Benin Cities Support Program ( BCSP )

1. Benin Cities Support Program (BCSP)April 20, 2011Dr. Kwabena Amankwah-AyehUrban and Water SectorSub-Saharan AfricaThe World Bank

2. Benin Cities Support Program (BCSP) • Rationale of BCSP and mission’s key messages • Preliminary Assessment of Fiscal Transfers • Preliminary Assessment of Urban Transport • Preliminary Assessment of Human Settlements • Preliminary Assessment of Financing Enhancement for Municipalities • Preliminary Assessment of Financial Management • Preliminary Assessment of Procurement • Preliminary Assessment of Social and Environmental Safeguards • Project Objective and Preliminary Design • Next Steps

3. 1. Rationale of BCSP and key messages of the mission

4. Benin Cities Support Program • An opportunity for the Government of Benin and its cities to: • Leverage World Bank’s experience in the design and actual implementation of intergovernmental fiscal transfers, in urban transport, job creation, human settlements, green cities, and local governance • Implementation support, direct supervision • Competitive procurement (Benin ESKOM example) • Support to Monitoring and Evaluation • Supporting transparency in Financial Management • Supporting implementation of citizens’ voice • Leverage the World Bank as a platform, benefitting directly from other countries’ experience in decentralization and urbanization (Brazil, China, India,….)

5. Direct Benefits of the BSCP to the Cities • Enhanced Fiscal Transfer Mechanisms – predictable, transparent, flexible and result oriented, holding cities accountable • City to City Collaboration: BSCP will be a platform of exchange allowing cross-learning on specific topics (management of assets, integrated urban development, planning, budgeting, local governance , successful green initiatives, …) • Leveraging some of the World Bank’s instruments (inc. IBRD Guarantee), BSCP will be providing direct support to Benin municipalities in raising financing and therefore will contribute to meet the increasing demand for capital from municipalities • Capacity building provided to the cities, consisting in a number of activities, including direct technical support to the Cities, promotion of cross-learning among cities on specific themes, as well as direct training

6. MISSION’S KEY MESSAGES

7. SAFEGUARDS, PROCUREMENT AND FINANCIAL MANAGEMENT National Level • Social and Environmental Safeguards. Need to certify strong consistency and equivalency between the Benin legal and regulatory framework and the WB’s environmental and social objectives and operational principles, which are known to be international best practice. • Financial Management. We need to establish that there is a Very sound accountability and legal frameworks that have been well implemented, and conforms to good global practice • Procurement. Ensure that the legislative and regulatory framework for Supply Chain Management (procurement) exists and is adequate CITIES Level • Any excellent / very good practices (FM,…) • Gaps at cities’ level in terms of implementation of national policies, across themes (safeguards, procurement, FM) Importance of BCSP Capacity Building Program

8. FISCAL TRANSFERS • Significant potential for BCSP to support the GOB’s ongoing efforts in respect of: • fiscal and regulatory devolution to the Cities in the human settlement and transport sectors, and • design and implementation of a fiscal mechanism, or grant, targeted at the Cities to leverage enhanced performance in areas not covered by the FADEC and others

9. HUMAN SETTLEMENTS • A robust legal and policy framework, little applied in practice • Default approach is to remove, demolish, move elsewhere, build from scratch (and not in situ upgrading) : Not sustainable • Grant focus only on CAPEX means no incentive for municipalities to take on new O&M commitments • Some healthy trends to build upon • Importance of building capacity of cities to manage the Built Env Process

10. URBAN TRANSPORT • Severe modal fragmentation: • Public transport investment planning and service planning – leading to lack of integration in systems and services • National government devolutions to help cities pay for public transport – leading to suboptimal solutions and lack of integration • Opportunity to move from: • Modal fragmentation TO integrated public transport network • Institutional fragmentation TO ownership at city level • Supply driven TO demand driven solutions • System disintegration TO comprehensive service planning • Improvements in mobility TO access improvements • Engineering solutions TO holistic solutions • Urban sprawl TO transit oriented development (TOD) • Unsustainable subsidies TO fiscal restraint • Output based TO performance based

11. 2. PRELIMINARY ASSESSSMENT OF FISCAL TRANSFERS (human settlement AND Transport)

