DOCUMENT OF

THE WORLD BANK

FOR OFFICIAL USE ONLY

Report no: PAD123029-ET

PROGRAM APPRAISAL DOCUMENT

ON PROPOSED

IDA CREDIT
IN THE AMOUNT OF SDR89.2 MILLION
(US$127 MILLION EQUIVALENT),

IDA GRANT
IN THE AMOUNT OF SDR 191.7 MILLION
(US$273 MILLION EQUIVALENT),

AND

SCALE UP FACILITY CREDIT

IN THE AMOUNT OF US$200 MILLION

TO THE

FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

FOR AN

URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM

February 21, 2018

Social, Urban, Rural, and Resilience Global Practice

Africa

This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
 CURRENCY EQUIVALENTS

(Exchange Rate Effective December 31, 2017)

Currency Unit = Ethiopian Birr (ETB)

ETB 27.40 = US$1
US$1.42413 = SDR 1
Currency US$1

FISCAL YEAR
July 8 – July 7

ABBREVIATIONS AND ACRONYMS

AFD French Development Agency (Agence Française de Développement)

AMP Asset Management Plan
APA Annual Performance Assessment
APACRC Annual Performance Assessment Complaints Resolution Committee
APAG Annual Performance Assessment Guidelines
BoFED Bureau of Finance and Economic Development (Regional)
BUD Bureau of Urban Development (part of regional governments)
CIP Capital Investment Plan
CPA Country Procurement Assessment
CPF Country Partnership Framework
CPS Country Partnership Strategy
CSA Central Statistics Agency
DLI Disbursement Linked indicator
DRM Disaster Risk Management
DRS Developing Regional States
ECSPG Ethiopian Cities Sustainable Prosperity Goal
ECSU Ethiopian Civil Service University
EFY Ethiopian Financial Year
EMP Environmental Management Plan
ERCA Ethiopian Revenues and Customs Authority
ESMP Environment and Social Management Plan
ESMSG Environmental and Social Management System Guideline
ESSA Environment and Social Systems Assessment
FEACC Federal Ethics and Anti-Corruption Commission
FM Financial Management
FMT Federal Mobile Team
FPPPAA Federal Public Procurement and Property Administration Agency
FUJCFSA Federal Urban Job Creation and Food Security Agency
GoE Government of Ethiopia
GRS Grievance Redress Service
GTP Growth and Transformation Program
IBEX Integrated Budget and Expenditure
IFMIS Integrated Financial Management Information System
IMF International Monetary Fund
INT Integrity Vice Presidency
IPF Investment Project Financing
IRR Internal Rate of Return
LED Local Economic Development
M&E Monitoring and Evaluation
MEFCC Ministry of Environment, Forest, and Climate Change
MFI Microfinance Institution
MoFEC Ministry of Finance and Economic Cooperation
MSEs Micro and Small Enterprises
MTR Midterm Review
MUDHo Ministry of Urban Development and Housing
NBE National Bank of Ethiopia
NDRMC National Disaster Risk Management Commission
NPV Net Present Value
O&M Operation and Maintenance
OFAG Office of the Federal Auditor General
OFED Office of Finance and Economic Development (at ULGs)
ORAG Office of the Regional Auditor General
OSR Own Source Revenue
PAP Program Action Plan
PDO Program Development Objective
PEFA Public Expenditure Financial Accountability
PforR Program-for-Results
POM Program Operational Manual
RAP Resettlement Action Plan
REACC Regional Ethics and Anti-Corruption Commission
REFA Regional Environment Protection, Forest, and Climate Change Authority
REP Revenue Enhancement Plan
RMT Regional Mobile Team
RPPPAA Regional Public Procurement and Property Administration Agency
RRB Regional Revenue Bureau
RSG Resettlement System Guideline
SC Steering Committee
SMP Safety Management Plan
SNNPR Southern Nations, Nationalities, and People’s Region
SORT Systematic Operations Risk Rating
SUF Scale-up Facility
TAC Tender Awarding Committee
TC Technical Committee
ToR Terms of Reference
ToT Training of trainer
UIIDP Urban Institutional and Infrastructure Development Program
ULG Urban Local Government
ULGDP Urban Local Government Development Project
ULGDP II Second Urban Local Government Development Program
UREFMFB Urban Revenue Enhancement, Fund Mobilization and Finance Bureau
VfM Value for Money
WCO Women and Children Affairs Office
WMP Waste Management Plan
WB World Bank
ZOFED Zonal Office of Finance and Economic Development

Regional Vice President: Makhtar Diop

Global Practice Vice President: Laura Tuck
Global Practice Senior Director: Ede Jorge Ijjisz-Vasquez
Country Director: Carolyn Turk
Practice Manager: Bernice Van Bronkhorst
Task Team Leader: Abebaw Alemayehu
Co-Task Team Leader: Chyi-Yun Huang
 ETHIOPIA
Urban Institutional and Infrastructure Development Program
Table of Contents

I. STRATEGIC CONTEXT..............................................................................................................................1
A. Country Context....................................................................................................................................1
B. Sector and Institutional Context............................................................................................................3
C. Relationship to the CAS/CPF and Rationale for Use of Instrument.....................................................5
II. PROGRAM DESCRIPTION........................................................................................................................7
A. Government Program............................................................................................................................7
B. Program Development Objective (PDO) and Key Results.................................................................10
C. Program Scope....................................................................................................................................11
D. Disbursement Linked Indicators and Verification Protocols..............................................................15
E. Capacity Building and Institutional Strengthening.............................................................................18
III. PROGRAM IMPLEMENTATION............................................................................................................21
A. Institutional and Implementation Arrangements.................................................................................21
B. Results Monitoring and Evaluation.....................................................................................................24
C. Disbursement Arrangements and Fund Flow.....................................................................................25
IV. ASSESSMENT SUMMARY.......................................................................................................................26
A. Technical (including program economic evaluation).........................................................................26
B. Fiduciary.............................................................................................................................................28
C. Environmental and Social System Assessment....................................................................................33
D. World Bank Grievance Redress..........................................................................................................35
E. Risk Assessment...................................................................................................................................35
F. Program Action Plan (Summary)........................................................................................................36
Annex 1: Detailed Program (PforR) Description.....................................................................................................37
Annex 2: Detailed Project (IPF) Description............................................................................................................75
Annex 3: Results Framework and Monitoring........................................................................................................81
Annex 4: Disbursement Linked Indicators, Disbursement Arrangements, and Verification Protocols............85
Annex 5: Technical Assessment Summary.............................................................................................................106
Annex 6: Fiduciary Systems Assessment Summary for the Operation...............................................................121
Annex 7: Environmental and Social Systems Assessment Summary..................................................................141
Annex 8: Systematic Operations Risk Rating (SORT)..........................................................................................146
Annex 9: PAP............................................................................................................................................................147
Annex 10: Implementation Support Plan...............................................................................................................151
Annex 11: Program Minimum Conditions and Performance Measures.............................................................153
Annex 12: Map of Ethiopia......................................................................................................................................193
PAD DATA SHEET
 .
ETHIOPIA

Urban Institutional and Infrastructure Development Program

.
PROGRAM APPRAISAL DOCUMENT
AFRICA

Social, Urban, Rural, Resilience Global Practice

Report No.: PAD123029-ET

Basic Information
Date: January 24, 2018 Sectors: Sub-national government administration (100
percent)
Country Director: Carolyn Turk Themes: Access to urban services and housing
(50 percent);
Municipal finance (50 percent)
Practice Manager Bernice Van Bronkhorst

Global Practice Vice Laura Tuck

President:
Program ID: P163452
Team Leader(s): Abebaw Alemayehu
Chyi-Yun Huang
Program Implementation Period: Start Date: March 2018 End Date: July 7, 2023

Expected Financing Effectiveness Date: May 2018

Expected Financing Closing Date: January 7, 2024

.
Program Financing Data
[] Loan [X] Grant [X] Other
[X] Credit
For Loans/Credits/Others (US$M):
Total Program Cost: 859.5 Total Bank US$600.0
Financing:
Total Cofinancing: 259.5 Financing 0.0
Gap:
.
Financing Source Amount (US$M)
BORROWER/RECIPIENT 248.7
International Development Association (IDA) Grant 273.0
International Development Association (IDA) Credit 127.0
IDA Scale Up Facility (IDA-SUF) 200.0
Agence Française de Développement (AFD) 10.8
Total 859.5
.
Borrower: Federal Democratic Republic of Ethiopia
Responsible Agency: Ministry of Urban Development and Housing
Contact: Amlaku Adamu Ayele Title: Head, Urban Revenue Enhancement, Fund
Mobilization and Finance Bureau
Telephone No.: +251 115 54 1277 Email: [email protected]
Responsible Agency:
Contact: Title:
Telephone No.: Email:
.
Expected Disbursements (in US$, Million)
Fiscal Year 2019 2020 2021 2022 2023
Annual 60 95 142 145 158
Cumulative 60 155 297 442 600
.
Program Development Objective: to enhance the institutional performance of participating urban local
governments to develop and sustain urban infrastructure, services, and local economic development.
.
Compliance
Policy
Does the program depart from the CAS in content or in other Yes [ ] No [X]
significant respects?
.
Does the program require any waivers of Bank policies Yes [ ] No [X]
applicable to Program-for-Results operations?
Have these been approved by Bank management? Yes [ ] No [ ]
Is approval for any policy waiver sought from the Board? Yes [ ] No [X]
Does the program meet the Regional criteria for readiness for Yes [X] No [ ]
implementation?
Overall Risk Rating: Substantial
Legal Covenants
Name Recurrent Due Date Frequency
Final draft of first Annual No April 29, 2019 Once
Performance Assessment
Description of Covenant
Furnish the final draft of the first annual performance assessment to the WB for its review.
Legal Conditions
Name Type
Execution of the Grant Withdrawal
agreement Schedule 2 Section
IV, B 1 a and b for PforR.
Description of Condition
Withdrawals up to an aggregate amount not to exceed SDR 44,760,000 may be made for DLR#10 achieved on
or after February 21, 2017; and no withdrawal shall be made for any DLR until and unless the Recipient has
furnished evidence satisfactory to the WB that said DLR has been achieved, including verification reports from
the Verification Agent, based on reports prepared by the Recipient certifying the achievement of the DLRs in
accordance with the Verification Protocol.

Team Composition
Bank Staff
Name Title Specialization Unit
Abebaw Alemayehu Sr. Urban Specialist TTL GSU13
Chyi-Yun Huang Sr. Urban Specialist Co-TTL GSU13
Dinkneh Tefera Urban Specialist Urban development GSU13
Su Jung Song Urban Specialist Urban development GSU13
Abebe Zerihun Senior Operations Officer Overall Program design AFCE3
Berhanu Legesse Senior Public Sector Governance and GGO27
Specialist accountability
Margaret Png Lead Counsel Legal agreement LEGAM
Maiada Mahmoud Abdel Fattah Finance Officer Financial Management WFACS
Kassem
Peter D. Ellis Lead Urban Economist Overall Program design GSU13
Ayalew Kebede Senior Procurement Specialist Procurement GGO01
Abiy Demissie Senior Financial Management Financial Management GGO25
Specialist
Yacob Wondimkun Environmental Specialist Environmental Safeguards GEN01
Wendy Schreiber Ayres Consultant Economic analysis and M&E GSU13
Wendwosen Feleke Operations Officer Economic analysis GWA08
Yalemzewud Simachew Social Development Social Safeguards GSU07
Specialist
Asmita Tiwari Senior Urban and Disaster Resilience GSU13
Risk Management Specialist
Emma Sameh Wadie Hobson Urban Specialist Local economic GSU13
development/job creation
Azeb Afework Program Assistant Team support AFCE3
Roderick Babijes Program Assistant Team support GSU13
Feben Demissie Consultant Social Safeguards GSU07
Tesfaye Gashaw Consultant Financial management GGO25
Bizuneh Gultu Lakew Consultant Capacity building GSU13
Yohannes Fisseha Consultant Infrastructure engineering GSU13
Renjit Sukumaran Consultant Capacity building GSU13
Jesper Steffensen Consultant Technical Assessment GSU13
Bisrat Teshome Consultant LED, and job creation GSU13
Bedilu Amare Reta Consultant Environmental Safeguards GEE01
Non-Bank Staff
Name Title City
Shayan Kassim Deputy Regional Coordinator, AFD Addis Ababa
Marie Alexandra Coste Project manager, AFD Paris
I. STRATEGIC CONTEXT

A. Country Context

1. Ethiopia has experienced strong economic growth over the past decade and is amongst the
fastest growing in the world. Although still one of the poorest countries in the world, Ethiopia’s per
capita income has increased from US$350 per capita in 2010 to US$619 in 2016. 1 Economic growth
averaged 10.7 percent per year in FY2003/04 to FY2011/12 compared to the regional average of 5.4
percent and had a continued high level throughout FY2013/14 and FY2014/15 with some decline to
estimated 8 percent in FY2015/16 due to especially severe drought and global economic factors. 2 Over
the medium-term, the International Monetary Fund (IMF) projected that growth will be sustained at 8.0-
8.3 percent.3 If the trend continues, Ethiopia may reach middle-income status by 2025. The rapid growth
is based on 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.

2. Ethiopia is urbanizing rapidly and has one of the fastest growing urban populations in the
world. The number of people living in urban centers is expected to nearly triple in the next two decades,
from 15.2 million in 2012 to 42.3 million in 2037, growing at 3.8 percent a year. The Ethiopia
Urbanization Review 2015 indicates that the rate of urbanization will be even faster, at about 5.4 percent
a year.4 That would mean that the urban population will triple by 2034, with 30 percent of the country’s
people in urban areas by 2028. Ethiopia is undergoing a demographic transition. The labor force has
doubled in the past 20 years and is projected to rise to 82 million by 2030, from 33 million in 2005. Well-
functioning cities will be essential if Ethiopia is to reap this demographic dividend and avoid
agglomeration diseconomies.

3. Rapid urbanization poses challenges as cities struggle to provide infrastructure and

services and jobs and run the risk of becoming unattractive places for people and economic
activity. Coverage for sanitation services is low, even by Sub-Saharan Africa standards. Ethiopian cities
(except Addis Ababa) do not have municipal sewerage systems, and are struggling to manage solid waste,
which is often dumped into open areas, endangering public health. Roads and drainage density are below
the African average, although higher in urban areas than the national average. Estimates from the Ethiopia
Urbanization Review revealed that the average actual spending of ETB 300 per urban resident (around
US$17) would be required to maintain the existing level of services for current urban residents, let alone
meeting the needs of rapidly increasing urban populations and the existing gaps.

4. Formal job creation is not keeping pace with population increases and demand for jobs in
urban areas. While urban unemployment and underemployment have recently reduced, they remain high
in comparison to other African countries. 5 It is estimated that an additional around 1 million urban jobs
per year will be required between now and 2035 to maintain the current levels of unemployment, and
more to reduce unemployment.6 Although cities in Ethiopia offer migrants greater employment

1
World Bank Indicators, 2017 and Gross National Income, World Bank Atlas Method.
2
IMF, January 17 2018, Article IV consultation, http://www.imf.org/en/News/Articles/2018/01/17/pr1806-imf-executive-board-
concludes-2017-article-iv-consultation-with-ethiopia.
3
ibid
4
World Bank and Cities Alliance. Ethiopia Urbanization Review. 2015.
5
Urban unemployment was 17 percent in 2014, compared with 7 percent in Rwanda, 9.5 percent in Uganda, 6.5 percent in
Ghana, and 8.8 percent in Nigeria.
6
Government of Ethiopia. 2016. “National Urban Development Spatial Plan.” Prepared by Egis International in association with
IAU-IdF &Urba Lyon, March.
opportunities than rural areas, most jobs in the cities are in the informal or household sectors. Ethiopia
needs to aggressively expand job opportunities in urban areas, especially in formal sectors which are
more productive and higher paying.

5. The urbanization challenges are exacerbated by climate change impacts and limited
disaster preparedness and management. Climate change impacts in Ethiopia include an increase in
average temperature and changes in rainfall distribution or occurrence of extreme rainfall events which is
likely to increase flood and drought risks. In addition, these are exacerbated by current vulnerabilities that
are highly interlinked with rapid urbanization. For example, the vulnerability to flooding is intimately
linked with informal settlements along river banks or in flood plains, use of housing material such as mud
and wood that is not resilient to flooding, and poorly constructed and maintained drainage systems along
roadways. Many Ethiopian cities are exposed to earthquake and volcano risks, but lack resilient building
construction. In addition, the current emergency preparedness and response capacities of Ethiopian cities
are non-existent or low. Most lack basic emergency response resources (for example, fire suppression,
search and rescue, and emergency communications equipment) and qualified personnel. Strengthening
urban resilience and disaster risk management (DRM) will be crucial to improve living conditions in
Ethiopian cities for residents and increase their attractiveness for private sector investment and job
creation.

6. However, if managed well, urbanization presents a huge opportunity in bringing about

structural transformation and in reducing poverty in Ethiopia by shifting the structure and
location of economic activity from rural agriculture to larger and more diversified urban industrial
and service sectors. Urban centers already play an important role in the economy, contributing to 38
percent of GDP, although they employ (both formally and informally) only 15 percent of the total
workforce. This is due primarily to the high productivity associated with sectors such as services and
manufacturing, which are located mostly in urban areas. The higher productivity in urban areas has been
associated with poverty reduction. In recent years, poverty has fallen much faster in urban than in rural
areas. The proportion of urban residents living below the poverty line decreased from 26 percent in
2010/11 to 15 percent in 2015/16, while the proportion of those living in rural areas fell much less sharply
from 30 to 26 percent over the same period. 7 In addition, of the nearly 2.8 million new jobs created in
Ethiopia between 2005 and 2011, 60 percent were in urban areas. 8 The decline in urban poverty is likely
due to government policies in recent years to promote private sector investment, create jobs, and
establishment of urban safety nets, and food subsidies.

7. Ethiopia has a federal, democratic

government system, established in the early 1990s,
with nine autonomous states (‘regions’) and two
chartered cities.9 Although the federal constitution
formally establishes two government levels, in practice,
Ethiopia has three main government levels: Federal,
regional, and local government.10 Regional states have
their own constitutions and are typically subdivided into
administrative zones, which is a de-concentrated
territorial level. Local governments, as the third tier, are

7
Government of Ethiopia. 2017. “Ethiopia’s Progress Towards Eradicating Poverty: An Interim Report on 2015/16 Poverty
Analysis Study.” National Planning Commission, September.
8
World Bank Group. 2015. “Ethiopia Urbanization Review: Urban Institutions for a Middle-Income Ethiopia.” Washington, DC.
Available at https://openknowledge.worldbank.org/handle/10986/22979 License: CC BY 3.0 IGO.”
9
The Regions are Afar, Amhara, Benishangul-Gumuz, Gambella, Harari, Oromia, Somali, Southern Nations, Nationalities, and
People’s Region (SNNPR), and Tigray. The chartered cities are Addis Ababa and Dire Dawa.
10
The constitution refers to “member states.”
established by regions according to their own constitutions and governance structures. City
administrations/urban local governments (ULGs) and woredas (or rural local governments) are semi-
autonomous local government entities, with legal status as corporate bodies with their own political
leadership (council) and their own budget.

B. Sector and Institutional Context

8. ULGs have the primary mandate to provide state and municipal services and in enhancing
local economic development (LED), although these were established only recently. Urban areas in
Ethiopia have had functioning governments only since 2000, when proclamations to establish ULGs were
first issued. Combined with a commitment to fiscal decentralization, the proclamations are intended to
give local governments more direct and transparent control over public spending. The objective has been
to create and strengthen ULGs that will ensure public participation in making choices and will enhance
urban service delivery. ULGs became responsible for an extensive list of public service delivery
functions,11 including those which they are required to execute on behalf of their regions. In addition,
ULGs have a significant role to play in LED and job creation. Legislatively, cities are mandated to lead
and coordinate LED activities. Practically, all cities have major roles in (a) infrastructure investments and
facilitating access to land, (b) providing support to micro and small enterprises (MSEs), and (c)
encouraging private sector investment.

9. However, cities still lack the capacity of exercising adequately their mandate; such
deficiencies in the urban institutions for municipal governance, municipal finance, and land
management underlie the gaps in infrastructure and services and jobs. Despite progress over the past
decade in building institutions, and providing infrastructure and services across all urban sectors, there is
still much to do. While decentralization efforts have increased the role of ULGs, they often lack the
financial, system and professional capacity to govern and deliver services. Further, certain important
powers are still retained at the regional level due to continuous need to support and complement ULGs.
However, some of these existing regional roles particularly in municipal finance, personnel management,
and city operating practices make it harder for cities to carry out their mandates. These challenges directly
translate to low and poor provision of infrastructure and services in the cities. This further prevents cities
from maximizing their potential productivity and agglomeration effects, and limits their ability to
contribute to overall economic growth.

10. In general, municipal finances are inadequate to fund urban development.

Intergovernmental transfers and own-source revenues cover local expenditures but are insufficient to fully
fund urban services and infrastructure. State functions are financed through regional transfers, often
barely enough to cover recurrent needs. Municipal functions are expected to be funded from own local
revenues, both for recurrent and capital spending. But revenues rarely meet demand for services.
Moreover, many cities lack control over rate-setting, while larger cities rely heavily on unsustainable
land-lease revenues. Federal and regional government tiers, in addition to the existing focus on
mobilization of state revenues, urgently need to focus their support on municipal finance mobilization at
the local government level.

11. The key challenge is to ensure that all Ethiopian cities are urbanizing smartly. This means
strengthening the institutional performance and capacity of ULGs and putting in place the right
policies, systems, and investments now, when incomes and urbanization levels are low. To do so,
innovative ways are required to help ULGs develop the capacities, incentives, and the financial resources
needed to deliver infrastructure and services to residents effectively and efficiently, as well as to create a
conducive and competitive business environment for job creation and the private sector. In deepening the
11
ULGs are tasked with providing state services, such as education, health, justice, and security, as well as municipal services,
such as roads, drainage, street lighting, and solid waste collection and disposal.

3
decentralization process, Ethiopia would benefit from strengthening the overall capacity of local
governments and the legislative functions of city councils for greater fiscal autonomy and better
service delivery. The roles for national, regional, and ULGs will also need to evolve as they
transition from urban planning, management, and implementation to enabling and coordinating
action by a growing number of stakeholders, both public and private.

12. The Government of Ethiopia (GoE) acknowledges these challenges and has prioritized
resilient urban development to enable overall economic growth and poverty reduction. The
government’s 5-year development plan, currently the Second Growth and Transformation Program (GTP
2) (2015/2016–2019/2020), and the strategies of policies of the Ministry of Urban Development and
Housing’s (MUDHo), the Ethiopian Cities Sustainable Prosperity Goals (ECSPGs): Building Green,
Resilient and Well Governed Cities, and the National Urban Development Spatial Plan provide the
frameworks for the urban strategic engagement and the development of resilient urban systems in
Ethiopia. Additionally, the 2013 National Policy and Strategy on Disaster Risk Management recognizes
the need to strengthen urban resilience, as well as Ethiopia’s Climate Change National Adaptation
Program of Action. These lay out its medium and long-term strategy for urban development, and present
the ECSPGs for 2015/2016–2024/2025. The GTP promises doubling of GDP in the next five years,
driven by industrial and manufacturing growth, while the ECSPGs aim to promote green growth, resilient,
and well-governed cities that support Ethiopia’s transformation. As part of the preparation of the ECSPGs
and GTP 2, it has been estimated, that cities’ capital investments will need to increase by over three-fold
during the next 10 years to enable Ethiopia to attain middle-income status by 2025.

13. The GoE and the World Bank (WB) have been working in partnership since the early 2000s
to foster smart urbanization and help Ethiopia’s ULGs effectively meet their responsibilities. The
WB has supported the government’s strategy through a series of projects, 12 and continued doing so in the
first phase of Urban Local Government Development Project (ULGDP) (P101474) since its initiation in
2008 and the Second Urban Local Government Development Program (ULGDP II) (P133592) since
2014. The ULGDP and ULGDP II are jointly funded by the government and the WB, where the WB
contributed US$300 million and US$380 million respectively; while the counterpart funding was US$116
million and US$176.55 million respectively.

14. The ULGDP and ULGDP II have demonstrated remarkable achievements in improving the
institutional performance of local governments and contributed significantly to job creation and
poverty reduction, and serve as the foundation upon which this proposed Operation is built. For
example, the ULGDP II introduced several firsts in the country for ULGs. These include: the undertaking
of value for money (VfM) audits, procurement audits, and environment and social safeguard compliance
audits. Institutional capacity for planning, revenue mobilization, asset management, budgeting, financial
management (FM), investment planning, procurement, and project execution has grown significantly in
the cities participating in the ULGDP II. These improvements have enabled cities to provide critical
infrastructure and services and to create jobs. An in-depth study on the employment impact of
cobblestone construction (the largest infrastructure expenditure item) under the ULGDP II found that the
program created a considerable number of jobs and has become instrumental in employing the urban
jobless in participating cities. In fact, in selecting the cobblestone workers to organize into MSEs, the
unemployed are the main target group (with priority given to women and vulnerable groups, including
people with moderate disabilities, returning refugees, ‘poorest of the poor’, and ex-combatants). Beyond
the jobs created, the cobblestone work also serves as a reliable ‘boot-camp’ for the unemployed to receive
training on construction techniques, FM, etc. and provided the critical seed capital for self-employment
later on. The annual number of jobs directly created by ULGDP has increased from 60-80,000 per year

12
Capacity Building for Decentralized Service Delivery project (2003) and the Public Sector Capacity Building program (2004).

4
under the first phase of ULGDP to around 140,000 under ULGDP II, with a continued increase due to
investments in labor intensive infrastructure.

C. Relationship to the CAS/CPF and Rationale for Use of Instrument

15. The proposed Urban Institutional and Infrastructure Development Program (UIIDP or
Operation) will support the objectives of the WB’s Ethiopia Country Partnership Framework
(CPF) (2018–22). The CPF for Ethiopia, discussed by the Board on June 27, 2017, has three strategic
focus areas: (a) promoting structural and economic transformation through increased productivity, (b)
building resilience and inclusiveness, and (c) supporting institutional accountability and confronting
corruption. The proposed UIIDP supports all three focus areas. The UIIDP’s fundamental objectives and
funding directly target the strengthening of urban governance and management systems, participatory
strategic and spatial planning, improved transparency and accountability enhanced citizen engagement in
decision-making of urban governments (including of women), public private dialogue, and directly
financing urban infrastructure and services. Together, these improve the quality of lives for urban
residents and promote economic development through increased access to services such as drainage,
roads, sanitation and solid waste management, and create positive health and productivity externalities.
The program also creates jobs directly – through engaging unemployed persons in labor-intensive urban
infrastructure subprojects such as cobblestone roads; and indirectly – through increased provision of work
premises for local firms and MSEs including sheds, clusters, market places and serviced industrial land.
Finally, the proposed operation will contribute to the CPF goals related to climate change, DRM, and
environmental sustainability. In that respect, UIIDP is also well-aligned with the objectives of the IDA
Scale-up Facility (SUF) to prioritize projects with potentially transformational impact, given how the
Operation will crowd-in resources and facilitate local economic development, promote urban resilience
and enhance gender equality, scaling up impact to reach more than 6.5 million people (further elaborated
below).

16. By assisting to create well-functioning and productive urban centers, the UIIDP contributes
to the WB’s twin goals of ending extreme poverty and boosting shared prosperity. The positive
poverty trends13 in urban areas are largely the result of improving labor markets, especially since 2005.
Urban unemployment in the formal sector, while still high, decreased from 23 percent in 2004 to 22
percent in 2013 and 17 percent in 2016. 14 The decrease in unemployment was associated with solid real
wage growth from a low base. The faster progress in urban (as compared to rural) areas is having an
upward effect on inequality, with the Gini coefficient increasing from 0.30 in 2011 to 0.33 in 2016-still
low by global standards. The extent to which well-functioning and productive urban centers will boost
national, as opposed to only urban, shared prosperity will depend on whether fast-growing urban centers
can pull in surrounding rural areas through strengthened rural-urban linkages and increased labor
mobility.

17. The UIIDP complements other WB-supported initiatives in urban centers. The WB is
supporting multiple programs and projects in urban areas (see annex 1, attachment 3). These include (a)
the Urban Safety Nets Project, which is aimed at improving incomes and livelihood opportunities for poor
households in urban areas across Ethiopia; and (b) the Second Urban Water and Sanitation Project
(P156433), which is intended to increase access to water supply and sanitation services in an
operationally efficient manner in Addis Ababa and selected secondary cities. The WB is also supporting

13
On the national level, the proportion of people living below the poverty line declined from 38.7 percent in 2005 to 23.5 percent
in 2016 (Government of Ethiopia. 2017. “Ethiopia’s Progress Towards Eradicating Poverty: An Interim Report on 2015/16
Poverty Analysis Study.” National Planning Commission, September). The reduction in monetary poverty was greater in urban
areas (decrease of 46 percent) than in rural areas (22 percent).
14
World Bank. 2016. “Fifth Ethiopia Economic Update: Why so Idle? Wages and Employment in a Crowded Labor Market.”
December 2.

5
analytical and advisory services on urban development issues, including on (a) urban land and affordable
housing, (b) gender and wage employment, (c) women’s entrepreneurship development, and (d) economic
performance of cities. The support provided under the UIIDP is strengthening urban institutions to help
them maximize the benefits of all urban projects and to implement the recommendations of studies and
advice on urban issues.

18. The proposed UIIDP directly supports the GoE’s program, and is aligned with its National
Spatial Plan and GTP 2. The previous phases of the WB-supported ULGDP and ULGDP II directly
contributed to the achievements of government strategies and plans for urban areas. The proposed UIIDP
will directly support the follow-on phase of the GoE’s program, also named the UIIDP. The Operation’s
design will also align and directly link with the ECSPGs, the Ethiopia National Spatial Plan, and the GTP
2. In its efforts to promote more balanced spatial development, the government’s National Spatial Plan
entails supporting economic development in 12 regional centers, based on their economic potential. This
spatial framework envisages that development will largely be driven by growth of secondary cities and
that development occurs in their rural hinterlands, with an emphasis on the balanced development of the
urban hierarchy within each urban cluster. The government’s UIIDP proposes to cover a larger number of
cities than the WB-supported UIIDP. This phased scale-up approach as envisaged at the inception of
ULGDP and carried on under the UIIDP supports the GoE’s intention to roll out performance-based fiscal
transfer modality as a country-wide system to encompass all ULGs with more than 20,000 residents by
2025.

19. The WB is uniquely placed to support Ethiopia’s efforts to strengthen ULGs. First, it has
developed considerable experience through its support to the urban sector in Ethiopia since the early
2000s. IDA’s engagement has shown the importance of improving ULGs’ legal, institutional,
organizational, systems and capacities to lead to effective, sustainable outcomes in terms of service
delivery. Second, the WB has global and regional experience with building capacity for urban
governance, particularly in Tanzania, Uganda, Kenya, Ghana, and Mozambique, and can draw on this
experience in designing support for Ethiopia. Finally, the WB brings considerable resources to GoE
efforts, which are critical in encouraging ULGs to improve performance and to meet their substantial
infrastructure gaps. Recognizing these strengths, the GoE has invited the WB to take the lead in
promoting urban development in Ethiopia.

20. The proposed Operation will be financed through a hybrid of Investment Project Financing
(IPF) and Program-for-Results (PforR) instruments. The hybrid operation will be referred to as the
“Operation” unless specified otherwise. Where necessary, the IPF element will be referred to as the
“Project” and the PforR element will be referred to as the “Program.” A key factor in adopting a hybrid
lies in the very different nature of the Federal level interventions required and outcomes expected, as
compared to those at the regional and ULG levels in this Operation.

21. Most of the Operation is financed through the PforR instrument, which has proven to be
the optimal and effective mechanism for providing conditional grants to regional states and ULGs,
as demonstrated in the ULGDP II. There are four primary reasons for this. First, the UIIDP directly
supports the government program and forms a core part of the existing intergovernmental fiscal
architecture. Second, the basic goal of the UIIDP is to leverage the improved institutional performance of
the local governments it supports to more effectively deliver infrastructure and service delivery, and
ensure meeting of broader objectives and maximizing of development impact. Due to the direct
relationship between the institutional results and the Program disbursements, the PforR instrument allows
for a directly incentive-driven approach to achieve the Program Development Objective (PDO). Through
the use of disbursement linked indicators (DLIs), the UIIDP will ensure that incentives of the regional and
local levels of government are effectively aligned around the goals of the Program. Third, the Program
will use, improve, and integrate GoE and local government systems, including public FM, social and

6
environmental systems management and procurement systems. Fourth, the PforR instrument has proven
as an effective and efficient tool in the implementation of the ULGDP II and this modality is critical to
the success of the program.

22. A complementary small IPF window will enhance overall Operation management,
effectiveness and impact. The IPF will be used to fund a range of institutional and capacity development
interventions at or coordinated by the MUDHo. The rationale for adopting an IPF window arises from the
lessons learned from the ULGDP II and other PforR operations. An IPF allows greater operational
certainty, budget predictability and reduced risks for undertaking federal level actions that are critical for
the success of the Operation in particular, for conducting the ULG annual performance assessments
(APAs) and VfM audits. The IPF implementation modality also allows targeted interventions where
tailoring to specific needs or sub-groups of cities/regional agencies are required in terms of technical
assistance, capacity building, and institutional support activities. A close working relationship between
the MUDHo and the WB through the IPF modality would also allow the WB to provide better and just-in-
time support when required.

II. PROGRAM DESCRIPTION

A. Government Program

23. The government established the UIIDP (the government program) as a follow-on phase of
the ULGDP. The GoE started the ULGDP in 2008 as a performance grant to ULGs. This is the
predecessor to UIIDP. The main goal of both government programs is to leverage institutional capacity at
the ULG level to improve urban infrastructure and services. Its overall objective is to support improved
institutional performance in the planning, delivery, and sustained provision of urban services and
infrastructure by ULGs. The GoE envisions the implementation timeframe for UIIDP to coincide with the
ECSPGs, GTP 2, and the country’s goal of achievement of middle income status by the year 2025. The
intention is to mobilize funding and resources from development partners, regions, and ULGs (as
matching funds). The government will also explore the possibilities of mobilizing private sector financing
for revenue generating investments, including through public private partnerships.

24. A programmatic and phased approach was adopted as a key strategy since the first phase of
ULGDP (starting 2008), continued under ULGDP II (beginning in 2014) and maturing in the
UIIDP. Mindful that institutional strengthening and positive urban transformation require long-term
nurturing, a phased approach was adopted and this aligns with the MUDHo’s strategy, plans, and the
ECSPGs. Phase 1 (ULGDP) supported 19 cities.15 Phase 2 (ULGDP II) covered an additional 26 ULGs,
bringing the total to 44.16 The intention now is to roll-out the proposed UIIDP to all ULGs (a total of 117
cities) that (a) have autonomous urban administration status (with a responsibility of municipal and state
functions), defined as having a city council and a mayor; and (b) have a population above and equal to
20,000 people.17 (See annex 1 table 1.1 for the confirmed list of participating ULGs.).

15
The 19 cities include Addis Ababa.
16
Addis Ababa has been excluded from ULGDPII learning from the ULGDP experience that the unique context and conditions
of Addis Ababa required a different approach from the other cities.
17
Some 41 cities had a population of at least 20,000 in 2007, according to the census conducted by the Central Statistics Agency
(CSA) and 32 cities had populations of at least 20,000, according to 2013 projections of the CSA. The last available census was
conducted in 2007, and the next one in 2017 is not yet available during the preparation of this Operation. A mid-term census
project conducted in 2012 and released in 2013 is the latest one conducted with actual sampling. While every year a census
projection is made, they typically assume a similar growth rate for all cities. Hence, the basis of the population numbers used to
determine if ULGs are eligible for the Program and for per capita allocations to ULGs, is drawn from one common database – the
2013 published populations figures from the CSA. These population figures will be applied throughout the duration of this
Operation.

7
25. The government’s new UIIDP (2018–23) envisions that all cities will gradually generate
increasing levels of municipal own-source revenues, with which to finance investments in
infrastructure and deliver services. However, this will be a long-term process. Currently, municipal
revenues account for only 3 percent of total revenues (state and municipal) collected in Ethiopia. The
Constitution of Ethiopia defines the division of main revenue sources between federal and regional state
levels. The revenues assigned to the federal government, given the existing tax structure, generate the
large portion of the domestic revenue. Thus, the federal government collects about 81 percent of all
revenues, while regional governments collect about 19 percent. This significant vertical fiscal imbalance
is addressed through fiscal transfers from the federal to the regional governments. Intergovernmental
fiscal transfers form a critical component of sub-national finances in Ethiopia. Regions receive most of
their financial resources through fiscal transfers from the federal government, and in turn, provide fiscal
transfers to the local level. The main federal to regional transfer is in the form of unconditional or general
purpose grants. Although resources flowing through the general-purpose grant system are increasing, on
average 80 percent of these resources are used to fund salaries and other recurrent expenditures related to
state functions, while resources for capital expenditures are limited.

