, or unprecedented on
the environment and/or affected people.
While the scope and scale of works under the Program are not expected to cause significant adverse
environment and social impacts, the current EIA procedures in Ethiopia require that all investments are
screened for negative impacts that are sensitive, diverse, or unprecedented on the environment and/or
affected people. In addition to screening for significant negative impacts, the following works will
be ineligible for financing under the ULGDP II:




Road works outside of existing rights-of-way;
Works involving physical relocation of more than 200 people;
New landfills that are larger than 10 hectares, or new landfill plans for ULGs, which have no
system for upstream waste collection, segregation, transportation; and treatment and disposal of
leachates. ULGs, in the design of sanitary landfills, will be required to demonstrate a system of
waste segregation; collection; transportation; and treatment before they can start landfill
constructions;
Activities that would significantly convert natural habitats or significantly alter potentially
important biodiversity and/or cultural resource areas.
The infrastructure investments implemented by urban local governments are likely to deliver significant
social benefits, provided that they are planned in an inclusive manner, and they are designed to ensure a
distribution of benefits to vulnerable groups including the old, youth, women, and the poorest. Social
benefits cannot be guaranteed, and there is a requirement to ensure that projects are planned, constructed
and operated in a manner, which maximizes benefits. In particular, this should take cognizance of the
vulnerable groups as mentioned above, and ensure their participation in ongoing consultation throughout
the design and implementation of ULGDP. In some cases, there may be risks of the permanent or
economic displacement of people, requiring a carefully planned and implemented RAP. The potential
environmental and social benefits of urban infrastructural projects depend on the nature and location of
the project, though they are likely to be limited in scale.
60
An assessment of potential effects of the types of investments eligible for financing in the context of
ULGDP II indicate that most adverse social impacts and risks are associated with the construction phase,
as well as the possibility of land acquisition, resettlement, and livelihood impacts. Potential adverse
environmental impacts include air pollution from dust and exhaust; nuisances such as noise, traffic
interruptions, and blocking access paths; water and soil pollution from the accidental spillage of fuels or
other materials associated with construction works, as well as solid and liquid wastes from construction
sites and occupational health and safety issues at worker campsites; traffic interruptions and accidents;
and accidental damage to infrastructure such as electric, wastewater, and water facilities.
These types of impacts, however, are generally site-specific and temporary. Experience from
implementation of ULGDP indicates that short-term construction impacts for the most part can be
prevented or mitigated with standard operational procedures and good construction management
practices that could be adopted to be followed consistently by all ULGs. Technical Manuals prepared by
ULGDP have been adopted by the MUDHCO, which are standard part of environmental management
plans included in bidding documents for contractors.
Each ULG can use, up to 5% of its performance based grant, for capacity building activities. Point of the
departure for these activities will be the results of the annual performance assessments, which will
indicate areas of improvement for ULG performance. Generally, these funds can be used for technical
consultant work, backstopping support, advisory support, training, minor equipment and contract staff in
areas where there is need to fill in the gaps identified in the APAs. The ULGs will be required to
develop a CB plan for the use of funds, applying the standard format elaborated in the Operational
Manual, and will have to report on the utilization and progress in CB activities. Items such as vehicles
and administration building are not part of this provision. As explicitly stated in the Operational Manual,
should a ULG be in doubt about the eligibility of an investment, they will contact MUDHCO to ensure
that the expenditure complies with Program expenditure framework.
61
Annex 5: MUDHCO – Organizational Structure of Ministry
Minister
Audit Department
State Minister
(Construction Sector)
State Minister (Urban
Development Sector)
Construction Industry
Urban Plan, Beatification &
Federal Integrated Urban
Development & Regulatory
Sanitation Bureau
Land Information Project
Bureau
Office
Land and Land Information
Housing Development Capacity
Registration Agency
Urban Land Development &
Management Bureau
Federal Micro and Small
Urban Good Governance &
Enterprises Agency
Capacity Building Bureau
Building Construction Bureau
Housing Construction
Enterprises
Agency for Government
Houses
Capacity Building & Reform
Management Bureau
Policy and Program
Bureau
Information Technology &
Database Development Bureau
Minister office & MiniCabinet Affairs Bureau
Support Services
Coordinating Bureau
62
Urban Good Governance and Capacity Building Bureau Organizational Structure
Urban Good Governance &
Capacity Building Bureau
Planning and Documentation
Team
የየየየየየ የየ
Project Management
Department
Integrated Urban
Infrastructure
Development
Department መመመመ
Project Preparation
Case Team
Public Participation and
Decentralization
Department
Public Participation
Improvement Case
Team
Human Resource
Development and
Standardization
Department
Municipal Service
Standardization
Department
Occupational
standardization case
team
Decentralization Case
Team
Financial
Management Case
team
Procurement Case
Team
Emerging Regions
Support Team
Diaspora Case
Team
Human resource
development
performance case
team
Municipal
Service
Standardization
Case Team
Cities”
performance M
& E Case
Team
63
Overview of Staffing in the UGCBB
No.
1
2
Departments’ Name
Allowed Number of Positions
Actual Filled Positions
•Vacant Positions
9
9
0
17
11
6
Human Resource Development and
Standardization Department
Project Management Department
3
Public Participation and Decentralization
Department
18
17
1
4
5
7
Municipal Service Standardization Department
Urban Local Government Development Unit
Planning and Documentation Team
10
14
-
7
12
2
3
2
-
8
Integrated Urban Infrastructure Development
Department
Facilitation Team
Total
14
3
11
6
88
3
64
3
24
9
Source: Based on information received from MUDHCO, September, 2013.
64
Annex 6: MUDHCO – Overview of the Main Institutional Arrangements
The institutional arrangements for program implementation will be based on the experiences from the
current ULGDP, with clear division of tasks and responsibilities between involved parties, as per the GoE
structure and consistent with existing legal provisions, regulations and guidelines of which some will be
up-dated to include the new features of the Program. At the central level, the Ministry of Urban
Development, Housing and Construction (MUDHCo) will be responsible for the overall program
management and operations, and budget whereby MoFED will be responsible for transfers of funds,
financial management and compilation of federal fiscal reports see the figures below.
Institutional Arrangement
65
Flow of Funds
MUDHCo, MoFED and the Office of the Auditor General (OFAG) shall ensure that Program resources
are budgeted for and disbursed within the Expenditure Framework, and that Program accounts are audited
as per statutory requirements. The offices of auditor general at the regional level will be supported
through the regional CB support, and a linked DLI for timely audit.
The MUHDCo will be the coordinating ministry and shall have the overall responsibility for
implementation oversight and accounting for ULGDP funds to MoFED and the days to day coordination
will be handled by the Urban Governance and Capacity Building Bureau (UGCBB). The division of tasks
is clearly outlined in the ULGDP Operational Manual, which will be updated prior to the start of the
second ULGD. MUDHCo will also be responsible for the CB support to the regions and the mobile teams
supporting within this are as will as for contracting in of private companies and management of the
annual performance assessments and oversight and M&E issues on Program specific matters. MUDHCo
has proved in the first phase to have the capacity to manage activities expected in the coming operations,
but will need support in the scaling up, and strengthening of the CB support to regions and M&E
activities.
As per the current ULGDP, MoFED will be responsible for handling of flow of funds to the regions and
the cities included in the Program, and for preparing quarterly financial reports. The flow of funds will be
simplified compared to the existing system, with fixed bi-annual tranches based on annual budget
allocations and results of annual performance assessments of the ULGs.
66
Annex 7: Minimum Conditions and Performance Measures
Entry-level condition – Prior to Release:
Participatory Performance Agreement (PPA)
signed with MUDC
Show commitment by all parties and defines the
rules of the system
Keep the existing rule. Up-date the PPAs.
Should be included in the ULGDP Grant
Operational Manual.
DLI 1: Minimum Conditions (minimum conditions)
No.
1.
Minimum Condition
ULG has produced and the council approved
a:
Reason
Document minimum capacity in planning and
project handling.
 Rolling three year capital investment plan
(CIP) with
 Annual action plan;
 Annual budget
 Annual procurement plan
Implementation readiness.
In the assessment for 2014/15 (EFY 2007) budget
allocations, which is expected conducted in March 2014,
it is the plans for 2013/14 (EFY 2006), which are
reviewed, hence the exact plan will depend on timing of
the APA.
 The planned use of the performancebased grants from ULGDP II is in
compliance with investment menu (only
from assessment in 2015 of the
performance in 2014/15 (EFY 2007).
2.
Submission of financial statements for the last
Comments – phasing in etc.
The subject for review is the plans developed in the
previous year for the year where assessments are
conducted, e.g. if assessment is conducted in August
2014, it is the plans for 2014/15 /EFY 2007), which are
typically developed from March – June 2014.
To make this effective it is important that the APAs are
conducted timely in the future, see Section on APA
procedures.
Show evidence on minimum capacity in PFM
Transitional arrangements. For new ULGs, procurement
plans will only a MC for the second year, see also below.
The investment menu will only be assessed from the
second assessment where there has been the first
planning/budgeting on the use of the performance-based
grants. From the third assessment, the actual utilization
of grants in the previous year will also be assessed.
In order for the external audits to start as early as possible
67
No.
Minimum Condition
FY (closure of the FY on time).
Reason
Comments – phasing in etc.
cities should close their accounts by end of September/
each year.
Phasing in the first year: The new ULGs participating in
the Program should have completed the financial
statements before the start of the assessment.
3.
Audit report from previous FY should not be
adverse or with a disclaimer opinion.
To reduce fiduciary risks
It should be ensured that audit quality continues, and
there is need to combine with other minimum conditions
to ensure sufficient safeguards on PFM. Compared to
previous system, this is a strengthening of the
requirements, as it is reviewing the audit report from
previous FY.
If the ORAG cannot conduct the audit in time, external
audit firms will have to be contracted, and their results
applied. (ORAG should clear the TOR and makes
QA/endorsement of the results).
Transitional arrangements:
A waiver is provided in the first FY for the new ULGDP
ULGs providing them with sufficient time to improve, but
as a minimum they should have completed the financial
statements from previous FY. For the first year for the
“current ULGDP” ULGs, the deadline is prior to the
effectiveness.
4.
Co-funding requirements (defined with
various rates of co-funding depending on the
type of ULG). The co-funding requirements
are the following:
10 % for the new ULGs in the DRS
20 % for the new ULGs in the non-DRS
regions.
Reflect sustainability of the program and ensure
that the rule on counterpart funding is adhered
with. The co-funding is set at a realistic level and
further contributions are promoted through the
performance measures.
Promote improved revenue mobilization and
incentives to focus on longer-term sustainable
Second year: All should be on time, i.e. January 7.
The audit report is the last “trigger” in the assessment
process, and will be checked after the field-work, but
prior to the consolidation of the results.
Is combined with performance measures so that
contribution above the minimum level is rewarded.
Co-funding should be budgeted for prior to the start of
the FY, and by the end of a FY ULGs should have
contributed with the specific %, measured by actual use
of funding on capital investments on areas defined in the
investment menu and source of funding (IBEX coding).
68
No.
Minimum Condition
30 % for the “old” ULGs.
50 % for Dire Dawa and Harar.
Reason
urban finance.
A higher level of co-funding is promoted in
the performance measures.
5.
6.
Key positions in place/coordination team with
the following positions under the coordination
of the city manager: focal persons for revenue,
procurement, environmental and social
sustainability, M&E, PFM, and civil
engineering, plus a functioning internal audit
unit.
Safeguards: ULGs have demonstrated that
they have established a functional system for
environmental and social management as a
minimum condition to access the performance
based grant, including an environmental and
social safeguards focal person.
To ensure that there is minimum capacity to
handle the entire program implementation
process at the ULG level.
Functional institutional set-up for procurement
system in place according to public
procurement proclamation including:
1. Procurement function and minimum core
staff in place – at least two procurement
specialists;
2. Functional tender committee/tender
award committee (TAC) in place;
3. Participating cities have the copies of
their respective region’s procurement law,
directives, manuals and standard
procurement documents and staffs are
Procurement is a high-risk area, hence need to
ensure that basic systems, and functioning of this
is in place prior to transfer of PB grant
installments.
To ensure that there is a mechanism and capacity
to screen environmental and social risks of the
CIP prior to implementation.
Comments – phasing in etc.
Transitional arrangements/Phasing in: ULGs can only
budget for this in the second assessment, as they do not
know the level for this coming FY. The assessment of
actual utilization of funds can only be done in the
assessment following a year of actual disbursements of
ULGDP funds, i.e. from the September 2015 assessment.
The positions should be in place at point of time for the
assessments.
Defined by:
Initiation of recruitment of environmental and social
safeguards focal person at the city level;
Endorsement of city level ESMS document that includes
procedures for due diligence; institutional procedures for
grievance management (see below under No. 8) and
environmental, managing resettlement/land take
processes and environmental social mitigation and
monitoring plan.
Only from second APA (September 2014)
7.
The existence and functionality of the
procurement system is basic to make sure that
Program systems coupled with the mitigation
measures provide reasonable assurance that the
financing proceeds will be used for intended
purposes with due consideration of economy,
efficiency, transparency and fairness.
69
No.
Minimum Condition
familiar with these legal documents
Reason
8.
Complaints handling system in place,
including system for reporting of complaints,
system for receiving and addressing
complaints and reporting on corrupt practices
and complaints, through the ethics unit.
Receiving, reviewing and addressing complaints
within core areas such as areas related to
environmental degradation of the surrounding:
Environmental health impacts on people; loss of
livelihood, income or assets is an important
aspect of any GRM. The system will encompass
a system for complaints received, registration of
these, description of where to send the various
types of complaints, to whom, and how?; and
description of the procedures. The information
about these procedures should be published.
Comments – phasing in etc.
Only from the second APA (September 2014).
The POM will further define the requirements within this
area.
DLI 2: Institutional Performance
Below is a presentation of the institutional performance measures.
Main changes compared to existing ULGDP I performance assessment system are:






Division of institutional and service delivery targets in two sets of indicators under each DLI II and III;
Movement of CIP utilization rate to separate DLI (DLI 3), performance linked allocation; Similar for the utilization of maintenance budget;
Improvement and sharpening of indicators in most areas;
New indicators more focusing on the ULGs gaps and areas of importance for activities linked with achievement of targets of the program;
Reorganization of some of the performance areas, and regrouping.
Links to the government policy on Ethiopian Cities Prosperity Initiative are included.
70
DLI 2: Institutional performance Improvements
Ser. No.
Performance Areas
1
Planning and Budgeting
(maximum 10
points)
Rolling three year CIP, with linkages
between the annual budget, annual action
plan, and annual procurement plan
1.1
Performance measure/Indicator/score


(Maximum 3 points)
1.2
Participation of citizens in the planning
process to meet service delivery priorities
identified by citizens
(Maximum 4 points)

Objective
Links to
Ethiopian
Cities
Prosperity
Initiative
Existing or new
indicator
Consistency of figures and alignment
with revenue enhancement plan and
asset management plan: 2 points.
Capturing of operational and recurrent
costs of investments in the plans: 1
point.
Promote efficient
planning, budgeting
and procurement for
efficient
infrastructure
development
Pillars 2, 3
and 4
Existing
Pillar 3
Existing
Evidence of participatory planning
process with involvement of citizens
Citizens involvement
and good governance
Pillars 3 and
7
Yes, but
strengthened
Measured by:
 Number of public consultations
(minimum two per year: 1 point)
 Increase or stable level of number of
people involved in planning discussions
and the % of women involvement is
more than 40 %: 1 point.
 Existence of a meeting agenda and
other information has been shared in
advance and evidence that issues
discussed have included the
prioritization of projects in the up-date
of the CIP/annual plan: 1 point.
 Good governance procedures on
planning reflected by minutes from the
71
Ser. No.
Performance Areas
Performance measure/Indicator/score
Objective
Links to
Ethiopian
Cities
Prosperity
Initiative
Existing or new
indicator
consultation meetings: 1 point.
1.3
Budget appropriation
(Maximum 2 points)