12. BACKGROUND • The objective of enhanced city performance - ”service delivery and management capacity” - has two dimensions • Institutional: organs of urban management and governance • Physical: infrastructure provision and maintenance • Support of fiscal instruments needs to be understood in context of technical assistance and capacity building BCSP will provide through Component 3 (i.e. to provide the capacity and technical assistance inputs to respond to the incentives and utilize the resources that the grant mechanisms will delivery) • National level: policy; grant execution; oversight and administration • City level: local policies and rules; planning and operating systems; human resources

13. HUMAN SETTLEMENT GRANTS MOFEP Subsidy A Subsidy B CFAF XXX PREFECTURE CITIES Top structure Integrated land and housing Serviced land Development Development

14. HUMAN SETTLEMENT GRANTS • What Grant instruments will be introduced in FY 11/12; could begin to make performance sensitive in 12/13 • The USDG introduces three basic changes • Informal settlement upgrading • Increased resources for land development • Increased discretion over the utilization of the resources • The housing grant is • de facto being utilized by (some) Cities as if level 3 accredited, but without function having been devolved • allocated (by Province to Cities) on an ad hoc basis • being utilized flexibly by cities according to the dynamics of specific housing developments e.g. CT • The other important reforms – particularly top-structure planning and addressing development blockages – require devolution of the function (level 3 accreditation) and consequential redirection of housing subsidy flows

15. HUMAN SETTLEMENT GRANTS • USDG can be made performance-sensitive, limited to sectoral inputs (e.g. plan) and outputs (e.g. housing units developed) • a shift from the “semi-entitlement” character the grant (originating in MIG) • Introduction of distinction between grant allocation and award based on plan-based output performance • Devolution of the function (to give Cities control over the output) • The establishment of the capacity to measure performance and sophisticated technical approaches isolated from political pressure, to enforce it • Clear identification of performance targets • If the desire is to make the combination of USDG + Housing Grants performance sensitive, a range of additional issues will need to be addressed e.g. the ad hoc annual allocation of housing subsidies

16. URBAN TRANSPORT GRANTS DoT Subsidy B CFAF XXX bn • Subsidy • CFAF XXX op • CFAF XXX bn cap Grant A CFAF XXX bn Prefecture CITIES Regulation; Tariff approval Subsidies Regulation/contracting AGENCY A Bus Operator Bus Operator

17. URBAN TRANSPORT GRANTS • Integration and devolution of (a) the funding flows, and (b) the relevant regulatory responsibilities is a pre-condition of the development of coherent urban mobility systems • Devolution of these flows is a necessary first step towards improving transport service delivery, but is relatively meaningless until the Cities get the power to effect performance changes • effective and full regulatory devolution is part of the package (e.g. MoT fare-setting powers) • The Grant agencies (non-capital) flows are operating subsidies that are not immediately amenable to performance-orientation (and will only become so when cities gain full, effective regulatory control)

18. URBAN TRANSPORT GRANTS • Cities have strong disincentives to take over both the Grant agencies -operating flows, and the related regulation responsibilities (particularly, but not exclusively, of the taxi industry) • Regulatory and funding devolution has significant financial and capacity implications for the Cities • The institutional environment is complex and politically difficult • The Grant B is intrinsically performance-oriented, but there is a limited extent to which it will be able to leverage actual performance on-the-ground make it so before full fiscal and regulatory devolution has taken place (otherwise punishing Cities for performance over factors they do not control)

19. ASSESSMENT • The move towards performance-orientation of existing fiscal instruments is underway • It will be a long, messy and gradual process • The simpler the institutional arrangements that are created for design and implementation the greater the chances of success • Will require a number of key national policy decisions which neither the cities nor any central-local transfer can in itself effect (e.g. regulatory devolution) • Limited scope for performance-orientation of existing grants in short-medium term • Where this exists (mainly Grant A), this is limited to sector-focused input and output performance and will require steady and careful design and implementation attention over time • Difficult to make Grant B effectively performance oriented until fiscal and regulatory devolution has been effected

20. ASSESSMENT • Any other performance (institutional, outcome, climate change), as well as incentivising city-level policy measures to deal with sectoral challenges (e.g. taking on of regulatory responsibilities; integrated planning; land-use and zoning policy) will require a specific, focused fiscal instrument • Need to approach these questions in the context of a broader understanding of the long-term impact on city budgets and tax-bases • The better cities performance the more they harm themselves: potential disincentives