26. There is now a need to update the government’s urban development program—the
ECSPGs—and to develop a clearly linked urban financing strategy that articulate how investment
in cities will be financed once the proposed UIIDP ends. The UIIDP includes actions to prepare for a
transition of the current system to a future longer-term coherent sustainable urban development strategy
with related fiscal architecture for funding of urban infrastructure and delivery of services. To ensure that
the transition is smooth and well-coordinated, the UIIDP is supporting the following initiatives:

 First, cities and regions contribute matching funds, which increase as their revenue
generation capacity improves and revenues increase. Thus, 16 cities that have been
participating in the Program since it began in 2008 will have to contribute 40 percent of
matching funds, and Dire Dawa and Harar will contribute 50 percent due to their special
status as federal cities and regional status respectively. Some of these cities have established
industrial zones that will require large investments in infrastructure to ensure that they
operate effectively with linkages to import and export markets. Financing these will require
new sources and modalities of financing.

 Second, the MUDHo will continuously monitor the revenue generation capacities and
revenues of all cities participating in the UIIDP. It will support this with the issuance of
guidelines and provision of technical assistance.

 Third, the UIIDP contains specific DLIs that reward ULGs for performance in
generating own-source revenues and that reward regional government entities for
helping to build the capacity of ULGs for revenue generation. The support provided
under the two phases of the ULGDP has clearly helped the participating cities in improving
revenue performance. For example, cities that have been in the Program for the last nine
years generate about US$30 per capita per year compared to the newly participating UIIDP
ULGs, which generate US$20, but with great variations across the ULGs in each of the
groups (EFY 2008 data).18

 Fourth, the program will strengthen the support to promote longer-term

sustainability. It will do this through incentives, capacity building, technical assistance and
issuance of guidelines from the regional level on own-source revenue.

18
Based on a sample of 9 original ULGDP ULGs and 16 new UIIDP ULGs. Revenue data is from the EFY 2008 final accounts
(FY2015/16).

8
  Fifth, the program will promote LED and the creation of jobs. This means a potentially
more expanded and explicit focus on sustainable job creation, beyond participation in public
works, to better enable cities to alleviate some of the bottlenecks facing MSEs and private
sector job creation. This will also contribute to boosting own-source revenue and longer-
term sustainability.

 Finally, the MUDHo, with support from the Ministry of Finance and Economic
Cooperation (MoFEC) and technical assistance from development partners, will start
exploring other financing modalities for cities. The MUDHo under the UIIDP will
undertake a comprehensive review and update of the ECSPGs and develop an integrated and
clearly linked urban financing strategy.

27. Despite these initiatives under the coming UIIDP, there is a clear need to think beyond the
coming five years of the UIIDP, both for the currently enrolled ULGs, and those which are not yet
covered. The review and update of the ECSPGs and urban fiscal strategy will consider the following
issues, among others:

 Review of the urban development mandates; including divisions between state and
municipal functions and update of major initiatives and programs.

 Costing of the core mandates and estimates of overall funding requirement and gaps.

 Review of urban revenue collected and potential revenues at the ULG level.

 Review of alternative revenue sources, including improved framework for own-source

revenue, options for borrowing, issuing of bonds, and the like.

 Review of the current intergovernmental fiscal transfers system and the location of the
ULGs in this architecture, and review of the linkages between the current UIIDP
performance-based capital grants and the linkages with the government’s general purpose
grant and the specific purpose grants.

 Review of future options and modalities for a sustainable and comprehensive

intergovernmental fiscal transfer system targeting the urban centers, which fits well with the
legal framework (which may be up-dated in required areas as well). This will include a
review of the balance between own source revenues (OSR), intergovernmental fiscal
transfers and other funding modalities such as, for example, borrowing.

 Review and design of the future institutional framework, including grant management, flow
of funds, reporting and accountability systems, and the like.

 Review and design of future incentive structures, capacity enhancement modalities and
support to ULGs performance enhancement. (Further details are presented in annex 1.)

Table 1. Envisioned Trajectory of Support Varied by ULG Groups

UIIDP
Groups of ULG Beyond UIIDP
(Phase 1: 2018/19–2022/23)
18 ULGDP ULGs Covered by grant support with a higher The urban development financing strategy will
joined the first requirement on co-funding (40 or 50 determine the need for and modalities of possible
ULGDP19 percent). grants closely linked with the government’s
Populations ranging intergovernmental fiscal framework, targeted and

9
 UIIDP
Groups of ULG Beyond UIIDP
(Phase 1: 2018/19–2022/23)
from 59,300 to Strong support to improve own-source probably with some form of performance-based
286,600. revenue. allocations, based on the good lessons learned from
Ethiopia and international best practices. The strategy
will also explore the possibility of mixing grants with
borrowing if the cities are close to credit worthiness by
the end of UIIDP.
26 ULGs newly Covered by grant support, and with an Will be followed-up by a mix of initiatives, public-
joined the ULGDP increased requirement on co-funding (30 private partnerships, special support on larger projects,
II percent), still need strong continued specific project support, support from regions, and the
Populations ranging support. like. The urban development financing strategy will
from 25,200 to determine the need for and modalities of possible
152,700. Strong support to improve own-source grants closely linked with the intergovernmental fiscal
revenue. framework, targeted and probably with some form of
performance-based allocations.
73 ULGs newly Covered by grants (enrolled gradually); Increased co-funding.
joined the UIIDP relatively lower requirement on co-
Populations ranging funding (10–20 percent) Will need a stronger support for some years from
from 20,300 to regions/central level and take part in the overall
65,200. Strong support to improve own-source funding system to be elaborated.
revenue.
Strong support to improve own-source revenue.

The urban development financing strategy will

determine the need for and modalities of possible
grants closely linked with the intergovernmental fiscal
framework, targeted and probably with some form of
performance-based allocations.
Other cities not Not covered Will require strong fiscal and capacity building
covered by UIIDP support.

Will be targeted through the city-wide funding

arrangement to be developed under the updated
ECSPG with its urban financing strategy.

28. However, even the cities that have participated in the performance grant mechanism for the
last eight years still do not have sufficient own-source revenues or regional block grant transfers to
meet investment financing gaps. Although the program will help those cities to realize their revenue
potential, cities are likely to require fiscal transfers for the foreseeable future if they are to successfully
manage urbanization and deliver on their evolving mandates. For instance, the national spatial plan
envisages that most of the cities that participated in the ULGDP (Hawassa, Mekelle, Kombolcha, Adama,
Bahirdar, Gondar, Jimma, Diredawa, and Harar) will serve as regional urban clusters and drive economic
development and ensure that development occurs in their rural hinterlands. There is a need for proper
planning and investment in these cities to ensure that they provide a conducive environment for industrial
development and generate strong rural-urban linkages. Thus, these cities will need to provide adequate
connective infrastructure, access to land, solid waste service, and a friendly business environment for
investors and local firms.

B. Program Development Objective (PDO) and Key Results

29. The PDO is to enhance the institutional performance of participating ULGs to develop and
sustain urban infrastructure, services, and local economic development. The Operation will provide direct
support to 117 potentially eligible ULGs, as well as to all nine regions and the federal government
(primarily MUDHo) to enable them to effectively support urban development. The primary beneficiaries
of the Operation are the 6.62 million residents of the 117 ULGs.
19
Excludes Addis Ababa.

10
30. Key result areas. In line with the government’s UIIDP policy, the Operation will undertake
activities to support seven key results areas. These are:

(a) Enhanced citizen participation and engagement in ULG planning and budgeting;

(b) Increased OSR at the ULG level;

(c) Improved infrastructure, service delivery, O&M systems;

(d) Improved efficiency and effectiveness in fiduciary management;

(e) Improved environmental and social management and safeguards;

(f) Strengthened accountability and oversight systems;

(g) Strengthened ULG resilience, improved LED and enhanced gender equity in the ULG
operations.

31. The proposed key results indicators are:

(a) People provided with improved urban living conditions under the UIIDP [corporate indicator].

(b) Cities with improved livability, sustainability, and management [corporate indicator].

(c) Composite institutional performance of participating ULGs, averaged across all cities.20

(d) Composite performance for achievement of urban infrastructure and service targets,
maintenance performance and VfM in investments by ULGs, averaged across all cities.

(e) Composite performance for achievement of LED, urban resilience, and gender targets by
ULGs, averaged across all cities.

(The complete table on the results framework and monitoring is provided in annex 3.)

C. Program Scope

32. The proposed Program will finance the government’s UIIDP. The proposed UIIDP targets
117 ULGs. This will be implemented in a period of 5 years and 4 months (from March 2018 to July
2023), and consist of four rounds of performance-based grant allocations, with DLI achievements in
EFY2011, EFY2012, EFY2013 and EFY2014. The Program consists of the provision of performance-
based grants to ULGs for eligible Investments and support to achieve Program results at the regional level
on capacity building, financial audit, procurement audit and environmental and social safeguards audits.

33. This substantial scale-up to 117 cities will bring about greater impact in terms of population
coverage and size of the Program. An estimated 6.62 million people will benefit from the UIIDP,
compared with 4.36 million under the UGLDP II. Ethiopia has a significant number of secondary cities
that are spatially distributed across the country. The government’s current policies of industrial
development and promoting urban-rural linkages present good opportunities for promoting more balanced
regional growth through the creation of a linked system of cities. The scale-up also allows strengthening

20
In the core thematic areas of: Planning and budgeting, assets management, public FM, procurement, own source revenues,
accountability and transparency, environment and social safeguards, land management, and strategic urban planning.

11
of the overall programmatic and performance-based approach to support sustainable urban development
and leverages on economies of scale for program management and implementation. In addition, the scale-
up is built on the solid foundations and tried-and-tested overall successful experiences of ULGDP I and
II. Timely support to improve institutional performance in the planning, delivery, and sustained provision
of urban services and infrastructure by local governments is critical especially for these rapidly growing
cities.

34. The proposed UIIDP includes several new focus areas in line with government priorities:
gender equality, resilience and DRM, and LED and long-term job creation. UIIDP contains a new
DLI covering these thematic areas with substantial financial incentives built in to ensure ULGs act to
promote gender equality, strengthen capacity to mitigate and respond to disasters and climate change, and
enhance LED and long-term job creation. The WB and government teams have undertaken analyses with
respect to these focal areas and designed UIIDP to support them through a three-pronged approach and
applied for each of the focus areas.

 LED. There are four key challenges and constraints identified: (a) infrastructure challenges
hinder firm success and public private dialogue is not sufficiently informing capital
investment plans (CIPs); (b) low survival and graduation rates among supported MSEs; (c)
low levels of capacity among city administration staff and offices; and (d) lack of access to
land and electricity are also major binding constraints, delaying new investments but are
more within the remit of the federal government. The UIIDP is designed to alleviate these
challenges. Firstly, the investment menu includes infrastructure important to firm
establishment and growth, as well as poverty reduction (including serviced land for MSEs,
industrial zones and tourism sites, built facilities such as markets for small businesses, MSE
one-stop shops, sales and display centers for MSEs, community centers, youth centers, and
cultural centers). Secondly, new performance measures have been introduced to incentivize
public private dialogue and participation in planning, better targeting of MSEs to identify
genuine entrepreneurs, further provision of support to new as well as graduating MSEs, and
better measurement of long term job creation. Thirdly, the IPF window includes technical
assistance and skills development in LED, including spatial planning of cities with new
industrial parks, tourism expert support, public private dialogue, investment promotion, and
so on (See further details in annex 1, attachment 2).

 Urban Resilience. The analysis found: (a) with climate change, cities will face growing
impacts from flooding and water scarcity; (b) cities need to enhance disaster preparedness
with dedicated budget and staff to plan, mainstream, and implement disaster and climate
risk management actions; (c) cities lack adequate equipment and resource to respond to fires
or take fire safety measures. To alleviate these challenges, UIIDP will support the most
urgent and critical needs. Firstly, the investment menu includes climate- and disaster-
resilient infrastructure and equipment to enhance resilience, important to both adaptation
and mitigation, including urban drainage and flood control systems, solid waste
management facilities, renewable energy supply, urban green infrastructure, pedestrian
walkway, cycle path, bus terminal and station, as well as firefighting equipment. Secondly,
new performance measures have been introduced to encourage ULGs to assess climate and
disaster risk (by preparing risk map for example, flood, landslide, drought, earthquake) to
guide siting and design of resilient infrastructure investment, establish disaster management
units, complete emergency response plans, and to start the training and procurement of
equipment that will enable the authorities to respond in the event of a natural disaster.
Thirdly, IPF window includes technical assistance on DRM, including development of
national urban DRM plan, information system, and training programs. Such measures are

12
 expected to increase preparedness, longer-term resilience, and reduced climate and disaster
impacts (See further details in annex 1, attachment 2).

 Gender mainstreaming. Gender analysis identified three key challenges and constraints
that hinder gender mainstreaming in ULGs: (a) lack of awareness of women’s voice and
rights; (b) absence of institutional gender mainstreaming system; and (c) lack of women’s
economic empowerment. To address these challenges, UIIDP will take a gender-sensitive
approach. Firstly, the investment menu includes services and infrastructure from which both
men and women benefit (for example, street lighting, pedestrian walkways, sanitation
facilities, servicing land with utilities, and urban parks). Secondly, new performance
measures have been introduced to incentivize ULGs to pay more attention to women’s
participation in decision making and women’s rights at workplace, to establish gender
mainstreaming system, both staff and planning, implementing and monitoring system, and
to give more economic opportunity and support to women and women-headed MSEs.
Thirdly, IPF window includes technical assistance on updating gender mainstreaming
guideline for urban development, carrying out gender audit, raising awareness workshop
and trainings for public officers and community members, as well as training for trainers
with the development of training manuals. The Program Action Plan in addition includes
development and adaptation of code of conduct in employment and sub-project contract
documents for women’s rights in workplace (including gender based violence, sexual
harassment, and equal payment for equal work) (See further details in annex 1, attachment
2).

35. The proposed UIIDP will have the following key features:

36. The total IDA funding envelope for the UIIDP is US$600 million (of which US$200 million is
from the IDA Scale-Up Facility (SUF), US$273 million from IDA Grant and US$127 million from IDA
Credit). In addition, the French Development Agency (Agence Française de Développement, AFD) will
contribute co-financing of euro 9.8 million (estimated US$10.8 million). 21 The GoE (from regions and
cities) will contribute around US$248.7 million. 22 This brings the total Operation budget envelope to
around US$859.5 million. (The detailed budget breakdown is included in annex 4.) The main expenditure
items are:

Window 1 for PforR:

 US$691.11 million (ULG level). Performance-based grants to 117 ULGs for infrastructure
investments as listed under the Program investment menu (US$248.66 million from regions
and ULGs; around US$433.65 million from IDA; and estimated US$8.8 million from AFD).

 US$70.04 million (regional level). Support for regional government to strengthen its
capacity to support and guide the ULGs in core areas such as financial audit, environmental
and social audit, procurement audit, revenue enhancement, and others (IDA funding).

21
Assuming an exchange rate of 1 euro is to US$1.102.
22
Regions and cities contribute to the performance based transfers in the following manner: Amhara, Oromiya, SNNPR, and
Tigray: 30 percent funding in addition to IDA funded grants; DRS regions: 20 percent; original 16 ULGDP I ULGs: 40 percent;
new cities under ULGDP II in the DRS regions 10 percent; and other new ULGDP II cities: 20 percent; Harar and Dire Dawa
contribute 50 percent in addition to the IDA funded grants. The new 73 ULGs under UIIDP will follow the same principles as the
ULGDPII newcomers.

13
  US$63.74 million (prior results). Allocation against prior results on institutional
performance, service delivery, maintenance, and job creation for 44 ULGs as determined in
the APA conducted in FY2017/18 for FY2018/19 allocations (IDA funding).

Window 2 for IPF:

 US$34.57 million (federal level). Enable MUDHo to support and guide the regions and
ULGs and also to administer and coordinate the Operation (US$32.57 million from IDA;
and about US$2.0 million from AFD).

Table 2. Program financing (US$, million)

Source Amount Percent of Total

Government23 US$248.7 29
International Development Association (IDA) Grant US$273.0 32
International Development Association (IDA) Credit US$127.0 15
IDA Scale Up Facility (IDA-SUF) US$200.0 23
AFD US$10.8 1
Total Program Financing US$859.5 100

37. UIIDP funding to ULGs will be allocated using a simple formula, based on population size
and the performance of the ULGs. An approximate US$16–18 per capita per year (with phasing in of
the new ULGs in the first financial year) has been assessed to be the optimal level of funding. 24 As a core
principle, the per capita amount would at least maintain the similar level as at the start of the ULGDP II to
ensure minimum level of incentives and meaningful infrastructure and services investments. The size of
this performance grant has been determined considering various factors such as international good
practice (from an expanding number of countries with performance-based grant allocations), the costs of
investments, expenditure needs and current level of investments, opportunities for co-funding as well as
generation of sufficiently strong incentive to drive the performance. This has been informed by a
comprehensive review of ULG fiscal and revenue positions.

38. ULGs will use the Program funds to finance urban infrastructure works as well as capacity
building activities, in compliance with the Program’s investment menu and capacity building
manual. Eligible infrastructure investments fall under eight groups including: (a) urban roads, (b)
integrated infrastructure and land services, (c) sanitation (liquid waste), (d) solid waste management, (e)
urban drainage, (f) urban DRM and urban resilience, (g) built facilities, and (h) urban green infrastructure
(see annex 1 table 1.3 for details). Compliance with the investment menu is a minimum condition for
receiving funds. In addition, ULGs will be required to prepare the project in a participatory manner,
including dialogue with the private sector, and consider social inclusion, gender and disability
considerations, and climate change and disaster adaptation. 25 ULGs can spend up to 5 percent of
investment grants and regional/city contributions on capacity building support. For regional government
23
The regional government and ULGs will be making funding contributions at various levels, as detailed in the Technical
Assessment. The contribution from the ULGs constitutes one of the minimum conditions to be met for each ULG to qualify to
receive funding from the Program.
24
In the first year, the simple average per capita for the new 73 ULGs and the ULGDP II 44 ULGs will be US$14.79 and
US$17.68 per capita respectively. From the second year, the per capita allocation uses an average figure similar for the two
groups, which is US$17.68.
25
Details of and procedures for the use of investment project prioritization and selection criteria will be included in the Program
Operational Manual (POM).

14
entities, the grants will mainly be used for capacity building, operations and management expenses,
subject to the eligible capacity building areas, similar to the ULGs.

39. The IPF window will be used to fund a range of institutional and capacity development
interventions at or coordinated by the MUDHo. The MUDHo will undertake activities in five areas:
(a) developing capacity, systems, and organizations of federal entities26; (b) developing capacity, systems,
and organizations of regional and ULG entities, (c) conducting project preparation studies, pre-
feasibilities and feasibility studies for ULGs with specific needs for further investments, (d) UIIDP
management, monitoring and evaluation (M&E) and feasibility/preparatory studies for future execution;
and (e) procuring and managing APAs and VfM audits. The capacity building activities, technical
assistance and feasibility studies will focus on core and strategic areas such as revenue enhancement,
asset management, CIP preparation, FM, as well as introducing initiatives on LED, urban resilience,
cultural heritage, and urban planning. (See annex 1 table 1.4 for details of the activities.)

40. The AFD will provide joint co-financing (around euro 9.8 million) to UIIDP through both
the PforR and the IPF windows. Specifically, around euro 8 million (about US$8.8 million) will be
dedicated to supporting the performance-based grants under the PforR while around euro 1.8 million
(about US$2.0 million) will be used for subcomponent 3 under the IPF window, on conducting project
preparation studies, pre-feasibilities and feasibility studies for further investments for ULGs with specific
needs on LED and cultural heritage. The AFD-supported areas would be seamlessly incorporated as part
of the UIIDP design, hence adopting all WB’s implementation system, guidelines and policies without
separate reporting requirements.

D. Disbursement Linked Indicators and Verification Protocols

41. Almost 96 percent (or around US$576 million) of the Operation’s funds will be disbursed
against DLIs. The DLIs are structured to provide incentives to participating ULGs and regional
governments for improved management and development of urban areas.

42. DLIs 1 to 4 focus on ULGs to strengthen ULG institutional roles in the delivery of
infrastructure and services, and enhance LED. Each of these DLIs is a composite index of defined
MCs and PMs. Adjustments to these performance indicators and scoring may be done throughout
Program implementation and particularly following the midterm review (MTR) to ensure that the system
remains relevant, manageable and robust. These four DLIs build on ULGDP II performance assessment
system and will ensure that:

 Basic fiduciary, project planning and execution, and environmental and social management
conditions are in place such that local governments can absorb the Program funding;

 ULGs continue to strengthen their institutions of urban management in a socially inclusive

manner;

 ULGs use program funds effectively in creating sustainable and resilient 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.

 ULGs improve on systematic and foundational aspects to promote long term job creation,
urban resilience and gender empowerment.
26
MoFEC, MUDHo, Ministry of Federal Affairs, Ministry of Environment, Forest, and Climate Change (MEFCC), Ministry of
Women and Children Affairs and Ministry of Labor and Social Affairs, OFAG, FEACC, FPPPAA, Ethiopian Revenues and
Customs Authority (ERCA).

15
43. The funding proportion against DLIs 1 to 4 have been adjusted to align incentives with emerging
priorities. As compared to ULGDPII, fewer rewards are given for achieving the MCs (DLI1) and instead
emphasis is placed on achieving the PMs (DLIs 2 to 4) which have higher performance criteria. In
addition, DLI4 focuses on the new thematic areas of local governments’ performance in LED, resilience
and gender and gives a substantial sum to incentivize improvements in these areas.

44. The disbursement system for DLI 1, 2, 3, and 4 is scalable based on actual performance of
ULGs. It is particularly important to note that if the ULGs perform better (or poorer) than expected (as set
out in the disbursement related targets in the DLI matrix), disbursements will be adjusted accordingly.
This means that if ULGs perform better than expected they will receive higher than expected
disbursements. If this continues throughout the Program, additional financing may be needed.

45. DLIs 5 to 9 focus on regional government entities to enhance their abilities in fulfilling their
mandates to support ULGs. These DLIs will disburse based on results achieved by regional government
entities in providing support to ULGs (DLI 5) as well as focusing on their performance in conducting
essential audits for ULGs such as on fiduciary and environmental and social management.

46. DLI 10 is a legacy DLI, disbursing against prior results on institutional performance,
service delivery, maintenance, and job creation for 44 ULGs. Based on the APA conducted in
FY2017/18 and review of results against 92 average points, DLI 10 will disburse to 44 ULGs in
FY2018/19 to an extent to which the ULGs have (a) strengthened their institutional performance and (b)
have implemented their local infrastructure, maintenance, and job creation activities (as measured against
their CIPs and their Annual Action Plans).

47. Collectively the DLIs address the PDO and key result areas. The DLIs are designed to address
the challenges of ULGs’ and regional governments’ institutional performance and, in turn, ULGs’ ability
to deliver, operate, and manage infrastructure and services, and expand LED. They provide incentives to
address the core issues such as timely audits, social and environmental management, own-source revenue
generation, and strengthen the system and procedures for capacity building. In addition, there is enhanced
focus to strengthen urban resilience, promote LED and job creation, and enhance gender equality. The
PMs have a direct link to the key result areas and the GoE’s program intended outcomes.

48. The expenditure areas are designed to correspond with the structure of the DLIs. These
reflect (a) the performance-based grants to ULGs for urban infrastructure and services investments and
capacity building, and (b) the regional governments’ capacity building and oversight/support to
participating cities. The support to the MUDHo to administer and coordinate the program, and strengthen
its capacity to support and guide the regions and ULGs is covered by the IPF.

49. Table 3 provides a summary of the Program DLIs, the estimated financing amounts and the
linkage to the results areas.

Table 3. Program DLIs

Approximate Percent of
Amount Total PforR
Results area DLIs (IDA+SUF Amount
+AFD)
(US$, million)
ULGs deliver DLI 1: Eligible ULGs have achieved Program MCs.27 109.33 18.97
infrastructure
and services DLI 2: Eligible ULGs have strengthened institutional performance. 190.09 32.99

27
ULGs must comply with the MCs to get access to the allocations from DLIs 2, 3, and 4, as the MCs are the basic safeguards for
handling of larger discretionary funds.

16
 Approximate Percent of
Amount Total PforR
Results area DLIs (IDA+SUF Amount
+AFD)
(US$, million)

DLI 3: Eligible ULGs have implemented quality infrastructure and 90.09 15.63
maintenance activities and ensured value for money.

DLI 4: Eligible ULGs have strengthened performance on LED, urban 52.94 9.19
resilience and gender mainstreaming.
Regional DLI 5: Regional support teams have delivered effective capacity 27.88 4.84
government building services to Eligible ULGs in urban institutional and
entities support infrastructure development.
ULGs to
strengthen DLI 6: Regional Government Audit Agencies (ORAGs) have carried 14.96 2.60
institutions and out timely audits of Eligible ULGs’ financial reports.
enable them to
deliver DLI 7: Regional Environment Protection, Forest and Climate Change 13.12 2.28
infrastructure Authorities (REFAs) have completed timely review of Eligible ULGs’
and services. environmental and social safeguards compliance.

DLI 8: Regional Revenue Bureaus (RRBs) have supported Eligible 7.04 1.22
ULG revenue mobilization.

DLI 9: Regional Public Procurement and Property Administration 7.04 1.22

Agencies (RPPPAA) conduct timely and quality procurement audit of
Eligible ULG’s accounts and performance.
Prior results DLI 10: Strengthening institutional performance, infrastructure and 63.74 11.06
service delivery, maintenance, and job creation for 44 ULGDP II ULGs.
Total 576.23 100.0

50. An independent performance assessment will be carried out every year to review the
performance of cities and regions against the set of agreed indicators and PMs. This is the main
mechanism to measure the performance and progress of ULGs and regions in UIIDP. (See the detailed
DLI matrix and verification protocol in annex 4). The APA results are used to verify the DLIs and form
the basis for disbursements:

 For ULGs. Allocations will be determined by: (a) a set of MCs, and (b) a further list of
PMs. MCs determine if the ULG is eligible to participate in that year’s program to receive
grant support, and the PMs track progress of each city in specific areas and determine each
city’s score. Key result areas include: (a) participation of citizens in planning and budgeting;
(b) fiduciary management; (c) generation of own source municipal revenues; (d) asset
management, (e) delivery as well as operation and maintenance (O&M) of new
infrastructure and services, and direct job creation; (f) accountability and oversight systems;
(g) environmental and social safeguards; and (h) new areas such as resilience, LED and
gender.

 For regional governments. Key result areas include: (a) capacity building (for various
regional bureaus of urban development (BUDs) and the quality of this, (b) carrying out
timely annual audits of ULGs (for Office of the Regional Auditor Generals [ORAGs]
according to standards, (c) performing social and environmental audits (for Regional
Environment Protection, Forest, and Climate Change Authorities [REFAs]), (d) supporting
ULGs’ with respect to urban revenue generation (for Regional Revenue Bureaus [RRBs])
and (e) carrying out the annual procurement audits (for Regional Public Procurement and
Property Administration Agencies (RPPPAAs) according to defined standards.

17
51. The APA design includes measures such as independent assessments, quality assurance, a
complaint handling system, and approval procedures to ensure its robustness. The MUDHo will
recruit an independent firm to conduct the APA in a timely manner. The draft assessment results will be
shared simultaneously with the WB and the government and the WB will conduct a quality assurance
review (QAR). Finally, the UIIDP Technical Committee (TC) will verify the APA results, and these will
be further endorsed by the UIIDP Steering Committee (SC). Based on the final APA results, the GoE will
send a Results Achievement Notification summarizing how the Program DLIs have been met. The WB
will retain the right to make the final decision on whether a DLI has been achieved or not. (annex 4
describes the detailed steps and timing of the process.)

52. At the federal level under the IPF window, a robust system for support and quality
assurance of results will be ensured, through a separate mechanism from the APA. This will mainly
consist of verification and endorsement by the TC and SC respectively with review by the WB. The focus
areas include: (a) capacity building support from the central level to regions and ULGs, and (b) the
timeliness of the APAs and VfM audits, system development, and support in areas of core importance for
the key result areas. These assessments and the federal capacity building support and system development
will be covered by the IPF, hence not directly linked to DLIs.

53. The technical design of UIIDP draws heavily from the extensive experiences of WB and
GoE partnership in the urban sector, most recently under the ULGDP I and II. The four APAs of
the ULGs so far, the ULGDP II MTR, the 2015 Ethiopia Urbanization Review, recent fieldwork in 10
ULGs conducted to inform the design of the UIIDP, and several studies carried out by the government
underpin the technical elements of the UIIDP. Four key lessons learned and applied are described below.
(The full set of lessons learned is presented in annex 5 and table 5.1 details the Achievements and lessons
learned on specific areas and implication on UIIDP Design.)

 Use government systems. This will strengthen capacity at the federal, regional, and ULG
levels for urban development, within flow of funds, FM, and operations. 28

 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 UIIDP development objective.

 Provide strong incentives to perform. Based on experiences from ULGDP I and II as well
as comparing with other international performance-based grant system, the UIIDP incentive
amounts and structures have been meticulously crafted. The main aim is to ensure that
sufficiently strong incentives are provided, and for each of the key results areas or technical
aspects. This also required a careful balance amongst competing demands on one pool of
resources.

 Get the focus areas right. Based on the performance results and capacity assessments of
ULGs, it was found that the ULGDP II identified core urban management areas continue to
be extremely relevant and important. These include proper planning and budgeting, revenue
mobilization, asset management planning, procurement and public FM, as well as
strengthening of good governance and accountability. However, new priority areas such as
LED, urban resilience and gender have emerged and are a new focus in UIIDP.

28
The MUDHo has developed a number of guidelines under the ULGDP, including for Assets Management, public FM, capital
investment planning, the POM (most recently November 2016) accounting, M&E, and others. With revisions and refinement,
these will be used for the UIIDP.

18
E. Capacity Building and Institutional Strengthening

54. The UIIDP will further strengthen the capacity building architecture established under the
ULGDP II, by adopting a systematic, cascading and coordinated vision and approach. The key
challenges identified during ULGDP II and the emerging lessons formed critical inputs in sharpening the
capacity building architecture. To enhance coordination and improve synergies on capacity building
efforts across the three levels of government, a Capacity Building Manual 29 will be developed for the
Operation providing guidance on prioritized themes, cascading objectives, allowable activities, and
capacity building templates for all three levels. The interrelationship of the templates will ensure a
cascading and complementary capacity building planning and implementation process. Feedback
arrangements on the capacity building will also be established to allow adjustments and improvements
during implementation.

55. The capacity building efforts will dovetail with the Program’s prioritized thematic focus
areas, and further incentivized through PMs. Capacity building PMs will encourage better planning
and implementation of capacity building activities. It will reward the undertaking of systematic
assessment and gap analysis to inform and better tailor capacity building plans, which in turn address the
performance in key result areas. These include: (a) participatory planning and budgeting, (b) revenue
generation, (c) FM, (d) procurement; (e) infrastructure asset management, (f) contract management, (g)
urban planning, (h) environmental and social management; (i) auditing; (j) ethics, fraud and corruption,
(k) M&E, (l) gender equality, (m) urban resilience, and (n) LED. It will further reward the effective
execution and reporting of capacity building activities in accordance with the capacity building plans to
strengthen the linkage between planning and implementation.

56. Every year, a capacity assessment will be conducted at all three levels. This assessment will
include (a) an implementation report (of past year’s activities), (b) a self-assessment/gap analysis (to
review the past year’s activities as well as specific weaknesses identified in the APA), and (c) the
development of a capacity building plan for the coming year. The capacity building plan will consist of
cascading but individual plans for each level (and for each ULG). For example, the capacity building
plans at the ULG level will include activities which will be implemented by themselves and those for
which support from the regional and federal levels are required. Before finalizing the plans of the regions
and federal levels, consultations forums will be held to ensure that the demands and priorities of the
lowers tiers are adequately reflected in the plans of the higher tiers. The annual training calendar and TA
schedule will be part of the planning exercise.

57. The capacity building activities would focus on all three levels of governments and tailored
to each of their needs. In addition, four main modalities will be used for building capacity at the three
levels. These include: (a) structured learning through classroom training, (b) technical assistance and on-
the-job training, (c) learning and knowledge exchange platforms, and (d) guidelines and systems rollout.
Further details of the execution at each level are as elaborated below and further in annex 1.

 ULGs. Both supply-driven and demand-driven approaches are adopted for capacity building
at the ULG level. On the supply-driven side, the ULGs will have access to a range of
capacity building activities offered by both the regional and federal government entities,
including the support from the regional mobile teams (RMTs) and the federal mobile team
(FMT). Structured training courses on overall urban management and governance, and
specific technical aspects such as procurement and safeguard management would also be
made available through arrangements with appropriate regional universities, management
29
The comprehensive Capacity Building Manual will be prepared by the MUDHo as an annex to the POM. This will serve as
the framework for shared understanding among the different entities and provide detailed guidance to structure and prioritize
capacity building activities at all three government levels.

19
 institutes and other national and regional level capacity building institutions or private
providers, coordinated by the federal or regional levels.

On the demand-driven side, each ULG may use up to 5 percent of their investment grants on
capacity building activities in accordance with the menu of eligible uses (see annex 1 table
1.4). The ULGs will be required to prepare capacity building plans following the guidelines
and formats presented in the Capacity Building Manual. The capacity building plans will be
expected to include activities that address specific weaknesses identified in the APAs and in
systematic self-assessments. A capacity coordination unit will be established in ULGs and
comprise focal persons drawn from various departments within the government, with the
city manager as the lead and the head of the capacity coordination unit as the convener. The
capacity building coordination unit will lead the self-assessment, gap analysis, preparation
of the capacity building plans, and monitor and report on implementation.

A phased and targeted approach will be taken to raise the capacity of the 73 new ULGs
to meet Program requirements. The 73 new cities inducted under UIIDP will be provided
with upfront technical assistance to sensitize, orient and gear them up for Program
implementation. These new cities will receive at least 8 months of capacity building from
technical assistance consultants (3 firms) being hired by MUDHo before undergoing the
first assessment, where they will be assessed on the MCs only. Thereafter, they will
continue to receive at least an additional 10 months’ capacity building from these technical
assistance consultants on all the UIIDP performance measures making up a total of 18
months’ support. This is also based on the successful up-scaling experience from ULGDP to
ULGDP II which followed similar principles. Mentoring and other knowledge exchange
tools will be used to support new ULGs utilizing experienced ULGs.

 Regional government entities. Regional BUDs will take the lead in providing capacity
building support to ULGs, through formation of the RMTs. RMTs will provide technical
assistance to ULGs in the areas of core urban management focusing on those corresponding
with the MCs and PMs. The RMTs will partner with regional entities responsible for key
result areas and will jointly draw up capacity building plans and in delivering them in a
coordinated manner. The various regional entities are further incentivized to improve their
capacity and that of ULGs to deliver the results as demanded through the regional DLIs.
Beyond the ULGs, various regional government entities—such as the Construction Bureaus,
the Land Development and Management Agency, the Urban Planning Institute, the Urban
Safety Net and Job Creation Bureaus, the Women Affairs Bureaus, and the Investment
Commissions—will also benefit from regional capacity building activities, strengthening
their urban governance and management roles. (The RMTs will spend at least 15 working
days per month in the field.)

 Federal government entities. The MUDHo will lead the federal level capacity building
efforts, form the FMTs and coordinate the support provided by other federal government
entities. The FMTs will provide technical assistance and advice to the regional government
entities and ULGs. Specifically, the FMTs will: (a) backstop the ten RMTs and the four
ULGs in the regions without RMTs; (b) provide general backstopping for all regions; (c)
mentor the regional authorities in key results areas; (d) conduct or coordinate capacity
building for the MUDHo, and guide consultancies, studies and other initiatives; and (e)
provide overall coordination and oversight of capacity building activities under the UIIDP,
including the initial training of new teams. (The FMTs will spend at least 15 working days
per month in the field.)

20
 To avoid duplication of efforts by RMTs and FMTs, the roles of both sets of teams will be
clearly defined in the capacity building manual. While the RMTs will be focusing on
delivery of capacity building activities, the FMTs will focus on module development,
training of trainers (ToTs) and TA identification and certification, quality assurance and
feedback mechanisms and needed technical back-stopping to ULGs. The FMTs will also
partner with universities, management institutes and other national and regional level
capacity building institutions to deliver programs.

58. Capacity building monitoring framework. A robust monitoring and information system
covering ULG, regional, and federal level, will be established to monitor timeliness, adequacy, and
effectiveness of the planning and execution of capacity building activities and resources. The capacity
building plan and implementation reports will also contain result/outcome indicators to be measured
annually. ULGs, regional government entities, and the MUDHo will report on the capacity building
activities, achievements and these indicators in their progress reports and capacity building
implementation plans. In addition, each of the capacity building events carried out will include a
participant evaluation, rating the relevance and quality of the event. There will be a feedback mechanism
as part of the capacity building monitoring system. Performance of capacity building institutions (ULG
capacity coordination unit, RMTs, FMT), and service providers (universities, ToTs, and technical
assistants) will also be assessed. The formats for reporting will be included in the Capacity Building
Manual.