Budget approved by Council and
proclaimed in the budget proclamation
following the standard charts of
accounts: 2 points. Note that both
conditions have to be complied with to
achieve the points.
Promote political
leadership and
governance
Pillar 1
New
1.4
Budget reliability
(Maximum 1 points)

Variance in % between total budget and
actual for the previous FY (related with
total budget expenditures on municipal
services) is less than 10 %: 1 point.
Promote proper
budgeting and
implementation
Pillars 3 and
5
Existing (but
only partial)
2
Assets Management
(10 points)
Assets management plan prepared and
updated
(Maximum 10 points)
Pillar 5
Existing
2.1



Asset inventory updated, featuring a
tabular and spatial database of all
infrastructure, with specification and
characteristics, at least for the five
categories of municipal assets (Road
&Drainage, Solid and Liquid waste,
Socioeconomic infrastructure
&greeneries, Utilities, Public buildings
including abattoirs (2 points)
Conditions of assets reflected in asset
inventories correctly (professional input)
(2 points)
Asset inventory show an asset value and
deficit, which calculates the remaining
asset value, maintenance and
rehabilitation deficit based on annual
Strengthen
management
infrastructure
assets.
of
and
72
Ser. No.
Performance Areas
Performance measure/Indicator/score


3
3.1
Public Financial Management
(Maximum 15 points)
Accounting and timely reporting
(Maximum 4 points)
Objective
Links to
Ethiopian
Cities
Prosperity
Initiative
Existing or new
indicator
Strengthen
accountability
Pillars 1 and
3
New
depreciation rates. (2 points)
City updated the AMP according to the
AMP 10 steps (as per the guideline for
asset management preparation if exists)
elaborating its implementation strategy,
which details individual activities and
their respective budgets over the course
of the year (2 points)
AMP clearly show related budget for
asset maintenance, rehabilitation and
new assets, which lists all necessary
costs (2 points)

Use of integrated IBEX for all
operations including ULGDP grants and
reporting on these: 1 point

Charts of accounts adhered with,
including: On site analyses of
correctness of coding – in particular of
municipal revenues: 1 point.

Timely financial reporting: 1 point
New
Existing

3.2
External audit backlogs cleared

Monthly cash count report and Bank
reconciliation submitted to region on
time (within 15 days after the end of the
month): 1 point
All audit backlogs cleared for previous
New
Strengthen
Pillars 1 and
Existing
73
Ser. No.
Performance Areas
Performance measure/Indicator/score
(3 points)
Objective
years (minimum 5 years back): 3 points.
accountability
Links to
Ethiopian
Cities
Prosperity
Initiative
3
Existing or new
indicator
3.3
Audit Opinion for the previous audit
(3 points)

The audit report from the previous audit
has a clean audit opinion: 3 points.
Strengthen
accountability
Pillars 1 and
3
New
3.4
Compliance with audit recommendations
(2 points)

Evidence that audit queries raised in the
external audit report have been acted
upon by the city: Minimum 80 percent
of the queries have to be cleared: 2
points.
Strengthen
accountability
Pillars 1 and
3
New
(was
monitored only)
3.5
Internal audit (3 points)

Internal audit procedures adherence
with good practices reflected in: (a)
quarterly reports, (b) reporting to
mayor, (c), and evidence of follow up
on audit findings). (3 points, one point
for compliance with each of a, b, c).
Strengthen
accountability
Pillars 1 and
3
New
4
Procurement 61
(Maximum 15 points)
Annual procurement plans for ULGDP II
prepared and its implementation is
monitored and updated as required.
(Maximum 3 points)

The procurement plan implementation
is monitored and procurement process
milestones are achieved: 1 point.
Procurement plan is up-dated, as
required at the point of time for
assessment: 2 points.
Strengthen efficiency
and competition in
implementation of
infrastructure (urban
productivity and
competiveness)
Pillar 2
Existing
(modified)
4.1

61
Annual Independent procurement audit (IPA), including contracts effectiveness is to be conducted and reported along with management response of issues raised. The IPA will have an agreed terms of
reference and conducted by regional public procurement agencies or an independent consultant. At the moment, since the RPPAs do not have the capacity, the first two years independent procurement audit
will be conducted together with APA and the terms of reference of the APA will be modified to address the IPA need. The RPPAs capacity will be enhanced during the first two years and the RPPAs will
take over the IPA responsibility from the APA consultant (Procurement audit is their legal mandate). The adequacy of the regional public procurement and asset management agencies to carry out IPA will
be assessed and confirmed by joint review of Federal Public Procurement and Asset Management Agency and the World Bank.
74
Ser. No.
Performance Areas
Performance measure/Indicator/score
Objective
4.2
Adherence to procurement procedures and
effectiveness of contracts
(Maximum 12 points)
Based on the review of a sample of procured
contracts, the following are assessed as
procurement performance indicators (the
contract sampling size for review should not be
less than 20 percent in each city):
 Availability of adequate relevant auditable
records on the procurement process; (1
point)
 All ICB and NCB contracts award
published as necessary and compliance with
procurement process and decisions made in
accordance with the legal requirements: (11
points) divided on: (a) Procured Goods,
works and services contracts are in the
approved PP (1 point); (b) proper advert is
made (1 point); (c) correct SBDs are used (1
point); (d) bid floating periods are
acceptable (1 point); (e) BER are conducted
consistent with requirements of the issued
BD (1 point); (f) Evaluation results are
announced to bidders and to the general
public (1 point) (g) Contracts are awarded
to the lowest evaluated bidder within bid
validity periods (1 point); (h) procurement
complaints, if any, are properly addressed (1
point); (i)contract documents contents are
complete (1 point); (j) timeliness of the
procurement/contracting process and
decisions are consistent with the
procurement plan (1 point); (k) Contracts
implemented are according to planned
timing and budgets. (1 point).

5.
Own source revenue enhancement
(Maximum 10 points)
Strengthen
efficiency and
competition in
implementation
of infrastructure
(urban
productivity and
competiveness)
(the first two
years, the APA
will conduct this
assessment, and
in the following
year (3) and
onwards, the
procurement
audit will fit into
the results of the
APA, using the
regional PPA.
Links to
Ethiopian
Cities
Prosperity
Initiative
Pillar 2
Existing or new
indicator
Existing
(modified)
Existing
Existing (partly
and modified)
Note as 5.4 is
only
relevant
75
Ser. No.
Performance Areas
Performance measure/Indicator/score
Objective
Links to
Ethiopian
Cities
Prosperity
Initiative
Existing or new
indicator
from year 2 and
3,
other
indicators
are
increased in the
first
APA
proportionally.
5.1
Revenue enhancement plan updated for the
most recent year
(Maximum points: 2)

(Maximum 3 points in the first APA)

5.2
Municipal Revenues increase
(Maximum 3 points) (Maximum 4 points in
the first APA)
5.3
Revenue planning capacity
(Maximum 2 points) (Maximum 3 points in
the first APA)