21. BCSP: OVERALL STRUCTURE BENIN CITIES SUPPORT PROGRAMME Component 1 Component 3 • Funding • 1.5-3 bn pa • 10-20% of M capital budgets • Usage parameters to be determined • Performance assessment • Areas/criteria to be determined National Dept National Dept Sector transfers Sector transfers CITIES CITIES CITIES CITIES

22. PG: (POTENTIAL) BROAD CHARACTERISTICS • Objective • To incentivize the capacities, systems, policies and actions of the Cities to enhance utilization of existing resources, service-delivery and built environment outcomes • Funding • Combination of DPs and SAG • An integral part of IG fiscal framework • Performance focus areas • Transverse-organizational (FM, SCM etc.) • Local systems and procedures re routine responsibilities (licensing; building approvals etc.) • Sectoral policies over which Cities have control (e.g. assumption of taxi regulation) • Environment and climate change • Funding levels and usage • 10-20% total CITIES capital budget (to create performance incentive) • Spectrum from narrowly earmarked to discretionary (tend towards latter, but perhaps with specific environmental allocation) • Funding allocation and award • Formula distributed but actual allocation based purely on performance • Performance assessed annually, objectively through external process • Grant administration • National Treasury

23. 3. Urban transport Preliminary assessment -

24. CURRENT SCENARIO • Car dominated urban structure • Severe modal fragmentation: • Public transport investment planning and service planning – leading to lack of integration in systems and services • National government devolutions to help cities pay for public transport – leading to suboptimal solutions and, again, lack of integration • Legacy of distant settlements requiring transport services – high public cost, poor access • Poor quality of intra city public transport – informal, unregulated taxi and minibus dominated • Heavy subsidies to public transport (rail and bus) operators • Lack of transport-land use integration • High accident rates, high emissions 24

25. NLTA – A WATERSHED Opportunity to move from: • Modal fragmentation TO integrated public transport network • Institutional fragmentation TO ownership at city level • Supply driven TO demand driven solutions • System disintegration TO comprehensive service planning • Improvements in mobility TO access improvements • Engineering solutions TO holistic solutions • Urban sprawl TO transit oriented development (TOD) • Unsustainable subsidies TO fiscal restraint • Output based TO performance based 25

26. WAY FORWARD • Introduce performance incentive into a formula driven financial assistance program • Set up a Resource Team in DoT to help cities develop IRPTN, monitor implementation, evaluate performance, provide feedback • Strengthen planning, regulatory, financing, implementation, and monitoring capacity at city level • Develop well structured performance contracts with bus (including taxi) operators • Assist cities with innovative financing options • Develop and deliver a capacity building program for ALL stakeholders 26

27. Demand-based planning • Planning based on accurate mapping of demand, stronger socio-economic focus • Rationalizing and coordinating HS initiatives at municipal level: types of demand driving typology of interventions • Need to build a better information base on household demand, use of grants, outputs: weak information base recognized by NT, NDHS • Geographic targeting can be done easily, building on GIS and survey capabilities in SA • Better databases would allow monitoring and make adjustments in policy easier • Stronger socio-economic focus allows planning to integrate social dimensions • Municipality of São Paulo willing to provide know-how, training

28. Focus on the social dimension • Need to improve social intermediation in setting up and managing projects, engage more with households • HS interventions as entry point for improvements in social facilities, services • Education, health, job opportunities key to sustainability: well known, but how to operationalize? • Geographic, area-based planning model improves targeting • Planning platform, shared with social sectors, becomes vehicle for coordination • Grants need to make provision for social facilities: not enough to set stands aside and wait • Grant focus only on CAPEX means no incentive for municipalities to create new facilities, take on new O&M commitments

29. Standards and Sustainability • Default approach is to remove, demolish, move elsewhere, build from scratch • Frequent demolition of units that could be renovated • Ambitious standards: road network; unit sizes; plot sizes: low-density model, sprawl • If location is desirable, difficult to avoid backyard shacks with 250 sq. m. stands! • Standards such as geotechnical requirements important but concerns that they may be used as ‘alibis’ to justify resettlement and a different use of the land (e.g. higher income housing) • Standards top down rather than allowing people choices on standard and cost • Electricity usually metered and pre-paid above a free minimum, but water metering rare