III. PROGRAM IMPLEMENTATION

A. Institutional and Implementation Arrangements

59. The Operation will be implemented through institutional arrangements at the Federal,
regional, and ULG levels, with clear division of tasks and responsibilities between the three levels. It
follows the government structure and is consistent with existing legal provisions, regulations and
guidelines. The roles and responsibilities of the relevant entities are summarized below.

Federal Level

60. At the federal level:

(a) Ministry, Department, and Agencies with statutory mandates for the program–MUDHo and
MoFEC

 The MUDHo will be the lead implementing agency, with a FMT in the Urban
Revenue Enhancement, Fund Mobilization, and Finance Bureau (UREFMFB)
responsible for daily coordination of the Operation. The FMT consists of a
Program Coordinator, a deputy Program Coordinator and 30 other staff who also serve
as members of the FMT. They will have expertise in the various Program focus areas,
including newly introduced areas on gender equity, resilience, and LED. The UIIDP
Program Coordinator will report to and act under the direction of the Bureau Head of
the UREFMFB, MUDHo. The main tasks of the FMT are:

o Overall responsibility for day-to-day coordination and management of the

Operation.

21
 o Capacity building, including direct support to regional and ULGs, and issuance
of guidelines and procedures for matters such as municipal revenue generation,
assets management, service delivery standards, and the like.

o Program management and implementation of activities under the IPF window,

including the procurement and management of the APAs and the VfM audits and
to ensure their timeliness.

o Overall Operation M&E.

o Operation reporting, including the semi-annual progress reports.

o Ensuring together with MUDHo Finance Department (which also accounts for
the UIIDP funds to MoFEC) that Operation resources are budgeted for and
disbursed within the expenditure framework.

o Evaluating the performance of team members as per the agreement made

between UREFMFB and the FMT team members.

 MoFEC is responsible for fund flow, disbursement, financial reporting and

arranging program auditing for the Operation. MoFEC will also be responsible for
compilation of financial reports, drawdown of funds from IDA, transfers of funds to
MUDHo, Regional States (including Dire Dawa City Administration) and through
Regional Bureau of Finance and Economic Development (BoFEDs), to the ULGs as
per the request from MUDHo.

(b) Ministries, departments, and agencies with guiding/supporting roles

 Several other federal entities have guiding and supporting roles in UIIDP. These
include the Office of the Federal Auditor General (OFAG), especially for the annual
program audits; the Federal Public Procurement and Property Administration Agency
(FPPPAA) on procurement procedures; ERCA on revenue generation, MEFCC on
environmental and social management, the Federal Urban Job Creation and Food
Security Agency (FUJCFSA), Ministry of Industry on job creation and support to
MSEs, the Federal Ethics and Anti-Corruption Commission (FEACC) on fraud and
corruption monitoring and reporting and Ministry of Federal Affairs which has special
responsibility for Developing Regional States (DRS) and will work with MUDHo to
support participating cities in these regions.

(c) Ministries, departments, and agencies with technical oversight roles–UIIDP TC

 A UIIDP TC will support the SC, providing advice, conflict resolution at the
technical level, and verify Program performance and compliance. Like the SC, the
ULGDP II TC will transition into the UIIDP TC. It will comprise key technical staff
(at least directors or director general level) of the MUDHo, MoFEC, MEFCC,
Ministry of Federal Affairs, Ministry of Labor and Social Affairs, FUJCFSA, OFAG,
FEACC, FPPPAA, and ERCA. It will verify the results of the APAs and resolve
complaints that cannot be resolved at entity level. The TC is expected to meet
quarterly and to review Program implementation against objectives, bring policy issues
to the SC, and ensure that the Operation is implemented in line with the Program
Operational Manual (POM).

22
 (d) Ministries, department, and agencies with policy roles–UIIDP SC

 A UIIDP SC will provide Operation oversight, endorse Program performance and

allocations, arbitrate conflicts and strengthen inter-ministerial coordination. The
ULGDP II SC will transition into the UIIDP SC as ULGDP II concludes. The SC comprises
representatives (Minister/State Minister and heads of agencies) from MUDHo, MoFEC,
MEFCC, Ministry of Federal Affairs, FEACC, OFAG, Ministry of Industry, and the Ministry
of Labor and Social Affairs (new additions under the UIIDP). It will ensure proper
coordination of issues on planning, allocations, flow of funds, compilation of data, and
endorsement of the results of the APA and final yearly allocations. It will meet at least
quarterly and as and when required.

Regional Level

61. Regional governments will have a greater role under the UIIDP as compared to ULGDP II,
in providing oversight and in building ULGs’ capacity. Six of the nine regional governments, each
with many participating ULGs, will establish RMTs that will directly backstop ULGs as well as
strengthen the regional BUD’s own capacity to guide and support the ULGs. The FMT will directly
support the other three regional governments, which have fewer participating ULGs and relatively modest
capacity.

62. At the regional government level:

 The respective regional BUDs are responsible for daily coordination of the Operation
at the regional level. Specifically, the BUDs are responsible for:

o Capacity building support of the ULGs in their jurisdiction.

o Preparation of consolidated (ULG and regional government) progress reports covering

all ULGs in their jurisdiction.

o Oversight and backstopping support related to aspects of the Operation.

 Other regional entities will play important roles. The (a) ORAGs will conduct external
audits of ULG financial reports; (b) the REFAs will oversee the Program’s environmental
and social safeguards agreements; (c) the BoFEDs will manage the regional fund flow and
reporting, (d) the RPPPAA will guide and support on procurement procedures and capacity
building and conduct the annual procurement audits of ULGs; (e) the RRBs will support
ULGs in the areas of OSR generation; and (f) the Regional Ethics and Anti-Corruption
Commissions (REACCs) will be responsible for fraud and corruption monitoring and
reporting.

ULG level

63. At the ULG level:

 The Mayor and the Mayor’s office in each ULG is responsible for overall performance
of the ULG. It ensures compliance with all FM, procurement, and Operation environmental
and social safeguards and regulations. It also facilitates access to the information required as
part of the APA. Finally, it will be responsible for public private dialogue and involving the
private sector in planning activities.

23
  Each city is required to establish a UIIDP Coordination Team, reporting to the City
Manager. This team will be responsible for day-to-day coordination of the Operation,
working closely with relevant offices of the city. The team should consist full-time focal
persons from the relevant departments for each Operation focus area (as defined in the
MCs). Their key responsibilities would include liaising with respective city offices to ensure
implementation is in accordance with the Operation’s environmental and social safeguards
and fiduciary guidelines; monitoring, reporting and disseminating information about the
Operation (including contract awards, physical and financial progress of works contracts ,
and so on), contribute to capacity building activities, and act as resource persons for the
Operation.

 The various offices of the City Manager will be responsible for implementation of
infrastructure and activities supported through Program Funds. Implementation of
infrastructure, services and activities supported through Program funds are mainstreamed in
each ULG and carried out by the relevant offices in the city administration.

 The Offices of Finance and Economic Development (OFEDs) hold overall fiduciary
responsibilities. They will ensure that all Operation funds are included in Integrated Budget
and Expenditure (IBEX) and that financial reports are submitted to ORAG as soon as
possible after the end of the Ethiopian fiscal year.

 The ethics liaison unit of the ULG is responsible for dealing with fraud and corruption,
handling related complaints and consolidating reporting of complaints on environment
and social aspect as well as procurement.30

 City councils are responsible for reviewing and approving cities’ CIPs, revenue
enhancement plans (REPs), asset management plans (AMPs), and capacity building plans.

 Each ULG will also establish a capacity building coordination unit. This will coordinate
the planning and implementation of capacity building activities, and reporting of these
activities.

 FUJCFSA is responsible for leading initiatives relating to supporting micro, small and
medium size enterprises.

 The Women and Children Affairs Office (WCO) is responsible for leading and
coordinating initiatives identified in the gender action plan and champion gender
mainstreaming in planning, M&E, reporting and management.

 A DRM unit is proposed to be established in each ULG. This will lead efforts in risk
assessment, develop emergency response plans and related capacity building activities.

B. Results Monitoring and Evaluation

64. Objectives. The objective of the M&E system is to generate timely and relevant tracking on the
Operation’s implementation progress and achievement of expected outcomes to enable the implementing
agencies and stakeholders to address issues as quickly as possible as they arise.

30
Note that units with the same mandates may have different names in different places.

24
65. Design and reporting. Monitoring and reporting will take place at all three levels of government.
The M&E specialist based in each ULG will be responsible for the M&E system at the ULG level and is
the key person collecting and reporting primary data related to the indicators of the Operation’s key
results areas. The M&E specialist will prepare comprehensive quarterly Operation progress reports
containing agreed data and transmit it to the regional government. The M&E specialists at the federal and
regional levels (in the federal or RMTs) will assist in establishing a computerized M&E system, provide
training and back-stopping support to staff at the regional level, and in turn, local levels to ensure that the
city-specific reports are timely, comprehensive, and accurate. In addition, the regional M&E specialists
will compile each city’s progress report into a regional progress report and submit it to the MUDHo.
Similarly, the federal M&E specialists will compile/consolidate the regional progress reports into a
national report and submit it to UREFMFB and the WB for review.

66. The MUDHo will be responsible for overall UIIDP Operation 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 WB a midyear and annual progress report each year.
In addition, regional BUDs will prepare quarterly progress reports for internal use by the MUDHo to
monitor progress and take timely action on issues arising. The UIIDP coordinator will submit the
quarterly progress reports to the SC, ministers and relevant bureau heads in the MUDHo. They will also
submit it to the WB upon request.

67. Data generation and collection. The data to track many of the key performance indicators will
come primarily from the government’s own systems, as tracked by the three layers of government
outlined in the paragraph above. These systems will be further strengthened through the capacity building
component to establish strong data collection and retrieval systems at the ULG level. Table 4 summarizes
the various inter-linked tools which will be used to monitor and report on the Operation.

Table 4. Data Generation and Collection

Type of Information Means Frequency
Progress on UIIDP development objectives and ULGs, regional governments, and MUDHo. Bi-annually and
technical aspects Annually
APA. Annually
Institutional performance, including the new areas of APA. Annually
LED, urban resilience, and gender
Achievements of infrastructure plans and targets. APA. Annually
VfM. VfM audits, results to feed into the APA. Every year starting
the second year in the
new ULGs
Physical progress and outputs ULGs’ regular progress reports to regions Quarterly & Bi-
and then to MUDHo annually
Financial reporting (use of funds, expenditure Annual financial statements, semiannual Bi-annually and
composition, and the like). financial reports, internal audit reports, annually
annual external audit reports.
MTR: MTR. Once in the Program
Detailed review of implementation experience, (2020)
achievement of the key performance indicators, and
progress towards the PDO.

68. Capacity building for M&E. The UIIDP ensures that there is minimally one M&E specialist at
the federal level, in each RMT and in each ULG’s UIIDP Coordination team. ULGs are required to
appoint an M&E specialist to their Program team as a minimum access condition. The UIIDP will finance
regular training of M&E specialists, technical assistance, and other capacity support required to establish
and operate an effective M&E system.

25
C. Disbursement Arrangements and Fund Flow

69. Disbursements under the Program are subject to PforR procedures and disbursed against
DLIs. The PforR funds will be disbursed from IDA and IDA SUF to MoFEC once a year upon
achievement of the DLIs. Disbursements from MoFEC to regions’ BoFEDs, and from BoFEDs to ULGs’
Offices of Finance and Development (OFED) will be done twice a year (around January and July each
year). For DLIs 4 through 8, MoFEC will transfer funds to the regional governments’ BoFEDs once a
year, with onward transfer to the relevant regional entities according to achievements against these DLIs.

70. The timing of the UIIDP fund flow is designed to be in line with the ULGs’ budget and
planning cycles. To enhance predictability, UIIDP indicative disbursement figures (according to
simulations done for the Program design; see annex 1) will be shared with ULGs and regional
governments, although the actual amounts will vary and are scalable based on the performance and
achievement of the DLIs each year. ULGs will be informed, around February each year, of their actual
disbursement for the following fiscal year, as soon as the APA is complete and the ULG audit results
(financial audit, procurement audit, and the VfM audits) are available. It is critical to ensure that there are
no delays in availing resources to ULGs to enable realistic and effective planning and implementation
especially for capital investments.

71. For window 2, disbursement arrangements will be based on procedures that are consistent
with IPF modalities. For the IPF, funds will be disbursed from IDA and IDA SUF to MoFEC and then to
MUDHo (and for the subcomponent funded by AFD, directly from AFD to MoFEC, then to MUDHo).
The detailed disbursement modalities are discussed in the fiduciary section below and in annex 6.

IV. ASSESSMENT SUMMARY

A. Technical (including program economic evaluation)

72. The UIIDP has strong strategic relevance. The proposed Operation is well aligned with various
Government urban policies and the WB’s CPF. It supports the ULGs as drivers of change for
development to address the large gaps in funding for capacity building, institutional strengthening, and
delivery of infrastructure and services in ULGs across the country. Data from field visits and review of
documents shows the importance of the UIIDP grants compared with the current level of own-source
revenues and planned and execution of investments by the ULGs. 31 From year two onwards, the UIIDP
grants more than double the funds available for capital investments. 32 Comparing using the size of typical
capital investment projects, the UIIDP grants will also be significant. Based on a review of unit costs of
typical projects, the UIIDP performance-based grants (using average figures) will enable the larger ULGs
to finance about on average 12 projects per year, and the smaller ones about 8-9 projects per year.

73. Public funding and WB financing for the UIIDP are well justified as the types of
infrastructure and outputs are public goods with substantial benefits (positive externalities). Private
financing for revenue-generating projects is an important option to consider in the future and will play an
increasing role, while the UIIDP lays the foundation for it through a focus on LED and public private
dialogue.

74. The design of the Operation is assessed to be technically sound. This was assessed on the
aspects of formulation of the PDO, the level of and effectiveness of incentives that the grant will create,
experiences and lessons learned from earlier programs in Ethiopia and other places, and detailed design
31
Based on a sample of 22 ULGDP ULGs and 21 non-ULGDP ULGs through a combination of document review (12 new
ULGs) and field visits to 9 new ULGs.
32
The impact of the grants on the ULG investment level will vary greatly across ULGs, see the technical assessment.

26
issues such as the applicability of grant size and allocation system. Analysis considering other ULG
funding sources and the current fiscal system, deduced that the size and modalities of the UIIDP grant is
technically feasible and sound. The design of the UIIDP—offering capital grants for investment in
infrastructure and services, capacity building support (both demand and supply driven), and incentives
through the robust APA process that links funding levels with performance—has been highly effective
under the ULGDP I and II.

75. The UIIDP builds on the solid foundation established in ULGDP I and II, and consolidates
lessons learned to create a third-generation performance-based Program. In addition to reducing the
gap in provision of critical infrastructure and services, the UIIDP incentive based system of grant
provision, coupled with targeted capacity building, induce fundamental changes and improvements to the
institutional and systems capacity of ULGs and regional entities. The selection of DLI focus areas, and
the design of the MCs and PMs have been tried and tested under the ULGDP I and II, with continuous
improvements and “upgrades” incorporated into the design of the UIIDP. Further, innovative initiatives
are now introduced in the UIIDP to promote gender mainstreaming, urban resilience, job creation and
LED, implementing them through multiple modalities. (See details of lessons learned under the ULGDP I
and II and integrated into the design of the UIIDP in annex 1 and lessons learnt and incorporated in annex
5.)

76. Institutional arrangements for the proposed Operation are assessed as being appropriate
and adequate. Responsibilities for UIIDP management and implementation are divided among the three
tiers of ULG, regional, and federal level government entities in ways that are fully consistent with the
mandate and role of each level, and with clear division of tasks and responsibilities between involved
parties. It follows the GoE structure and is consistent with existing legal provisions, regulations and
guidelines. In addition, UIIDP aims to strengthen the regional as well as federal tiers for supporting the
ULG levels and introduces a more formalized and improved system for verification of the DLIs.

77. Economic evaluation. By design, the proposed Program provides ULGs with considerable
discretion in deciding on the types of infrastructure investments that will be financed out of their capital
grants. It is therefore not possible to determine a priori which infrastructure services will be implemented
in participating ULGs. Nonetheless, based on experience with the ULGDP II, about 69 percent of funds
are likely to be spent on cobblestone and gravel roads. A detailed benefit-cost analysis has been
undertaken for such roads.

78. Many UIIDP investments envisioned (cobblestone and gravel roads) will generate
significant returns with IRRs of more than 19 percent (or amounting to US$63.9 million) in the
base case scenario. This indicates that investments in cobblestone roads are economically viable, even
without considering other non-quantifiable benefits. The rate of return and the net present value (NPV)
remain at acceptable levels even when sensitivity analysis is applied with a 20 percent increase in cost
and a 20 percent reduction in benefits (see table 5). The internal rate of return (IRR) remains higher than
the 12 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. The economic impacts of the project for all economic
agents, including the transport users as well as the residents of the Program ULGs is significant. (annex 5
presents the details of the benefit-cost analysis, including the assumptions.)

Table 5. Summary of Benefit-cost Analysis

Descriptions NPV (US$, millions) IRR in percent

Base case 63.9 19.3
Sensitivity analysis
20 percent cost increase 35.0 15.5

27
 20 percent reduction of total benefits 22.3 14.7

79. Under the counterfactual scenario without the WB-supported Program, the target ULGs
would continue to face a large fiscal gap and increasing deficits of urban infrastructure and
institutional capacity. This in turn would hinder the economic development of Ethiopia. This
alternative route will mean that the Program ULGs will face serious challenges in meeting their ever-
increasing residents’ expectations of delivering reliable urban services, as well as a possible deterioration
and, in some cases, a collapse of existing infrastructure. Without the proposed Program, the support to
ULGs under the existing intergovernmental fiscal architecture would be severely inadequate in achieving
the objectives of the government’s GTP and urban policies.

80. To the extent possible and appropriate, the Program will promote local private sector
development. The implementation of almost all Program activities will be contracted out to the private
sector. More than 3,000 MSEs have been involved in the construction of investment projects under the
ULGDP II. These numbers will rise with the addition of new ULGs.

81. Fiscal impact. The UIIDP is expected to have a positive impact on the nation’s fiscal framework
by strengthening municipal governance, revenue performance, and FM. By encouraging the consideration
of cost-benefit analysis for urban project selection, the project will help to strengthen the fiscal
framework by ensuring that only investments whose benefits exceed their costs are pursued. In addition,
the UIIDP will demonstrate the benefits of transferring federal funds to ULGs through conditional block
grants to encourage good performance. It will help the government to consider establishing such a
mechanism as part of Ethiopia’s fiscal architecture.

B. Fiduciary

For the PforR window (the Program)

82. An integrated fiduciary assessment for the proposed Program was carried out on the
fiduciary systems of MUDHo, in a sample of the cities to benefit from the UIIDP, consistent with
WB policy, directives, and guidance for PforR financing. The objective of the assessment is to ensure
that implementation arrangements are adequate and risks are reasonably mitigated by the existing
framework. The fiduciary assessment entailed a review of the capacity of the sampled participating
entities on their ability (a) to record, control, and manage all Program resources and produce timely,
understandable, relevant, and reliable information for the borrower and the WB; (b) to follow
procurement rules and procedures, capacity, and performance focusing on procurement performance
indicators and the extent to which the capacity and performance support the PDOs and risks associated
with the Program and the implementing agencies; and (c) to identify and mitigate fraud and corruption
risks and effectively handle public grievances and complaints. A special survey was designed for
assessing the fiduciary assessment of the cities to be included in the UIIDP. While the assessment of the
new 73 cities was conducted on sample basis, the fiduciary team used data obtained from the APAs that
have been carried out under the ULGDP II.

83. The assessment highlights risks and internal weaknesses of Program implementing
agencies, which will be mitigated through measures to be included as MCs and PMs and through
actions specified in the Program Action Plan (PAP). For the reasons mentioned below, the fiduciary
risk of the proposed Program is rated as Substantial. 33 (For details of the issues, risks, and proposed
mitigation measures, see the summary of the integrated fiduciary assessment in annex 6 and the PAP in
annex 9.) Overall, the fiduciary assessment concludes that the examined program FM and procurement
systems are adequate to provide reasonable assurance that the financing proceeds will be used for
33
The fiduciary risk rating is the combination of the overall risk ratings of the FM, procurement, and fraud and corruption.

28
intended purposes, with due attention to principles of economy, efficiency, effectiveness, transparency
and accountability, and for safeguarding Program assets once the proposed mitigation measures have
been implemented.

Financial management

84. The 2014 Public Expenditure Financial Accountability (PEFA) assessment for the federal
government noted the major improvements that have been made. Ethiopia has significantly improved
its performance over the last three years. Expenditure deviation was less than 5 percent per year during
EFY 2003–2005, which is less than half of what it was noted during the period of EFY 1999 to 2001
(11.6 percent). Revenue forecasting also improved with revenue collection being 94 percent to 112
percent of the budget during the last three years. Bills are cleared on time. Arrears are therefore, not a
major issue. The internal control system is comprehensive, widely understood and effective at the federal
government level. Audit coverage at the federal level has increased in recent years from 56 percent to 100
percent of budgetary institutions and audit reports are produced in a timely manner. However, the federal
government needs to improve its PEFA ratings in following areas: (a) legislative scrutiny of audit reports;
(b) oversight of fiscal risk from public sector entities (c) public access to key fiscal information
effectiveness in collection of tax payments and (d) predictability of funds for commitment of funds and
quality of in-year budget execution reports.

85. At the same time, as per the PEFA assessment, the regional government entities need to
improve in several areas. These are: (a) the extent of unreported government operations, (b)
effectiveness in collection of taxes, (c) comprehensiveness of information included in budget documents,
(d) weaknesses in multi-year planning, (e) composition of expenditure outturn compared to the original
budget, and (f) availability of information received by service delivery units. However, it was noted that
some of these issues are being addressed through the GoE’s flagship public FM reform program, the
Expenditure Management and Control Program.

86. The assessment found several strengths in ULGs’ FM systems. Specifically, in most ULGs
strong FM systems are in place; the IBEX, is rolled out; the annual budget is prepared timely, approved
by the city council, and notified to sector offices; and the budget and actual expenditures are disclosed to
the public. In all ULGs visited, accounting, IBEX, budget, and internal audit manuals are available. In
addition, block grants and special capital subsidies had been released to all ULGs in a timely manner.
Segregation of duties on payment is generally satisfactory, the payroll system is strong and timeliness of
reports has improved. Most ULGs visited closed their books of account for EFY 2008 and the accounts of
some cities have been audited, while others are underway.

87. The assessment found areas of weakness in the ULGs visited. These are (a) lack of credible
budget; (b) use of manual ledger to control budget (instead of budget control module of the IBEX); (c)
absence of proper accounting system and use of manual accounting system (in some ULGs); (d) absence
of payroll software to process the monthly salary (in most ULGs); (e) weak performance internal audit;
(f) weak property management and control thereof; (g) weak cash control (absence of regular cash count
and not performing monthly bank reconciliation); (h) improper recording budget in the IBEX; (i)
existence of external audit backlog (some ULGs); (j) weak audit findings rectification plan; (k) failure to
disclose external audit findings to the public; and (l) inadequate man power and facilities.

88. The Program will continue to follow GoE planning and budgeting accounting and internal
control arrangements. In addition, the POM will detail out the arrangements. The Program budget will
be included in the national budget and will be proclaimed at the federal level at the MUDHo as a special
purpose grant classified by regions, ULGs, and the MUDHo. Program budgeting is structured as an
upstream process starting at the ULGs and moving upwards to the regional and the federal levels, where it

29
is consolidated and approved. To ensure reporting of the Program expenditures is integrated in the
national public financial system and codes, the established charts of account (codes) under the ULGDP II
will be continued under the UIIDP, taking into consideration the new features of the UIIDP. Budget
control is exercised at all levels at the transaction level, using the IBEX or other systems, and at the report
level. For the Program the semiannual interim financial reports will document and compare the Program
budget with actual expenditures and report on variances.

89. Disbursements under the Program are subject to PforR procedures and disbursed against
DLIs. The PforR funds will be disbursed from IDA to MoFEC once a year upon confirmation of
achievement of the DLIs. A double-entry accounting system will be implemented in all newly
participating cities, and IBEX will be rolled out in either a stand-alone or integrated manner. Adequate
FM staff at MoFEC and the MUDHo will be in place. It is envisaged that the Program activities will be
audited by the ULG internal auditor. Challenges noted during the assessment will be mitigated by
providing continuous training under the IPF window to accountants and internal auditors. As under the
ULGDP II, both the financial and VfM audits will be carried out under the UIIDP. The OFAGs or a
delegated auditor acceptable to the WB will conduct the annual financial and VfM audits. The audits will
be conducted in accordance with terms of reference (ToR) agreed during negotiations. The audit reports
and management letters will be submitted to the WB within six months of the end of the GoE’s fiscal
year. Following the WB’s formal receipt of these statements from the borrower, the WB will make them
available to the public in accordance with the World Bank Policy on Access to Information. Details of the
FM arrangements are presented in the POM.

Procurement

90. Applicable procurement rules and procedures. In Ethiopia, for federal level budgetary bodies,
public procurement is regulated by the Public Procurement and Property Administration Proclamation
No. 649/2009. The Proclamation established the FPPPAA as a body responsible for regulation and
monitoring of federal bodies’ public procurement activities. The nine regional states and two federal city
administrations, Addis Ababa and Dire Dawa, have their own procurement proclamations and directives,
which are based on the federal prototype. The ULGs are required to abide by their respective regional
procurement laws. At the federal level, directives, manuals, and standard bidding documents and standard
requests for proposals templates have been issued. Most of the regional states have also issued these.
However, some of the standard bidding documents and standard requests for proposals templates are not
comprehensive, and some of the procuring entities lack knowledge and understanding of the proper
implementations of the procurement legal framework. As a general assessment, the procurement legal
framework of the nine regional states and two city administrations are found to be sufficient, with some
shortcomings with respect to content and many weaknesses in implementation.

91. As part of the fiduciary assessment, the WB carried out a procurement system assessment
between March and May 2017. The assessment included: (a) review of applicable procurement systems,
rules and procedures, practices, including complaint handling, and oversight mechanisms; (b)
procurement organization and capacity of the implementing entities; and (c) procurement cycle
management. The Program implementing entities include the federal MUDHo, regional BoFEDs, and
participating ULGs. The team visited 12 of 73 new cities, two of which were later excluded from the
Program.

92. The major issues with all the implementing agencies are the weakness of implementation of
the applicable public procurement rules and procedures including complaints handling and
oversight mechanisms. Both the regional government entities and the ULGs have limited capacity to
follow the rules and procedures, so there is a risk of the agencies under performance in implementing the
applicable procedures under the program. The overall performance of procuring entities in complying

30
with the established system and therefore ensure transparency, efficiency, and economy is found to be
deficient.

93. Several risks have been identified for Program procurement and contracts administration.
These are (a) non-compliance with national and regional directives; (b) weak procurement capacity at the
ULGs; (c) transparency and fairness issues related to procurement process, as the result of not
implementing the legal procedures available; (d) competitiveness issues as the result of involvement of
state-owned enterprises in tenders and application of different preferential treatment and reservation
schemes to MSEs; (d) weak accountability, integrity and oversight arrangements; (e) weak contracts
administration, complaints handling mechanism, and the inefficient resolution of contractual disputes; and
(f) poor procurement recording. Based on the assessment, the procurement risk in the 73 new ULGs is
rated as High, before risk mitigation measures are put in place.

94. Four types of risk mitigation measures are proposed. First, ULGs must comply with the MCs
to participate in the Program. These include having the minimum institutional and staff capacity in place.
Second, implementation of activities specified in the PAP will be closely monitored. This includes
measures to build capacity of ULGs and other entities for procurement. Third, an annual procurement
performance audit will be carried out through the RPPPAAs. This will also be supported by DLI 9
providing an incentive for the RPPPAAs to perform. Fourth, the MUDHo through the OFAG or an
independent consultant will carry out VfM audits of ULGs’ investments in infrastructure. The APAs,
under DLI 2 and DLI 3, will consider the performance of the ULGs based on the findings of the
procurement and VfM audits.

Fraud and corruption and complaint handling mechanism

95. There is a robust legal framework for addressing fraud and corruption risks at the country
level in Ethiopia. The principal institutions for the fight against corruption are the Federal Ethics, Anti-
Corruption Commission (FEACC) established in 2001, and the Federal Attorney General formed in
2016.34 Since 2007, all nine regional governments have established their own REACCs. FEACC,
REACCs, and the Federal Attorney General have adopted both preventive and curative approaches in
combating corruption in the country. FEACC is responsible for coordinating anti-corruption efforts across
regions and preparing a country report. Performance of FEACC and REACCs has been encouraging. The
conviction rate between 2013 and 2015 was 86.1 percent in terms of files and 78.7 percent in terms of
accused persons. In 2016, the conviction rate in terms of files reached 89.6 percent.

96. Despite the progress in tackling fraud and corruption under the ULGDP, the risks and
challenges of fraud and corruption in urban land administration and provision of municipal
services remain high. Allegations of fraud and corruption take the form of abuse of power and bribery,
breach of trust, fraud and deception, preparing and using forged certificates and documents, illegal
revenue collection, procurement handling, construction design, supervision and payment certification, and
low quality of constructed activities. On the other hand, the rate of responsiveness to public grievances
regarding land and related Program activities is generally low. Some of the reasons for complaints include
delay of compensation of land, not providing compensation in kind, illegal landholdings and buildings,
and demolitions, transferring land or sheds to others, not being selected as a beneficiary of an MSE, and
the lack of provision of land and inputs.

97. To address the fraud and corruption risk, the UIIDP will be aligned with the WB’s Anti-
Corruption Guidelines. The memorandum of understanding signed between the WB's Integrity Vice
Presidency (INT) and the FEACC on October 3, 2011 provides a framework for cooperation and sharing
34
Federal Attorney General Establishment Proclamation No. 943/2016, Federal Ethics and Anti-Corruption Commission
Proclamation No. 880/2015.

31
of information on fraud and corruption allegations, investigations and actions taken on the Program,
including on procurement. The memorandum of understanding provides the WB and INT with a
foundation for expanding the existing working relationship to cover future cooperative investigations
under the PforR Program when needed, and for helping to ensure that the GoE and FEACC can
implement their commitments under the Anti-Corruption Guidelines. The GoE is also committed to using
the WB’s debarment list to ensure that persons or entities debarred or suspended by the WB are not
awarded a contract under the Program during the period of such debarment or suspension. Based on the
assessment, fraud and corruption Risk is rated as Substantial.

98. Despite the weaknesses, procurement systems and fraud and corruption and complaint
handling arrangements are adequate to provide reasonable assurance that the financing proceeds
will be used for intended purposes. They will also ensure due attention to principles of economy,
efficiency, effectiveness, transparency and accountability, and for safeguarding Program assets once the
proposed mitigation measures have been implemented. Appropriate systems to handle the risks of fraud
and corruption, including effective complaint-handling mechanisms, have been agreed on and established.
A minimum condition, an action plan, and a capacity building program for mitigation of risks has been
included in the main report of the integrated fiduciary assessment.

For the IPF window (the Project)

Financial management

99. An FM assessment was conducted in accordance with the FM Practices Manual for WB-
financed Investment Operations.35 The assessment is also conducted as per the requirements of the WB
policy and directive on IPF. The assessment was conducted at the federal level only at the MUDHo and
MoFEC. The objective of the assessment was to determine whether the implementing entities have
acceptable FM arrangements to ensure: (a) that funds are used only for the intended purposes in an
efficient and economical way; (b) that accurate, reliable, and timely periodic financial reports are
produced; and (c) that the implementing entities assets are safeguarded.

100. The FM residual risk for the project is rated as Substantial. The mitigation measures
proposed in the PAP will help to reduce the risk of the Project once implemented. The main strengths are
the Project will inherit the various strengths of the country’s public FM system. Several aspects of the
system function well, such as the budget process, classification system, and compliance with financial
regulations. Significant ongoing work is directed at improving country public FM systems through the
GoE’s Expenditure Management and Control Program. The Project also benefits from the country’s
internal control system, which adequately provides for the separation of responsibilities, powers, and
duties. In addition, both MoFEC and the MUDHo have experience in implementing WB-financed
projects. The main weaknesses noted were the MUDHo’s unsatisfactory utilization of the budgets of both
the government and ULGDP II, and understaffing of the internal audit department. In addition, a delay
was noted in finalizing the FM manual for the ULGDP II.

101. The Project will follow the existing government rules and regulations under channel 1 fund
flow mechanisms. The Project will prepare a FM manual as an annex to the POM, laying out operational
matters including FM issues/arrangements. Under the Project, special emphasis will be placed on
assessing, identifying, and mitigating gaps in the FM systems of the newly participating ULGs, and in
building their capacity for FM on an ongoing basis. All disbursement methods are available to the Project.
Funds from IDA will flow directly to MoFEC through a segregated designated account for onward use
and transfer to the MUDHo. The Project will use report-based disbursement, with submission, through
MoFEC, of quarterly interim financial reports within 45 days of end of the quarter that include forecasts
35
Issued by the FM Sector Board on March 1, 2010, and retrofitted on February 4, 2015, along with its supporting guidelines.

32
for advances/replenishment of the Designated Account. Staffing arrangements have been outlined. The
Project will have its accounts audited on an annual basis by an independent external auditor acceptable to
the WB. The financial audit report will be submitted within six months of the end of the fiscal year end.

102. It is the conclusion of the assessment that the FM arrangements meet the IDA requirements
as laid out on the WB policy and directive on IPF, as well as the Financial Manual. An action plan
has been developed and agreed to mitigate the risks and address the overall identified in the project. See
annexes 6 and 9 for details.

Procurement

103. Procurement under the project will be carried out in accordance with the WB’s
Procurement Regulations for IPF Borrowers, “Procurement in Investment Project Financing,
Goods, Works, Non-Consulting, and Consulting Services,” dated July 2016, revised November 2017
and “Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by
IBRD Loans and IDA Credits and Grants,” revised as of July 1, 2016; and the provisions stipulated
in the Financing Agreement. As per the requirement of the regulations, a Project Procurement Strategy
Document has been prepared by the MUDHo and the WB has reviewed this and in general agreed to the
draft Procurement Plan prepared for the first 18 months of the project life.

104. A procurement capacity assessment was carried out on the MUDHo, as per the WB’s
directive on procurement. This shows that capacity of the MUDHo is generally sufficient to handle the
procurement. However, several weaknesses will need to be mitigated following the measures as detailed
in annex 6. Based on the assessment, the procurement risk of the IPF window of the project is rated
Substantial.

C. Environmental and Social Systems Assessment

105. An Environment and Social Systems Assessment (ESSA) was conducted to review the
systems and procedures followed by federal, regional and ULG levels of government to address
social and environmental issues related to the UIIDP. The ESSA provides an assessment and a
summary of key environmental and social risks associated with the program and existing institutions and
system of the GoE to manage and mitigate risks and ensure effective and successful implementation of
the Program.

106. Infrastructure works to be financed under the UIIDP are similar in nature to those being
financed under the ULGDP II. These include roads, street lights, sanitation services, solid waste
management, urban drainage, and public parks and greenery. The infrastructure investments are likely to
deliver significant social benefits, if they are planned in an inclusive manner, and are designed to ensure a
distribution of benefits to vulnerable groups including the elderly, youth, women, and the poorest.
However, in some cases there may be risks related to the physical or economic displacement of people,
which will require careful planning and timely implementation of Resettlement Action Plans (RAPs). For
most of infrastructure investments that will be financed through UIIDP, the environmental and social
risks anticipated during constructions phase are likely to be site-specific and limited in scale. These
impacts include air pollution from dust and exhaust; nuisances such as noise, traffic interruptions, and
blocking of access paths; water and soil pollution from the accidental spillage of fuels or other materials,

33
point source pollutions from landfills36 and abattoirs/slaughter house,37 solid and liquid wastes from
construction sites, and occupational health and safety issues.

107. With respect to the establishment of landfills, experience from the ULGDP I and ULGDP II
indicates that a preventive approach in planning landfills can minimize their associated
environmental and social risks. The preventive approach follows the guidelines and procedures for
planning solid waste collection systems, transportation, temporary storage facilities, and final disposal of
solid waste in scientifically designed landfills with wastewater treatment plants. The guidelines include
the requirements for (a) appropriate site selection to minimize environmental harm to the groundwater
and soil, (b) inclusion of a geomembrane lining to avoid any seepage of leachate to ground water, (c)
design of leachate collection and treatment systems, and (d) systems for monitoring of ground and surface
water quality during the operation of the landfill. In addition, under the program, ULGs must demonstrate
a sound and efficient system of waste segregation, recycling, collection, transportation, and treatment
before they proceed with the investment to further minimize environmental and social risks of any
landfill, regardless of size. The participating ULGs also must demonstrate that subprojects related to
abattoirs and roads will be implemented and operated in ways that minimize damage to the environment.