5.4
Funding from ULGs

The up-dated revenue enhancement
plan will include: (a) city analysis of
previous year’s revenue performance
with detailed analyses of each main
source of revenue including discussion
of its revenue potential: 1 point. (2
points in the first APA)
And (b) city strategies for revenue
enhancement: 1 point.
Proper planning and
analysis is a condition
for effective targeting
of initiatives
Pillars 1 and
3
Existing (partly)
Existing (partly
Percentage increase of in total
municipal revenues from business
taxes, municipal rent and charges and
fees over previous year: 5-10 percent
increase: 1 point; 11-20 percent: 2
points; above 20 percent: 3 points (4
points in the first APA). (nominal
increase)
Percentage of municipal revenue on
business taxes, municipal rent and
charges and fees collected against
planned target for the previous EFY.
(variation less than 5 percent: 2 points
(3 points in the first APA), less than 10
percent: 1 point.
Promote
sustainability,
ownership and
accountability
Pillars 1 and
3
New
Promote realism in
revenue planning and
efficiency in
collection
Pillars 1 and
3
Existing
(but
now focus on
municipal
revenues)
ULG contribution level for capital
investments above a certain level
Promote
sustainability,
Pillars 1 and
3
New
76
Ser. No.
Performance Areas
Performance measure/Indicator/score
o
(Maximum 3 points)
o
o
o
More than 10 % for new
ULGDP cities in new (DRS)
regions, calibrated with 11-20
%: 2 points and above 20%: 3
points;
More than 20 % for new ULGs
in non-DRS regions calibrated
with 21-30 %: 2 points, and
above 30 % 3 points.
More than 30 % for old
ULGDP cities calibrated with
30-40 %: 2 points and above
40%: 3 points.
More than 50 % for Dire Dawa
and Harar calibrated with 5160 %: 2 points and above 60 %
3 points.
Objective
Links to
Ethiopian
Cities
Prosperity
Initiative
Existing or new
indicator
Pillar 3
Existing
(but
strengthen
availability
of
information on
service
ownership and
accountability
Transitional arrangement: Only from second
assessment (September 2014) (budget allocated),
and from the third Assessment in September
2015 (both budget and account figures are
checked).
In the first assessment, the other indicators (5.15.3) will be increased to 5.1: 3 points, 5.2: 4
points and 5.3: 3 points)
6
6.1
Accountability and transparency
(Maximum 15 points)
Accountability and transparency in city’
operations and service delivery
(Maximum points: 15)

City has identified the top three basic
municipal services, and prepared a
standard for delivery along with citizen
charter and published this ( Yes/NO
==6 points) This indicator will be used
Strengthen
accountability
and
good governance
77
Ser. No.
Performance Areas
Performance measure/Indicator/score
7.1
7.2
Links to
Ethiopian
Cities
Prosperity
Initiative
Existing or new
indicator
only for the first year of the program.
information)

Is municipal service delivery as per the
standard and citizen charter? ( Yes/No
6= points). This will be as of the 2nd
year of the programme.
Existing

Dissemination of summary of annual
budgets, approved projects,
expenditures, audited accounts and
results of the procurement decisions in
city offices and other public places, or
web-pages, newspapers etc.: 6 points.
Timely submission of quarterly
physical progress reports: 3 points.

7
Objective
Environment and social Safeguards
(Maximum 10 points)
Eligible investments for potential
environmental and social safeguard
impacts screened

(Maximum points: 6 points)

ESMPs and Resettlement Action Plans
implemented timely

All capital projects in the previous FY
screened against the set of environment
and social criteria in the planning stage:
3 points.
Environmental and social impact
assessments, Environmental
Management Plans (EMP) and
Resettlement Action Plans (RAP)
prepared and approved by the Regional
Environmental Protection Agency as
required (based on a sample review of
projects): 3 points.
Avoid
adverse
environmental
and
social impact
ESMPs and Resettlement action plans
implemented prior to commencement of
Avoid adverse
environmental and
social impact
Pillar 6
Promote
environmental
and
social sustainability
Existing
Existing
Pillar 6
Existing
78
Ser. No.
Performance Areas
Performance measure/Indicator/score
(Maximum points: 4 points)
Objective
Links to
Ethiopian
Cities
Prosperity
Initiative
Existing or new
indicator
Promote efficient
urban planning
Pillar 4
New
Promote efficient
land management
Pillar 4
New
civil works: 4 points.
Promote
environmental and
social sustainability
8
8.1
Land management and urban planning
(Maximum 15 points)
Statutory structure plan
(Maximum 5 points)


8.2
Land management
(Maximum 10 points)


Existence of up-to-date approved
statutory city-wide (structure) plans
(yes/no): If Yes =3 points.
CIP is in accordance with the statutory
plan (structure plan) (sample 5-6
investments): Yes/No. If Yes= 2 points.
Land released is serviced as per
standards and city plan (sample 3-4
projects) Yes/No. If Yes: 5 points (all
have to be fulfilled)
City has an up to date inventory of land
use (Yes/No): Yes= 5 points.
79
DLI 3: Achievements of Infrastructure and Maintenance Targets, planning on job creation and Value for Money in Investments
Note as some of the indicators will only kick in from the second and the third assessment, the scores of the other indicators will be adjusted pro-rate to ensure that
the scoring is always between 0-100 points
Assessment of Infrastructure Investment Performance 62
Ser. No.
Performance Areas
1
Job creation (35 % weight (maximum 35
points) on this in the first two assessments
and from the 3rd assessment: 30 % weight
(maximum 30 points) for this theme)
Job creation
1.1
(Maximum 35 points in first assessments)
2
Achievement of Urban infrastructure
targets
Performance measure/Indicator
Objective
Promote growth and
development
Links to
Ethiopian
Cities
Prosperity
Initiative
Pillar 7
Cities’
achievement
of
jobs
created
(disaggregated by gender) under the CIP against
their targets (% of achievement). Note: a
condition for this, and for provision of points on
this, is that cities have registered/planned targets
and started implementation. Score: achievement
rate @ weight, e.g. 100 % achieved = 35 points,
60 percent = 21 points. As of second year, the
job created will be measured (possibly person
days of employment) based on standard to be
developed by MUDHCo.
Existing
indicator
New
New
Pillar 5
Existing
Maximum 35 points (35 % weight) on this
in the first two assessments, and from the
third assessment: Max 30 point) or 30 %
weight on this DLI.
62
For the first assessment in 2014: reviewing all investments implemented in FY 2012/13 (EFY 2005). Note that this DLI is only applied for the current ULGDP ULGs in the first
assessment. The assessment will review all investments, not only the ones funded by ULGDP PB grants.
80
Ser. No.
Performance Areas
2.1
Urban infrastructure targets achieved
(Maximum 35
assessments)
points
Performance measure/Indicator
in
the

first
Physical targets as included in the
Capital Investment Plan and annual
work plan implemented.
o The % of implementation
against plans will be reflected
directly in the score
multiplied by 35 % (weight of
this indicator), i.e. 100 %
implemented = 35 points, 60
% = 21 points.
Objective
Ensure
effective
implementation
of
infrastructure
and
service delivery
Links to
Ethiopian
Cities
Prosperity
Initiative
Pillar 5
Existing
indicator
Yes
(modified)
The score on this indicator will be between 035.63
Achievement under this indicator will be
measured on the basis of actual delivery of
infrastructure against targets laid out in the CIP
and annual work plan for the previous year. The
means for verification are:
 Review all planned projects and the degree
to which they have been implemented by
the end of the FY.
 Review annual and quarterly work plans
and reports
 Check minimum sample of 5 projects from
the field-work (on-the-spot of
implementation rates)
 Check the contract implementation
progress and contract completions through
the review of bills of quantities, see the
description below.
Implementation rate of each project will be
63
See means of verification below in the notes.
81
Ser. No.
Performance Areas
Performance measure/Indicator
Objective
Links to
Ethiopian
Cities
Prosperity
Initiative
Existing
indicator
Pillar 5
Existing but
adjusted.
Ensure sustainability
in the investments
through up-keep of
infrastructure
Pillar 5
Existing, but
adjusted
Ensure sustainability
in the investments
through up-keep of
infrastructure
Pillar 5
New
assessed and there will a weighting of these to
get a total score. The weight of each project will
depend on the budgeted size of the projects (see
the table below the APA table).
Assessed by the performance assessment teams.
No transitional arrangements. However, DLI II
will only kick in for the new ULGDP ULGs
from the second assessment.
3.
3.1
Maintenance Performance
30 % weight of this in the first assessment
(maximum 30 points) and 20 % of the
weight (maximum 20 points) on this DLI
from the 3rd assessment when value for
money kicks in).
Maintenance budget and implementation
rate (Maximum points: 15 points in first
assessments)
(10 points in the 3rd and following
assessments)