30. Some healthy trends • Despite the above, the mission identified some healthy trends: • basic service package in informal settlements (Any city) • renovation of existing buildings in city centers to create rental units, both private and public (e.g., Abomey Calavi) • projects offering a range of shelter options: RDP houses, but also stands for bonded housing, rental flats, rent-to-buy flats • performance grants to be structured specifically to support these trends

31. Thoughts on grant design • Performance indicators should be linked specifically to positive trends • Initially, municipalities would receive TA to prepare projects geared at specific performance indicators: demonstration effect important • This could be a performance-linked portion of the main Grant to Cities, rather than a separate grant

32. 5. Financing Enhancement for Municipalities Preliminary assessment

33. Municipalities have huge needs and require more and attractive options for raising financing • There are large infrastructure investment needs. • Grant support from NT has been growing. • Although there are active loan and bond markets in Benin, they need to develop to better meet the needs of the municipalities. • Constraints with the structure of the bond market means bond issuance is not as attractive as it could be. • Insufficient appetite for tenor (Can Cotonou Municipality go to the market to Borrow? • More efficient structures need to be available to municipalities e.g. amortizing structures instead of bullet repayments (with associated costs of maintaining a sinking fund). • Need to pursue measures to deepen the market.

34. A broad and phased program for developing financing options for municipalities • Proposal of a program that includes capacity building and required prior policy actions by municipalities as triggers for support • Support could be in the form of Policy Based Guarantees (PBGs) • Partial guarantees are aimed at leveraging private financing to support fiscal/budgetary support. • Market soundings and further discussions over the coming weeks will determine which city will form the first transaction. • Support NT in exploring possible revisions to legal/regulatory regime in the medium term.

35. The program would create value for both individual municipalities and the market as a whole • Program would lead with capacity building focused on raising financing at the municipality level • based on a needs assessment. • process of market sounding and transaction structuring for preparing partial guarantee transactions will also encourage knowledge transfer to the market. • The IBRD instrument would require prior policy actions – which will help drive good municipality level policy making. • Allows NT to develop market (through indemnity agreement with WB) without interfering directly in it. • Encourages new structures and credits • Encourages longer tenors/better rates • Provides potent form of leveraging • NT indemnity agreement with IBRD allows $400m of guarantees to leverage multiples of additional borrowing.

36. 6. Financial MANAGEMENT Preliminary assessment

37. Maturity of FM systems • Cities • Accountability framework: any good practices • Legal framework / design: any good practices • Implementation: good practice • Unqualified audit reports on not just financial (full accrual), but also performance information! • Conditional Transfer System • To be used only for the intended purpose • Ring-fenced, with downwards and upwards tracking and reporting of transfers, reporting of actual expenditure and monitoring of unspent funds • PFM System • 2008 PEFA PFM Performance Assessment • Good practice • Full use of country systems possible – have to agree disbursement and procurement modalities

38. FM Capacity development needs • Implementation strategy for MFMA and support through DORA and others means certainly show results • No cross cutting basic operational FM gaps at Cities visited; some specific issues at certain Cities • Pre-identified themes for capacity development – • ensuring FM stability during the immediate post election period; • in pursuit of value for money; • towards more integrated planning, budgeting and reporting; • improved liquidity and towards financial sustainability; • improved investment and capital management.

39. Legislative, Regulatory and Institutional Framework for SCM • Legislative and Regulatory framework exists and is adequate • Supply Chain management is used as development tool as well as aid to service delivery • Some laws, policies and regulations may constrain competition, value for money and transparency whilst the rationale for them is appreciated. They may also encourage fraud and corrupt practices. These include Preferential Procurement Policies, National Industrial Participation Programme and Competitive Supplier Development Programme • Organization and capacity to manage SCM vary among cities. In some SCM is centralized whilst other are partly centralized and sector based • Adequate qualified staffing exist but specialized skills in supply chain management planning and contract management require strengthening

40. 7. ProcurementPreliminary assessment

41. Quality of Procurement Procedures • Standard tender documents and contract conditions are in place • Methods of procurement are clearly defined for various threshold values of contracts • Tendering processes were efficient though delays were experienced in tender evaluation • Demand management (planning) was weak resulting in transactional and adhoc procurement leaning towards request for quotations and overuse of Section 36 of the Regulations (Single source and amendments of contracts) • Inadequate cost estimates for tenders and weak contract management which was exacerbated by large volume transactions. This resulted in high contract price escalations and extended contract periods • Risk of fraud and corruption exist resulting from fronting practices, weak contract management and inadequate disincentive to regulate bidder behaviour in tender documents ( No tender securities and tender prices not fixed regardless of period)