108. The ESSA shows that Ethiopia has an adequate legal framework, including environment
and social regulations, which are basically in line with PforR financing core principles. Under the
ULGDP II environment and social management system and resettlement management guidelines have
been prepared to ensure sound implementation of environmental and social management activities over
the program period, which these guidelines area expected to be updated for UIIDP to be used as an
instrument. Moreover, to strengthen the environmental and social system under ULGDP II, environmental
and social development specialists have been assigned and annual environmental and social audits have
been conducted. Many of the ULGs participating in the ULGDP II have made significant improvements
in integrating the environmental and social management system requirements into their development
planning and creating the basic capacity to implement them, as shown by the screening exercise carried
for all CIP sub-projects and the opening of permanent positions for safeguard specialists within the
infrastructure offices. These achievements represent the growing institutionalization and strengthening of
the environmental and social management systems within the ULGs.

109. The experience of the ULGDP II shows mixed implementation of the Environmental and
Social Management System Guideline (ESMSG) and the Resettlement System Guideline (RSG).
36
Landfills: To ensure that all landfills activities are environment friendly and socially acceptable with no or minimum impacts to
the nearby environment, landfill construction and operation activities should not exceed 10 hectares and should comply with
provisions as stated in MUDHo standards. These include, among others: all landfills should have: 1. bottom lining system with
compact clay soil and covered by geo-membrane (synthetic linings) to separate the trash and subsequent leachate from
groundwater; 2. Leachate collection system to collect rain or other water percolated through landfill which possibly contains
contaminating substances (leachate); 3. Oxidation or other treatment ponds for further treatment of leachate; 4. Methane
collection system/gas management to collect methane gas that is formed during the breakdown of trash; 5. Run-off water
drainage system to prevent rain water flash from the nearby area; and 6. Composting yard and other facilities within the landfill
site and upstream collection and transportation area. Cities should comply with the national standard and classification set by
MUDHo. Also, cities must conduct landfill feasibility study, ESIA and RAP for review and clearance by REFAs. All landfills are
subject to regional environmental and social performance review and annual audits.
37
Slaughterhouse/abattoir: Slaughterhouse construction should follow the MUDHo standards and classification for
environmentally safe implementation of the investment. Slaughterhouse under the program should not exceed 2 hectares (level B,
C, and D of the MUDHo classification). The following provisions should be included in the design for construction and operation
phase. These are: 1. liquid waste treatment plant, which is sited at minimum distance of 50 meter from slaughter house; 2.
separate closed drainage line for collection of liquid wastes from slaughterhouse to the septic tank; 3. septic tank bed level shall
be below nearby ground water level; 4. slaughter house at metropolitan cities shall have rendering plant with smell nuisance
control; 5. Run-off water drainage system to prevent rain water flash from the nearby area; and 6. other facilities like guardhouse
and water points. Cities should comply with the national standard and classification set by MUDHo. Cities must conduct
slaughterhouse feasibility study, ESIA and RAP for review and clearance by REFAs. All slaughterhouses are subject to regional
environmental and social performance review and annual audits.

34
While some of the ULGs are able to use the prepared safeguards instruments properly, others are not.
There are also staffing (for instance social experts) and training gaps in some ULGs. The capacity of
some of the ULGs that will newly participate in the UIIDP is low, with some ULGs having no system at
all. Given the significant geographic dispersion of the participating ULGs and the addition of 73 new
ULGs, as well as different scale of proposed investments, the environment and social risk for UIIDP is
rated Substantial.

110. The design of the UIIDP addresses environmental and social challenges and gaps. Key
action areas have been identified to strengthen environmental and social management capacity and
performance at all levels of government. They are: (a) establishing and strengthening the environmental
and social management system at ULG level; (b) providing technical guidance and capacity building; (c)
addressing resource constraints; (d) undertaking regular performance review and annual environmental
and social audit each year; (e) increasing community and other stakeholders’ awareness on social and
environmental impacts of UIIDP sub-projects; and (f) strengthening consultation and stakeholders’
collaboration. In addition, MCs ensure that participating ULGs have some capacity in place at the start of
the Program. PMs provide incentives for ULGs to perform better over time. Further, a series of actions
are included in the PAP to improve the proposed program environmental and social management and to
strengthen country systems. Finally, to maximize gains and minimize risks, the investment menu excludes
WB environmental assessment category A sub-projects and infrastructure subprojects that require
displacement of more than 200 individuals. All investment activities under the UIIDP will go through
stringent screening process and any project falling under “Category A” would not be eligible for
financing by the UIIDP. Based on the output of the screening result, the corresponding instruments
ESIA/Environment and Social Management Plan (ESMP)/RAP will be prepared and cleared by
designated authority before the commencement of the construction activities.

D. World Bank Grievance Redress

111. Communities and individuals who believe that they are adversely affected because of a Bank
supported PforR operation, as defined by the applicable policy and procedures, may submit complaints to
the existing program grievance redress mechanism or the WB’s Grievance Redress Service (GRS). The
GRS ensures that complaints received are promptly reviewed to address pertinent concerns. Affected
communities and individuals may submit their complaint to the WB’s independent Inspection Panel
which determines whether harm occurred, or could occur, as a result of WB non-compliance with its
policies and procedures. Complaints may be submitted at any time after concerns have been brought
directly to the World Bank's attention, and Bank Management has been given an opportunity to respond.
For information on how to submit complaints to the World Bank’s corporate Grievance Redress Service
(GRS), please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the
World Bank Inspection Panel, please visit www.inspectionpanel.org

E. Risk Assessment

112. The overall risk rating for the Operation is Substantial. Governance and country-wide
political risks are Substantial. Technical design risk is rated substantial due to the complexity of the
Operation design and implementation, and the cross-country coverage of the Operation. The institutional
capacity for implementation and sustainability risk is rated substantial, mainly due to the inclusion of 73
new ULGs whose capacity has not yet been tested. Fiduciary risk is rated as substantial, largely due to
weaknesses at the ULGs level to properly account for Program funds. Environment and Social Safeguards
risk is rated substantial, due to the large number of urban centers and activities that the UIIDP will
support. (See summary of ratings in annex 8: Systematic Operations Risk-Rating Tool (SORT).

35
113. Other risks: climate and disaster risk is rated as moderate. A climate and disaster risk
screening has been carried out and the risk is rated as moderate (the climate risk screening report is in the
project file). The UIIDP is designed to mitigate and adapt climate and disaster risks through a three-
pronged approach. Firstly, the investment menu includes climate- and disaster-resilient infrastructure and
equipment to enhance resilience, important to both adaptation and mitigation, including urban drainage
and flood control systems, solid waste management facilities, renewable energy supply, urban green
infrastructure, pedestrian walkway, cycle path, bus terminal and station, as well as firefighting equipment.
Secondly, new performance measures have been introduced to encourage ULGs to assess climate and
disaster risk (by preparing risk map for example, flood, landslide, drought, earthquake) to guide siting and
design of resilient infrastructure investment, establish disaster management units, complete emergency
response plans, and to start the training and procurement of equipment that will enable the authorities to
respond in the event of a natural disaster. Thirdly, IPF window includes technical assistance on DRM,
including development of national urban DRM plan, information system, and training programs. Such
measures are expected to increase preparedness, longer-term resilience, and reduced climate and disaster
impacts.

114. Significant measures have been included in the Operation design to mitigate the identified
risks. These measures include the minimum access conditions, detailed APA, VfM audits, strengthening
of complaint and grievance handling mechanisms, and preparation and execution of capacity building and
technical assistance activities. Operation financing has also been structured to ensure that critical federal-
level activities (such as the APA and institutional support) are secured upfront (through the IPF), allowing
the MUDHo to procure the APA and VfM consultancies and to start its support for regional government
entities and ULGs as soon as the Operation is effective. The WB’s UIIDP team will continuously monitor
performance to ensure that both anticipated and unanticipated risks are addressed as quickly as possible
once they arise. The PAP follows a risk-based approach and outlines the main measures through which
risks to the achievement of Program’s development objective will be mitigated.

F. Program Action Plan (Summary)

115. To address the risks, MUDHo, the regional government and the ULGs, a PAP has been prepared
with the agreed actions. The key ones are highlighted as below. The full PAP is presented in annex 9.

 To ensure sufficient capacity in MUDHo to manage the UIIDP, the UIIDP Unit will be
further enhanced to 32 staff. MUDHo will fill its vacant positions and engage additional
staff by UIIDP effectiveness.

 To ensure that the independent APA is completed on time, MUDHo will initiate the
procurement process for selection and assignment of independent consultants for the APA
through multi-year contract, and ready to deploy for the 1 st UIIDP APA by August 2018
(APA Consultants to be engaged and onboard by this date). Completion of all APAs as per
the verification protocol, enclosed.

 To enable the supply-side capacity building activities for ULGs, MUDHo will sign
agreement(s) (memorandum of understanding) with relevant federal, and regional training
institutions for course design and administration for new ULGs by UIIDP effectiveness.

 To ensure sufficient capacity in regional governments to support the up-scaled UIIDP, the
regional governments will fill staffing gaps and procure and deploy RMTs by UIIDP
effectiveness.

36
 To provide guidance and ensure compliance on social and environmental management,
MUDHo working with relevant ULGs will update and adopt ESMSG and RSGs in all ULGs
by end February 2018.

 To provide clearer guidelines to ULGs on strengthening impact on short and long term job
creation, MUDHo will revise the UIIDP Job Creation Guidelines and provide these to ULGs
by end May 2018.

 The technical assistance to be engaged under the IPF component will provide a multifaceted
procurement and contract management, and procurement audit trainings. The technical
assistance will also prepare guidelines and manuals to the ULGs, and federal and regional
support institutions to streamline their activities.

37
 Annex 1: Detailed Program (PforR) Description

UIIDP Scope

1. The PDO is to enhance the institutional performance of participating ULGs to develop and
sustain urban infrastructure, services, and LED. The Operation will provide direct support to all 117
potentially eligible ULGs, as well as to all nine regions and the federal government (primarily MUDHo)
to enable them to effectively support urban development. The primary beneficiaries of the Operation are
the 6.5 million residents of the 117 ULGs, half of whom are female.

2. The proposed operation will be financed through a hybrid of IPF and PforR instruments.
Most of the Operation is financed through the PforR instrument, the optimal and effective mechanism for
providing conditional grants to regional states and ULGs, as demonstrated under the ULGDP II. A
complementary small IPF window will enhance overall Operation management, effectiveness, and
impact.

3. A programmatic and phased approach was adopted as a key strategy since the first phase of
ULGDP (starting 2008), continued under ULGDP II (beginning in 2014) and maturing in the
UIIDP. Mindful that institutional strengthening and positive urban transformation require long-term
nurturing, a phased approach was adopted and this aligns with the MUDHo’s strategy, plans, and the
ECSPGs. Phase 1 (ULGDP) supported 19 cities.38 Phase 2 (ULGDP II) covered an additional 26 ULGs,
bringing the total to 44.39 The intention now is to roll-out the proposed UIIDP to all ULGs (a total of 117
cities) that (a) have autonomous urban administration status (with a responsibility of municipal and state
functions), defined as having a city council and a mayor; and (b) have a population above 20,000
people.40 (See attachment 1 on details on ULGDP I and II, challenges, lessons learned and revisions
adopted.)

4. Key result areas. In line with the government’s UIIDP policy, the Operation will undertake
activities to support seven key results areas. These are:

(a) Enhanced citizen participation and engagement in ULG planning and budgeting;

(b) Increased OSR at the ULG level;

(c) Improved infrastructure, service delivery, O&M systems;

(d) Improved efficiency and effectiveness in fiduciary management;

(e) Improved environmental and social management and safeguards;

(f) Strengthened accountability and oversight systems;

38
The 19 cities include Addis Ababa.
39
Addis Ababa has been excluded from ULGDPII learning from the ULGDP experience that the unique context and conditions
of Addis Ababa required a different approach from the other cities.
40
41 cities had a population of at least 20,000 in 2007, according to the census conducted by the CSA and 32 cities had
populations of at least 20,000, according to 2013 projections of the CSA. The last available census was conducted in 2007, and
the next one in 2017 is not yet available during the preparation of this Operation. A mid-term census project conducted in 2012
and released in 2013 is the latest one conducted with actual sampling. While every year a census projection is made, they
typically assume a similar growth rate for all cities. Hence, the basis of the population numbers used to determine if ULGs are
eligible for the Program and for per capita allocations to ULGs, is drawn from one common database – the 2013 published
populations figures from the CSA. These population figures will be applied throughout the duration of this Operation.
39
 (g) Strengthened ULG resilience, improved LED and enhanced gender equity in the ULG
operations. (See attachment 2 on summary findings on these three new focus areas under
UIIDP.)

5. The proposed key results indicators are:

 People provided with improved urban living conditions under the UIIDP [corporate
indicator].

 Cities with improved livability, sustainability, and management [corporate indicator].

 Composite institutional performance of participating ULGs, averaged across all cities.41

 Composite performance for achievement of urban infrastructure and service targets,

maintenance performance and VfM in investments by ULGs, averaged across all cities.

 Composite performance for achievement of LED, urban resilience and gender targets by
ULGs, averaged across all cities.

6. The proposed Program will finance the government’s UIIDP. The proposed UIIDP targets
117 ULGs. This will be implemented in a period of 5 years and 4 months (from March 2018 to July
2023), and consist of four rounds of performance-based grant allocations, with DLI achievements in
EFY2011, EFY2012, EFY2013 and EFY2014. The Program consists of the provision of performance-
based grants to ULGs for eligible investments and support to achieve Program results at the regional level
on capacity building, financial audit, procurement audit and environmental and social safeguards audits.

7. This substantial scale-up to 117 cities will bring about greater impact in terms of population
coverage and size of the Program. An estimated 6.62 million people will benefit from the UIIDP,
compared with 4.36 million under the UGLDP II. Ethiopia has a significant number of secondary cities
that are spatially distributed across the country. The government’s current policies of industrial
development and promoting urban-rural linkages present good opportunities for promoting more balanced
regional growth through the creation of a linked system of cities. The scale-up also allows strengthening
of the overall programmatic and performance-based approach to support sustainable urban development
and leverages on economies of scale for program management and implementation. In addition, the scale-
up is built on the solid foundations and tried-and-tested overall successful experiences of ULGDP I and
II. Timely support to improve institutional performance in the planning, delivery, and sustained provision
of urban services and infrastructure by local governments is critical especially for these rapidly growing
cities.

Table 1.1. ULGs Eligible to Participate in the UIIDP

S/N ULG City population 2013 CSA estimates
A. 44 ULGs participating in the ULGDP II
AMHARA REGION  
1 Bahir Dar 198,909
2 Dessie 153,691
3 Gondar 264,964
4 Kombolcha 75,078
5 Debre Markos 79,980
6 Debre Brehan 83,479
7 Debre Tabor 71,149
41
In the core areas of planning and budgeting, assets management, public FM, procurement, own source revenues, accountability
and transparency, environment and social safeguards, land management, and strategic urban planning.

40
 S/N ULG City population 2013 CSA estimates
8 Woldiya 59,046
9 Mota 33,500
10 Finote Selam 33,162
Total Amhara 1,052,958
TIGRAY REGION  
11 Mekelle 286,624
12 Adigrat 76,447
13 Axum 59,269
14 Shire Endaselassie 62,769
15 Adwa 53,763
16 Alamata 44,092
17 Wukro 40,103
18 Humera 28,744
Total Tigray Region 651,811
OROMIA REGION  
19 Adama 282,97
20 Bishoftu 128,408
21 Jimma 155,43
22 Shashemane 129,084
23 Nekemte 96,657
24 Assela 86,441
25 Sebeta 63,391
26 Burayu 62,806
27 Ambo 61,900
28 Robe 57,031
29 Ziway/ Batu 56,104
Total Oromia Region 1,180,230
SNNP REGION  
30 Hawassa 225,686
31 Arbaminch 107,542
32 Dilla 84,952
33 Sodo 109,225
34 Hosaena 100,528
35 Butajira 47,978
36 Areka 45,109
37 Yirga Alem 43,586
38 Mizanaman 48,946
Total SNNP Region 813,552
DEVELOPING REGIONAL STATES (DRS)  
39 Samera/ Logiya (Afar) 25,209
40 Assosa (B. Gumuz) 40,686
41 Gambella (Gambella) 64,499
42 Jigjiga (Ethiopia Somali) 152,674
Total DRS 283,068
43 Harar (Harari) 112,781
44 Dire Dawa 269,134
  Grand Total for 44 ULGs & Regions 4,363,534
B. Proposed new ULGs to benefit from the UIIDP
  AMHARA NATIONAL REGIONAL STATE  
1 Debark 29,068
2 Wereta 27,159
3 Kobo 31,824
4 Buri 26,120
5 Sekota 28,597
6 Dangila 31,773
7 Injebara 26,958
8 Chagni 29,731
9 Adis Zemen 20,620

41
S/N ULG City population 2013 CSA estimates
10 Nefas Mewicha 25,108
11 Mersa 20,632
12 Lalibela 22,225
13 Shewa Robit 22,491
14 Bichena 20,739
15 Adet 24,532
16 Merawi 23,909
17 Bati 21,385
18 Kemise 24,852
19 Ayikel 21,105
20 Hayik 49,389
21 Gendawuha 36,403
22 Dejen 27,682
  Subtotal (22 cities) 592,302
  OROMIYA NATIONAL REGIONAL STATE  
1 Gimbi 39,811
2 Metu 36,985
3 Agaro 32,714
4 Holeta 29,936
5 Fiche 35,329
6 Mojo 37,968
7 Chiro 43,266
8 Haromaya 39,486
9 Goba 41,152
10 Hagere Mariyam (Bule Hora) 35,749
11 Weliso 48,674
12 Shakiso 29,466
13 Adola 29,475
14 Negele 45,314
15 Arsi Negele 60,770
16 Dodola 26,766
17 Dembi Dolo 37,841
18 Nejo 24,412
19 Bedele 25,080
20 Bokoji 22,797
21 Bedesa 23,371
22 Babile 22,760
23 Ginir 21,976
24 Yabelo 22,483
25 Suluita 37,492
26 Laga Tafo 20,284
27 Shambu 35,136
  Subtotal (27 cities) 906,493
  SOUTHERN NATIONS, NATIONALITIES AND PEOPLES REGIONAL STATE
1 Welkite 41,458
2 Durame 35,147
3 Aleta Wondo 31,730
4 Bodite 34,661
5 Jinka 29,108
6 Tapi 35,660
7 Bonga 29,956
8 Sawula 32,608
9 Halaba (Alaba Kulito) 38,587
10 Shone 22,428
11 ShinShicho 20,517
12 Hadero 25,609
13 Yirga Chefe 21,713
14 Worabe 65,199

42
 S/N ULG City population 2013 CSA estimates
  Subtotal (14 cities) 464,381
  TIGRAY NATIONAL REGIONAL STATE  
1 Maychew 31,088
2 Ablyl Adl 21,393
3 Korem 22,377
4 Shiraro 23,013
  Subtotal (4 cities) 97,871
  ETHIOPIAN SOMALI REGIONAL STATE  
1 Degehabur 36,419
2 Kebridehar 35,466
3 Gode 52,438
  Subtotal (3 cities) 124,323
  AFAR NATIONAL REGIONAL STATE  
1 Dubti 22,263
2 Asayta 24,286
3 Awash Sebat Kilo 22,513
  Subtotal (3 cities) 69,062
  Total (73 cities) 2,254,432

8. The total IDA funding envelope for the UIIDP is US$600 million (of which US$200 million is
from the IDA SUF, US$273 million from IDA Grant and US$127 million from IDA Credit). In addition,
AFD will contribute co-financing of Euro 9.8 million (estimated US$10.8 million). 42 The GoE (from
regions and cities) will contribute around US$248.7 million. 43 This brings the total Operation budget
envelope to around US$859.5 million. (The detailed budget breakdown is included in annex 4.) The main
expenditure items are:

Window 1 for PforR:

 US$691.11 million (ULG level). Performance-based grants to 117 ULGs for infrastructure
investments as listed under the Program investment menu (US$248.66 million from regions
and ULGs; around US$433.65 million from IDA; and estimated US$8.8 million from AFD).

 US$70.04 million (regional level). Support for regional government to strengthen its
capacity to support and guide the ULGs in core areas such as financial audit, environmental
and social audit, procurement audit, revenue enhancement, and others (IDA funding)

 US$63.74 million (prior results). Allocation against prior results on institutional

performance, service delivery, maintenance, and job creation for 44 ULGs as determined in
the APA conducted in FY2017/18 for FY2018/19 allocations (IDA funding).

Window 2 for IPF:

 US$34.57 million (federal level). Enable MUDHo to support and guide the regions and
ULGs and also to administer and coordinate the Operation (US$32.57 from IDA; and about
US$2.0 million from AFD).

42
Assuming an exchange rate of 1 euro is to US$1.102.
43
Regions and cities contribute to the performance based transfers in the following manner: Amhara, Oromiya, SNNPR, and
Tigray: 30 percent funding in addition to IDA funded grants; DRS regions: 20 percent; original 16 ULGDP I ULGs: 40 percent;
new cities under ULGDP II in the DRS regions 10 percent; and other new (ULGDPII) cities: 20 percent; Harar and Dire Dawa
contribute 50 percent in addition to the IDA funded grants. The new 73 ULGs under UIIDP will follow the same principles as the
ULGDPII newcomers.

43
 Table 1.2. Program Financing (US$, million)
Source Amount Percent of Total
Government44 US$248.7 29
International Development Association (IDA) Grant US$273.0 32
International Development Association (IDA) Credit US$127.0 15
IDA Scale Up Facility (IDA-SUF) US$200.0 23
AFD US$10.8 1
Total Program Financing US$859.5 100

9. UIIDP funding to ULGs will be allocated using a simple formula, based on population size
and the performance of the ULGs. An approximate US$16–18 per capita per year (with phasing in of
the new ULGs in the first financial year) has been assessed to be the optimal level of funding. 45 As a core
principle, the per capita amount would at least maintain the similar level as at the start of the ULGDP II to
ensure minimum level of incentives and meaningful infrastructure and services investments. The size of
this performance grant has been determined considering various factors such as international good
practice (from an expanding number of countries with performance-based grant allocations), the costs of
investments, expenditure needs and current level of investments, opportunities for co-funding as well as
generation of sufficiently strong incentive to drive the performance. This has been informed by a
comprehensive review of ULG fiscal and revenue positions.

10. ULGs will use the Program funds to finance urban infrastructure works as well as capacity
building activities, in compliance with the Program’s investment menu and capacity building
manual. Eligible infrastructure investments fall under eight groups including: (a) urban roads, (b)
integrated infrastructure and land services, (c) sanitation (liquid waste), (d) solid waste management, (e)
urban drainage, (f) urban DRM and urban resilience, (g) built facilities, and (h) urban green infrastructure
(see annex 1 table 1.3 for details). Compliance with the investment menu is a minimum condition for
receiving funds. In addition, ULGs will be required to prepare the project in a participatory manner,
including dialogue with the private sector, and consider social inclusion, gender and disability
considerations, and climate change and disaster adaptation. 46 ULGs can spend up to 5 percent of
investment grants and regional/city contributions on capacity building support. For regional government
entities, the grants will mainly be used for capacity building, operations and management expenses,
subject to the eligible capacity building areas, similar to the ULGs.

Table 1.3. Investment Menu for ULGs: Eligible Areas in Infrastructure and Services
Infrastructure/Service Type
Roads Expenditure group 1: Cobblestone,47 gravel, red ash and earthen roads.
(asphalt roads are not eligible)
Expenditure group 2: Rehabilitation of roads (except asphalt), bridges, fords
and culverts, pedestrian walkways or footpath, cycle path, paved area,
roundabout, street lighting, road signs and traffic lights, bus terminals, bus
stop/station.
44
The regional government and ULGs will be making funding contributions at various levels, as detailed in the Technical
Assessment. The contribution from the ULGs constitutes one of the minimum conditions to be met for each ULG to qualify to
receive funding from the Program.
45
In the first year, the simple average per capita for the new 73 ULGs and the ULGDP II 44 ULGs will be US$14.79 and
US$17.68 per capita respectively. From the second year, the per capita allocation uses an average figure similar for the two
groups, which is US$17.68.
46
Details of and procedures for the use of investment project prioritization and selection criteria will be included in the POM.
47
The construction material for cobblestone roads will be available and produced locally and thereby reducing the need for long
haul transport and minimize related carbon footprint. When installed on a permeable base, the cobblestone will allow water to
permeate as well as filter into the porous joints in-between the stone pavers. In addition, cobblestone, as a road surface
stabilization material, helps to protect the roadbed from damage and reduce the frequency of maintenance needed. While not
specifically used for traffic calming, cobblestone streets can have a latent calming effect. Vibrations caused by small, constant
changes in the roadway surface cue drivers to slow down.

44
 Infrastructure/Service Type
Note: Road works outside of existing rights-of-way or requiring significant
resettlement of people (more than 200 people, project-specific) will not be
eligible for funding under the UIIDP.
Integrated multiple infrastructure and land Expenditure group 3: Servicing of land with utilities (water supply,
services (residential, MSEs, industrial electricity, telecommunications, roads and drains (within planned right of
zones, tourism sites) way, as per the structural plan/local development plan)), solid and liquid
waste collection and disposal.
Sanitation (liquid waste) Expenditure group 4: Sewer reticulation systems,48 wastewater treatment
ponds/treatment plants, sludge ponds, community soak away pit and septic
tanks, public and communal toilets, ventilated improved pit, Ecosan, biogas
and vacuum trucks, vacuum handcart. (in planning and implementation
cities must follow manual and standard from Urban Water Supply and
Sanitation Project.)
Solid waste management Expenditure group 5: Collection trucks and other collection tools, collection
bins, transfer stations, recycling center/sorting facilities, collection points;
skips and skip loaders, hand push carts, landfills 49 (of the size of maximum
10ha and minimum design criteria as per the solid waste management
manual), biogas and composting plants; and landfill site equipment
including compaction vehicles, garbage truck, grader, dozer, loader, dump
truck and excavator
Urban drainage Expenditure group 6: Drainage systems (follow the guideline developed by
the MUDHo), flood control systems.
Urban DRM and initiatives to enhance Expenditure group 7: Fire brigade equipment, trucks, facilities, fire stations,
resilience50 non-grid renewable energy supply (for example, solar, wind), landslide
protection structures
Built facilities Expenditure group 8: Markets for small businesses not exceeding ground
floor with associated services (water supply, drainage, access roads,
sanitation facilities), upgrading the existing markets, one-stop shops,
slaughter houses (abattoirs)51(not exceeding size of 2 ha and the category of
level B, C, and D) with by-products and processing facilities, abattoir trucks,
production and premises, sales and display centers for MSEs, community
center, youth center, cultural centers
Urban green infrastructure Expenditure group 9: Urban parks, public spaces and greenery development
projects.
Consultancy services for design, studies and Expenditure group 10: For studies relating to preliminary and detailed
contract management design, contract documentation and supervision relating to the above
infrastructure and services.
48
Sewer reticulation systems canals (primary canals) shall not exceed in diameter 1,000 millimeters or 10 kilometers.
49
Landfills: To ensure that all landfills activities are environment friendly and socially acceptable with no or minimum impacts to
the nearby environment, landfills construction and operation activities should not exceed 10 hectares and should comply with
provisions as stated in MUDHo standard. These include, among others: all landfills should have 1. bottom lining system with
compact clay soil and covered by geo-membrane (synthetic linings) to separate the trash and subsequent leachate from
groundwater; 2. Leachate collection system to collect rain or other water percolated through landfill which possibly contains
contaminating substances (leachate); 3. Oxidation or other treatment ponds for further treatment of leachate; 4. Methane
collection system/gas management to collect methane gas that is formed during the breakdown of trash; 5. Run-off water
drainage system to prevent rain water flash from the nearby area; and 6. Composting yard and other facilities within the landfill
site and upstream collection and transportation area. Cities should comply with the national standard and classification set by
MUDHo. Also, cities must conduct landfill feasibility study, ESIA and RAP for review and clearance. All landfills are subject to
regional environmental and social performance review and annual audits.
50
Only cities which have emergency response unit and emergency plan are eligible.
51
Slaughterhouse/abattoir: Slaughterhouse construction should follow the MUDHo standards and classification for
environmentally safe implementation of the investment. Slaughterhouse under the program should not exceed 2 hectares (level B,
C, and D of the MUDHo classification). The following provisions should be included in the design for construction and operation
phase. These are: 1. liquid waste treatment plant, which is sited at minimum distance of 50 meter from slaughter house; 2.
separate closed drainage line for collection of liquid wastes from slaughterhouse to the septic tank; 3. septic tank bed level shall
be below nearby ground water level; 4. slaughter house at metropolitan cities shall have rendering plant with smell nuisance
control; 5. Runoff water drainage system to prevent rain water flash from the nearby area; and 6. Other facilities like guardhouse
and water points. Cities should comply with the national standard and classification set by MUDHo. Cities must conduct
Slaughterhouse feasibility study, ESIA and RAP for review and clearance. All slaughterhouses are subject to regional
environmental and social performance review and annual audits

45
 Infrastructure/Service Type
Capacity Building Support Expenditure group 11: Up to 5 percent of investment grants and
regional/city contributions can be utilized on capacity building support, see
menu for capacity building support below.
Notes for investments:
a) Current maintenance and operational costs, including salaries, should not be funded by the UIIDP 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.
b) The investment menu above explicitly excludes possible high-risk activities and Category “A” types of activities.
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 an 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 UIIDP funds for these types of investments.
c) While the scope and scale of works under the Program are not expected to cause significant adverse
environment and social impacts, the current Environmental Impact Assessment 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.
d) Siting, design, construction and implementation of all physical infrastructure must consider risk map/DRM plan
and integrate measures to make them resilient to climate change and disaster impacts.
 Siting and construction: Steps should be taken to screen location of physical infrastructure to minimize exposure
to disasters (flood, earthquake, drought, fire, landslides).
 Design and implementation: Design and operation of infrastructure and services need to consider climate and
disaster impacts. Additionally, sanitation and solid waste management facilities are to consider waste segregation,
treatment and reduce contamination of water sources in the event of flooding or other disasters.
e) In addition to screening for significant negative impacts, the following works will be ineligible for financing
under the UIIDP:
 Road works outside of existing rights-of-way;
 Infrastructure works that require significant resettlement of people (more than 200 people, project-specific)
 Activities that would significantly convert natural habitats or significantly alter potentially important biodiversity
and/or cultural resource areas.
The following works have additional conditions under the UIIDP:
 Canals (sewer reticulation systems canals (primary canals)) should not exceed a diameter of 1,000 millimeters or
10 kilometers.
 All landfills should comply with minimum design criteria as per the solid waste management manual, and not
exceed 10 hectares. ULGs, in the design of sanitary landfills, will be required to demonstrate a system of waste
segregation, collection, transportation, treatment, and disposal of leachates, before they start landfill constructions.
 Slaughter houses (abattoirs) should not exceed 2 hectares (within level B, C, and D of the MUDHo classification).
Table 1.4. Eligible Capacity Building Areas for ULGs, and Regional Government Entities
Capacity Building Area Capacity Building activity
Training, seminar, and 1. Short-term local training and related operating expenses
conferences 2. Selected short-term training/courses (up to three months’ duration)
3. Peer to peer support across ULGs
4. Study tours as planned by the ULGs, with clearly defined learning objectives and follow-up
action plan (study tours by ULGs must be coordinated by the region/ MUDHo as part of the
planning process)
5. Seminars/conferences/workshops/meetings expenses
6. Training materials, trainers/resource person fees
7. Hire of venue /hotel accommodation
8. Refreshments
Organizational and 9. Training needs assessment
System Development 10. Assessment of IT system needs
11. Organizational culture change – one stop shop, client orientation, contracting out, and so
on.
12. Social accountability and behavior change
13. Organizational structure
14. Filing and archive system
15. Land management and administration systems
16. Disaster detection, response and risk reduction systems

46
 Capacity Building Area Capacity Building activity
17. Financial systems (IBEX, and so on.)
18. Management information and decision-making systems
19. Public consultation and engagement platforms
Technical assistance 20. Consultancy fees and related operating expenses (for studies related to ULG service
delivery operations, and institutional policies, laws, bye-laws, regulations, procedures) and
organizational development (see above)
21. Printed material and stationery
Equipment Equipment related with the capacity building support (not buildings) including:
22. Motor bikes (up to 1 percent of investment grants and regional/city contributions) 52
23. Office and field equipment

11. The AFD will provide joint co-financing (around euro 9.8 million) to UIIDP through both
the PforR and the IPF windows. Specifically, around euro 8 million (about US$8.8 million) will be
dedicated to supporting the performance-based grants under the PforR while around euro 1.8 million
(about US$2.0 million) will be used for subcomponent 3 under the IPF window, on conducting project
preparation studies, pre-feasibilities and feasibility studies for further investments for ULGs with specific
needs on LED and cultural heritage. The AFD-supported areas would be seamlessly incorporated as part
of the UIIDP design, hence adopting all WB’s implementation system, guidelines and policies without
separate reporting requirements.

A. Capacity Building and Institutional Strengthening

12. The UIIDP will further strengthen the capacity building architecture established under the
ULGDP II, by adopting a systematic, cascading and coordinated vision and approach. The key
challenges identified during ULGDP II and the emerging lessons formed critical inputs in sharpening the
capacity building architecture. To enhance coordination and improve synergies on capacity building
efforts across the three levels of government, a Capacity Building Manual 53 will be developed for the
Operation providing guidance on prioritized themes, cascading objectives, allowable activities, and
capacity building templates for all three levels. The interrelationship of the templates will ensure a
cascading and complementary capacity building planning and implementation process. Feedback
arrangements on the capacity building will also be established to allow adjustments and improvements
during implementation.

13. The capacity building efforts will dovetail with the Program’s prioritized thematic focus
areas, and further incentivized through PMs. Capacity building PMs will encourage better planning
and implementation of capacity building activities. It will reward the undertaking of systematic
assessment and gap analysis to inform and better tailor capacity building plans, which in turn address the
performance in key result areas. These include: (a) participatory planning and budgeting, (b) revenue
generation, (c) FM, (d) procurement; (e) infrastructure asset management, (f) contract management, (g)
urban planning, (h) environmental and social management; (i) auditing; (j) ethics, fraud and corruption,
(k) M&E, (l) gender equality, (m) urban resilience, and (n) LED. It will further reward the effective
execution and reporting of capacity building activities in accordance with the capacity building plans to
strengthen the linkage between planning and implementation.

14. Every year, a capacity assessment will be conducted at all three levels. This assessment will
include (a) an implementation report (of past year’s activities), (b) a self-assessment/gap analysis (to
review the past year’s activities as well as specific weaknesses identified in the APA), and (c) the
development of a capacity building plan for the coming year. The capacity building plan will consist of
52
Regions can procure vehicles only for RMTs (maximum 2 cars per team)
53
The comprehensive Capacity Building Manual will be prepared by the MUDHo as an annex to the POM. This will serve as the
framework for shared understanding among the different entities and provide detailed guidance to structure and prioritize
capacity building activities at all three government levels.

47
cascading but individual plans for each level (and for each ULG). For example, the capacity building
plans at the ULG level will include activities which will be implemented by themselves and those for
which support from the regional and federal levels are required. Before finalizing the plans of the regions
and federal levels, consultations forums will be held to ensure that the demands and priorities of the
lowers tiers are adequately reflected in the plans of the higher tiers. The annual training calendar and TA
schedule will be part of the planning exercise.

15. The capacity building activities would focus on all three levels of governments and tailored
to each of their needs. In addition, four main modalities will be used for building capacity at the three
levels. These include: (a) structured learning through classroom training, (b) technical assistance and on-
the-job training, (c) learning and knowledge exchange platforms, and (d) guidelines and systems rollout.
Further details of the execution at each level are as elaborated below.

 ULGs. Both supply-driven and demand-driven approaches are adopted for capacity building
at the ULG level. On the supply-driven side, the ULGs will have access to a range of
capacity building activities offered by both the regional and federal government entities,
including the support from the RMTs and the FMT. Structured training courses on overall
urban management and governance, and specific technical aspects such as procurement and
safeguard management would also be made available through arrangements with
appropriate regional universities, management institutes and other national and regional
level capacity building institutions or private providers, coordinated by the federal or
regional levels.

On the demand-driven side, each ULG may use up to 5 percent of their investment grants on
capacity building activities in accordance to the menu of eligible uses (see table 1.4). The
ULGs will be required to prepare capacity building plans following the guidelines and
formats presented in the Capacity Building Manual. The capacity building plans will be
expected to include activities that address specific weaknesses identified in the APAs and in
systematic self-assessments. A capacity coordination unit will be established in ULGs and
comprise focal persons drawn from various departments within the government, with the
city manager as the lead and the head of the capacity coordination unit as the convener. The
capacity building coordination unit will lead the self-assessment, gap analysis, preparation
of the capacity building plans, and monitor and report on implementation.