Maintenance plan derived from the
assets management plan
ULGs have developed a clear
maintenance budget and actual
implementation rate is minimum 80%
of the planned.
Note: both conditions have to be complied with
to get the 15 points.
Review Overall budget and utilization rate in
final accounts.
3.2
Actual maintenance (Maximum points 15
in first assessments)
(10 points in the 3rd and the following
Sample of projects to review actual
maintenance.
 Maintenance is catered for (reward if
all projects, which need maintenance,
have actually been catered for). This
will be based on a sample of 3-5
82
Ser. No.
Performance Areas
assessments)
Performance measure/Indicator
Objective
Links to
Ethiopian
Cities
Prosperity
Initiative
Ensure efficient and
high quality
infrastructure and
service delivery
Pillars
and 5
Existing
indicator
projects from the Assets management
plan.
Note: All projects have to be catered for to
achieve the points.
4
4.1
Quality of infrastructure
(20 % weight from the 3rd assessment)
Value for the money in the infrastructure
investments funded by the Program64.
(Maximum points 20 from 3rd. assessment
and onwards)
Percentage of projects implemented with a
satisfactory level of value for the money,
calibrated in the value for the money assessment
tool.
2
New
The % of projects with a satisfactory level of
value for the money will be reflected in the
score multiplied by 0.20 (20 % which is the
weight of this indicator), i.e. 80 % satisfactory
projects=16 points, 60 % = 12 points.
The score on this indicator will be rated
between 0-20 points.
The value for the money of each project (level
of satisfactory value for the money) will be
assessed and there will a weighting of these to
get a total score. The weight of each project will
depend on the budgeted size of the projects.
The input from this will be provided by the
value for the money audits to the assessment
teams to be included in the calibration and in
the final calculation of the size of the
allocations.
64
The value for money will be conducted from the 3rd assessment starting in September 2015. In case they are not completed by the time needed to be incorporated in the regular
assessment, the firm, which will carry out the assessment will revise the assessment results by taking the VFM audit results into account in due course.
83
Ser. No.
Performance Areas
Performance measure/Indicator
Objective
Links to
Ethiopian
Cities
Prosperity
Initiative
Existing
indicator
Transitional arrangement:
The results of the value for money will be
assessed first time at the APA in September
2015 of the performance in 2014/15.
Maximum
points 1,
2,3,4 = 100
Note: The “execution rate” will be determined by a review of the bills of quantities, and verified by the physical progress against planned targets. Hence, for projects not yet
fully completed, e.g. a road project, the team will review the progress on the major items in the bills of quantities, both in the regular reports from the engineer, as well as through
field trip verification of the actual implementation rate. The % (rate), of completion measured by the bills of quantifies and physical progress against planned annual target will be
determined for each project as the status was in the situation at the end of each Fiscal Year. The completion rate (%) of each project, when determined, will then be weighted with
the relative contracted size of the projects to get an aggregate result, see the example below.
Weighting Completion Rates
Projects
Project 1
Contract
amount
100,000
Implementation rate
against planned
completion *
70%
Project 2
500,000
Project 3
50,000
Total Plan
650,000
Weighted implementation rate for this City
80%
90%
100%
Weighted
Result
70,000
400,000
45,000
515,000
0.79
79%
*Progress of projects monitored through bills of quantities and field verification.
84
Annex 8: ULG staffing positions
Analysis of the current staffing positions - based on a review of: 1) Collected data on staffing positions
and filled positions for the ULGDP-II, IFA exercise65, which the Ethiopian LG Revenue Enhancement
Study (ELGRS) team has summarized and reviewed, 2) a review of the general situation in the 12 sample
ULGs under the ELGRS and 3) review of previous studies, e.g. supported by GTZ on the baseline for the
coming ULGDP CB/Technical Assistance support and the Worda and City Benchmarking studies, show
that there are substantially filled positions in the ULGs in most of core areas of importance for the
operations of the ULGDP, although also some gaps to be addressed66.
The recently collected data on the staffing in the OFED covering core positions of relevance for the
coming ULGDP-II operations shows that the average staffing requirements in the OFED offices is about
50 staff (sample based on 27 ULGs) where the lowest number is 26 staff in Motta City and the highest
number in Dire Dawa with 140 staff and that the average filled positions (simple average figures across
the 27 ULGs) is 82 % filled positions with Areka City with the lowest number: 19 filled staff positions
and Dira Dawa with the highest number 97 filled. The 27 ULGs have on average 39 filled staff positions
in the OFEDs.
In the core procurement and finance positions, the percentage filled positions is on average 84% (average
figure is 22 filled staff positions). The data shows that 21 of the 27 ULGs have 75% or more of the
staffing positions filled, with the lowest level in Jijiga on 37 % (15 positions filled out of 41 required
positions). There are larger gaps in planning and budgeting (average: 64 % filled in the ULGs where data
is available, and with an average staffing number of 4 positions, lowest number is 2 staff in the ULGs
where data is available). On audit and inspection the share of filled positions is higher: 85 % on average
(the average number of staff in filled positions is 5 staff, with the lowest number in Gambella with only
one position filled).
In the OFED, ULGs on average have 15 filled staffing positions with BA/Bsc education level or above
that level (e.g. master), (the variation is between Motta with 3 positions and Hawassa with 44 staff), and
on average 11 filled staff positions with colleague diploma education. For the 19 ULGs where data is
available, the average number of engineers or staff with similar educational background is 7 staff with the
lowest number in Sebata city: 2 staff.
A comparison between ULGDP cities and the non-covered cities shows some variation with the ULGDP
ULGs in a relative stronger position, e.g. the total average staffing positions filled in the non-ULGDP
Raw data provided by SuDCA based on collection of data from ULGs in August – November 2013. Based on these data files, a
table covering 27 ULGs have been constructed by the Technical Assistance (TA) showing the overview staffing positions
required versus filled positions, education skills, etc.
66 The ELGRS, Component 2a, did not collect quantitative data on staffing positions, but the interviews and meetings with the 12
ULGs confirmed the situation, reflected in the quantitative figures presented here and the challenges with staff turn over and
shortage of engineers/technical staff. Second, prior to the start of the TA under ULGDP for the preparation of cities for ULGDP
II, a review was undertaken of the strengths and weaknesses of the cities in areas of PFM, procurement, environmental
safeguards, internal audit, etc. (GIZ supported, un-dated documents), which has benefitted the assessment as well). Finally, the
Woreda Benchmarking Study WCBS V 2013: Results of the supply-side evaluation of local government in Ethiopia Draft report
as of June, 1st 2013 Alexander Wegener : https://dl.dropboxusercontent.com/u/7492328/WCBS V Supply Side Report.pdf
provides important information about the staffing situation and challenges at the city and woreda levels.
65
85
cities is only 77 % against 86 % in the ULGDP covered cities, and the number of engineers is on average
5 staff in the non-ULGDP against 8 staff in the ULGDP cities, and similar variations is noted in terms of
the education level.
In general cities and municipalities are better staffed than the rural local governments (woredas). Thus the
recent Woreda City Benchmarking Survey67 noted that:




The average number of local government employees per 1,000 inhabitants is 16.2 for cities
compared to 8.6 for woreda,
Staff turnover is generally very high in local governments with an average turnover of 15% for
cities compared to 26% in woredas,
Within city governments the turnover is highest in Amhara (35%) and lowest in SNNP (7%)
Vacancies as share of total workforce is much more significant for state functions than municipal
functions in all regions – e.g. 2.8% vacant municipal post in Amhara compared to 40.0%
vacancies for state functions
Retention and recruitment of staff is in particular a problem for staff categories such as engineers who
have opportunities for employment in the private sector. In the recent WCB V (op.cit page 39) 41.7% of
the city governments reports to face “recruitment problems” for engineers (whereas only 2% of cities
report “problems” with regards to recruitment of planners and accounting staff). The recent
Implementation Completion Report for PSCAP noted68 : “Despite intermittent salary hikes, the public
sector pay structure for skilled staffs and professionals has always remained non-competitive and nonincentivized. Also GoE’s Five Year Action Plan for public sector capacity building did not include any
provision for medium term remuneration policy. As a result PSCAP has suffered from high staff turn
over, wastage of training investments and loss of skills and experience required for improved service
delivery”.
The reviews and studies of the staffing structure and patterns in the ULGs proved the importance of: (i)
having a minimum staffing positions as core screening minimum conditions for grant access in the APAs
and allocation of funds against the ULG capacity to absorb and efficiently handling of funds, (ii) having a
continued CB support from the program (supply and demand driven), (iii) having a continued focus on
ensuring improved organization and staffing at local levels, with strong incentives (iv) improvement of
OSR to ensure that staff can be hired for the beef up of the organizations.
67
WCBS V 2013: Results of the supply-side evaluation of local government in Ethiopia
Draft report as of June, 1st 2013 Alexander Wegener – the report can be downloaded from this site:
https://dl.dropboxusercontent.com/u/7492328/WCBS V Supply Side Report.pdf
68 Federal Democratic Republic of Ethiopia, Ministry of Civil Service – Implementation Completion and Result Based Report
2013 section 5.4.
86
Annex 9: ULGDP II- Capacity Building Support –Design
BACKGROUND
1. The Urban Local Government Development Project (ULGDP) (2008-2014) mainly relied on
the legacies of capacity building (CB) support from past projects. Under an earlier project which preceded ULGDP - the Capacity Building for Decentralized Service Delivery Project
(2003-2008) (CBDSD), 1869 of the 19 ULGs (Addis Ababa is the 19th) in ULGDP were given CB
support for good urban governance and reforms. In addition, another project- the Public Sector
Capacity Building Program Support Project (2004-2009) (PSCAP), focused on capacity building
support for the federal level and the nine regions. During ULGDP, the CB activities of the 19
ULGs comprised mainly backstopping support from the Ministry of Urban Development,
Housing and Construction (MUDHCO) through a federal mobile team of specialists.
2. Three years into the ULGDP, it became apparent that continuous and strengthened CB
support for urban management and good governance is still required. With the opportunity
of Additional Financing for ULGDP in 2011, 18 new ULGs70 were selected to start receiving CB
support for urban management and governance, to prepare them for participation in the follow-on
ULGDP II. Two technical multi-disciplinary consultant teams (with 20 and 25 experts 71
respectively) were deployed for this purpose, as well as to further enhance the capacity of the
original 18 ULGs. A further 8 cities 72 and some regional support are provided by a parallel
running Urban Governance and Decentralization Program (funded by GIZ), on good urban
governance subjects such as planning participation, finance and urban poverty. Both the
consultant teams’ work and the GIZ program will end in December 2014.
ULGDP II CAPACITY BUILDING ARCHITECTURE
3. Under ULGDP II a more structured and systematic approach will be adopted for CB
activities and focuses on all three government levels – federal, regional and local. Firstly, CB
activities for all levels throughout the program period will be supported by dedicated federal and
regional mobile teams. In addition, CB support will be tailored to the needs of federal, regional
and local levels: (i) for ULGs, both supply and demand side interventions will be provided to
raise their general capacity and enable them to respond to the performance incentive mechanism;
(ii) regions will be supported to strengthen their urban governance and management roles and in
turn, provide CB support to ULGs under their charge; and (iii) for the federal level, CB support
will aim to strengthen their capacity building coordination, oversight and backstopping functions
in serving the regional and local governments.
69
Bahir Dar, Dessie, Gondar, Kombolcha, Dire Dawa, Harar, Adama, Bishoftu, Jimma, Shashemene, Arba minch, Dilla,
Hawassa, Sodo, Adigrat, Axum, Mekele, Shire Enidailase,
70 Debre Brehan, Debre Tabor, Finote Selam, Mota, Woldiya, Ambo, Asela, Burayu, Robe, Sebeta, Zeway/Batu, Areka, Butajira,
Hosaena, Mizan, Alamata, Humera, Wukro.
71 The teams include specialists in urban planning, municipal finance, financial management, land management, procurement,
environmental management, social development, local economic development, infrastructure/asset management, participation
and service standards.
72 Adwa, Asosa, Debere Markos, Gambella, Jijiga, Nekemte, Samera, Yirga Alem.
87
4. The main focus of the CB is on enhancing urban governance and management to achieve
better service delivery. Due to the cross-cutting nature of the subject, CB will aim to strengthen
the governments’ capacity in a variety of subject matters, such as participatory planning,
budgeting, revenue mobilization, financial management, procurement, infrastructure asset
management, contract management and execution, urban planning, environmental and social
safeguards, audit, ethics, fraud & corruption, monitoring & evaluation among others. The
intention is both to strengthen the human capital capabilities as well as systems improvements in
these related areas (such as IT system, accounting system etc.). The Annual Performance
Assessment (APA) integral to the ULGDP II will provide a comprehensive, regular check on the
capacity improvement and achievement or identify gaps and weaknesses to be improved upon in
these areas for each ULG.
Phasing
5. To ensure effective transition from ULGDP to ULGDP II, capacity building activities are
conceived in two phases. Phase 1, from November 2013 till December 2014, will be a transition
period and Phase 2, from August 2014 till December 2019, will be when ULGDP II is fully
effective in the area of CB support. In Phase 1, current CB arrangements under ULGDP and GIZ
support will continue, and the former will start gearing towards ULGDP II requirements.
Concurrently, preparations for Phase 2 CB activities will commence and be in place before
ULGDP II program effectiveness. Phase 2 will overlap with Phase 1 to allow time for proper
handing-over.
Table: Main Capacity Building Activities in Each Phase
Phase 1 (Nov 2013 – Dec 2014)
Phase 2 (Aug 2014 – Dec 2019)
1. Federal mobile team
4. Expanded federal mobile team and
2. Two technical consultant teams with CB
functions
support for ULGs (phased out by end of
5. Four new regional mobile teams
period)
6. New urban management course for
3. CB support to ULGs under program
ULGs
funded by GIZ (phased out by end of
7. Demand-driven CB for ULGs
period)
Federal and Regional CB Mobile Teams
6. The federal and regional CB mobile teams will strengthen the CB provided to all three
levels of government throughout ULGDP II. These teams will deliver on-the-job issuespecific guidance. With the expanded scope of ULGDP II to include a total of 44 ULGs, the
current MUDHCO multi-disciplinary team comprising 12 specialists, which provides
backstopping support to the 19 ULGs 73 under ULGDP, will be further strengthened to
approximately 34 specialists. These specialists will be procured directly by the MUDHCO. This
will first boost the capacity within the MUDHCO to tackle the greater demands of the program
and also afford greater CB support to the regions and ULGs. The Federal Mobile Team (FMT)
73
Including Addis Ababa.
88
will be stationed within MUDHCO but deployed regularly to the field, to both Regions and
ULGs. The main functions of the FMT are:
a. focused support for –
i.
the four new ULGDP II Developing Regional States (DRS),
ii.
DRS constituent four ULGs, and
iii.
the two single-city Regions of Dire Dawa and Harar;
b. general backstopping support for all other regions;
c. mentoring the four regional mobile teams;
d. capacity building for MUDHCO; and
e. overall coordination and oversight of CB activities under ULGDP II including the ECSU
urban management course (described in later sections).
7. Four new Regional Mobile Teams will be formed under ULGDP II. Each Regional Mobile
Team (RMT) will consist of approximately ten multi-disciplinary specialists. The four RMTs will