42. Controls, accountability and integrity of system • External controls were adequate with annual financial audits (that include SCM) carried out and reports made public • Appropriate delegation for procurement decisions linked to value of contract were in place • Tender dispute resolution mechanism through judicial review system was functional • Laws, Regulations and systems to combat fraud and corruption exist but do not include coercive and obstructive practices (perhaps fronting practices as well) • Monitoring both internally and by Treasury require strengthening • Reports prepared by cities were transactional and do not adequately monitor progress in implementation and performance of supply chain management. A performance monitoring system is required

43. What could be done to improve and monitor Progress (1/2) • Centralization of SCM functions- In some municipalities the function is dispersed making control, compliance and consolidation of requirements difficult • Demand management – Initiate and track demand management (procurement planning) as key aspect of supply chain management • Monitor transparency through percentage of procurements expended through open procurement systems, disputed contracts and cancelled tenders • Initiate and track existence and usage of tender/contract tracking system to track amount, payments, expiry date and systematic completion reports linked to budget system (electronic better due to volume of transactions)

44. What could be done to improve and monitor Progress (2/2) • Monitor value for money and transparency through tracking of proportion of deviations (single source) excluding those necessitated by natural causes as percentage of annual contracts issued • Institutionalize external procurement/performance audits • Evaluate and review some laws and policies that may limit competition and encourage undesirable practices • Strengthen systems to combat fraud, corruption and collusion to include inclusion of measures that would provide disincentive to bidders to withdraw tenders or vary prices in tender documents and contracts • Provide specialized training in supply chain management planning and contract management

45. 8. Social and environmental safeguards - Preliminary assessment

46. International Good Practice for Environmental and Social Safeguards Most international finance institutions with Safeguard Policies have harmonized their policies with those of the World Bank for public sector lending. Over 70 commercial Banks worldwide, providing over 90% of private sector project finance, have adopted IFC’s Safeguards Framework (Equator Principles/Equator Banks) for private sector lending. The World Bank Group Board, (i.e., the member country shareholders of the World Bank Group), have taken care to ensure that the World Bank and IFC safeguards frameworks have been harmonized. The World Bank Group Environmental and Social Safeguards systems are recognized as international good practice for addressing environmental and social impacts.

47. Preliminary Findings Regarding Environmental Management • The Benin regulatory framework for addressing and managing environmental issues needs to be robust, and can be considered global good practice. • In practice, the EIA process in Benin is weak on social impact assessment, focusing more on biophysical issues. • Compliance monitoring and enforcement has been historically weak for Municipalities, but has been improving in recent years. • Implementation of corrective actions in events of non-compliance by Municipalities may be seriously impeded by budgetary constraints.

48. Preliminary Findings Regarding Social Impact Assessment and Management • The legislative framework for protecting the rights of citizens to housing and land is robust in Benin. • In practice, preparation of detailed social impact assessment in the context of resettlement, informal settlement upgrade, or town/urban planning is weak. • Good practice is to develop, adopt, disclose, and implement a comprehensive resettlement instrument which would be made publicly available for review by affected persons and stakeholders, which then can be used to monitor and evaluate impacts and audit outcomes; this is missing in Benin practice. • The consultation process is often not a dialog between directly affected people and the City. It is more likely to focus attention on local officials, and serve primarily as information dissemination to citizens, rather than a dialog about concerns, risks, and potential impacts. • There is no accessible and transparent grievance redress mechanism other than resorting to the local court system. International good practice places an emphasis on accountability through a robust and project-specific grievance redress process easily accessible to affected persons. 

49. 9. Project design

50. Key objective of the programme • Objective: support and strengthen the service delivery and management capacity and systems of selected Benin cities • Key subsidiary objectives would be to: • enhance the strategic management capacity of cities on core aspects of public financial management and service delivery; • realign and expand the direct financing of cities, through the expansion of own revenues (including borrowing) and reposition of fiscal transfers; • strengthen mechanisms of citizen interface and oversight over municipalities.