A phased and targeted approach will be taken to raise the capacity of the 73 new ULGs
to meet Program requirements. The new 73 cities inducted under UIIDP will be provided
with upfront technical assistance to sensitize, orient and gear them up for Program
implementation. These new cities will receive at least 8 months of capacity building from
technical assistance consultants (3 firms) being hired by MUDHo before undergoing the
first assessment, where they will be assessed on the MCs only. Thereafter, they will
continue to receive at least an additional 10 months’ capacity building from these technical
assistance consultants on all the UIIDP performance measures making up a total of 18
months’ support. This is also based on the successful up-scaling experience from ULGDP to
ULGDP II which followed similar principles. Mentoring and other knowledge exchange
tools will be used to support new ULGs utilizing experienced ULGs.

 Regional government entities. Regional BUDs will take the lead in providing capacity
building support to ULGs, through formation of the RMTs. RMTs will provide technical
assistance to ULGs in the areas of core urban management focusing on those corresponding
with the MCs and PMs. The RMTs will partner with regional entities responsible for key
result areas and will jointly draw up capacity building plans and in delivering them in a

48
 coordinated manner. The various regional entities are further incentivized to improve their
capacity and that of ULGs to deliver the results as demanded through the regional DLIs.
Beyond the ULGs, various regional government entities—such as the Construction Bureaus,
the Land Development and Management Agency, the Urban Planning Institute, the Urban
Safety Net and Job Creation Bureaus, the Women Affairs Bureaus, and the Investment
Commissions—will also benefit from regional capacity building activities, strengthening
their urban governance and management roles. (The RMTs will spend at least 15 days per
month in the field.)

 Federal government entities. The MUDHo will lead the federal level capacity building
efforts, form the FMTs and coordinate the support provided by other federal government
entities. The FMTs will provide technical assistance and advice to the regional government
entities and ULGs. Specifically, the FMTs will: (a) backstop the ten RMTs and the four
ULGs in the regions without RMTs; (b) provide general backstopping for all regions; (c)
mentor the regional authorities in key results areas; (d) conduct or coordinate capacity
building for the MUDHo, and guide consultancies, studies and other initiatives; and (e)
provide overall coordination and oversight of capacity building activities under the UIIDP,
including the initial training of new teams. (The FMTs will spend at least 15 days per month
in the field.)

To avoid duplication of efforts by RMTs and FMTs, the roles of both sets of teams will be
clearly defined in the capacity building manual. While the RMTs will be focusing on delivery
of capacity building activities, the FMTs will focus on module development, ToTs and TA
identification and certification, quality assurance and feedback mechanisms and needed
technical back-stopping to ULGs. The FMTs will also partner with universities, management
institutes and other national and regional level capacity building institutions to deliver
programs.

16. Four main modalities will be used for building capacity:

 Structured learning through classroom training. This being the most common and
classic capacity building modality, it will be used widely in capacity building activities. In
addition to the current system of the regional and federal teams training officers of ULGs,
an added focus will be on classroom ToTs at regional and federal levels. The ULGs will
then be able to draw on resource persons from such a trained pool of ToTs, in addition to
their dedicated RMT/FMTs. ToTs will be developed for each of the thematic areas and
thematic champions identified from the ULGDP II ULGs.

 Technical assistance and on-the-job training. The modality is aimed at transferring on-
the-job skills and backstopping support to ULGs. Experienced staff (including those with
proven skills and experience, as well as retired staff, or those from relevant institutions or
NGOs) will be identified and accredited as providers of technical assistance. RMTs and
FMT will be responsible for quality assurance of these technical assistance providers.

 Learning and knowledge exchange platforms. Knowledge exchange platforms will be

organized among ULGs and practitioners within the thematic areas. ULGs and practitioners
will be provided with peer-to-peer, face-to-face learning and knowledge exchange
opportunities. These could include thematic working groups, periodic meetings with ULG
representatives and RMTs and FMT, and mentoring by successful ULGs of weaker ones.

49
  Guidelines and systems rollout. This modality will allow more systematic and accessible
rollout of guidelines and systems to the ULGs. This could include publishing a compendium
of the latest and updated reference handbooks on important thematic areas, or building an
electronic repository of all such rules regulations and guidelines by region with appropriate
indexing. Processes for archiving and retrieving information in areas of core urban
management could also be enhanced through innovative system improvements.

17. Capacity building monitoring framework. A robust monitoring and information system
covering ULG, regional, and federal level, will be established to monitor timeliness, adequacy, and
effectiveness of the planning and execution of capacity building activities and resources. The capacity
building plan and implementation reports will also contain result/outcome indicators to be measured
annually, in addition to strengthening the DLIs on capacity building for DLI 2 and DLI 5. ULGs, regional
government entities, and the MUDHo will report on the capacity building activities, achievements and
these indicators in their progress reports and capacity building implementation plans. In addition, each of
the capacity building events carried out will include a participant evaluation, rating the relevance and
quality of the event. There will be a feedback mechanism as part of capacity building monitoring system.
Performance of capacity building institutions (ULG capacity coordination unit, RMTs, FMT), and service
providers (universities, ToTs, and technical assistants) will also be assessed. The formats for reporting
will be included in the Capacity Building Manual.

C. UIIDP Transitional Framework- Update of the Urban Development Program and

Development of an Urban Fiscal Strategy

Background

18. Ethiopia is urbanizing rapidly and has one of the fastest growing urban populations in the
world. The number of people living in urban centers is expected to nearly triple in the next two decades,
from 15.2 million in 2012 to 42.3 million in 2037, growing at 3.8 percent a year. The Ethiopia
Urbanization Review 2015 indicates that the rate of urbanization will be even faster, at about 5.4 percent
a year.54 That would mean that the urban population will triple by 2034, with 30 percent of the country’s
people in urban areas by 2028. Ethiopia is undergoing a demographic transition. The labor force has
doubled in the past 20 years and is projected to rise to 82 million by 2030, from 33 million in 2005. Well-
functioning cities will be essential if Ethiopia is to reap this demographic dividend and avoid
agglomeration diseconomies.

19. Most of the growth in urban areas is expected to be in secondary cities, which are currently
relatively small. For example, Ethiopia’s second largest city, Mekelle, has about 300,000 residents,
compared with Addis Ababa, which has about 4 million people. Ethiopia has a significant number of
secondary cities, which are spatially distributed across the country. In its efforts to promote more
balanced spatial development, the government’s National Spatial Plan entails supporting economic
development in 12 regional centers, based on their economic potential. This spatial framework envisages
that development will largely be driven by growth of secondary cities and development of their rural
hinterlands, with an emphasis on the balanced development of the urban hierarchy within each urban
cluster. This will require major institutional and infrastructure investments in Ethiopia’s cities to provide
a conducive environment for growth.

20. The government’s new UIIDP (2018–2023) envisions that all cities will gradually generate
increasing levels of municipal own-source revenues, with which to finance investments in
infrastructure and deliver services. However, this will be a long-term process. Currently, municipal
revenues account for only 3 percent of all revenues collected in Ethiopia. The Constitution of Ethiopia
54
World Bank and Cities Alliance. Ethiopia Urbanization Review. 2015.

50
defines the division of main revenue sources between federal and regional state levels. The revenues
assigned to the federal government, given the existing tax structure, generate the large portion of the
domestic revenue. Thus, the federal government collects about 81 percent of all revenues, while regional
governments collect about 19 percent. This significant vertical fiscal imbalance is addressed through
fiscal transfers from the federal to the regional governments. Intergovernmental fiscal transfers form a
critical component of sub-national finances in Ethiopia. Regions receive most of their financial resources
through fiscal transfers from the federal government, and in turn, provide fiscal transfers to the local
level. The main federal to regional transfer is in the form of unconditional or general purpose grants.
Although resources flowing through the general-purpose grant system are increasing, on average 80
percent of these resources are used to fund salaries and other recurrent expenditures related to state
functions, while resources for capital expenditures are limited. Moreover, small towns (woreda
administrations and about 130 ULGs) are using their general purpose grant only for the salary payments
of staff executing state functions.

21. Municipal functions are financed exclusively from local revenues, through taxes, income
from leasing land, fees, and user charges. These funds that average between US$20 and US$30 per
capita per year across ULGs are too small to meet the significant and growing demand for urban
infrastructure and services. The WB’s 2015 Ethiopia Urbanization Review has estimated that some
US$400 per capita per year will be needed to meet the infrastructure gap. This is well above the current
funding of about US$26 per capita per year, with the support under the UIIDP, including the
contributions of the cities and the regions.

22. To help ULGs meet their investment needs, the GoE in 2008 established the ULGDP. This
specific purpose grant nature of financing urban development through a fiscal transfer program that
disbursed to the participating 18 ULGs based on the scores they achieved in an independent APA in the
areas of institutional performance (participatory planning, own-source revenue generation, budgeting,
procurement, FM, land management, and compliance with environment and social safeguards, and others)
and achievement of infrastructure and O&M targets. Based on the success of the first phase which ended
in 2014, the WB supported the Second ULGDP, expanding the performance grant system to 44 ULGs.
While technically the ULGDP should be mainstreamed into the government’s intergovernmental fiscal
transfer system, tracked in the public financial management system and be reported as a transfer, it is
currently not linked with the other transfers.

Short- to Medium-term Initiatives

23. There is now a need to update the government’s urban development program, the ECSPGs,
and to develop a clearly linked urban financing strategy that articulate how investment in cities will
be financed once the proposed UIIDP ends. The UIIDP includes actions to prepare for a transition of
the current system to a future longer-term coherent sustainable urban development strategy with related
fiscal architecture for funding of urban infrastructure and delivery of services. To ensure that the
transition is smooth and well-coordinated, the UIIDP is supporting the following initiatives:

 First, cities and regions contribute matching funds, which increase as their revenue
generation capacity improves and revenues increase. Thus, 16 cities that have been
participating in the Program since it began in 2008 will have to contribute 40 percent of
matching funds, and Dire Dawa and Harar will contribute 50 percent due to their special
status as federal cities and regional status respectively. Some of these cities have established
industrial zones that will require large investments in infrastructure to ensure that they
operate effectively with linkages to import and export markets. Financing these will require
new sources and modalities of financing.

51
  Second, the MUDHo will continuously monitor the revenue generation capacities and
revenues of all cities participating in the UIIDP. It will support this with the issuance of
guidelines and provision of technical assistance.

 Third, the UIIDP contains specific DLIs that reward ULGs for performance in
generating own-source revenues and that reward regional government entities for
helping to build the capacity of ULGs for revenue generation. The support provided
under the two phases of the ULGDP has clearly helped the participating cities in improving
revenue performance. For example, cities that have been in the Program for the last nine
years generate about US$30 per capita per year compared with the ULGs newly
participating in the UIIDP, which generate US$20 but with great variations across the ULGs
in each of the groups (EFY 2008 data).55

 Fourth, the program will strengthen the support to promote longer-term sustainability
through incentives, capacity building, technical assistance and guidelines from the regional
level on own-source revenue.

 Fifth, the initiatives to create jobs and promote LED, will again contribute to boosting
own-source revenue and longer term sustainability.

 Finally, the MUDHo, with support from the MoFEC and technical assistance from
development partners, will start exploring other financing modalities for cities. The
MUDHo under the UIIDP will undertake a comprehensive review and update of the
ECSPGs and develop an integrated and clearly linked urban financing strategy.

Medium to Longer Term

24. Despite these initiatives under the coming UIIDP, there is a clear need to think beyond the
coming five years of the UIIDP, both for the currently enrolled ULGs, and ULGs which are not yet
covered. The review and update of the ECSPGs and urban fiscal strategy will consider the following
issues (amongst others):

 Review of the urban development mandates; including divisions between state and
municipal functions and update of major initiatives and programs.

 Costing of the core mandates and estimates of overall funding requirement and gaps.

 Review of urban revenue collected and potential revenues at the ULG level.

 Review of alternative revenue sources, including improved framework for own-source

revenue, options for borrowing, issuing of bonds, and the like.

 Review of the current intergovernmental fiscal transfers system and the location of the
ULGs in this architecture, and review of the linkages between the current UIIDP
performance-based capital grants and the linkages with the government’s general purpose
grant and the specific purpose grants.

55
Based on a sample of 9 original ULGDP ULGs and 16 new UIIDP ULGs. Revenue data is from the EFY 2008 final accounts
(FY2015/16).

52
  Review of future options and modalities for a sustainable and comprehensive
intergovernmental fiscal transfer system targeting the urban centers, which fits well with the
legal framework (which may be up-dated in required areas as well). This will include a
review of the balance between OSRs, intergovernmental fiscal transfers and other funding
modalities such as, for example, borrowing.

 Review and design of the future institutional framework, including grant management, flow
of funds, reporting and accountability systems, and the like.

 Review and design of future incentive structures, capacity enhancement modalities and
support to ULGs performance enhancement.

25. This strategy will be coherent and well-phased. The strategy will be developed with due
consideration of the capabilities and experiences from the various ULGs, for example, the ULGs which
first joined the ULGDP in 2008 years ago, versus the newly entering ULGs (or ULGs not yet covered).
The strategy will also review international experiences and realism in the funding system compared with
urban mandates and revenue sources and potential.

26. The relevant authorities (cabinet and parliament) will have to approve the strategy to allow
for the new system to be integrated into Ethiopia’s intergovernmental grant system. It is expected
that such approval will be granted at least two years before the conclusion of the UIIDP to allow time for
the new system to be established, and capacity for its implementation built.

27. Table 1.5 summarizes the envisioned trajectory on the financial support and initiatives for
the various groups of ULGs. The specifics of the initiatives after UIIDP will be determined 1–2 years
before the end of the UIIDP through the comprehensive review and strategy development mentioned
above.

Table 1.5. Envisioned Trajectory of Support Varied by ULG Groups

Groups of ULG UIIDP Beyond UIIDP
(Phase 1: 2018/19–2022/23)
18 ULGDP ULGs56 Covered by grant support with a The urban development financing strategy will determine the
Populations ranging higher requirement on co-funding need for and modalities of possible grants closely linked with
from 59,300 to (40 or 50 percent). the government’s intergovernmental fiscal framework,
286,600. targeted and probably with some form of performance-based
Strong support to improve own- allocations, based on the good lessons learned from Ethiopia
source revenue. and international best practices. The strategy will also
explore the possibility of mixing grants with borrowing if the
cities are close to credit worthiness by the end of UIIDP.
26 ULGs newly Covered by grant support, and with Will be followed-up by a mix of initiatives, public-private
joined the ULGDP an increased requirement on co- partnerships, special support on larger projects, specific
II funding (30 percent), still need project support, support from regions, and the like. The
Populations ranging strong continued support. urban development financing strategy will determine the
from 25,200 to need for and modalities of possible grants closely linked with
152,700. Strong support to improve own- the intergovernmental fiscal framework, targeted and
source revenue. probably with some form of performance-based allocations.
73 ULGs newly Covered by grants (enrolled Increased co-funding.
joined the UIIDP gradually); relatively lower
Populations ranging requirement on co-funding (10–20 Will need a stronger support for some years from
from 20,300 to percent) regions/central level and take part in the overall funding
65,200. system to be elaborated.
Strong support to improve own-
source revenue. Strong support to improve own-source revenue.

56
Excludes Addis Ababa.

53
 The urban development financing strategy will determine the
need for and modalities of possible grants closely linked with
the intergovernmental fiscal framework, targeted and
probably with some form of performance-based allocations.
Other cities not Not covered Will require strong fiscal and capacity building support.
covered by UIIDP
Will be targeted through the city-wide funding arrangement
to be developed under the updated ECSPG with its urban
financing strategy.

54
Attachment 1: Experience of the ULGDP and ULGDP II

1. The GoE and the WB have been working in partnership since the early 2000s to help
Ethiopia’s ULGs effectively meet their new responsibilities. The WB has supported the government’s
strategy through a series of projects, 57 and continued doing so in the first phase of ULGDP since its
initiation in 2008 and the second phase of the program (ULGDP II) since 2014. Both programs’ main
thrust is to leverage institutional capacity at the ULG level to improve service delivery and urban
infrastructure. Its overall objective is to support improved institutional performance in the planning,
delivery, and sustained provision of urban services and infrastructure by ULGs.

2. Phase 1 of the program, ULGDP, focused on addressing the institutional capacity and
infrastructure deficits of 37 ULGs. Program’s focus was on 19 participating ULGs (including Addis
Ababa)—which received both capacity building and performance-based grants for infrastructure and
service delivery. The remaining 18 ULGs only received capacity building grants with a view to preparing
them to receive performance grants in phase 2.

3. ULGDP II included 44 ULGs and expanded the scope of support to federal and regional
governments to strengthen their capacity to backstop ULGs. The ULGDP I and II are jointly funded
by the government and the WB, where the IDA contributed US$300 million and US$380 million
respectively; while the counterpart funding was US$116 million and US$176.55 million respectively. For
this UIIDP, the scope and boundaries will be identical to the scope and boundaries of the new government
UIIDP program (see table 1.6). Thus, the UIIDP is supporting ULGs with financing provided partly by
the WB and partly by government.58

Table 1.6. Government Program and WB Support

1st Phase 2nd Phase UIIDP
Program and Target
(2008- 2014) (2014 – 2019) (2018- 2023)
Government program (program) ULGDP UIIDP
WB Program
ULGDP (IPF) ULGDP II (PforR) UIIDP (PforR with IPF)
(Program/Operation)
Target ULGs 19+18 (37) 18+26 (44) 44+41+32 (117)

4. Performance-based grants in both Programs are allocated according to a population and

performance-based formula. The grant allocation to each ULG is determined by the performance of the
ULG, as measured in the APA, and it considers the population. In ULGDP, an average of US$16 per
capita per year is allocated to the 18 smaller ULGs. These funds are then complemented by 20 percent
matching funding from the ULGs and 20 percent from the regional governments. Under ULGDP II,
US$15.68 per capita per year was designed, with an innovative system whereby the ULGs could receive
more if the performance was above target. The regions and ULGs contribute to the grants in the range
between 30 percent and 60 percent depending on the category they belong to.

Key Results of ULGDP and ULGDP II

5. The ULGDP was completed in December 31, 2014 with full disbursement and ULGDP II is
due to close in 31 December 2019 with 84 percent disbursement (as of June 2017). ULGDP II made
four rounds of disbursements and they were all above original estimates due to better-than-average
performance by the ULGs. In total, ULGDP II has disbursed US$319 million (or 84 percent). This trend

57
Capacity Building for Decentralized Service Delivery project (2003) and the Public Sector Capacity Building program (2004).
58
Program (with a capital P) refers to the PforR hybrid program, while program (with a lowercase p) refers to the government's
program.

55
is expected to continue in the remaining two years as cities continue to improve their performance, and
the high achievement rate will lead to a fiscal gap in the last year of the ULGDP II.

6. Due to the better-than-expected performance of cities in ULGDP II, there is a need to

replenish the funding resource pool. The disbursement system for DLIs 1, 2, 3, and 4 (targeted at
ULGs) is designed to be scalable and rewards actual performance (that is, if the ULGs perform better than
expected, they will receive additional funds). Including the expected performance trends, the total
projected additional funding required for the existing 44 cities to disburse against the ULGDP II expected
results is approximately US$63.74 million.59 (It is expected that DLI 5–9 will perform as expected and no
additional funds are required or significant savings expected for these regional and MUDHo DLIs.) DLI
10 of the UIIDP therefore will disburse performance-based grants in FY2018/19 against prior results on
institutional performance, service delivery, maintenance, and job creation for 44 ULGs, based on the
APA conducted in FY2017/18.

7. Significant achievements have been made under the program through the two phases. This
is reflected through the substantial institutional strengthening achieved, direct jobs created, enhanced
implementation of the CIPs of ULGs, urban infrastructure and services improved and strengthening of the
O&M, creating visible impacts on the ground across the country in the 44 participating cities.

 Leaps were made in institutional strengthening and urban governance which formed the
bedrock in enabling better infrastructure and services delivery in cities as well as job
creation. ULGs participating in the ULGDP have improved their capacity to deliver
infrastructure and services and to maintain the actual assets. Before the ULGDP,
participating ULGs had mainly dirt roads and few infrastructure and services. Under phase
1, around 2.6 million people have benefited from the infrastructure and services financed
under ULGDP. Some 670 kilometers of roads and 588 kilometers of drainage system, 171
latrines and 110 community water points have been constructed, with 29,000 people given
access to improved water sources. Under phase 2, the direct program beneficiaries totaled
more than 3 million. Over the last 2.5 years under ULGDP II, nearly 615 kilometers of
urban gravel roads were built or rehabilitated, 930 kilometers of cobblestone roads were
constructed, more than 100 hectares of public parks and greenery were developed, over
3,700 hectares of land were serviced for industry, MSEs, or housing; and numerous drainage
systems, landfills, flood protection walls, public toilets, street lights were constructed.
Furthermore, the annual jobs directly created by ULGDP has increased from 60,000–80,000
per year under the ULGDP I to around 140,000 per year under ULGDP II, with the increase
due to construction of infrastructure using labor-intensive practices.

 On the ground, communities in the participating cities expressed high appreciation of the
program. Cobblestone streets and drainage systems built with the program funds have
become visible ULGDP trademarks. Communities appreciate these so much that they are
now contributing their own funds to scale-up their construction, and have even spurred
creations of MSEs locally to take on the construction work. The roads have led to improved
access and mobility, and together with drainage improvements, reduced flooding, enhanced
public health, as well as improved business/trading environment. In addition, the cities
became more livable; neighborhoods are being revitalized, increasing property values and
tax revenues. These infrastructure and services improvement are also key to local job
generation (with the cobblestone construction benefitting largely youth, women and the
unemployed) and assisted in the economic and social development of the cities, regions, and
the country.

59
Assumption here, is that the performance on each of DLIs 2 and 3 will increase to 92 points out of 100.

56
  The Program introduced several firsts in the country – the conduct of VfM audits,
procurement and environment and social audits of local governments. At the beginning of
the program, none of the cities had VfM audits. VfM audits started from the 3 rd APA and
have assessed the quality, timeliness, and cost effectiveness of completed infrastructure
against standard benchmarks. REFAs conducted environmental audits and RPPPAAs
conducted timely procurement audit annually. These new instruments have contributed to
ensuring transparency, efficiency and effectiveness of the established system and the
Program.

 Institutional capacity in the participating cities has made impressive improvements in

their planning, revenue mobilization, asset management, budgeting, FM, investment
planning, procurement, and project execution. While before ULGDP cities did not
systematically consult with citizens in determining priorities, all program cities now have
regular citizen consultation practice; in nearly all ULGDP cities the number of citizens
participating in planning forums has more than doubled since the start of the program.
Similarly, financial accounting and management have improved. All 44 cities have
transitioned from manual to computerized systems for generating financial reports. At the
beginning of the program, none of the cities has a timely audit, and now all 44 do. Further,
since enrolling in the program, all ULGs were found not to have audit backlogs. REPs are in
place in all cities. AMPs are enabling the cities to plan for new investments and budget for
O&M needs in a more systematic and comprehensive way. Cities are now systematically
implementing maintenance programs. Own-source revenues are increasing in many cities,
with 34 of the 44 cities increasing it by more than 10 percent in fiscal 2015, although overall
levels remain low and have much room for improvement.

Key Challenges in Capacity Building

8. ULGDP II implemented two channels of capacity building: (a) supply side intervention
consisting of implementation course provided by Ethiopian Civil Service University (ECSU) and (b)
demand side interventions up to 5 percent of the performance grants to meet their capacity building needs
to bridge the capacity gaps identified in the APA. On the supply side ECSU carried out two training
programs of two-week duration covering eight modules of topics relevant to project implementation to 26
ULGs representatives during November 2014 and February 2015. The usefulness and relevance of the
course and inputs provided are not well established. Absence of a data base on trained personnel
constrains the tracking and inference that the trained personnel remained to be deployed in critical
positions for successful project implementation. On the demand side at ULG level sample analysis of data
revealed that most of the ULGs spend the funds allocated capacity building between training and office
equipment; the most preferred being office equipment. On the training side, systematic development of
modules to be delivered, careful identification of resource person and robust feedback mechanism to
monitor quality of the training provided were conspicuously absent.

Box 1: Snapshots on Progress on ULGDP II.

Snapshot from the annual progress report of ULGDP II, 2017:
The PDO of ULGDP II is to enhance the institutional and organizational performance of participating ULGs in
developing and sustaining urban infrastructure and services. The program is making very good progress in
achieving the PDO as demonstrated by the following key program indicators which measure the first and second
part of the PDO:
Key Performance Indicators and Achievement in the 4 APAs

57
 DLI 1st APA 2nd APA 3rd APA 4th APA
Expected/ Target 60 65 70 75
(average score of all 44 cities)
Actual Score: DLI 2. Institutional Performance 67 70 83 84
Actual Score: DLI 3 Infrastructure development, 87 72 85 92
service delivery and job creation
AVERAGE ACTUAL SCORE 77 71 84 88
(DLI 2 & 3)
The DLI 2 and DLI 3 scores have been above average over the last four (4) APAs and the end of program target
has been achieved in the third year of the five-year program.
Key performance on infrastructure targets.
S/N Infrastructure Indicators Cumulative Actual End of Program Achievement To Date
from start of target as per PAD over Target (%)
program and POM
1 Number of people in ULGs with access 4.4 million 4.2 million 105
to all-season roads within a 500 meter
range provided under ULGDP II
2 Urban cobblestone roads built or 928 kilometers 620 kilometers 150
rehabilitated under ULGDP II
3 Urban gravel roads built or rehabilitated 614 kilometers 120 kilometers 512
under ULGDP II
4 Serviced land for industry, MSEs and 5,511 hectares 1,500 hectares 367
housing
5 New controlled or sanitary landfills 8 11 72
supported under the ULGDP II
6 Public parks and greenery under the 180 hectares 45 hectares 400
ULGDP II

58
Attachment 2: Local Economic Development, Urban Resilience, and Gender Mainstreaming

RAPID LOCAL ECONOMIC DEVELOPMENT ANALYSIS AND ACTION PLAN

A. Rapid LED Analysis

1. Economic development and job creation in cities is an important agenda for Ethiopia. While
urban unemployment and underemployment have recently reduced, they remain high in comparison to
other African countries. Urban unemployment was 17 percent in 2014, compared with 7 and 9.5 percent
in Rwanda and Uganda, respectively 60 and underemployment rates are also still staggeringly high at 43
percent.61 Ethiopia’s GTP 2 has put a major emphasis on urban development and job creation, on the one
hand, and industrialization, on the other. Yet city administrations have not received sufficient support and
capacity development to enable them to realize the full job creation potential of public investments in
infrastructure and service delivery. Urban unemployment is particularly acute for youth and for people
with a secondary education.

2. ULGDP II has made contributions to the job creation agenda which can be further
strengthened to achieve more impact. ULGDP II’s emphasis on labor-intensive infrastructure
construction has created over 93,913 permanent and 293,397 temporary jobs62, with about 44 percent of
them for women. Cities have used the cobblestone road work as an instrument to systematically create
jobs for the unemployed; jobless youth are grouped into MSEs, trained, and invited to compete for
cobblestone construction contracts.

3. For the next stage of the program, the government has a higher level of ambition and the
need for initiatives that “transform urban centers to centers of innovation and local employment
generation in the country and to improve the socio- economic status of the citizens.” 63 This means a
potentially more expanded and explicit focus on sustainable job creation, beyond participation in public
works, to better enable cities to alleviate some of the bottlenecks facing MSEs and private sector job
creation. There is also a need for better impact assessment as well as M&E indicators of the program to
capture its effects on job creation as well as on incomes within targeted cities.

4. A rapid LED assessment was conducted to assess city administrations’ current mandates
and capacities in this area, employment impact from ULGDP II cobblestone works as well as the
major bottlenecks hindering wider job creation. Two main rounds of field work were conducted. The
first is a rapid assessment mission deployed to six cities of varying sizes and levels of capacity; Bahir
Dar, Adama, Jijiga, Arsi Negele, Woreta and Gode. Focus group discussions were held in all cities with
city administration officials, and private sector representatives, including MSEs. The second round visited
eight ULGDP II cities—Mekele, Wukro, Adama, Burayu, Hawassa, Yirgalem, Bahir Dar, and Gondar—
to learn about the job creation experience of ULGDP II subprojects in cobblestone road construction. The
team met with city officials including mayors, deputy mayors, construction bureaus, heads of MSE office,
job creation experts, and/or ULGDP coordinators to discuss the process of recruitment, training, bidding,
management, earning prospects and post-completion support for cobblestone workers. In addition, 28
semi-structured interviews were conducted with former cobblestone workers, in the form of individual
60
Although those countries do have higher informal employment.
61
CSA Urban Employment and Unemployment Survey 2014.
62
The aggregated numbers were calculated based on each city’s APA data on job creation. Note that the methodology for
calculating job creation varies across cities. Typically, permanent jobs are defined as the number of people in the cooperatives
that were contracted for the construction, while temporary jobs are defined as the number of daily laborers hired subsequently by
the cooperatives, or in some cities, the estimated number of a jobs created upstream the value chain (for example, jobs created at
the quarry sites that supply stones for cobblestone road work). As noted, these job numbers are not derived from a robust or
consistent methodology or definition, and hence the numbers should be viewed as rough estimates only.
63
Excerpt from the GoE’s request to the World Bank for additional financing.

59
interviews or focus group discussions, to learn about their experiences, earnings, support received and
labor market outcomes.

5. The results of the assessment showed that all city administrations play a significant role in
LED but with low levels of capacity. Legislatively, cities are mandated to lead and coordinate LED
activities, including creating conducive conditions for industrial development, effective land
management, increasing attractiveness of the city for dwellers and investors, coordinating with other
government organs for the provision of infrastructure (for example, electricity and water), and facilitating
job creation through MSE development. In practice, all cities visited, big and small, had a major role in
three main areas (a) infrastructure investments and facilitating access to land, (b) support to MSEs. For
example, even in a small city like Woreta, the MSE office provides shades (premises), technical support,
training on Kaizen management techniques and inspection services for final products. In addition, all
cities visited outside of Somali Region played a role in (c) investment facilitation. 64 Investment offices
were found to facilitate duty free import of machinery, equipment and vehicles as well as promote
investment potentials through various radio, TV, and print media. Finally, all cities have some sort of
dialogue with local private sector representatives, but most often on an ad hoc basis.

6. On the job creation front, the assessment showed that the cobblestone road construction
(and to a lesser extent, the drainage and urban greenery) subprojects financed by the ULGDP II
are creating income opportunities for unemployed youth. Instead of hiring existing private sector
contractors, registered unemployment persons (with priority given to vulnerable groups including women,
military retirees, returned refugees, the disabled) are grouped into cooperatives on the kebele-level,
provided with free technical and business training, and given the opportunity to bid for cobblestone road
contract. The earnings bestowed by cobblestone contract work, coupled with support from MSE offices,
enabled many workers to engage in sustainable self-employment after the completion of cobblestone
work. Examples of these new livelihoods include brick-making, welding, retail shops, urban agriculture,
bajaj (three-wheeled motor vehicles), and minivans. Findings from the assessment suggest the significant
potential of urban infrastructure subprojects to serve as boot camp to give a financial head-start for the
unemployed, and this potential can be further exploited with better design and inter-agency collaboration.

B. Key LED Challenges and the Role of UIIDP in Alleviating Them

7. There are four key challenges and constraints identified during the rapid assessment. These
are: (a) infrastructure challenges hinder firm success and public private dialogue is not sufficiently
informing CIPs; (b) low survival and graduation rates among supported MSEs; (c) low levels of capacity
among city administration staff and offices; and (d) lack of access to land and electricity are also major
binding constraints, delaying new investments but are more within the remit of the federal government.

(a) Infrastructure challenges hinder firm success and public private dialogue is not sufficiently
informing CIPs.

8. While firms appreciated investments in MSE shades and clusters, serviced land for industry
zones, and the like, many of them reported a problem with lack of proper access roads to their sites .
This substantially raises their costs for getting inputs and transporting goods to market. For example, in
Adama, firms indicated that roads connecting their factory site with the inner city are badly damaged and
require heavy maintenance. Firms also mentioned that strategic infrastructure investments could promote
the development of high potential sectors. For example, in Bahir Dar, there is no proper paved road or
other tourist amenities at the city’s top tourist attraction, the Blue Nile Falls. Free work premises provided

64
In the Somali region this role was played by the Regional Investment Board, which is likely to be the case in Ethiopia’s other
Emerging Regions.

60
to service or trade MSEs are often located in remote areas with few customer flow, which negatively
impact profitability.

9. City administrations should use public private dialogue to identify such key infrastructure
bottlenecks as well as the potential to unlock economic opportunities (for example, for tourism,
agribusiness, and the like) to inform their CIPs. All cities indicated they undertake some sort of public
private dialogue, but levels of frequency varied and many firms indicated that there was little action
because of it. Private sector representatives consulted recommended that this dialogue should be
institutionalized and held on a quarterly basis. This should include a wide variety of private sector
representatives, including Chambers of commerce, MSEs and women traders’ associations, professional
associations, and the like. This type of dialogue could also open the door to public private partnerships.
One excellent example comes from Adama, where the private sector is now contributing a significant
proportion of the costs of rehabilitating internal roads and building sub-city government offices in
partnership with the city administration.

(b) Low survival and graduation rates among supported MSEs

10. A common issue that tends to be raised by MSE offices is the low survival and graduation
rates of supported MSEs and their dependency on government support. Studies on the GoE’s MSE
program have pointed out that this might be the case because the support is more akin to social welfare,
where unemployed youth are grouped together and often assigned a business idea by the Government
staff, rather than supporting motivated, growth-oriented entrepreneurs to establish and succeed 65. Given
that MSE support is a core responsibility for all city administrations, UIIDP should build their capacity
and remodel the approach of MSE support. ULGs should be encouraged to identify at least a proportion
of autonomously formed firms to be supported through open business plan competitions for entrepreneurs
to present their own ideas. The MSE office could then work with a local university or micro-finance
institution to assess these ideas for viability. The other challenge is the lack of strategic direction, ad hoc
nature and variation of MSE policies across regions. The policies and strategies lack comprehensiveness
and harmonization in terms of clear registration, incentive mechanisms, monitoring and follow up, and
graduation procedures. The ad hoc incentive mechanisms and reservation schemes prepared to respond to
short-term needs may have serious impacts on other non-MSE actors and reduce competitiveness.

11. While urban MSEs are faced with multiple challenges to establish and grow, ‘access to
finance’ has often been cited as the top constraint. Collateral requirements for loans at microfinance
institution (MFI) and commercial bank are high in contrast with comparable countries, discouraging
aspiring entrepreneurs from borrowing. The application process for MFI loans are onerous and time-
consuming, and this has significantly delayed business development of many MSEs. Moving forward, the
city could play a larger role in facilitating access to finance for MSEs through the provision of reference
letters, signaling good track records and financial solvency to financial institutions, or expediting the
provision of work premises or business licenses which usually are inputs of the MFI loan application.

12. Weak backward linkages to access quality raw materials and forward linkages to buyers
and markets were mentioned as a key binding constraint by MSEs in all cities consulted. MSE
offices do try to foster some of these linkages but lack capacity to do so beyond government contracting.
For example, MSEs involved in cobblestone production were able to grow and succeed as a result of
being given preference in government construction contracts. The capacity of MSE offices could be
further strengthened to encourage MSEs to aggregate into voluntary associations, for example, that could
engage in bulk input purchase and bulk marketing, among other services. Assistance will be provided to

65
For example, Gebre Egziahber, T. and M. Ayenew (2010). Micro and Small Enterprises as Vehicles for Poverty Reduction,
Employment Creation and Business Development: The Ethiopian Experience. FSS Research Report Number 6.

61
prepare a harmonized and comprehensive registration, incentive mechanisms, monitoring and follow up,
and graduation procedures for MSEs.

(c) Low levels of capacity among city administration staff and offices

13. While city administrations had a lot of LED mandates, the relevant staff and offices lack the
capacities to execute them effectively. Some firms even indicated that they felt they had higher
capacities and knowledge than the officials in the MSE office meant to support them. Respondents also
highlighted the broader issues of low public sector salaries as well as wage inequalities across different
departments, which is demoralizing staff. Given that all cities, outside of Emerging Regions, undertake
investment promotion, they should also be trained in promotion tools as well as in how to undertake
aftercare services for investors.

14. Given the large amount of cobblestone workers graduated from ULGDP II every year and
the vulnerable nature of these beneficiaries, better collaboration between the local project
implementation office and the MSE office is needed to streamline the self-employment support
provided to workers. Currently, the MSE office and ULGDP II office lack effective communication
mechanisms to smoothly transfer cobblestone workers to MSE support, leaving many entrepreneurial
attempts in failure due to the absence of proper business guidance, technical training or follow-ups.

15. Lack of access to land and electricity are also major issues delaying new investment. For
example, in Adama, city administration officials indicated that investors had been stuck for the last 2
years, as a decision by the Oromia Regional Government was taken to stop land allotment 66. Electric
power shortages were also reported as a severe impediment to industrializations in all cities. These issues,
however, need Federal level action urban land policy reform and increasing electricity provision capacity.