each be based in the four regions with a large number of participating ULGs: Amhara (10 ULGs),
Tigray (8 ULGs), Oromia (11 ULGs) and SNNPR (9 ULGs), and hosted by the respective
Regional Urban Development Bureaus (or its equivalent). They will spend one out of four weeks
per month with the regional government, and the rest of the time with the ULGs. While in the
field, they will work closely with the relevant technical staff to provide mentorship and issuespecific support. The main functions of these RMTs are: (i) provide CB support to the host
region; and (ii) provide CB support to the participating ULGs in the respective regions, totaling
38 ULGs.
8. The RMTs will be procured by the respective regions with technical support from
MUDHCO during procurement. Ministry’s support will include facilitating nation-wide
advertisements to identify optimal candidates. As part of the region’s backstopping functions, this
process of procuring and managing the RMTs further instill ownership, confer greater
responsibility and strengthen the capacity of regional governments.
9. The capacity of the Regional Governments to procure and manage these teams is assessed
to be adequate. Under past and current operations such as PSCAP, Protection of Basic Services
(PBS) and Productive Safety Net Project (PSNP), the regional governments have procured and
are presently managing similar teams. For example, under ULGDP, the Regional Bureaus of
Urban Development have procured 3 full-time specialists each to staff the program. In addition,
under the Urban Management Capacity Building Sub-Program of PSCAP, the Regional Bureaus
of Urban Development are responsible for all regional level activities74. Almost all regions have
been engaged in providing training for mainly city administration staff and specialists on various
urban related issues, ranging from urban development policies and good governance to specific
knowledge on project planning and implementation, management skills and technical skills. As a
result, more than 18,000 people were trained in all regions, excluding SNNP, and SNNP alone
trained more than 160,000 people. Similarly, under PBS, 54 teams of five specialists each were
procured and managed by the regional governments to provide support and training to woredas.
74
Specifically, for the major activities of training, consultancy and procurement, the Urban Development Bureaus
provide specification and purchase orders to purchasing experts in the Civil Service Bureau to effect the purchases.
89
Table: Federal and Regional CB Mobile Teams Proposed Functions and Composition
Function
Composition
Additional Notes
Current Proposed - Spends approximately
Federal
- Focused support for 34 specialists and 1 Long Term
Advisor;
Mobile
the four new
3 out of 4 weeks in
Proposed composition:
Developing
the field
Team
i. Program coordinator
1
(FMT)
Regional States
- To be procured
ii. Deputy coordinator
+1
(DRS) and their
directly by the
iii. Procurement Specialist
3
+2
constituent four
MUDHCO
iv. Environmental Specialist
1
+2
ULGs, and Dire
- Specialists to be
v. Social Development
1
+2
Dawa and Harar;
recruited and in place
Specialist
5
+2
- General
by August 2014.
vi. Engineers
1
+1
backstopping
+2
support for all other vii. M&E Specialist
viii. Infrastructure Asset
regions;
Management Specialist
+2
- Mentor the four
ix. Financial Management
regional mobile
Specialist
+2
teams;
x.
Municipal
Finance
Specialist
+2
- Overall coordination
+2
and oversight of CB xi. Urban Planner
+2
activities in ULGDP xii. Land Management Specialist xiii. Budget Planning &
II (including the
Participation Specialist
ECSU urban
management course)
4 teams of 10 specialists;
Regional - Provide CB support
- One team to be based
Proposed team composition:
Mobile
to the four host
in each of the four
i. Budget planning and participation specialist
Team
Regions: Amhara,
regions: Amhara,
ii. Procurement specialist
Tigray, Oromia and
Tigray, Oromia and
(RMT)
iii. Financial Management specialist/ Internal Auditor
SNNPR
SNNPR
- Provide CB support iv. Infrastructure asset management specialist
- Spends 3 out of 4
v. Environmental management specialist
to participating
weeks in ULGs, and 1
vi. Social development specialist
ULGs in the
week in region
vii. Project engineer
respective regions,
- To be procured by the
viii. M&E specialist
totaling 38 ULGs.
respective Region,
ix. Municipal finance specialist (with focus on
with support from
municipal revenue)
MUDHCO (eg.
Ethics officer
nation-wide
advertising)
- Teams to be recruited
and in place by
August 2014.
Capacity Building for ULGs
New urban management course
90
10. Under ULGDP II, capacity building will comprise both the supply and demand side
interventions. The supply side intervention will mainly constitute of an ULGDP II
Implementation course to be provided by the Ethiopian Civil Service University (ECSU). The
course content will be based on those key areas of ULGDP II implementation with a strong
emphasis on the practitioners at the ULG level. The target group for the capacity building will be
the key individuals responsible for ULGDP II implementation in the 26 ULGs participating fully
for the first time in the ULGDP. The proposed design of this course comprises eight modules: (a)
procurement and contract management (2 weeks), (b) participatory planning, capital investment
planning, budgeting and financial management (2 weeks), (c) monitoring and evaluation,
reporting, performance assessment systems, records keeping and IT (2 weeks), (d) environmental
and social safeguards including fraud and anti-corruption (1 week), (e) asset management
including O&M (1 week), (f) revenue enhancement including land leasing (1 week), (g) job
creation, micro and small enterprise development (1 week), and (h) urban planning and land
management (1 week). Note: in the case of modules (g) and (h) above awareness-raising as to the
application of ULGDP II investment and capacity building funds will be given due attention. The
eight modules will be delivered through resident training at the ECSU of 1 or 2 weeks in duration
as indicated above. The eight packages will be offered over a period of four or five months
during the first 6 months of ULGDP II implementation – 1 August to 31 December 2014 – and
are separated so as not to impose too great an administrative burden on the cities.
11. This course will be provided for the new 26 ULGs that joined the ULGDP II to ensure a
basic level of capacity for these new ULGs. MUDHCO will sponsor the costs for these 26
ULGs to attend this one-time course, to bring the 26 ULGs up-to-speed especially to meet
ULGDP II performance assessment requirements. After the first run, if refresher courses are
needed, the 26 ULGs can send officials for further training at their own cost (or from the funding
for demand-based CB). As for the original 18 ULGs under ULGDP, considering that they have
undergone CB activities since the early 2000s, the course will be optional for them but can serve
as a refresher or for new staff in the ULGs. For these 18 ULGs, it is suggested for them to utilize
their own resources to attend any or all of the modules.
12. It is envisioned that the MUDHCo will be the main facilitator to put the course in place.
This will involve inviting ECSU to submit a proposal, based on a course outline provided by
MUDHCo. The course outline will: a) describe the eight modules and their duration indicated
above, b) emphasis the importance of course design and delivery that is strongly practical;
founded on GoE policies, programs and procedures and the ULGDP II Manual of Procedures and
delivered by individuals with knowledge and experience of the subject matter at the level of ULG
implementation. MUDHCo will fund the participants from the 26 new ULGs for which the course
is mandatory and ECSU will arrange to recover costs of course delivery from those ULGs for
which the course is optional. MUDHCo will work with ULGs to identify course participants.
ECSU will be responsible for submitting a proposal to MUDHCo that describes the course design
(including approach to delivery), course materials, system for certifying participants who
successfully complete the course, individuals responsible for delivery of the eight modules
(ECSU may, to ensure practicality of the course, recruit trainers with practical experience of
program delivery in ULGs) and costs of delivery. Based on ECSU’s proposal, amended by
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mutual agreement between MUDHCo and ECSU, MUDHCo will enter into an agreement with
ECSU for delivery of the course. To enable broader outreach, administration of this urban
management course could also be undertaken by other appropriate institutions in the future, in
addition to ECSU, upon proper evaluation and accreditation to determine the qualification of
these institutions.
Demand-driven CB for ULGs
13. In addition to the supply side interventions described above, each ULG will be able to spend
up to 5% of Program funds on specific CB activities. This will allow ULGs to tailor their
specific CB needs, especially in response to key areas of weaknesses identified in the Annual
Performance Assessment. This demand-based approach will allow flexibility and cater to the
varying needs of each ULG, especially given their different capacity levels, having received