C. Specific LED Aspects Included in the UIIDP

Table 1.7. Specific LED Aspects Included in the UIIDP

Output Action Responsible body Instrument

Improved public - Institute quarterly dialogue with private sector reps
private dialogue to to inform CIPs. ULGs, Mayors
inform CIPs.
- Target growth-oriented entrepreneurs and conduct
selection through open business plan competition.
PforR
- Aggregate MSEs into cooperatives to enable bulk
Improved impact of
marketing and input supply. ULGs, MSE offices
MSE support.
- Facilitate access to MFI loans through the provision
of reference letters, expedited provision of work
premise, and expedited business licensing.
Understand impacts of - Commission household survey-based impact IPF
job creation and other assessment at midterm and end of program to
LED interventions capture its wider impacts on cities compared to
under the UIIDP. control group.67 MUDHo
- Systematically track the survival of city-supported
MSEs to gain better understanding of successes and
challenges of current system.
- Commission technical assistance and training to
Capacity building. increase capacity of federal, regional and ULG staff MUDHo IPF
on LED planning, investment promotion, public

66
Due to irregularities in the allotment process as well as the expense of compensation costs to farmers for loss of land.
67
This needs to be designed by experts in impact evaluation. Control group of non-supported cities might not be possible due to
the difference in characteristics of non-supported cities. Perhaps comparison with cities new to the program is an option.

62
 private partnerships, private sector support and
tourism investments.

RAPID URBAN RESILIENCE AND DISASTER RISK MANAGEMENT ANALYSIS AND

ACTION PLAN

A. Overview and Need for Strengthening Urban Resilience in Ethiopia

1. Ethiopia has one of the fastest growing urban populations in the world. Population is
projected to nearly triple from 15 million in 2012 to 42 million in 2034, an average annual growth rate of
5.4 percent.68 With rapid growth comes a significant amount of new construction, much of which will
occur in cities with limited capacity to ensure the structures in which people live, work and gather are
safely built. During this time of transition to an emerging economy, when significant investments in
infrastructure are made and resources are committed for years to come, it is critical for Ethiopia to steer
settlement growth and construction toward safe areas and ensure the construction of safe buildings and
infrastructure. Ethiopian cities are already struggling with access to jobs, infrastructure, services, and
housing.69 Rapid urbanization will lead to greater concentrations of people, assets, and infrastructure, thus
increasing exposure to shocks and stresses. Limited capacity for land use planning, coordination of
services, and mobilization of financing for infrastructure pose major constraints to healthy urbanization
and will compound Ethiopia’s continued exposure to shocks and stresses.

2. Together, these risks increase cities’ vulnerability to disasters such as floods, fire, and
earthquakes, with potentially devastating effects on Ethiopia’s economic performance and its
poverty-alleviation agenda. Without systems and services for resilience, disasters can push vulnerable
people into, or further into, poverty. Recurrent shocks can undermine past gains and hamper future
economic growth, leading to a pernicious “poverty trap” for many of the urban poor. 70 If managed
proactively, urban population growth presents an enormous opportunity to foster economic growth and
support the GoE’s vision to reach middle-income status by 2025. 71 Timely and effective interventions now
to promote resilience can have significant positive impacts on the long-term safety, productivity, and
smooth functioning of the urban built environment. These interventions can reduce the impact of floods,
fire, and landslides—which disrupt a city’s fabric and the lives and livelihoods of the people who live
there. Socio-economic stresses—such as unemployment, air and water pollution, lack of housing, or lack
of public services—can have the same impacts unless actions are taken to improve urban resilience.

3. Resilience is the capacity of a city to provide services, adapt and grow, despite chronic
stresses and acute shocks that may threaten its collective viability.72 Strengthening urban resilience in
Ethiopian cities will require better understanding of risks, and incorporating resilience into land use
planning and development, undertaking measures to mitigate risk through disaster and climate risk
management, and improving regulatory decisions and emergency preparedness. Box 1 presents the
participatory technical assistance employed to identify key priorities for urban resilience in Ethiopia.

4. Increasing investment in resilience supports the strategic and long-term national priorities
of the GoE. The government’s GTP 2 (2014/15–2020) emphasizes the fundamental importance of

68
World Bank Group and Cities Alliance, 2015. “Ethiopia Urbanization Review: Urban Institutions for a Middle-Income
Ethiopia.” Washington, DC.
69
Ibid.
70
Hallegatte, et al, 2017. “Shock waves: managing the impacts of climate change on poverty.”
71
World Bank, 2013. “Ethiopia Economic Update II.”
72
World Bank, 2015. “City Strength Diagnostic Methodological Guidebook.” Washington, DC.

63
building green, resilient, and well-governed cities to achieving its vision of reaching middle-income
country status. The Ethiopian Cities Prosperity Initiative, which builds on the GTP 2, focuses on inclusive
and safer cities development as a key strategic pillar. Complementing Ethiopia’s urban development
policies, the government has developed policies to systematically manage its disaster risks, thereby also
enhancing urban resilience. These include the 2013 National Policy and Strategy on Disaster Risk
Management, recognizing the need to strengthen urban resilience, considering the growing risks of fire
and other hazards associated with rapid urbanization, and the Disaster Risk Management Strategic
Program and Investment Framework. Ethiopia’s Climate Change National Adaptation Program of Action
further contributes to the enhancement of urban resilience. Climate and disaster resilient development is
also a focus of the WB’s CPF for Ethiopia, given its importance to achieve the WB’s twin goals of
reducing poverty and increasing shared prosperity.

B. Key Urban Resilience Challenges and Potential Support Under UIIDP

5. To assess the key challenges in improving urban resilience, a technical assistance program
was supported by the WB to identify actions to foster resilience in nine regional capitals and one
city administration. These are Adama, Assosa, Bahir Dar, Gambella, Harar, Hawassa, Jigjiga, Mekelle,
and Semera-Logia, and Dire Dawa City Administration. The program was led by the MUDHo along with
the Ministry of Construction, National Disaster Risk Management Commission (NDRMC), MoFEC,
Ministry of Water Resources, Irrigation and Electricity, and Ministry of Labor and Social Affairs as well
as numerous national, regional, and local government entities, local universities, civil society
organizations, development partners, residents, and the private sector. The program was conducted
between 2015 and 2017, primarily using City Strength diagnostic methodology to facilitate dialogue
among stakeholders.

6. The technical assistance found (a) impacts from disaster and climate shocks and stresses
will increase in business as usual scenario, and (b) there are tangible social and economic benefits of
strengthening urban resilience. There are three core challenges:

 Managing flooding and water scarcity. The ten regional capitals face growing impacts
from flooding, even as a majority also face severe water scarcity. With climate change, the
frequency and intensity of flooding and water scarcity will increase if long-term preventive
actions are not taken. The current piecemeal approach of relying on structural measures
(primarily retention walls or drainage channels) and/or relocating at-risk populations does
not provide effective and long-term flood-mitigation solutions.

 Disaster preparedness. The regional capitals do not have any dedicated budget or staff to
plan, mainstream, and implement disaster and climate risk management actions; neither is
there contingency financing. The cities do not provide flood warnings or earthquake,
landslide, or volcano alerts, and no contingency plans are in place to prepare communities
for disasters. Cities also lack adequate equipment and resources to respond to fires or take
fire safety measures, especially in tall buildings and informal markets. With growth in city
populations, higher fire-related mortality is expected, which is already close to 20 times the
rate in middle- and high-income countries. 73 Improvements are needed not only for overall
safety, but also to enhance each city’s competitiveness and its potential to attract and retain
new investments.

73
Based on the World Bank’s 2016 building regulatory review, Ethiopia is spending roughly 1.5 percent less on fire protection
features in buildings than middle and high-income countries (as a fraction of total building cost) and suffering close to 20 times
the mortality, which currently totals close to 12,000 deaths per year.

64
  Building a regulatory framework. The regional capitals are witnessing rapid growth in new
construction but have limited capacity to ensure that the new and existing structures are
safely built to withstand earthquake, flooding, and fire, and avoid spontaneous collapse and
other harmful conditions. Building regulatory review assessments found four key challenges
that hamper the resilience of the built environment: (a) limited human and technical capacity
as regional and municipal building agencies are increasingly overwhelmed by the influx of
building permit applications and the growing complexity of building projects; (b) limited
effectiveness of quality assurance mechanisms and information on hazard risks; (c) lack of
implementation of new building standards; and (d) larger institutional and structural factors
such as improving safety in informal construction. Improvements in planning, building
inspection, and regulations can have significant impacts on the long-term safety,
productivity, and resilience of the urban built environment.

7. Improved disaster preparedness itself will bring large benefits in Ethiopia: 74

 Improved fire protection would effectively save 2,900 lives per year, equivalent to 160,000
lives saved in the next 34 years;

 Compliance with the seismic provisions of the building code would reduce the average
annual loss by 30 percent by 2050, from US$128 million to US$90 million; and

 Improved flood management practices would reduce the average annual loss to about
US$93 million, a net annual reduction of about US$230 million each year.

C. Specific Urban Resilience Components to Supported Under UIIDP

8. While a larger program of investment is needed to support all the recommendations from the
technical assistance, UIIDP can support the most urgent and critical need of investing in disaster
preparedness to set the ground for a large operation later. The key areas are:

 Establish urban DRM institutional framework. Following the new national DRM policy,
extend the existing national and regional DRM structure to the cities with dedicated staff
and budget within city administrations. The urban DRM unit will oversee developing a
DRM strategy, including: (a) securing early warning on flooding, drought, and high winds,
and alerts for earthquakes and landslides; (b) ensuring community disaster preparedness; (c)
developing contingency planning and budgeting; and (d) exploring risk financing and
insurance options.

 Improve urban disaster data collection, risk assessment, and information sharing.
Understanding what and where potential risks from urban disasters are, it’s necessary to
allocate resources rationally. This requires the generation and analysis of hazard and risk
information, building on woreda risk profiles and improving seismic and flood hazard
monitoring instruments and stations. At the national level, this information system can be
housed in the MUDHo, linked to the National DRM Commission and other relevant
ministries such as Ministry of Construction. The same information system will need to be
extended at regional and local government levels. A joint task force between the MUDHo
and the National DRM Commission can identify next steps to improve risk information
collection and sharing, and coordination on DRM actions.

74
Based on assessment conducted as a part of the World Bank’s 2016 building regulatory review assessment.

65
  Improve fire and rescue response capacity by providing financial and technical support to
fire services. Cities need to undertake an assessment of the fire support services to identify
the specific training and equipment needed to improve response capacity for densely
populated buildings and neighborhoods. Based on the assessment, a local plan can be
developed to assist in providing mobile firefighting units and search and rescue equipment
appropriate for city responses to fire incidents under the UIIDP.

D. Specific Resilience and DRM Management Aspects to be Included in the UIIDP

Table 1.8. Specific Resilience and DRM Management Aspects to be Included in the UIIDP

Output Action Responsible body Instrument

- As per national DRM policy and in consultation ULGs, Mayors,
Establish local DRM unit. with NDRMC. NDRMC
- Carry out quick risk assessment PforR
Develop local DRM and
- Identify needs and develop local DRM and
emergency plan to inform ULGs, NDRMC
emergency plan (building on woreda risk
CIPs.
profile).
Develop national urban - With NDRMC carry out detailed risk
DRM plan, information assessment to develop national urban DRM
system, and training plan; establish information and warning system; MUDHo, NDRMC IPF
programs. and develop training program and guidance
notes.
Build capacity. - Commission technical assistance and training to
increase capacity of federal, regional and ULG
staff on urban resilience planning, investment MUDHo, NDRMC IPF
and setting up of urban disaster information
system, and local DRM units.

RAPID GENDER ANALYSIS AND ACTION PLAN

A. Methodology

1. Rapid gender analysis is based on the findings from literature review, focus group discussions in
selected ULGs,75 regional and federal level consultations along with policy documents. ULGDPII
data/findings from mid-term review and technical assessment field visit 76 also used for analysis.

B. Context

2. Ethiopia has committed to gender equality. Ethiopia has its own Constitution and its National
Policy on Women (1993), which guarantee women’s equality and the protection of women’s human
rights. This has been enhanced by the Family Law (revised 2000) and the Penal Code (revised 2005). The
Ministry of Women and Children Affairs (MoWCA) has led on provision of support to vulnerable
women, children and youth and on gender mainstreaming. While domestic laws and policies
fundamentally support the advancement of gender equality and empowerment, enforcement and
implementation at different levels needs more attention.

3. While urban women in Ethiopia enjoy some advantages over rural counterparts, a range of
gender inequalities remain in urban areas and hinder women’s development. These include unequal
75
Jijiga, Adama, Bahir Dar, Gode, Wereta, and Negele
76
Technical assessment field visit to 10 potential UIIDP cities was conducted in April 2017 in order to identify the capacity of
prospective UIIDP cities and make recommendations on capacity building and preparatory activities. 10 cities are: Injibara and
Kemissie from Amhara; Michew and Korem from Tigray; Modjo and Ginchi from Oromia; Worabe and Hossana from SNNPRS;
Godey from Somali; and Assayita from Afar.

66
access to urban infrastructure and basic services, decent works, financial services and knowledge,
financial and physical assets, and representation in formal structures of urban governance. Women’s
development and change package highlighted that further actions are required to enhance women’s access
to the services, at the same time, to ensure socioeconomic and political benefits. 77

4. In terms of urban development sector, Gender and Youth Mainstreaming Directorate is in

place under the MUDHo to ensure gender-responsiveness in urban policies, strategies, programs
and projects at federal level. The Directorate is composed of one director, two senior experts and one
junior expert, while at regional level, most regions have one designated focal person for monitoring and
managing ULGs.78 ULGs do not have urban specific gender focal person, however, women and child
office is in place to promote gender mainstreaming in general term. The Directorate recently started
gender audits for four of regional capitals and envisions to expand the scope across other cities, this will
be reflected in gender support activities in UIIDP.

C. Key Gender Challenges and the Role of UIIDP

5. The results of the assessment and the lessons learned from ULGDPII showed that ULGs
play a limited role in gender equality and empowerment with low levels of capacity . Legislatively,
cities are mandated to lead and coordinate gender mainstreaming activities including equal access to
urban infrastructure and social services, employment opportunities, financial services, and participation in
decision-making. In practice, the cities visited had three key challenges and constraints that hinder gender
mainstreaming in ULGs: (a) women’s voice and rights; (b) absence of institutional gender mainstreaming
system; and (c) lack of women’s economic empowerment.

(a) Women’s voice and rights

6. ULGDP II has made contributions to women’s participation in community decision-making

structures, which can be further strengthened to achieve more impact. In planning and budgeting of
capital projects, women representatives from women association at kebele level express their needs and
these are discussed during the participatory consultations. Disaggregated information is available on the
number of women and men engaged in annual plan and budget consultation meetings. According to mid-
term evaluation of ULGDPII, in 14 sample cities, there was an increase in female participation in decision
making process, from 44.9 percent in EFY2007 (1,653 out of 3,681 persons) to 47.1 percent in EFY2009
(3,250 out of 6,901 persons).

7. For the next stage of the program, UIIDP will raise the bar to 50 percent participation of
women in consultation meetings to enable women to actively engage in socio-economic and political
activities. Focus group interview and field visits found out that some women could not attend the
meetings or raise their voice due to cultural barriers, UIIDP will incentivize ULGs to have at least two
consultation meetings; (a) an initial consultation meeting separately organized for women and men and
(b) the meeting for final decision of investment with both women and men having more than 50 percent
women participation.

8. There is also a need for enforcing code of conduct in employment and sub-project contract
documents for women’s rights in workplace including gender based violence, sexual harassment,
and equal payment for equal work. This will be guided through government policy and Program
Operation Manual (POM) and related training/workshop on women’s rights in workplace will be
provided by ULGs and contractors. At community level, attitude towards women’s roles has been
changing but still need more efforts. Some women indicated that they have limitations on economic
77
Ministry of Women Affairs (2005) Ethiopian Women’s Development and Change Package. (English translated version).
78
Only Tigray and SSNPR have more than two gender focal persons in regional urban development bureau.

67
activities due to cultural reasons, pregnancy, as well as lack of childcare and training and support from the
government.

(b) Absence of an institutional gender mainstreaming system in ULGs

9. Low levels of capacity and gender awareness in ULGs are identified as challenges. Staffing
level of women public professionals in city municipal service administration is improving, amounting to
37 percent in average of sampled 10 ULGs. 79 However, leadership positions (for example, head of office
and above) in the city administration requires more balanced approach, since the proportion of women
was only 27 percent. Lack of awareness of gender equality and women empowerment among ULG
officials need more attention. In general, ULG officials regard gender mainstreaming as works only for
the WCO, not having working knowledge of the issues. In terms of systematic training for officials, there
are meetings organized by WCO on an irregular basis, and no regular trainings for the officials.

10. ULGs need to institutionalize annual gender development planning and budgeting and
UIIDP will incentivize gender mainstreaming system. It is encouraging the women’s participation is
increasing in ULG decision-making process and officers in WCO participate in consultation meetings and
monitor the progress quarterly. However, there are still challenges in systematic planning, budgeting,
monitoring and reporting on how WCO works with other sector offices and regional bureaus. Some
ULGs reported they do not have their own policy and strategy to mainstream gender addressing their own
circumstances. There are some attempts to align works in different Offices to develop strategic gender
plan and plan activities, however, it is rarely done by system nor policy, but depending on personal
leadership and capacity. Hardly any gender action plans and annual gender development plans and
budgets have been prepared at ULG level in an integrated manner. Some ULGs have women
empowerment activities (for example, loans and training), and yet in piecemeal approach, often without
strategy, plans and adequate budget allocation due to ULG’s budget and capacity constraints.

11. To address these challenges, UIIDP will take gender-sensitive approach and develop a
system to improve planning, budgeting, and monitoring. Through performance measures in APA,
UIIDP will encourage and incentivize the ULGs that have annual gender development plan and
implement 80 percent of the budget presented in the plan. Templates for planning, budgeting and progress
report as well as manual will be included in POM and RMTs and FMT will support ULGs. In terms of
monitoring, collection of data, reporting and documenting will be tracked through annual progress report.
This progress report will track what has been implemented and what the remaining gaps are.

12. UIIDP will ensure gender specialists in place at ULG, regions, and federal level and develop
training manuals to support awareness and capacity building for both city officers and community
members. It will incentivize ULGs that have at least one gender focal person in WCO, and gender
specialist will be included in each of RMT and FMT to support ULGs. Hiring a gender expert at federal is
also suggested to support Gender and Youth Mainstreaming Directorate on building technical
competencies. UIIDP will raise awareness of the issues through trainings for government officials and
community members to make them more sensitive to gender equality and women empowerment.
Concerning sustainability of gender mainstreaming, training manuals and training for trainer will also be
included in gender capacity building subcomponent in IPF.

(c) Lack of women’s economic empowerment

13. Women are less likely to engage in the labor market, and receive adequate support for own
businesses. Female labor force participation rates in urban Ethiopia are 13 percentage points lower than
79
8-10 sector offices’ staffing level (municipal function) in Michew, Kemissie, Godey, Mojjo, Worabe, Injibara, Korem,
Hossana, Mekele, and Burayou.

68
male participation rates, female youth unemployment is particularly high (25 percent compared to 15
percent for men), and women are much more likely to be in informal employment than men. In terms of
MSEs, opportunities for women entrepreneurs in Ethiopia lag far behind those of men. MFIs primarily
cater to micro-firms with group lending schemes that provide very small loans, and tend to have low
outreach to women (30 percent). Growth-oriented women-owned enterprises are therefore starved of the
investment they need to thrive.

14. Given that the MSE support is a core responsibility for ULGs, in accordance with LED
analysis, UIIDP will incentivize support for women-headed MSEs and women labor force through
performance measures in APA. Women’s participation in labor intensive public works will be
encouraged, incentivizing ULGs to hire over 40 percent female labor. While temporary job itself is not
sustainable, it is observed that the saving from the payment of works became a seed money for starting
MSEs or is used for skill training or higher education. Furthermore, to close the gaps in support for
female-headed MSEs, the Program will offer incentives to cities to provide working premises/sheds and
serviced land to those MSEs, empowering women’s economic activities.

D. Monitoring and Evaluation

15. In addition to planning and budgeting, monitoring systems need more attention. While data
disaggregated by gender exists, M&E system is limited in terms of reviewing the impacts of activities.
Collection of data, reporting and documenting is limited and it is hard to track what has been
implemented and what the remaining gaps are. Monitoring furthermore needs to shift focus to quality and
depth, rather than on process and quantitative tracking alone.

16. The UIIDP will have sex-disaggregated indicators so that potential differential outcomes can be
tracked. The following table shows action and selected indicators in results framework linked to
intermediate outcomes and in performance measures in DLI 4.

Table 1.9. Selected Actions and Indicators on Gender Mainstreaming

M&E
Category Key challenges Actions (Gender Indicators in RF/Performance
Measure)
Institutional Lack of gender ULGs to have annual gender Number of ULGs that implement 80 percent
capacity planning and development plan and budget of the budget presented in the annual gender
budgeting in ULGs. allocation and implement the development plan
plan.
Voice/ Ensure women’s ULGs to promote above 50 Number of ULGs for which citizen fora
Participation participation in percent women participation in (public consultations between government
decision-making citizen for a. and residents, including plan and budget
process. consultations) have been held at least twice
a year, with above 50 percent women
participation
Awareness Enhance awareness on ULGs to promote awareness Number of workshop/training on gender
building gender issues. raising workshop/ training on issues in workplace: gender based violence,
women’s right at workplace sexual harassment, and equal payment for
equal work;
Economic Women’s equal ULGs to promote above 40 Of which female percentage (40 percent) in
empowerment opportunity to percent women participation in number of jobs created through UIIDP labor
employment labor intensive sub-projects intensive infrastructure works.

Lack of economic ULGs to support women- % of women-headed MSEs supported with

empowerment for headed MSEs with working working premises, sheds and serviced land
women-headed MSEs. premises, sheds and serviced under UIIDP.
land.

69
 ULGs to support women- % of women-headed MSEs awarded with
headed MSEs to take contracts contracts under UIIDP
of UIIDP sub-projects

E. Gender Action Plan

17. The Gender Action Plan outlines a set of responses to address bottlenecks to gender
mainstreaming and implementation of UIIDP. The action plan builds on lessons from ULGDP II and
findings from the analysis. It identifies concrete strategies to ensure gender equality and women
empowerment in UIIDP ULGs, and guides the gender mainstreaming system to better perform in
planning, M&E, reporting and management.

Table 1.7. UIIDP Gender Action Plan

Responsible
Program component Action Instrument
body
- Ensure gender specialist in place at ULGs (both WCO and
MUDHo,
UIIDP focal group)
Staffing Regions,
- Ensure gender specialist in place at federal and regional
ULG
level (FMT and RMTs)
Develop Awareness - Held quarterly meetings with focal persons, assigned in WCYO and
an building each sector office ULG
integrated - Strengthen annual gender development planning and
gender Planning and budgeting template (annexed into POM) to better capture MUDHo
mainstrea budgeting gender activities across all sectors
ming - Plan and budget annual gender development using the WCYO and
system template in POM ULG
- Develop Indicators and update regularly PforR
- Monitor Implementation rate WCYO and
M&E
- Produce annual progress report ULG
- FMT and RMTs to conduct supervision visits regularly
- Promote women’s participation in decision making
WCYO and
process, through strengthening of the performance
ULG
measures
- Incentivize ULGs to provide awareness raising program/
workshop/ training on gender issues (a) in workplace:
Enhance women’s voice MUDHo and
gender based violence, sexual harassment, and equal
and rights ULG
payment for equal work; (b) gender equality and
economic empowerment
- Enforcing code of conduct in employment and sub-project
MUDHo,
contract documents for gender based violence, sexual
WCYO and PAP
harassment, and equal payment for equal work.
ULG
- Incentivize ULGs to support (a) women employment in
Promote women’s labor intensive public works and firms; (b) women- MSE offices
PforR
economic empowerment headed MSEs with working premises, sheds and serviced and ULGs
land; (c) women-headed MSEs to take the contract
- Hire gender specialist/consultant at Gender and Youth
Staffing at
Mainstreaming Directorate to provide technical support
Federal level
(including update of urban development sector guideline)
TA for gender
Capacity mainstreamin
MUDHo IPF
building g guideline - Update gender mainstreaming guideline for urban
for urban development
development
sector
TA for gender - Conduct gender audit for cities (expanded the scope of
audit cities, from the recent audits initiated and conducted by the

70
 Directorate)
Training for - training in gender audit for gender specialist in ULGs and
gender audit regions
Training for - Training for FMT and RMTs
gender - Training for ULG officers, focal persons in different sector
equality and offices
women - Training for trainer (for officer trainings)
empowerment - Training for trainer (for community members)
- Gender mainstreaming
Training  Training materials/manual for officers in ULGs
material/  Training materials/manual for community members
manual - Gender audit
development  Training materials/manual for officers in ULGs and
regions

71
Attachment 3: WB Investments and Cross Sector Collaboration in Ethiopia’s Secondary Cities 80

1. Introduction. Ethiopia has been experiencing rapid urbanization during the last couple of
decades that has resulted in significant transformation of its urban landscape. The changes were driven by
the country’s substantial shifts in urban development policy as well as demographic and economic
structures. The WB has been providing substantial support to secondary cities in Ethiopia on multiple
sectors and through both investment projects and technical assistance/analytical work. This brief
summarizes the findings of a stock-take of WB engagements through investment lending of various
sectors to highlight the substantial and complementary support provided and how such efforts are aligned
with development policy and strategies presented in the Government policy and the WB’s Country
Partnership Strategy (CPS). For illustrative purposes, the exercise focused on a sample of Ethiopia’s six
most populous secondary cities (Dire Dawa, Mekelle, Adama, Gondar, Hawassa, and Bahir Dar) in five
regions, and with projects under implementation in FY2010–2017. 81

2. Cross-Sectoral support for secondary cities development. WB’s Ethiopia portfolio is diverse
and designed to support the achievement of the development priorities established by the Ethiopian
government, along with the WB’s CPS and twin goals of eliminating extreme poverty and promoting
shared prosperity. The numerous WB projects and investments across different sectors offer synergies
and complementarity for secondary cities development.

3. To illustrate the WB initiatives in urban areas, examples are drawn from Ethiopia’s six most
populous secondary cities (Dire Dawa, Mekelle, Adama, Gondar, Hawassa, and Bahir Dar) in five
regions, WB projects under implementation in FY2010-2017 were compiled. These projects range across
multiple sectors, are complementary and have directly benefited these six secondary cities and the five
regions where these cities belong. At the city level, these range across initiatives in urban development as
well as energy, transport, water and sanitation, to finance and social protection. At the regional level,
there are further efforts in the areas of agricultural productivity, agro-pastoral development, energy, and
watershed management. In addition, investments at the national level cover the areas of education quality
improvement and governance. The key initiatives under the various sectors as well as the
complementarity with supporting urban development in these secondary cities, and five regions are
described below and summarized in Figure 1: Overview of WB Projects in the Six Secondary Cities.

(a) Urban development and local government strengthening. Through the ULGDP and
ULGDP II, investments are being provided to better livelihoods and improve living
conditions by supporting ULGs’ institutional capacity and ability to provide for municipal
services and infrastructure. Performance grants and capacity building programs under the
ULGDP targets secondary cities (19 cities in ULGDP and 44 cities in ULGDP II) to address
the capacity and infrastructure deficits. The programs have also had positive impacts on
wider LED of secondary cities by creating temporary/permanent jobs in construction and
MSEs. ULGDP third generation is in preparation and intends to expand the Program scope
and focus areas so that more cities can benefit from the program and transformational
impacts.

(b) Energy. In the early 2000s, the limited supply of modern forms of energy and their high
costs, as well as the dependence on biomass were major hindrances to the development of
an efficient and cost-effective energy sector. To address these challenges, an Energy Access

80
This attachment focuses on secondary city investments in Ethiopia, taking into account the lending projects within six most
populous cities and five regions (Dire Dawa, Mekelle, Adama, Gondar, Hawassa, and Bahir Dar), which were implemented
during the period of 2010–2017.
81
As every project has a different starting and ending year, and could not be neatly disaggregated only for FY10–17, the IDA
funds detailed in this note made various assumptions, and considered project which overlaps with this period.
 Project was implemented (2002 -2013) in Addis Ababa and seven secondary cities. 82 The
project supported GoE to expand access to electricity, improve the quality and adequacy,
and promote renewable energy. Following the project focused on city electrification, there is
an on-going Electricity Network Reinforcement and Expansion Project in all five regions
where the six secondary cities reside. ENREP has been improving reliability and
accessibility of electricity services, developing market for renewable energy, as well as
strengthening institutional capacity. In the Oromiya region, a geothermal site development
project (Ethiopia Geothermal Sector Development Project) is in operation. There are two
more projects in the pipeline to continue to support expanding energy service delivery and
enhance renewable energy development. 83 Together with the quality of life improvements
that come with electricity access to households, sustainable energy products and services,
institutional capacity building have been taken into consideration for more integrated and
sustainable energy sector development.

(c) Finance and markets. Finance and Market sector projects include funding, programs and
support for financial sector capacity building and MSEs’ finance to improve the overall
business environment in Ethiopia. These are ultimately essential for poverty reduction and
economic development. In addition to national projects that support MSEs and financial
sector capacity building, a project with specific impacts on secondary cities is to develop
female entrepreneurship in Dire Dawa, Hawassa, Bahirdar, Mekele, and Adama. 84 The
project has been providing both financing (credits) and trainings for females who own or
partly own enterprises and are willing to grow their business. The six secondary cities will
benefit greatly from improved reliability and accessibility to energy and overall improved
business environments to boost LED, integrating gender in economic development.

(d) Social protection. Prevalent urban poverty and high vulnerability to shocks and stresses in
Ethiopia continue to be widespread challenges. Projects under the Social Protection and
Labor Global Practice include safety net supports through conditional cash transfer, basic
service provision,85 food security improvement, and institutional support, while integrating
DRM and citizen engagement into the project’s multi-sectoral approach. Among the six
secondary cities, Dire Dawa, Hawassa, Mekelle, and Adama have city-specific projects
while there are five projects which have been implementing at the national and regional
level to improve the weak social protection system.

(e) Transport. Since the implementation of the GoE’s Road Sector Development Program,
there have been remarkable achievements in physical, organizational, social and financial
transformation in transport development. However, density and quality of the road network
to support an efficient production and distribution system were limited compared to other
countries in Africa. Limitations in traffic management and public transport network,
pedestrian safety concerns, high accident rates, and inadequate institutional capacity were
the main hindrances to a safe and reliable mobility system. To tackle these challenges, there
have been projects both in Addis Ababa and secondary cities. Among the six secondary
cities, inter-urban roads were constructed between Gondar and Debark, together with
installation of regular maintenance mechanism. The fifth phase of the Road Sector
Development Program is in the pipeline and planned to be implemented in the period of the
GTP II and the WB will also fund construction of inter-urban roads. 86

82
Dire dawa, Hawassa, Bahar dar, Mekelle, Adama, Jima, Dessie, and Addis Ababa
83
(P160395) Ethiopia Electrification Program, (P162604) Renewable Energy Guarantees Project
84
(P148447) Ethiopia: SME Finance Project, (P094704) Ethiopia: Financial Sector Capacity Building Project
85
The Projects define basic services as education, health, agriculture, water supply and sanitation, and transportation
 (f) Water supply and sanitation. In the GTP, the GoE has set aggressive targets of reaching
98 percent coverage for improved water supply and 84 percent for improved sanitation by
2015. While progress in achieving the GTP targets has been commendable (reported as 79.8
percent for access to safe drinking water and 93 percent for access to sanitation coverage in
2011/12), a recent national WASH inventory has shown that actual progress has been slower
than initially planned. Current challenges facing the sector are households, schools and
health facilities without improved water supply, open defecation, increased demand for
improved water supply and sanitation services, and equitable service delivery to urban and
rural areas. To address these limitations, regional projects have been under implementation
for both urban and rural water supply and sanitation. While in the most populous secondary
cities—Hawassa, Gondar, Jima, Mekelle, Dire Dawa—which experience rapid urbanization,
there have been city-specific interventions to meet the increasing needs.

86
Construction of Dembi Dollo-Gambella Road (102 km), Haik-Bistima-Chifra Road (60 km), Harar-Ejersa Goro-Bombass
Road (90 km) and Shi shinda-Teppi Road (74 km)

75
Figure 1.1. Overview of WB Projects in the Six Secondary Cities (FY2010–2017)
 Annex 2: Detailed Project (IPF) Description

1. The IPF window has a total funding of US$34.57 million (US$32.57 from IDA; and about
US$2.0 million from AFD). The IPF will enable MUDHo to support and guide the regions and ULGs and
also to administer and coordinate the Operation. The IPF will be used to fund a range of institutional and
capacity development interventions for or coordinated by MUDHo.

2. The IPF window will enhance overall operation management, effectiveness, and impact. The
rationale for adopting an IPF window arises from the lessons learned from the ULGDP II and other PforR
operations. An IPF allows greater operational certainty, budget predictability and reduced risks for
undertaking federal level actions that are critical for the success of the Operation in particular, for
conducting the ULG APAs and VfM audits. The IPF implementation modality also allows targeted
interventions where tailoring to specific needs or sub-groups of cities/regional agencies are required in
terms of technical assistance, capacity building, and institutional support activities. A close working
relationship between the federal government and the WB through the IPF modality would also allow the
WB to provide better and just-in-time support when required.

3. Under the IPF, the MUDHo will undertake activities in five areas: (a) developing capacity,
systems, and organizations of federal entities;87 (b) developing capacity, systems, and organizations of
regional and ULG entities, (c) conducting project preparation studies, pre-feasibilities and feasibility
studies for ULGs with specific needs for further investments, (d) UIIDP management, M&E and
feasibility/preparatory studies for future execution; and (e) procuring and managing APAs and VfM
audits. The capacity building activities, technical assistance and feasibility studies will focus on core and
strategic areas such as revenue enhancement, asset management, CIP preparation, FM, as well as
introducing initiatives on LED, urban resilience, cultural heritage, and urban planning (see table 2.1 for
details of the activities).

4. The AFD will provide joint co-financing to the IPF window in support of Subcomponent 3.
Around euro 1.8 million will be used for Subcomponent 3 on project-preparation studies, aimed at
allowing local authorities with specific needs to benefit from technical assistance on the preparation of
large-scale projects, focusing on cities oriented towards LED and cultural heritage. This technical
assistance could prepare further investment-oriented packages that could be implemented with the support
of MUDHo and donors. More specifically, this subcomponent is envisioned as one single international
consultancy (fully funded by AFD) which covers six main tasks:

(a) Task 1: Diagnosis, opportunities, challenges of Heritage and Industrial Park Cities

(b) Task 2: Participatory needs assessment and collaborative workshop on cultural heritage and
tourism, and LED, to identify possible categories of actions and investments to promote an
integrated urban development (shared vision, strategy workshops, and so on);

(c) Task 3: Support to MUDHo for the selection of a first set of cities (5-6) with potential
(criteria matrix, maturity index, and so on);

(d) Task 4: Pre-feasibility studies for specific targeted cities (among all sectors listed);

(e) Task 5: Preparation of a new program (preparation of implementation, financial

sustainability, environmental and social safeguards, and so on);

87
MoFEC, MUDHo, Ministry of Construction, MEFCC, Ministry of Women and Children Affairs and Ministry of Labor and
Social Affairs, OFAG, FEACC, FPPPAA.
 (f) Task 6: Global Program management

5. The AFD-supported areas would be seamlessly incorporated as part of the UIIDP design, hence
adopting all WB’s implementation system, guidelines and policies without separate reporting
requirements.

Table 2.1. IPF Supported Areas

Components Activities Key result Estimated Categories
targeted* Costs for
Entire
Operation
(US$, million)
Component 1: Capacity building and system or organizational development of 7.5
federal institutional entities
- Urban development - Study on future funding modalities and - 1 to 7 Consultancy
and financing options for urban development,
strategy including integrating performance grant
into intergovernmental fiscal transfer
system, balancing of grants, improved
own-source revenue, and other mixed
funding modalities such as borrowing,
and so on.
- Rural-urban - A study to understand how cities are - 1,7 Consultancy
migration and managing migration and inclusion
inclusion study issue, especially how the rural poor who
move into cities are being integrated
and provided for.
- Public financial - Support to MoFEC for project - 4 Systems
management accounting and training Consultancy
support - Support to ULGs, FPPPA, RPPPAAs, - 4 Training
OFAG and ORAGs
- Procurement - Support to FPPPA and RPPPAAs - 4
management
- Fraud and - Provide capacity building support for - 6 Training and
Corruption FEACC for an effective fraud and workshop
corruption and complaint handling
system improvement
- ESSA support - Training for Ministry of Construction, - 5 Training
MUDHo, MEFCC, Ministry of Women
and Children Affairs and Ministry of
Labor and Social Affairs
- Strategic technical - Urban Planning: spatial and land use - 1 Training and
assistance or studies planning for priority city regions/ consultancy studies
or training regional clusters, in line with the
National Spatial Plan. - 7
- LED: Technical assistance, training and - 7
development of guidelines/manuals in
areas such as public private partnership,
cultural heritage and tourism,
investment promotion, and so on. - 7
- Urban resilience: Technical assistance
such as for multi-hazards risk and
vulnerability assessment for each city,
urban early warning systems (building
on national meteorological/DRM - 7
coordination capacity and linking it
with regional/local DRM centers)
- Gender: Technical assistance such as
for ULG’s gender audit/assessment and
gender mainstreaming guideline

78
 (strategy)
- Training and - Training, seminars, study trips 1 to 7 Training and
capacity building workshop
for MUDHo
- Manual preparation- Update of the POM 1 to 7 Consulting
- Fit-for-purpose procurement and services
contract management, and auditing
manuals
Component 2: Capacity building and system development coordinated by 8.67
MUDHo to support Regions and ULGs
- Familiarization/ - Focus on UIIDP implementation and 1 to 7 Training and
orientation/refresher thematic areas workshop
training for FMT
and RMTs
- FMT - Staff in FMT 1 to 7 Consultant/contract
- International consulting firm(s) staff
- Work scope: Backstop support to 10
RMTs and direct support to
Benishagul-Gumuz, Gambella, Harari,
Dire Dawa
- Support for BOFED - Training and capacity building on FM - 4 Training and
workshop
Consulting
services
- Supply-side All thematic areas for example, Training and
capacity building - Urban planning & management - 1 workshop
courses/training for
- Revenue enhancement - 2
Regions and ULGs - Asset management - 3, 4
(by ECSU, - CIP preparation - 1
Federal/Regional - Fraud and Corruption - Provide - 6
Institutions or capacity building support for REACC
private institutions)and ULGs for an effective fraud and
corruption and complaint handling - 4
system improvement - 5
- public financial management
- 7
- Environment and social management
- LED - 7
- Urban Resilience
Component 3: Project-preparation studies for selected ULGs 2.0
(fully financed
by AFD)
Preparation studies88 (prefeasibility or
- Project-preparation - 3, 7 Consultancies
studies feasibility studies) for investment projects
that are likely to contribute to sustainable
urban development and LED, and targeting
cities with specific needs for further
investments (targets: ULGs with associated
industrial parks; ULGs with a cultural
heritage or tourism potential)
Component 4: UIIDP Operation Management and Future Outlook 8.5
- Function of FMT - FMT staff/consultant/advisor 1 to 7 -Consultant/
under UREFMFB o Long-term consultant(s) contract staff
of MUDHo - Support TC and SC (task force from -Goods
MUDHo will be part of TC)
- Equipment
- MoFEC - Two accountants in MoFEC dedicated 4 Consultant/contract
to UIIDP (paid through MUDHo) and staff
88
Studies could include: Liquid/solid waste management, promotion of sustainable transport system (for example bus rapid
transit), expanding access to water and sanitation services, integration of green and public spaces, heritage restoration and
tourism promotion, serviced land for industry, MSEs, tourist sites and housing, premises and markets for MSEs, housing, and
upgrading of city centers.

79
 accountants in MUDHo
- M&E system - IT system for monitoring, and so on. 6 System
including support to MoFEC on development
accounting, and so on. Equipment and
- Impact evaluation consultancy
- MTR, end of Operation Implementation
Completion Report and workshop
- Preparation of - Relevant studies/consultancies 1 to 7 Consulting
future projects services
- Operating costs - Incremental operating costs:89 the 1 to 7 Operating cost
reasonable incremental expenses
incurred, based on annual work plan
and budget (AWBP) approved by the
Association, incurred by the Recipient
on account of Project implementation,
management, and monitoring, including
expenditures for vehicle O&M, office
supplies and consumables, utilities,
communication, translation and
interpretation, bank charges, Operation-
related national and international travel,
as well as per diem
and accommodations (but excluding
salaries of the Recipient’s civil
servants), and other miscellaneous costs
directly associated with the Operation
implementation.
Component 5: Annual performance Assessment and Value for Money Audits for 7.4 Consultancies
UIIDP
IDA SUF fee 0.5
TOTAL for IPF 34.5790
Note: *Key Results
(a) Enhanced citizen participation and engagement in ULG planning and budgeting;
(b) Increased OSR at the ULG level;
(c) Improved infrastructure, service delivery, O&M systems and job creation;
(d) Improved efficiency and effectiveness in fiduciary management;
(e) Improved environmental and social management and safeguards;
(f) Strengthened accountability and oversight systems;
(g) Strengthened ULG resilience, improved LED and enhanced gender equity in the ULG operations.

6. Implementation arrangements. The MUDHo will be responsible for the overall coordination
and implementation of UIIDP. MoFEC will be responsible for the fund flow, disbursement, financial
reporting, and overall project auditing.

7. Disbursement arrangements will be based on procedures that are consistent with IPF
modalities. Funds will be disbursed from IDA and AFD to MoFEC and then to MUDHo. IDA funds will
be deposited into a separate designated account to be opened at the National Bank of Ethiopia (NBE) by
MoFEC. The authorized ceiling of the Designated Account would be two quarters forecasted expenditure
based on the approved annual work plan and budget. MoFEC will also open a local currency account in
the name of the project. Report-based disbursements will be made quarterly and cover cash requirements
for the next six months, based on the forecasts contained in the Interim Financial Reports (IFRs).
Provision would also be made in the Disbursement letter for the other disbursement methods, that is,
direct payments, special commitments, and reimbursements.

89
Incremental operating cost: these are operating costs that are not already covered by the government (or are additional costs)
included in the annual work plan and budget and to be approved by the Bank.
90
This total amount includes IDA’s Grant contribution amount of US$32.57 million and AFD’s contribution of US$2.0 million.

80
Financial Management

8. A FM assessment was conducted in accordance with the FM Practices Manual for WB-
financed Investment Operations.91 The assessment is also conducted as per the requirements of the WB
policy and directive on IPF. The assessment was conducted at the federal level only at the MUDHo and
MoFEC. The objective of the assessment was to determine whether the implementing entities have
acceptable FM arrangements to ensure: (a) that funds are used only for the intended purposes in an
efficient and economical way; (b) that accurate, reliable, and timely periodic financial reports are
produced; and (c) that the implementing entities assets are safeguarded.

9. The FM residual risk for the project is rated as Substantial. The mitigation measures
proposed in the PAP will help to reduce the risk of the Project once implemented. The main strengths are
the Project will inherit the various strengths of the country’s public FM system. Several aspects of the
system function well, such as the budget process, classification system, and compliance with financial
regulations. Significant ongoing work is directed at improving country public FM systems through the
GoE’s Expenditure Management and Control Program. The Project also benefits from the country’s
internal control system, which adequately provides for the separation of responsibilities, powers, and
duties. In addition, both MoFEC and the MUDHo have experience in implementing WB-financed
projects. The main weaknesses noted were the MUDHo’s unsatisfactory utilization of the budgets of both
the government and ULGDP II, and understaffing of the internal audit department. In addition, a delay
was noted in finalizing the FM manual for the ULGDP II.

10. The Project will follow the existing government rules and regulations under channel 1 fund
flow mechanisms. The Project will prepare a FM manual as an annex to the POM, laying out operational
matters including FM issues/arrangements. Under the Project, special emphasis will be placed on
assessing, identifying, and mitigating gaps in the FM systems of the newly participating ULGs, and in
building their capacity for FM on an ongoing basis. All disbursement methods are available to the Project.
Funds from IDA will flow directly to MoFEC through a segregated designated account for onward use
and transfer to the MUDHo. The Project will use report-based disbursement, with submission, through
MoFEC, of quarterly interim financial reports within 45 days of end of the quarter that include forecasts
for advances/replenishment of the Designated Account. Staffing arrangements have been outlined. The
Project will have its accounts audited on an annual basis by an independent external auditor acceptable to
the WB. The financial audit report will be submitted within six months of the end of the EFY.

11. It is the conclusion of the assessment that the FM arrangements meet the IDA requirements
as laid out on the WB policy and directive on IPF, as well as the Financial Manual. An action plan
has been developed and agreed to mitigate the risks and address the overall identified in the project. See
annexes 6 and 9 for details.

Procurement

12. Procurement under the project will be carried out in accordance with the WB’s
Procurement Regulations for IPF Borrowers, “Procurement in Investment Project Financing,
Goods, Works, Non-Consulting, and Consulting Services,” dated July 2016 and “Guidelines on
Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA
Credits and Grants,” revised as of July 1, 2016; and the provisions stipulated in the Financing
Agreement. As per the requirement of the regulations, a Project Procurement Strategy Document has
been prepared by the MUDHo and the WB has reviewed this and in general agreed to the draft
Procurement Plan prepared for the first 18 months of the project life.

91
Issued by the FM Sector Board on March 1, 2010, and retrofitted on February 4, 2015, along with its supporting guidelines.

81
13. A procurement capacity assessment was carried out on the MUDHo, as per the WB’s
directive on procurement. This shows that capacity of the MUDHo is generally sufficient to handle the
procurement. However, several weaknesses will need to be mitigated following the measures as detailed
in annex 6. Based on the assessment, the procurement risk of the IPF window of the project is rated
Substantial.

82
 Annex 3: Results Framework and Monitoring

The Program Development Objective (PDO) is to enhance the institutional performance of participating urban local governments to develop and sustain urban
infrastructure, services, and local economic development.
PDO Level Results Unit of Base- Target Values Fre- Data Responsibility for
Indicators Measure line quency Source/ Data Collection

Core
FY1992

DLI
FY20 FY21 FY22
FY18 Method-
ology
1. People provided with √ 3 Number 0 4.4 million 6.6 million 6.6 million 6.6 million Annually M&E MUDHo
improved urban living
conditions under the
UIIDP93.
a. Of which female √ Percent 0 50 percent 50 percent 50 percent 50 percent Annually M&E MUDHo
2. Cities with improved √ 1- Number 0 117 117 117 117 Annually M&E MUDHo
livability, sustainability, 4
and management.94

3. Composite 2 Number 0 70 75 80 85 Annually APA Measured by the

institutional performance score in the APA,
of participating ULGs, averaged across all
averaged across all cities. The APA
cities.95 firm collects the
basic data on
performance. The
PTC and MUDHo
verify the index.
4. Composite 3 Number 0 70 75 80 85 Annually APA See above.
performance for
achievement of urban
infrastructure and service
targets, maintenance
performance and VfM in
investments by ULGs,
averaged across all cities.

92
FY2019 is year zero.
93
The indicator measures hard infrastructure only.
94
This indicator measures the cumulative number of ULGs that have benefited under the UIIDP from investments in infrastructure or from investments in areas such institutional
reform, municipal finance and the like: (a) living conditions for residents; (b) financial, economic, environmental, and/or social sustainability of the city; and/or (c) city planning,
systems, and governance.
95
In the areas of planning and budgeting, assets management, public FM, 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.
 The Program Development Objective (PDO) is to enhance the institutional performance of participating urban local governments to develop and sustain urban
infrastructure, services, and local economic development.
PDO Level Results Unit of Base- Target Values Fre- Data Responsibility for

Core

DLI
Indicators Measure line FY19 FY20 FY21 FY22 quency Source/ Data Collection
FY18 Method-
5. Composite 4 Number 0 0 60 65 70 Annually ology
APA See above.
performance for
achievement of LED,
urban resilience and
gender targets by ULGs,
averaged across all cities.
Intermediate Results Area 1: Institutional Performance
1. ULGs that achieve an 2 Number 0 34 45 60 80 Annually APA Firm collects the
increase of own source data and MUDHo
municipal revenue of at and the WB review
least 10 percent over the and confirm.
previous year under
UIIDP.96
2. ULGs with timely 9 Number 44 60 117 117 117 Annually APA Same as above.
audits.97
3. ULGs with clean 2 Number 13 18 22 26 35 Annually APA Same as above.
(unqualified) audit.
Intermediate Results Area 2: Infrastructure and Maintenance
4. Urban cobblestone √ 3 Kilo-meters 0 400 800 1,200 2,000 Annually M&E Firm collects the
roads built or data and MUDHo
rehabilitated under and the WB review
UIIDP. and confirm.
5. Urban gravel roads 3 Kilo-meters 0 300 500 700 900 Annually M&E Same as above.
built or rehabilitated
under UIIDP.
6. Serviced land for 3 Hectares 0 5,000 8,500 12,000 15,500 Annually M&E Same as above.
industry, MSE sheds, and
housing under UIIDP
7. Drains98 built or 3 Kilo-meters 0 0 800 1,200 2,000 Annually M&E Same as above.
rehabilitated under
UIIDP.

96
The increase is measured in nominal figures (excluding land lease).
97
All 44 cities participating in the ULGDP II have received audits on time for the most recent two fiscal years (by January 7) 2015/16 and 2016/17 (Ethiopian fiscal years 2008
and 2009).
98
Drains may be roadside drains or stand-alone drains.

84
 The Program Development Objective (PDO) is to enhance the institutional performance of participating urban local governments to develop and sustain urban
infrastructure, services, and local economic development.
PDO Level Results Unit of Base- Target Values Fre- Data Responsibility for

Core

DLI
Indicators Measure line FY19 FY20 FY21 FY22 quency Source/ Data Collection
FY18 Method-
8. Public parks and 3 Hectares 0 100 200 300 400 Annually ology
M&E Same as above.
greenery built or
rehabilitated under
UIIDP.
9. ULGs that execute at 3 Number 0 45 60 80 100 Annually M&E Same as above.
least 80 percent of their
O&M budget under
UIIDP.
Intermediate Results Area 3: Urban Resilience, Local Economic Development, Job Creation, and Gender Mainstreaming
10. Temporary jobs 4 Number 0 150,000 300,000 450,000 600,000 Annually M&E Same as above.
created under UIIDP-
supported infrastructure
works.
a. Of which female 4 Percent 0 40 percent 40 percent 40 percent 40 percent Annually M&E Same as above.
11. People employed99 in 4 Number 0 45,000 67,500 101,250 151,875 Annually M&E Same as above.
firms provided with
serviced land and in MSE
sheds under UIIDP.
Of which female 4 Percent 0 40 percent 40 percent 40 percent 40 percent Annually M&E Same as above.

12. ULGs that have 4 Number 0 0 44 80 100 Annually APA Same as above.
established emergency
response unit, and
prepared emergency
response plan.
13. ULGs for which 2,4 Number 0 44 117 117 117 Annually APA Same as above.
citizen fora (public
consultations between
government, residents
and the private sector
including plan and
budget consultations)
have been held at least
twice a year, with at least

99
Including employees and business owners, excluding people employed by companies constructing the facilities.

85
The Program Development Objective (PDO) is to enhance the institutional performance of participating urban local governments to develop and sustain urban
infrastructure, services, and local economic development.
PDO Level Results Unit of Base- Target Values Fre- Data Responsibility for

Core

DLI
Indicators Measure line FY19 FY20 FY21 FY22 quency Source/ Data Collection
FY18 Method-
50 percent women ology
participation
14. ULGs that implement 4 Number 0 35 45 65 90 Annually APA Same as above.
80 percent of the budget
presented in the annual
gender development
plans.
Intermediate Results Area 4: Capacity Building
15. ULGs that implement 2 Number 0 35 45 65 90 Annually M&E Same as above.
at least 80 percent of the
budget presented in the
annual capacity building
plans.
16. Regions that 5- Number 0 4 5 6 8 Annually M&E/APA Same as above.
implement at least 80 9
percent of the budget
presented in the annual
capacity building plans.
17.Urban development Yes/No No No Yes Yes Yes Annually UREFMFB MUDHo
program updated and
financing strategy
a. developed
b. approved Yes/No No No No Yes Yes Annually UREFMFB MUDHo
18. MUDHo procures Yes/No Yes Yes Yes Yes Yes Annually UREFMFB MUDHo
and conducts APA in a
timely fashion.

86
 Annex 4: Disbursement Linked Indicators, Disbursement Arrangements, and Verification Protocols

DLI Matrix
As Indicative Timeline for DLI Achievement
Total percent
financing of total DLI Year 1 Year 2 Year 3 Year 4 Year 5
DLI 101 EFY2010 EFY2011 EFY2012 EFY2013 EFY 2014
allocated to financin Baseline
DLI100 g (year ended (year ended July (year ended July (year ended July (year ended July
amount July 7, 2018) 7, 2019) 7, 2020) 7, 2021) 7, 2022)
DLI 1
Eligible ULGs have achieved Program 0 117 ULGs 117 ULGs 117 ULGs 117 ULGs
minimum conditions.
$109.32
DLI 1 Allocated amount 19.0% $27.33 million $27.33 million $ 27.33 million $ 27.33 million
million
DLI 2
70 75 80 85
Eligible ULGs have strengthened 0
(average score) (average score) (average score) (average score)
institutional performance.
$190.09102
DLI 2 Allocated amount 33.0% $ 34.21 million103 $51.96 million $51.96 million $51.96 million
million
DLI 3
Eligible ULGs have implemented quality 70 75 80 85
0
infrastructure and maintenance activities (average score) (average score) (average score) (average score)
and ensured value for money
DLI 3 Allocated amount $90.09 million 15.6% $16.23 million $24.62 million $24.62 million $24.62 million
DLI 4
Eligible ULGs have strengthened 60 65 70
0
performance on LED, urban resilience (average score) (average score) (average score)
and gender mainstreaming
DLI 4 Allocated amount $52.95 million 9.2% $17.65 million104 $17.65 million $17.65 million

100
See annex 11 for calibration for each DLI.
101
Baselines on DLIs 1 to 9 are 0, as the system of minimum condition/PMs have changed since the ULGDPII, with strengthening of some of the performance measures.
102
For DLI2, assuming the average score is achieved every year, the total disbursement amount will be $189.62 million (and at $34.17million for year 2, and $51.82 million each
year for years 3-5). However, an additional amount of $0.47 million is allocated to this DLI2, bringing the total amount allocated to US$190.09 million to allow for better than
average performance. This is based on previous experience from ULGDPII. The higher overall amount of US$190.09 million does not affect the disbursement formulation and
verifications for DLI2 and its performance measures, which are as detailed in this annex 4, and in annex 11, as well as the POM.
103
In the first APA, only the 44 ULGDP II cities will be assessed for the performance measures under DLI 2 and 3. In subsequent APAs, all 117 ULGs will be assessed.
104
Assessment against DLI 4 performance measures starts from the second APA.

87
 As Indicative Timeline for DLI Achievement
Total percent
financing DLI Year 1 Year 2 Year 3 Year 4 Year 5
DLI of total EFY2010 EFY2011 EFY2012 EFY2013 EFY 2014
allocated to financin Baseline
DLI (year ended (year ended July (year ended July (year ended July (year ended July
g July 7, 2018) 7, 2019) 7, 2020) 7, 2021) 7, 2022)
amount
DLI 5 CB Plan of and CB Plan of and CB Plan of and
Regional support teams have delivered TOR for RMTs TOR for RMTs TOR for RMTs
effective capacity building services to prepared and prepared and prepared and
Eligible ULGs in urban institutional and positions are in positions are in positions are in
infrastructure development. place. The CB place. The CB place. The CB
plan covers at plan covers at plan covers at
CB Plan of and least 4 modalities least 4 modalities least 4 modalities
TOR for RMTs and at least 80% and at least 80% and at least 80%
prepared and of the thematic of the thematic of the thematic
positions are in focus areas from focus areas from focus areas from
place. The CB the POM. the POM. the POM.
plan covers at Teams are in Teams are in Teams are in
least 4 modalities place and place and place and
and at least 80% operating. operating. operating.
of the thematic Annual CB needs Annual CB needs Annual CB needs
focus areas from assessment assessment assessment
the POM. Teams conducted by conducted by conducted by
are in place and involving all involving all involving all
operating. regional entities regional entities regional entities
covering all covering all covering all
thematic areas thematic areas thematic areas
and and and
representatives of representatives of representatives of
the ULGs. the ULGs. the ULGs.
Execution of CB Execution of CB
plan and outputs. plan and outputs.
DLI 5 Allocated amount $27.88 million 4.8 % $6.97 million $6.97 million $6.97 million $6.97 million
DLI 6
Regional Government Audit Agencies 117 ULG audits 117 ULG audits 117 ULG audits 117 ULG audits
0
(ORAGs) have carried out timely audits completed completed completed completed
of Eligible ULGs’ financial reports
DLI 6 Allocated amount $14.96 million 2.6 % $3.74 million $3.74 million $3.74 million $3.74 million
DLI 7 117 ULGs 117 ULGs 117 ULGs 117 ULGs
Regional environment protection, forest safeguards safeguards safeguards safeguards
and climate change authorities (REFAs) 0 performance performance performance performance
have completed timely review of Eligible reviews and reviews and reviews and reviews and
ULGs’ environmental and social annual audits annual audits annual audits annual audits

88
 As Indicative Timeline for DLI Achievement
Total percent
financing DLI Year 1 Year 2 Year 3 Year 4 Year 5
DLI of total EFY2010 EFY2011 EFY2012 EFY2013 EFY 2014
allocated to financin Baseline
DLI (year ended (year ended July (year ended July (year ended July (year ended July
g July 7, 2018) 7, 2019) 7, 2020) 7, 2021) 7, 2022)
amount
safeguards compliance. completed completed completed completed
DLI 7 Allocated amount $13.12 million 2.3 % $3.28 million $3.28 million $3.28 million $3.28 million
DLI 8 117 ULGs 117 ULGs 117 ULGs 117 ULGs
Regional Revenue Bureaus (RRBs) have revenue revenue revenue revenue
0
supported Eligible ULG revenue mobilization mobilization mobilization mobilization
mobilization105 supported supported supported supported
DLI 8 Allocated amount $7.04 million 1.2% $1.76 million $1.76 million $1.76 million $1.76 million
DLI 9 Procurement 117 ULGs audits 117 ULGs audits 117 ULGs audits
Regional Public Procurement and audit plan with completed on completed on completed on
Property Administration Agencies ToR for the audit time to be time to be time to be
(RPPPAA) conduct timely and quality elaborated. incorporated in incorporated in incorporated in
procurement audit of Eligible ULG’s the APA. ie. the APA. ie. the APA. ie. audit
accounts and performance.106 audit is planned audit is planned is planned and
0
and procurement and procurement procurement
audit conducted audit conducted audit conducted
for 117 ULGs by for 117 ULGs by for 117 ULGs by
end of November end of November end of November
in compliance in compliance in compliance
with the APAG. with the APAG. with the APAG.
DLI 9 Allocated amount $7.04 million 1.2 % $1.76 million $1.76million $1.76 million $1.76 million
DLI 10
Achieved
Strengthening institutional performance,
average target
infrastructure and service delivery, 0
of 92 points in
maintenance, and job creation for 44
the APA.
ULGs (Prior Results).
US$63.74 $63.74
DLI 10 Allocated amount 11.1%
million million
Total Financing Allocated based on US$576.23 $63.74
100.0% 0 $95.29million $139.07 million $139.07 million $139.07 million
DLIs: million million
Note: APAG = Annual Performance Assessment Guidelines.

105
The regional revenue authorities will need time to build up the capacity within this area, and the tariff regulations. Support is expected to be rendered every year.
106
Costs of procurement audit up to the first round of disbursements is covered by the ULGDP II.

89
 DLI Verification Protocol Table

Definition/
# DLI Description of Scalability Data Source Verification Entity Procedure
achievement107
1 ULGs have The indicator will be Yes ULG compliance TC, based on inputs MUDHo hires private sector consulting/audit firm(s)
achieved satisfied when the APA with Program from the (whose TOR must be acceptable to the WB) to carry
Program has been completed, and minimum conditions independent private out the independent APA.
minimum based only on the assessed by the firm carrying out the APA determines whether all minimum conditions
conditions. minimum conditions, the independent APA (Note: The ToR have been met for each ULG.
disbursements to Program performance of the firm must be
ULGs have been assessment. acceptable to the WB). The APA firm calculates the allocation to each ULG
determined. as per the formula in the WB disbursement table, and
Draft Assessment provides the aggregate disbursement amount (along
reports are submitted with the full APA) simultaneously to government and
by the APA the WB for review.
simultaneously for
review to the final The TC reviews and verifies the results which are
verification entity – the and then approved by the SC.
TC108, which verifies
the results, and the WB QAR/review by the WB.
for review.
As part of implementation support, WB will review
Neither party can the assessment results. WB retains the right to make
modify such reports the final decision as to whether a DLI has been
except for factual achieved or not. The WB reviews and provides QAR
errors. of sample findings to ascertain that it is satisfied with
the quality of results.
2 ULGs have The indicator will be Yes ULG progress against Same as above Same as in DLI 1, MUDHo hires private sector
strengthened satisfied when the APA Program performance firm(s) to carry out the independent APA. APA
institutional has been completed measures assessed by assigns a score to each ULG. The firm(s) will
performance.109 (based on the minimum independent APA. calculate the allocation to each ULG as per the
conditions and formula in the WB disbursement table, and provide
performance measures) the aggregate disbursement amount simultaneously to
and the allocation based the government and the WB for review.
on the score of all ULGs The APA results are finally verified by the TC, and
has been determined. The approved by SC.
achievement rate will be QAR by the WB.
determined by the results As part of implementation support, WB will review
in the APA (average the assessment results. The WB retains the right to
107
See detailed verification protocol /narrative for further details on the verification, means of verification and calibration.
108
The TC will have representation from MUDHo (chair), MoFEC and other agencies as appropriate.
109
Composite index of performance based on performance in the areas of planning, revenue enhancement, assets management, fiduciary systems, procurement, accountability/
oversight systems, environmental and social systems management and urban land management. See annex 11 for detailed performance measures.

90
 Definition/
# DLI Description of Scalability Data Source Verification Entity Procedure
achievement
scores against the annual make the final decision as to whether a DLI has been
targets set). achieved or not.
3 ULGs have The indicator will be Yes ULG progress against Same as above. Similar to DLIs 1 and 2 above.
implemented satisfied when the APA Program performance
quality has been completed measures assessed by In addition to the above, the VfM Audit results will
infrastructure and (based on the minimum independent APA be incorporated in the APA results. Its results will be
maintenance conditions and and performance as shared with the APA firm, and included in the overall
activities and performance measures) assessed by the results. Then, as under DLIs 1 and 2, the firm will
ensured VfM. and the allocation based independent VfM calculate the allocation to each ULG as per the
on the score of all ULGs audits (which formula in the WB disbursement table, considering
has been determined. contribute as part of the findings of the VfM and provide the aggregate
the results in the disbursement amount simultaneously to government
The achievement rate will APA). and the WB for review.
be determined by the
results in the APA QAR by the WB.
(average scores against The TC finally verifies the results which are
the annual targets set). approved by the SC.
As part of implementation support, WB will review
the assessment results. The WB retains the right to
make the final decision as to whether a DLI has been
achieved or not.
4 ULGs have The indicator will be Yes ULG progress against Same as above Same as DLI 1 and 2 above.
strengthened satisfied when the APA Program performance
performance on has been completed measures assessed by
LED, resilience (based on the minimum independent APA.
and gender conditions and
mainstreaming. performance measures)
and the allocation based
on the score of all ULGs
has been determined.
The achievement rate will
be determined by the
results in the APA
(average scores against
the annual targets set).
5 Regional support Achievement of the DLI Yes Regional government Same as above This will be finally verified by the TC, and approved
teams have will be determined on the (allocation performance against by SC and after review by the WB.
delivered basis of (a) existence of per region, capacity plan
effective capacity work plans, (b) staff which is reviewed and SC finally verifies the results.
building services deployment as per plan, calibrated) assessed by the APA
to ULGs in urban (c) field work as per plan, team. Sample QAR (WB).

91
 Definition/
# DLI Description of Scalability Data Source Verification Entity Procedure
achievement
institutional and and (d) effectiveness of
infrastructure the support, measured in SC and WB approve.
development. the percentage of ULGs
under the team’s care that
pass the Minimum
Conditions.
6 ORAGs have This indicator will be Yes APA Same as above The private consulting/audit firm will assess that the
carried out timely fulfilled when the regional results against this indicator, following the same
audits of ULGs’ audit entities, or their process of verification as in the DLIs above.
financial reports. delegated agencies, which
includes certified private
audit firms, carry out and
complete the financial
audits of ULGs in their
jurisdictions by January 7
of each year.
7 REFAs have This indicator will be Yes APA Same as above The private sector consulting/audit firm will assess
completed timely fulfilled when the REFAs that the results against this indicator, following the
review of ULGs’ have carried out the same process of verification as in the DLIs above.
environmental regular performance
and social safeguards reviews and
safeguards annual audits of ULGs in
compliance. their jurisdictions before
end of October each year.
8 RRBs have This indicator will be Yes APA Same as above The private consulting/audit firm (APA) will assess
supported ULG fulfilled when Regional and verify the results against this indicator, following
revenue revenue authorities/ the same process of verification as in the DLIs above.
mobilization. BoFEDs have held The APA will review whether there have been
consultations with the consultations, documented with minutes.
ULGs on tax rates and
bands, with review of
REPs and have updated
the tariff regulations as
per the verification
protocol.
9 RPPPAA This indicator will be Yes APA Same as above The private sector consulting/audit firm will assess
conduct timely fulfilled when the regional that the results against this indicator, following the
and quality procurement audit entities, same process of verification as in the DLIs above
procurement or their delegated under DLIs 4-7. The APA team will check that the
audit of ULG’s agencies, performing quality of the procurement audit is in accordance
accounts and procurement audits of with the APA guidelines on MCs and PMs for

92
 Definition/
# DLI Description of Scalability Data Source Verification Entity Procedure
achievement
performance. ULGs in their procurement.
jurisdictions by no later
by January 7 of each year.
10 Strengthening This result will be fully Yes APAs which have Same as above. Based on the APA conducted in FY2017/18 and
institutional achieved if ULGs have documented results review of results against prior result defined as 92
performance, the average score of 92 against targets points.
infrastructure and points on institutional
service delivery, performance, service
maintenance, and delivery, maintenance and
job creation for job creation in the APA in
44 ULGs. (Prior FY2017/18.
Results)

Verification Protocol for UIIDP – PforR Window

The DLIs related to performance of the ULGs and regions will be verified by independent firm(s) which will be hired to conduct annual
assessments of the performances of ULGs using the verification protocol instrument (minimum conditions and performance measures), detailed
and updated in the POM. In addition, the verification will be reinforced by other technical assessment reports such as VfM audit and regular WB
supervision missions, reviews by the TC, and finally the SC and the WB.

The verification Protocol suggested for the UIIDP is based on the ULGDP II with improvements in terms of the system of verification and
clarification of the steps in the process, timing and institutional arrangements.

The details of the Verification Protocol include three areas and are further elaborated below:

(a) Overview of schedule and timeframe for verification;

(b) Narrative of the process and institutional arrangements.

(c) Means of verification DLIs 1-10

A) Overview of the schedule and timeframe for verification

For DLIs 1-4, focusing on ULGs’ performance and for DLIs 5-9, focusing on regions’ performance, the system of verification will be conducted
as described in the tables below. For means of verification and actual calibration, please see the DLI Verification Protocol Table.

93
 For the first APA (Allocations for DLIs 1–4 and DLIs 5–9)

Date (Gregorian Calendar) Activity

By End of August 2018 Independent APA consultants engaged and onboard
October 1, 2018 APA commences – data collection in the field.
By November 30, 2018 APA consultant completes all field assessments, including minimum conditions and performance measures (DLIs 1–4), (including VfM
audit).
For 73 new cities, only Minimum Conditions will be assessed and VfM Audit is waived for this first round. The APA also assesses the
result for regions against DLI 5–9.
By December 31, 2018 APA consultant completes and submits first draft Preliminary APA reports and draft Preliminary Synthesis Report (excluding the audit
results for the ULGs) to MUDHo as well as to the WB.
January 15 – February 28, 2019 Conduct Quality Assurance Review (WB); Quality Assurance Review comments and findings to inform APA ready by no later than
February 15, 2019 and TC review findings for consistency by February 28, 2019.
By February 28, 2019 MUDHo provides indicative allocations for EFY 2012 (2019/20) to all regions for all 117 cities to start the capital investment planning
process.

By March 15, 2019 APA team incorporates QAR comments and submits second draft Preliminary APA reports and draft preliminary synthesis report
(including audit results for ULGs) simultaneously to MUDHo and WB.
By March 31, 2019 Review by MUDHo and WB, and APA team reconcile comments received, into the third draft Preliminary report produced by the APA
team and submitted simultaneously to WB and MUDHo.
By April 1, 2019 MUDHo shares the third draft report with ULGs /Regions which have 14 days for submitting complaints, if any
By April 15, 2019 ULGs/Regions submit their complaints.
By April 22, 2019 Review by the Annual Performance Assessment Complaints Resolution Committee (APACRC) of ULG/Regions’ complaints
Reconciliation between complaints and APA findings (APACRC)
Recommendations from the APACRC on changes to be made by the APA team.
By April 29, 2019 Final draft APA report for each ULG/region and the Final Draft Synthesis Report as well as report on changes made and not made (with
justification) by APA team, submitted to WB and MUDHo
By May 2, 2019 Final Verification of the APA results by the UIIDP Technical Subcommittee (TSC)
By May 15, 2019 Formal review and approval of results by the SC; review and endorsement by WB (for the coming financial year’s allocations to ULGs)

94
 Date (Gregorian Calendar) Activity
By May 22, 2019 Final APA report for each ULG/region and the Final Draft Synthesis Report incorporating changes and endorsement by the WB.
By May 31, 2019 Final Results and Allocations announced and workshop with regions and ULGs held.
In June 2019 ULG budgeting process for 2019/20 continues based on actual allocations.
By June 30, 2019 Submission of CIPs, REPs, and AMPs by ULGs to regions/MUDHo for approval
By July 15, 2019 Approval of CIPs, REPs, and AMPs by regions/MUDHo
July 15, 2019 Start of implementation of CIPs by ULGs
By June 30, 2019 WB disburse to MOFEC the full amount.
In July 2019 50 percent of the allocations disbursed to Regions and ULGs.
In January 2020 50 percent of annual allocation disbursed to Regions and ULGs.

 For the subsequent (2nd - 4th) APAs (Allocations for DLIs 1–4 and DLIs 5–9)

Date Activity
(Gregorian Calendar)
By mid-July Independent APA consultants engaged and onboard
Early August APA commences – data collection in the field.
By September 30 Complete all field assessments, including minimum conditions and performance measures (DLIs 1–4), (including VfM audit). The APA also
assesses the result against DLI 5–9.
By October 15 APA consultant completes and submits first draft Preliminary APA reports and draft Preliminary Synthesis Report (excluding the audit results for
the ULGs) to MUDHo as well as to the WB.
October 16- November 30 Conduct Quality Assurance Review (WB); Quality Assurance Review comments and findings to inform APA ready by no later than November 25
and TC review findings for consistency by November 30.
By December 10 APA team completes and submits second draft Preliminary APA reports and draft preliminary synthesis report (excluding the audit results) and
share with MUDHo and WB.
By December 19 Review by MUDHo and WB, and APA team reconcile comments received, into the third draft report produced by the APA team.
By December 20 MUDHo shares the third draft report with ULGs /Regions which have 14 days for submitting complaints, if any
By January 4 ULGs/Regions submit their complaints
By January 10 APA consultant: Incorporate audit results in the APA.
Review by the APA Complaints Resolution Committee of ULG/Regions’ complaints

95
 Date Activity
(Gregorian Calendar)
Reconciliation between complaints and APA findings (Complaints Committee)
Recommendations from the Complaints Committee on changes to be made.
By January 21 Final draft APA report for each ULG/region and the Final Draft Synthesis Report as well as report from the Complaints Committee on changes
made by APA team, submitted to WB and MUDHo
By February 5 Final Verification of the APA results by the UIIDP TC
By February 15 Formal review and approval of results by the SC; review and endorsement by WB (for the coming financial year’s allocations to ULGs)
By February 28 Allocations announced and workshop with regions and ULGs held.
In March ULG budgeting process for 2019/20 starts, based on actual allocations
By June 30 WB disburse to MoFEC the full amount
In July 50 percent of the allocations disbursed to Regions and ULGs
In January 50 percent of annual allocation disbursed to Regions and ULGs

 Schedule for Assessment: Allocations for DLI 10– Prior results on institutional performance, service delivery, maintenance, and job
creation for 44 ULGs

Date (Gregorian Calendar) Activity

End of February 2018: Verification of With final approval of results in February 2018.
FY2017/18 APA
March 2018 Calculation of fiscal gap due to overachievement and exchange rates
Review by TSC (verification) and SC (endorsement)
April 2018 Review and Approval by WB
May 2018 Disbursement from WB to Government for DLI 10.

B) Verification Process and Institutional Framework

Below are further details on the verification process.