differing CB support over the years and their specific geographic and infrastructure
characteristics. Each ULG will procure its own training and other services in line with GoE
procurement guidelines and using providers from the pre-qualified list(s) of relevant Ministries
and trainers/institutes that have been certified or accredited by the GoE. In terms of the
availability of private sector presence to respond to the demand-side capacity building needs of
ULGs, Ethiopia has a robust private sector market to offer technical assistance and consultancy
services to the ULGs on various urban infrastructure and services areas such as water supply,
drainage and flood control, roads, building, urban planning, waste collection and disposal, urban
transport management etc.
14. The ULGs will be required to develop a CB plan (as part of the generally planning) for the
use of funds, formulated on the same timing cycle as their physical plans. The CB plan,
reporting and feedback will apply the standard format elaborated in the Operational Manual, and
ULGs will have to report twice a year on basis the utilization and progress of CB activities. The
respective Regional Urban Development Bureaus and RMTs will oversee the preparation and
execution of these annual capacity building plans, and the execution of the CB plans will be
verified through the APA.
15. The CB activities to be funded should adhere to the prescribed CB Activities Menu (as
detailed in table below). Generally, these funds can be used for technical consultant work,
backstopping support, advisory support, training, minor equipment and contract staff. Items such
as vehicles and administration building are not part of this provision. As explicitly stated in the
Operational Manual, should a ULG be in doubt about the eligibility of a CB activity, they will
contact MUDHCO to ensure that the expenditure complies with the ULGDP II expenditure
framework.
Menu for the Capacity Building Activities
(total costs not to exceed 5% of total performance-based grant received)
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Training, Seminar
and Conference
Technical assistance
and organizational
development, system
development etc.
-
Short- term local training and related operating expenses
Selected short- term training (up-to duration of 3 months)
Peer to peer support across ULGs
Study tours as planned by the ULGs and approved by the Ministry
(study tours will have to be approved)
Seminars/Conferences/Workshops/Meetings Expenses
Training Materials
Hire of Venue /Hotel Accommodation
Refreshments
Consultancy fees and related operating expenses
Printed Material & Stationery
Equipment related with the CB support (not vehicles and buildings) including:
- Server (computing)
- Networking & ICT equipment and software
- Computers ad Accessories
- Printer, Photocopy Machine, Scanner
- Binding Machine
- Air Condition/ Fan
- Filling Cabinet/ Shelf
Note: Compliance with the investment menu, including the CB Activities Menu will be a minimum condition for
access to the performance grant.
Equipment
CB for Regions
16. Under ULGDP II, regions will begin assuming expanded roles in supporting ULGs within
their jurisdictions to improve urban governance performance. The various Regional Urban
Development Bureaus (or its equivalent) will be the main coordinating as well as recipient
agencies of CB activities. The FMT and RMTs will provide support to the Regions to build up
their general capacity for urban governance and management, in the range of relevant subjects. In
turn, the Regions will have greater capacity to provide guidance for the ULGs. In particular,
Regions will receive additional financial support to achieve results in three focus areas: (i) audit,
(ii) environmental and social safeguards, and (iii) revenue enhancement and mobilization. The
achievement and performance in these areas will be measured in the APA. (Additional trainings
focused on regional procurement specialists will be provided under PBS to equip the regional
governments with the capacity to conduct independent procurement audits from Year 3 of the
Program.)
17. The four established Regions – Amhara, Oromiya, SNNP and Tigray - with multiple
participating ULGs will have greater responsibilities - to host and provide logistical support
to the Regional Mobile Teams. As mentioned earlier, the four regions will procure and be
responsible for coordinating and overseeing one RMT each, which in turn mentors the constituent
ULGs within the Region. These RMTs will be based in the Region, and deployed to ULGs
frequently (as described earlier). In the process, the RMTs will directly assist the Regions
themselves to enhance their capacity, in addition to supporting the ULGs.
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CB for Federal Entities
18. Capacity building activities for MUDHCo under ULGDP II will focus on (i) systems
development for urban management and development (such as M&E, IT and database systems,
procurement, revenue enhancement system and database); (ii) equipment related with the
enhanced capacity building; and (iii) expansion of the federal mobile team and training of the
core MUDHCO officials. In addition, it is proposed to have at least one international senior urban
development advisor to be attached to MUDHCO to provide guidance and oversee the
management of CB activities throughout the Program.
19. Besides MUDHCO, other federal entities will have supporting roles in ULGDP II. As the overall
coordinator and implementing agency of the Program, MUDHCO will inform these relevant
federal agencies (e.g. Ministry of Finance and Economic Development (MoFED) and Federal
Ethics and Anti-Corruption Commission (FEAC)) of the Program, and liaise with them to
determine specific CB needs that could be covered within ULGDP II to ensure that these agencies
have adequate capacity to facilitate the Program.
Sustainability
20. From the onset, the capacity building functions within the MUDCo will be handled by the Urban
Governance and Capacity Building Bureau (UGCBB). The MUDCo is in the process of setting
up a “Centre of Excellence for Urban Governance and Capacity Building” which will undertake
the functions of (i) capacity building, (ii) research and analysis on urban governance, and (iii)
performance and benchmarking to support the Ethiopian Cities Resilient, Green Growth and
Governance Programs Package. It is envisioned that CB support to all three levels of government
will be consolidated under this Center of Excellence. The ULGDP II should therefore consider
mainstreaming CB activities into the GoE system under this Center of Excellence, at an
appropriate time during the course of the Program. This can be re-evaluated during the Mid-term
review.
21. At the regional and local levels, ULGDP II would have built upon previous projects and programs
to continue strengthening their capacity. Especially for the Regions where less CB efforts have
been focused on previously, ULGDP II is embarking on the initial steps of empowering them to
effectively function in their role to guide the ULGs. While ULGDP II will provide CB to the 44
participating ULGs, in the long run beyond ULGDP II, GoE’s intention is to scale up CB efforts
to cover all 85 ULGs in Ethiopia. The CB systems and activities, such as the urban management
course and demand-driven CB activities, being put in place under ULGDP II, could be scaled up
and easily applied to other ULGs in the future.
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Summary of CB Support for Regions and ULGs
CB Support for Regions
1
2
3
4
5
6
7
8
9
10
Regions
Afar
Amhara
Benishangul Gumz
Dira Dawa
Gambella
Harar
Oromiya
S.N.N.P
Somali
Tigray
Phase 1
GIZ Partial
GIZ Partial
GIZ Partial
GIZ Partial
GIZ Partial
GIZ Partial
GIZ Partial
GIZ Partial
Phase 2
FMT
FMT
RMT
FMT
FMT
FMT
FMT
FMT
RMT
FMT
RMT
FMT
FMT
RMT
CB Support for ULGs
ULGs
Phase 1
Phase 2
1
Adama
1
3
4
5
6
2
Adigrat
1
3
4
5
6
3
Arba Minch
1
3
4
5
6
4
Axum
1
3
4
5
6
5
Bahir Dar
1
3
4
5
6
6
Bishoftu
1
3
4
5
6
7
Dessie
1
3
4
5
6
8
Dila
1
3
4
5
6
9
Dire Dawa
1
3
5
6
10
Gondar
1
3
5
6
11
Harar
1
3
5
6
12
Hawassa
1
3
4
5
6
13
Jimma
1
3
4
5
6
14
Kombolcha
1
3
4
5
6
15
Mekele
1
3
4
5
6
16
Shashemene
1
3
4
5
6
17
Shire Enidasilase
1
3
4
5
6
18
Sodo
1
3
4
5
6
19
Adwa
2
4
5
6
20
Asosa
2
5
6
21
Debere Markos
2
5
6
22
Gambella
2
3
5
6
23
Jijiga
2
3
5
6
3
4
3
3
4
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24
Nekemte
2
25
Samera**
2
26
Yirga Alem
2
27
Alamata
28
4
5
6
5
6
4
5
6
1
4
5
6
Ambo
1
4
5
6
29
Areka
1
4
5
6
30
Asela
1
4
5
6
31
Burayu
1
4
5
6
32
Butajira
1
4
5
6
33
Debre Brehan
1
4
5
6
34
DebreTabor
1
4
5
6
35
Finote Selam
1
4
5
6
36
Hosaena
1
4
5
6
37
Humera
1
4
5
6
38
Mizan
1
4
5
6
39
Mota
1
4
5
6
40
Robe
1
4
5
6
41
Sebeta
1
4
5
6
42
Woldiya
1
4
5
6
43
Wukro
1
4
5
6
44
Zeway / Batu
1
4
5
6
3
** Samera has been joined with Logiya to form one ULG.
Lege
nd
ULGs in ULGDP
CB Delivery Instruments
Existing Teams
1 (SUDCA/Safage)
Phase 1
2
GIZ
Phase 1
3
Federal Mobile Team
Phase 1 & 2
4
Regional Mobile Team
Phase 2
5
ECSU (Urban Mngmt)*
Phase 2
6
Dd Driven CB
Phase 2
Note:
Phase 1 - Nov 2013 until Dec 2014; Phase 2 - from Aug
2014 - Dec 2019 (Program end)
* For the 26 new ULGs the costs to attend the course will be
borne by the MUDHCO, while the original 18 ULGs from
ULGDP will bear their own costs to attend the course.
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