DLIs 1–4 – MCs and PMs

Future APAs

96
Submission of First Draft Preliminary APA reports (without audit results/scores)
Field visits and the APA assessment will start from the beginning of August, and all be completed by end September, the Consultant’s Team Leader will prepare and submit the
first draft Preliminary APA Report (without audit results/scores) for each ULG and the first draft Preliminary Synthesis Report simultaneously to the WB and to MUDHo by end
October or not later than twelve weeks after commencement of the assignment, whichever is earlier, using the formats provided (in the POM, APAG). The APA (preliminary/draft)
Report Forms must be signed by the ULG Mayor and City Manager and the Consultant’s Team Leader irrespective of the outcome of the assessment. The Assessment Reports will
include an explicit reference to the nature and substance of any disagreement (APAG) (enclosed as a volume in the POM).
Quality Assurance Review
The WB will carry out a Quality Assurance Review in November, based on the first draft preliminary APA report, or once the report has been received, whichever is earlier. The
QAR will communicate its findings to MUDHo. MUDHo will communicate to the Consultant the QAR findings.
Submission of Second Draft APA reports to MUDHo and WB
Based on the QAR (conducted in November), MUDHo and WB will provide feedback on the first draft Preliminary APA reports. The consultants will address and incorporate
necessary amendments and will prepare and submit simultaneously to MUDHo and WB the revised and high quality second draft individual city reports for all the cities and the
second draft synthesis report (all without audit results/scores) by end December of each year. The Second Draft Reports are then reviewed jointly by the WB and MUDHo to check
whether all comments have been incorporated. If not, additional comments will be sent to the APA Consultant to be incorporated in the Final (3 rd) Draft reports.
Complaints handling procedures
The (third) draft final reports are also provided to ULGs and regions for review and, if there are disagreement with the results, they may submit their complaints within 14 days of
the date of the letter from MUDHo. The TC will also consider recommendations from the APA complaints resolution committee in regard to any complaints received from
cities/regions on the APA and review inconsistent findings (APA team may be asked to provide further evidence for the conclusions reached as well as the complainants).
The ULGs/regions have 14 days for complaints which will be reviewed by the complaints committee. The complaints committee submit the recommendations to the TC and the
WB by January.
Based on the handling of complaints, the APA team submits its final APA report to MUDHo and the WB.
Submission of Final Draft APA reports to MUDHo and WB
The APA Consultant will incorporate the audit results/scores in the individual ULG reports and the Synthesis Report in January. The APA Consultant will also calculate, and
incorporate in the Synthesis Report, the IDA disbursement to Government and the allocation to each ULG and regional government as per the formula in the Program disbursement
table and the DLI allocation table, both of which are in the POM- APAG.
The APA Consultant will incorporate any additional comments and submit the Final Draft APA report for each ULG and the Final Draft Synthesis Report simultaneously to
Government (MUDHo) and WB by not later by end of January each year.
Post-assessment activities
Verification of the assessment reports submitted by consultants conducted by the TC and approval by SC and WB.
The MUDHo and WB will review whether the Final APA report is complete and consistent. The final reports are then submitted to the UIIDP TPC by end January for verification
of the accuracy and consistency of the reports and scores on the indicators. The UIIDP TC will finally verify and then submit the agreed final revised reports and its summary of
the results of the APA and its recommendations on complaints and for allocation of UIIDP DLI related funds for the forthcoming EFY to the UIIDP II SC in the first week of
February each year (copy to the WB).
Following approval by SC, the summary of results (and how the complaints have been handled) and recommendations will be submitted to WB by mid-February for formal
approval of results and fund allocations.
Notification of assessment score. Following WB approval in February, MUDHo will provide official notification of assessment scores and allocations to all ULGs and regions. A
Workshop will be held by end February of each year with regions and ULGs to share results of the APA and the allocations for the coming financial year. Each of the assessed
ULGs will also receive a copy of their city’s final assessment report – as approved by the UIIDP SC and WB.

Details on the processing of complaints from ULGs by the MUDHo

While draft final reports of the APA are submitted to MUDHo, the draft final reports are also provided to ULGs and regions to review and submit
their complaints within 14 days of the date of the letter from MUDHo.

97
Where a ULG or Region is not satisfied with the outcome of the assessment, a complaint should be submitted to the UREFMFB, MUDHo not later
than 14 days following receipt of notification of official scores. When submitting the complaint, the ULG/Region must enclose any relevant
documentation in support of the issues in question. A UIIDP APA Complaints Resolution Committee will review and examine the complaint and
recommend action to be taken on the complaints.

The examination of the complaint will lead to one of the following results:

1. Correction of errors

2. Re-assessment in case of laxity by the assessment team

3. Rejection of the complaint

Composition of Complaints Resolution Committee:

1. Representative from MUDHo,

2. Representative of MoFEC,

3. Representative of Ethiopian Cities Association,

4. Independent Expert in the area of concern, and the

5. UIIDP Program Coordinator.

Based upon the report from the Complaints Resolution Committee, the APA Consultants will either incorporate changes which they are convinced
are justified and provide reasons on those changes they do not accept. The APA Consultants will submit simultaneously to MUDHo and WB, the
Final Draft Reports incorporating changes which they consider justified and provide a report on changes made and not made (with justification).

The UIIDP Federal Technical Subcommittee (FTSC) will verify the APA results and complaints resolution and submit its recommendations to the
UIIDP Federal Steering Committee (FSC). The APA results will be formally reviewed and approved by the FSC, reviewed and endorsed by the
WB. The APA Consultant will incorporate the final changes and endorsement of the WB of the APA results and allocations and produce the Final
ULG and Synthesis APA Reports. MUDHo will distribute the Final ULG and Synthesis APA Reports to all regions and will also officially notify
them of the final allocations approved by the WB. (The details on the verification procedures are also included in the Verification Table of the TA
and the POM.)

98
 Bank Disbursement Table

# DLI Bank Of which Deadline for Minimum Maximum Determination of Financing Amount to be disbursed
financing Financing DLI DLI value to DLI value(s) against achieved and verified DLI values
allocated available for Achievement be achieved to expected to be
to the DLI trigger achieved for
(US$, Prior Advance disbursements Bank
million) results s of Bank disbursements
Financing purposes

Disbursement from the WB is calculated on the basis of

compliance of ULGs with minimum conditions.
(US$27.33million per annum) for 4 years FY2019/20,
2020/21, FY2021/22 and FY2022/23
Formula for disbursement from the WB to government is:
[total annual disbursement] = [total population in all
ULGs have
minimum condition compliant ULGs] X [US$4.13]
achieved At point of
US$109.3
1 Program 0 0 time for the 0 117 ULGS
2 million Formula for disbursement from government to ULGs is:
minimum APA
[disbursement to each ULG] = [total population in that ULG]
conditions.
X [US$4.13], provided that the ULG has complied with the
minimum conditions.

Disbursement will be made if previous financial year’s

disbursements from government to ULGs have all been
made.
2 ULGs have US$190.0 0 0 At point of 0 100% Disbursement from the WB to government will be
strengthened 9 111 time for the performance determined as:
institutional million APA Compliance of ULGs with minimum conditions measured
performance.110 (as above);
Sum of scores of all ULG calculated (non-minimum
condition compliant ULGs are assigned a score of zero) and
divided by 117 (note in FY2019/20 only the 44 current
ULGDP-II ULGs will get access to the funds and the
adjusted amount for this will be divided between those 44

110
Composite index of performance based on performance in the areas of planning, revenue enhancement, assets management, fiduciary systems, procurement, accountability/
oversight systems, environmental and social systems management and urban land management.
111
For DLI2, assuming the average score is achieved every year, the total disbursement amount will be $189.62 million (and at $34.17million for year 2, and $51.82 million each
year for years 3-5). However, an additional amount of $0.47 million is allocated to this DLI2, bringing the total amount allocated to US$190.09 million to allow for better than
average performance. This is based on previous experience from ULGDPII. The higher overall amount of US$190.09 million does not affect the disbursement formulation and
verifications for DLI2 and its performance measures, which are as detailed in this annex 4, and in annex 11, as well as the POM.

99
# DLI Bank Of which Deadline for Minimum Maximum Determination of Financing Amount to be disbursed
financing Financing DLI DLI value to DLI value(s) against achieved and verified DLI values
allocated available for Achievement be achieved to expected to be
to the DLI trigger achieved for
(US$, Prior Advance disbursements Bank
million) results s of Bank disbursements
Financing purposes

ULGs);

A. If score equal to target for financial year, full allocation,

B. If score below target for the financial year, pro-rata
reduction,
C. If score above target for financial year, pro-rata increase.
Disbursement will be made if previous disbursements from
government to ULGs have all been made.

Disbursement from the government to ULGs will be

determined as: Total disbursement amount (as calculated
above) divided across compliant ULGs in accordance with
population and score.

Formula for disbursement from the WB to the government is:

[total annual disbursement] = [{sum of individual scores of
all ULGs/117 (first year only 44 ULGs)*}/ {target score for
the financial year}] X [target disbursement amount that is,
US$51.87 million for 117 ULGs in FY2020/21, FY2021/22
and FY2022/23 (first financial year only US$34.17 million
for the 44 targeted ULGs)]

Performance targets for this DLI are:

2019/20: 70 points
2020/21: 75 points
2021/22: 80 points
2022/23: 85 points

Formula for disbursement from government to ULGs in

2019/20 is:

[disbursement to any ULG] = [population of ULG X

performance score of ULG] / [∑ (population of ULG 1-..44
X performance score of ULG 1-..44)] X [total disbursement
amount for the financial year], if the ULG has complied with

100
 # DLI Bank Of which Deadline for Minimum Maximum Determination of Financing Amount to be disbursed
financing Financing DLI DLI value to DLI value(s) against achieved and verified DLI values
allocated available for Achievement be achieved to expected to be
to the DLI trigger achieved for
(US$, Prior Advance disbursements Bank
million) results s of Bank disbursements
Financing purposes

the minimum conditions.

Formula for disbursement from government to ULGs in

FY2020/21, FY2021/22 and FY2022/23 is:

[disbursement to any ULG] = [population of ULG X

performance score of ULG] / [∑ (population of ULG 1-..117
X performance score of ULG 1-..117] X [total disbursement
amount for the financial year], if the ULGA has complied
with the minimum conditions.

* Note: For the new 73 ULGs, this DLI will only be applied
from 2020/21 and the following financial year, hence amount
to be distributed in FY2019/20 is only US$34.17 million
which will only be allocated across the 44 ULGs.
3 ULGs have US$90.09 0 0 At point of 0 100% Disbursement from the WB to government will be
implemented million time for the performance determined as:
quality APA Compliance of ULGs with minimum conditions measured
infrastructure (as above);
and Sum of score of all ULGs calculated (non-minimum
maintenance condition compliant ULGs are assigned a score of zero) and
activities and divided by 44 ULGs (in 2019/20) and by 117 ULGs in
ensured VfM. FY2020/21, FY2021/22 and FY2022/23.
112
A. If score equal to target for the financial year, full
allocation,
B. If score below target for the financial year, pro-rata
reduction,
C. If score above target for the financial year, pro-rata
increase.

Disbursement from the government to ULGs will be

determined as: Total disbursement amount (as calculated
above) divided across compliant ULGs in accordance with
population and score.
112
Composite index of performance based on areas in infrastructure implementation, maintenance performance, and value for the money of investments implemented.

101
# DLI Bank Of which Deadline for Minimum Maximum Determination of Financing Amount to be disbursed
financing Financing DLI DLI value to DLI value(s) against achieved and verified DLI values
allocated available for Achievement be achieved to expected to be
to the DLI trigger achieved for
(US$, Prior Advance disbursements Bank
million) results s of Bank disbursements
Financing purposes

Formula for disbursement from the WB to the government is:

[total annual disbursement] = [{sum of individual scores of

all ULGs/117 (first year only 44 ULGs)*}/ {target score for
the financial year}] X [target disbursement amount that is,
US$24.62m for 117 ULGs in FY2020/21, FY2021/22 and
FY2022/23. In FY2019/20, the amount is: US$16.23 million
for the 44 targeted ULGs)]

2019/20: 70 points
2020/21: 75 points
2021/22: 80 points
2022/23: 85 points

Formula for disbursement from government to ULGs in

2019/20 is:
[disbursement to any ULG] = [population of ULG X
performance score of ULG] / [∑ (population of ULG 1-..44
X performance score of ULG 1-..44)] X [total disbursement
amount for the financial year], if the ULG has complied with
the minimum conditions.

Formula for disbursement from government to ULGs in

FY2020/21, FY2021/22 and FY2022/23 is:

[disbursement to any ULG] = [population of ULG X

performance score of ULG] / [∑ (population of ULG 1-..117
X performance score of ULG 1-..117)] X [total disbursement
amount for the financial year], if the ULGA has complied
with the minimum conditions.

* Note: For the new 73 ULGs, this DLI will only be applied
for 2020/21, FY2021/22 and FY2022/23, hence amount to be
distributed in FY2019/20: US$16.23 million will only be

102
# DLI Bank Of which Deadline for Minimum Maximum Determination of Financing Amount to be disbursed
financing Financing DLI DLI value to DLI value(s) against achieved and verified DLI values
allocated available for Achievement be achieved to expected to be
to the DLI trigger achieved for
(US$, Prior Advance disbursements Bank
million) results s of Bank disbursements
Financing purposes

allocated across the 44 targeted ULGs.

Disbursement will be made if previous disbursements from

government to ULGs have all been made.
4 ULGs have US$52.95 0 0 At point of 0 100% Disbursement from the WB to government will be
strengthened million time for the performance determined as:
performance on APA Compliance of ULGs with minimum conditions measured
LED, urban (as above);
resilience and
gender Sum of score of all ULGs calculated (non-minimum
mainstreaming. condition compliant ULGs are assigned a score of zero) by
117 ULGs in FY2020/21, FY2021/22 and FY2022/23.
A. If score equal to target for the financial year, full
allocation,
B. If score below target for the financial year, pro-rata
reduction,
C. If score above target for the financial year, pro-rata
increase.

Disbursement from the government to ULGs will be

determined as: Total disbursement amount (as calculated
above) divided across compliant ULGs in accordance with
population and score.

Formula for disbursement from the WB to the government is:

[total annual disbursement] = [{sum of individual scores of
all ULGs/117 *}/ {target score for the financial year}] X
[target disbursement amount that is, US$17.65m for 117
ULGs in FY2020/21, FY2021/22 and FY2022/23]

2020/21: 70 points
2021/22: 75 points
2022/23: 80 points

Formula for disbursement from government to ULGs in

103
# DLI Bank Of which Deadline for Minimum Maximum Determination of Financing Amount to be disbursed
financing Financing DLI DLI value to DLI value(s) against achieved and verified DLI values
allocated available for Achievement be achieved to expected to be
to the DLI trigger achieved for
(US$, Prior Advance disbursements Bank
million) results s of Bank disbursements
Financing purposes

FY2020/21, FY2021/22 and FY2022/23 is:

[disbursement to any ULG] = [population of ULG X

performance score of ULG] / [∑ (population of ULG 1-..117
X performance score of ULG 1-..117)] X [total disbursement
amount for the financial year], if the ULGA has complied
with the minimum conditions.

Disbursement will be made if previous disbursements from

government to ULGs have all been made.
Regional 10 teams X 697,000 (if targets achieved) Reductions in case
support teams minimum requirements and results are not met.
have delivered
effective Maximum amount per regional mobile where the CB plans,
capacity 10 RMTs formats and achievement is achieved as per requirements:
At the point of
building US$27.88 (US$6.97 US$697,000 per team. Reduction for lack of achievement
5 0 0 time for n.a.
services to million million per rates according to protocol.
assessment
ULGs in urban year)
institutional See the verification protocol and narrative in annex 11 for the
and details
infrastructure
development.
6 Regional US$14.96 0 0 By end of All regions Audit: US$14.98 million/ = US$3.74 million per year
Government million February supporting all
Audit Agencies each year 117 ULGs Disbursement calibrated in a manner where each region
(ORAGs) have (US$3.74 receives US$32,000 per ULG, for which the audit has been
carried out million per made for the accounts of the previous financial year. If a
timely audits of year) region has covered 7 ULGs in a timely fashion, it will be
ULGs’ allocated 7 X US$32,000. Reduction in amounts if
financial standards are not followed as per the verification protocol.
reports.
The timeliness of audit is reviewed and verified by the APA
teams in January each year, with implications for the
allocations for the following financial year.

104
# DLI Bank Of which Deadline for Minimum Maximum Determination of Financing Amount to be disbursed
financing Financing DLI DLI value to DLI value(s) against achieved and verified DLI values
allocated available for Achievement be achieved to expected to be
to the DLI trigger achieved for
(US$, Prior Advance disbursements Bank
million) results s of Bank disbursements
Financing purposes

Amount of funds is calibrated in accordance with number of

timely audit in the regions (timely audit means that the final
audit report is issued no later than January 7 after the
financial year for which the audit concerns.
Regional Environmental and social safeguards audit and reviews:
environment US$13.02 million / 4years = US$3.28 million per year:
protection,
forest and Disbursement calibrated in a manner where the disbursement
climate change All regions is: US$28,000 per ULG for which the region has performed
authorities supporting all timely review/audit and approval of safeguard documents
By end of
(REFAs) have US$13.12 117 ULGs and review of implementation capacity for environmental
7 0 0 February
completed million (US$3.28 and social mitigation and monitoring measures for CIP and
each Year
timely review million per environmental and social audit (annual). Reduction and
of ULGs’ year) calibration as per the narrative, annex 11.
environmental
and social If a region has conducted timely audit of 6 ULGs, the
safeguards allocation will be 6 x US$28,000.
compliance.
Regional revenue authorities providing support to revenue
mobilization: US$7.02 million / 4 years = US$1.76 million
per year.

US$15,000 per ULG per year which is supported in

Regional All regions accordance with target in the protocol.
Revenue supporting all
By end of Disbursements are made according to the number of ULGs
Authorities US$7.04 117 ULGs
8 0 0 February where regions have conducted consultative review with
have supported million (US$1.76
each year ULGs of municipal revenues/tariff/tax rates and bands, and
ULG revenue million per
mobilization. year) REPs, and up-dated tariff proclamations with consultation
and decisions recorded in regional council minutes in the
year before the APA:

Disbursement calibrated as US$15,000 per ULG where

conditions are fulfilled, as per the annex 11 with calibration
for performance.

105
# DLI Bank Of which Deadline for Minimum Maximum Determination of Financing Amount to be disbursed
financing Financing DLI DLI value to DLI value(s) against achieved and verified DLI values
allocated available for Achievement be achieved to expected to be
to the DLI trigger achieved for
(US$, Prior Advance disbursements Bank
million) results s of Bank disbursements
Financing purposes

Procurement audit: US$7.02m/ 4 years = US$1.76 million

per year.

Disbursement calibrated in a manner where each region

receives US$15,000 per ULG, for which the audit has been
Regional made for the accounts of the previous financial year in
Public accordance with the standards outlined in the APA
Procurement Guidelines, and with compiled timely reports (by January 7).
and Property If a region has covered 7 ULGs in a timely fashion, it will be
All regions
Administration allocated 7 X US$15,000.
supporting all
Agencies By end of
US$7.04 117 ULGs
9. (RPPPAA) 0 0 February The timeliness of audit is reviewed and verified by the APA
million (US$1.76
conduct timely each Year teams in January each year, with implications for the
million per
and quality allocations for the following financial year.
year)
procurement
audit of ULG’s Amount of funds is calibrated in accordance with number of
accounts and timely audit in the regions (timely audit means that the final
performance. procurement audit report is issued no later than January 7
after the financial year for which the audit concerns). To
achieve the compliance, the quality of the reports has to
comply with the APA guidelines and compiled in a
consolidated report. Calibration of amounts per audit as per
narrative in annex 11.
Strengthening The target score for disbursement of US$63.74 million is an
institutional average score of 92 for all ULGs for the 44 ULGDPII
performance, Program ULGs: (a) institutional performance and (b)
infrastructure implementation of their local infrastructure, maintenance,
and service As per the and job creation activities (as measured against their CIPs
10 US$63.74
delivery, Yes 0 legal 63.74 million and their Annual Action Plans) as determined in the APA
. million
maintenance, agreement conducted in FY2017/18 for FY2018/19 allocations.
and job
creation for 44 Proportional scalability up and down with less and more
ULGs. (Prior points than targeted, that is, if 90 points, it is 90/92 X
Results) US$63.74 million, and so on.

106
 Annex 5: Technical Assessment Summary

A. Strategic Relevance

1. Given the importance of well-managed urbanization for Ethiopia’s economic development, the
need for adequate urban institutions, and the shortage of financial resources for delivery of urban
infrastructure and services, the Operation is assessed to be strategically relevant. The proposed
Operation is well aligned with Ethiopia’s new urban policy, with the ULGs as driver of change for
development. In addition, the proposed UIIDP will build on the achievements in ULGDP II on
development of core urban infrastructure and services, but will also assist in promoting gender equity,
resilience, and LED. All ULGs will now be assessed on their progress with addressing gender equity,
preparation and implementation of disaster management plans, and progress with promoting LED,
including through provision of serviced land for private investors, facilities for MSEs, and in creating
jobs. Finally, through its conditional grants for urban development, the Program will help to address the
large gaps in funding for capacity building, institutional strengthening, and delivery of infrastructure and
services across all the ULGs in the country. 113 The average UIIDP grant is significant compared to the
capital budget, OSR and other sources of funds.114

2. The proposed operation will support the objectives of all three focus areas of the WB’s Ethiopia
CPF (2018–22) and will contribute to achieving the WB’s twin goals of reducing extreme poverty
and boosting shared prosperity. The CPF for Ethiopia (115135-ET), discussed by the Board on June 27,
2017, has three strategic focus areas: (a) promoting structural and economic transformation through
increased productivity, (b) building resilience and inclusiveness, and (c) supporting institutional
accountability and confronting corruption. The proposed UIIDP supports all three strategic results areas.

3. The proposed UIIDP will follow-up on the achievements in ULGDP II on development of core
urban infrastructure and services, but will also assist in creating more jobs and reducing economic
vulnerability. It will continue to encourage cities to use labor-intensive construction practices that
generate significant numbers of jobs, especially for women, youth, and vulnerable people.

4. The proposed UIIDP directly supports the well-defined GoE’s program, and is also aligned with
the government’s strategies and goals. The previous phases of ULGDP were main instruments for the
achievement of the goals and objectives of these government strategies and plans in the urban areas.
Going forward, the UIIDP directly support the follow-on phase of the GoE’s program. UIIDP’s design is
also aligned and directly linked with the goals and strategies set in the ECSPGs and GTP 2. The UIIDP
proposes to cover a larger number of cities than the ULGDP. This phased scale-up approach was already
envisaged at the inception of ULGDP, and the commitment by Government to implement this is robust
and reflected in the policy as well a significant level of counterpart funding, and strong ownership from
the regions and ULGs.115

5. The WB Program directly supports the new UIIDP policy and Program, linked with 9 of the 10
pillars in the ECSPG.116 It offers 117 ULGs with performance-based grants combined with

113
Except for Addis Ababa.
114
See the TA for details. Based on a sample of 22 ULGDP ULGs and 21 non-ULGDP ULGs through a combination of desk-
based review (12 new ULGs) and actual field visits to 9 new ULGs.
115
This was documented in the MTR where the ULGs in ULGDP II contributed far beyond the minimum required level and the
commitment from the in-coming UIIDP ULGs to support and prepare for the program (documented in the field visits to 10
ULGs).
116
The last pillar 10: Urban Social Development is supported by MoE and MoH.
comprehensive capacity building support for institutional strengthening and performance in infrastructure
enhancement.

6. The UIIDP will strengthen the initiatives to support the evolution of the government’s program
and the overall intergovernmental fiscal system in Ethiopia. The UIIDP will address the current urban
infrastructure gaps, improve services and urban resilience, promote LED and job creation, and strengthen
the institutions of the ULGs, the regional states, and the MUDHo for support of urban management and
improved urban services. The UIIDP will help the 44 ULGs currently participating in the program to
further strengthen their delivery of infrastructure and services, and will initiate urban development in the
new 73 ULGs. The UIIDP will help to reduce urban poverty directly through the provision of jobs in civil
works, and indirectly by promoting private sector investment. It will also catalyze enhanced contributions
from the regional and ULG level for core urban infrastructure and services.

B. Technical Soundness

7. The technical design of UIIDP draws heavily from the extensive experiences of WB—
government partnership in the urban sector, most recently under the ULGDP I and II. The four
APAs of the ULGs so far, the ULGDP II MTR, the 2015 Ethiopia Urban Review, recent fieldwork in 10
ULGs conducted to inform the design of the UIIDP, and several studies carried out by the government
underpin the technical elements of the UIIDP. Specific lessons are:

 Use government systems. This will strengthen capacity at the federal, regional, and ULG
levels for urban development, within flow of funds, FM, and operations. 117

 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 UIIDP development objective.

 Provide strong incentives to perform. Based on experiences from ULGDP I and II as well
as comparing with other international performance-based grant system, the UIIDP incentive
amounts and structures have been meticulously crafted. The main aim is to ensure that
sufficiently strong incentives are provided, and for each of the key results areas or technical
aspects. This also required a careful balance amongst competing demands on one pool of
resources.

 Get the focus areas right. Based on the performance results and capacity assessments of
ULGs, it was found that the ULGDP II identified core urban management areas continue to
be extremely relevant and important. These include proper planning and budgeting, revenue
mobilization, asset management planning, procurement and public FM, as well as
strengthening of good governance and accountability. However, new priority areas such as
LED, urban resilience and gender have emerged and are a new focus in UIIDP.

 Provide a flexible capacity building to allow ULGs to respond to incentives. 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 with a combination of supply and demand
driven CB;
117
The MUDHo has developed guidelines on issues of urban management, including for assets management, public FM, capital
investment planning, the POM (most recently November 2016) accounting, M&E, and the like. With revision and refinement,
they will be used for the UIIDP.

108
  Strengthen the links between investments, incentives and capacity building support.
The capacity building support is applied in a targeted manner to address gaps identified in
the self-assessments and the APAs.

 Introduce the performance-based grants gradually for the new ULGs. Provide the new
ULGs with grants in the first year linked only to meeting the MCs. Starting in the second
year, assess performance of the new ULGs against both the MCs and the PMs.

 Focus on improved municipal revenue generation to help ensure sustainability of the

infrastructure and the entire ULG funding system. By providing incentives for improved
ULG own-source revenue generation and by strengthening support and guidance from the
regional and federal government entities, ULGs will be able to mobilize funds they need to
operate and maintain their infrastructure and services. This will improve the environment
for private sector investment, which in turn will strengthen the tax bases of the ULGs.

 Continue to strengthen the oversight, audit, and safeguard procedures at all levels of
government. This is particularly important to address weaknesses identified in the APAs.

 Strengthen the timeliness of the APAs. This will be done by starting the procurement
process earlier and by providing a multiyear contract (one of the challenges of the ULGDP
II).

Table 5.1. Achievements and Lessons Learned on Specific Areas and Implication on UIIDP Design
Future Implications for
Area Achievements Lessons Learned
UIIDP and New Initiatives
Environment and social Environmental and social Core for improved Expand and roll out. Further
management audit rolled out to 44 performance on ESSA refinement of the PMs in this
ULGs. related areas. Need to area. More specific description
improve the quality of the of the audit requirements in the
audits. POM.
Public financial VfM audits and Useful to track Expand and roll out.
management/M&E procurement audits rolled performance and quality in
out to all 44 ULGs for the service delivery.
first time. The VfM audits
have shown improvements
in the quality of the
investments over time.
Public financial management PMs on public financial Ensure stronger PMs will be rolled-out and
management shows accountability and efficient strengthened and fine-tuned.
improvements over time use of funding. A new DLI will be introduced
and above targets. Audit for a regional procurement
reports shows significant audit.
improvements since start of
program.
Own source revenues REPs are now in place in Combined incentives, Continue to be a target area for
all ULGs, and the OSR capacity building support to improve sustainability and
have increased. For and focus on better higher resilience and
example, in 2015/16, 34 of institutional framework strengthening of the PMs.
44 ULGs managed to with incentives and target
increase their revenues by for regions as well, pay off
more than 10 percent. in terms of results
Co-funding/matching funds The co-funding The co-funding has Will continue with small
requirements have been promoted contribution and adjustment (increase) in the
complied with and ULGs size for the original ULGDP

109
 Future Implications for
Area Achievements Lessons Learned
UIIDP and New Initiatives
have contributed above ownership. ULGs.
target.
Incentive system Incentive system in the Targeted financial Will be rolled out and refined.
grant system has been incentives when combined The lessons from the
effective to enhance with CB support can have mainstreaming of performance
performance over time, and significant positive impact with the core formula will
new ULGs will quickly on areas such as planning, continue, and results will
catch up when incentives OSR generation, public reflect the absorption capacity,
and capacity building are financial management, hence after the first initial year,
combined. assets management, and the all ULGs will be compared on
like. an equal footing. Design will
ensure that grants are sufficient
to generate incentives. System
of verification of results will be
formalized, and initiatives will
be taken (including multi-year
contracting) to ensure
timeliness in the assessment.
Service delivery Significant expansion in Focus on service delivery Will expand and continue to
urban services in target in DLI 3 and VfM has deepen in increasing number of
ULGs (roads, drainage increased attention on this. ULGs.
systems, latrines, and the Number of beneficiaries is
like). For example, in the expected to increase by 50
first years some 500 percent.
kilometers of urban gravel
roads and 719 km of Improvement of PMs.
cobblestone roads
constructed.
Job creation ULGDP II has expanded The types of investments Stronger focus on job-creation
on the annual number of supported in these urban and LED in the new PMs, and
jobs created (around grant systems are labor- the roll out means that more
140,000 jobs per year), intensive. than 200,000 jobs per year
increased from the 60– should be created in the future.
80,000 during ULGDPI) Improvement of PMs.
Timing of performance Continued delays in the Incentives were not Need to introduce multi-year
assessments timing of the results of the sufficient due to contract of assessments
annual assessments. procurement challenges. company and
strengthen/continue incentives
for timely APAs.
Performance of ULGs Despite general Need for more focused Strengthening of the capacity
improvements some few capacity building support building modalities in the
ULGs are still lacking to weaker ULGs. UIIDP will strengthen its focus
behind on results in the DLI for
regions and IPF for federal
level.
Focus of ULGDP and ULG has rather limited What is measured will be Adjust and refine the APA tool
sharpening of the PMs scope in terms of areas for addressed, hence important to ensure that each indicator is
performance improvements to ensure that new areas of clear, and that new
and some need resilience, gender, and performance areas such as
improvements. LED are paid due attention. urban resilience, gender and
LED are properly addressed.
M&E challenges M&E needs strengthening Procedures under ULGDP Will be strengthened in UIIDP
in terms of information on II to strengthen this were through the formulation of
types of investments and useful, but insufficient. DLIs and legal agreement.
use of funds.

110
 Future Implications for
Area Achievements Lessons Learned
UIIDP and New Initiatives
Delays in the conduct of the APAs and capacity PforR has been strong in An IPF window will be
APAs and of provision of building have been achieving ULG and introduced under the UIIDP to
capacity building support significantly delayed and regional level results. help the MUDHo better
from MUDHo. not sufficiently manage its role in oversight,
incentivized through the guidance, capacity building,
DLI triggers. and the timely undertaking of
the APAs.

Table 5.2. Lessons Learned on the Capacity Building and How They Will Be Addressed Under the UIIDP
Area Lessons learned How reflected in the UIIDP
Capacity building Establishment of federal and reginal mobile teams for The program will strengthen and build
implementation providing capacity building and technical back on such an institutional arrangement for
arrangement stopping support aligned with the federal structure of capacity delivery. Number of teams will
the country turned out to be a successful strategy in be allocated based on the size of the
supporting regional government entities and ULGs. regional and improved conditions to
address high turn-over will be installed.
Committing resources for Strong linkages of capacity building efforts to ULG, regional governments with
capacity building performance results proved to be a better mechanism to support from federal team will sensitize
incentivize channeling of resources for capacity and increase awareness on the areas in
building especially at the ULG level. need of strengthening and support
Thematic focus on The capacity building followed a thematic approach The approach along with strengthening
capacity building focusing on the key priorities of ULGs relating to urban of the composition will be continued
planning and management. The identification of focal and the number of mobile teams
persons conformed to these focal areas and the skill expanded to reflect the larger number of
mix at the RMT also followed such a thematic focus. ULGs to be enrolled. Key target areas
There was an expanded skill set available at the FMT have identified.
level.
Bottom up process driven Following a fully bottom up approach based on needs In the future, a closer link between the
approach to capacity assessment and review of results from the APA would APA results, needs assessment, and
building have helped to systematically capture capacity building planning of capacity building support
demands of the ULGs while the capacity building plans will be established. A capacity building
at the regional and federal level would have balanced manual will guide the process.
demands with supply side interventions. The absence of
such an approach led to random efforts at the three
levels resulting in ad-hoc activities and piecemeal
efforts at regional and federal level on some of the
thematic areas. Yet another bonus from such an
approach would be that the capacity building plans at
all levels will never be under or over ambitious.
Coordinated and The federal level MUDHo and counterpart institutions The coordination and working together
orchestrated capacity for revenue enhancement and finance bureau need to of different institutions at the regional
building efforts work together. Similarly, at the regional level, the and federal level will be further
BUDs must work together with BoFEDs, asset strengthened.
management agencies, regional revenue authorities,
regional procurement agencies, regional ethics and anti-
corruption agencies, and ORAGs to help ULGs achieve
a coordinated vision for capacity building.
The supply side capacity The usefulness and effectiveness of capacity building Alternate public and private capacity
building interventions are delivered to through ECSU could not be established building institutions including regional
to be carefully planned due to lack of documentation on participant feedback universities would be explored for
and executed and absence of a database to track whether that trained supply side capacity building along with
personnel remained performing project related tasks. ECSU.

Balanced deployment of Deployment of CB funds relating to the demand side The capacity building manual would
capacity building funds was arbitrarily shared between training and office help ULGs informed selection from a

111
 Area Lessons learned How reflected in the UIIDP
among different capacity equipment. This prevented judicious selection of bundle of capacity building modalities.
building modalities appropriate modalities for capacity building. Even there The manual presents a capacity building
were challenges in tracking fund deployment to report format to track deployment of
different modalities. funds, key milestones and outputs
achieved to map the capacity building
plan as implemented.

8. UIIDP funding to ULGs will be allocated using a simple formula, based on population size and
the performance of the ULGs. An approximate US$16–18 per capita per year (with phasing in of the
new ULGs in the first financial year) has been assessed to be the optimal level of funding. 118 As a core
principle, the per capita amount would at least maintain the similar level as at the start of the ULGDP II to
ensure minimum level of incentives and meaningful infrastructure and services investments. The size of
this performance grant has been determined considering various factors such as international good
practice (from an expanding number of countries with performance-based grant allocations), the costs of
investments, expenditure needs and current level of investments, as well as generation of a strong
incentive to drive performance. This has been informed by a comprehensive review of ULG fiscal and
revenue positions.

9. The APA system is assessed to be robust. The independent assessments, process of ensuring
quality, the complaint handling system and the approval procedures have led to performance above target
levels. However, the assessment has also shown a need to clarify a range of PMs. Some of these have
been clarified during design, others will be updated before effectiveness in the POM and APA Guidelines.

10. Overall, the Operation is assessed as technically sound. Based on the above, the technical design
of the UIIDP will contribute to the overall goal of efficiently producing results and reaching its
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.

C. Institutional Arrangements

11. The Operation will be implemented through institutional arrangements at the Federal,
regional, and urban government levels, with clear division of tasks and responsibilities between the
three levels. It follows the government structure and is consistent with existing legal provisions,
regulations and guidelines. The roles and responsibilities of the relevant entities are summarized below.

Federal Level

12. At the federal level:

(a) Ministry, Department, and Agencies with statutory mandates for the program–MUDHo and
MoFEC

118
In the first year, the simple average per capita for the new 73 ULGs and the ULGDP II 44 ULGs will be US$14.79 and
US$17.68 per capita respectively. From the second year, the per capita allocation uses an average figure similar for the two
groups, which is US$17.68.

112
  The MUDHo will be the lead implementing agency, with a FMT in the
UREFMFB responsible for daily coordination of the Operation. The FMT consists
of a Program Coordinator, a deputy Program Coordinator and 30 other staff who also
serve as members of the FMT. They will have expertise in the various Program focus
areas, including newly introduced areas on gender equity, resilience, and LED. The
UIIDP Program Coordinator will report to and act under the direction of the Bureau
Head of the UREFMFB, MUDHo. The main tasks of the FMT are:

o Overall responsibility for day-to-day coordination and management of the

Operation.

o Capacity building, including direct support to regional and ULGs, and issuance
of guidelines and standard regulations for matters such as municipal revenue
generation, assets management, service delivery standards, and the like.

o Program management and implementation of activities under the IPF window,

including the procurement and management of the APAs and the VfM audits and
to ensure the timeliness.

o Overall Operation M&E.

o Operation reporting, including the semi-annual progress reports.

o Ensuring that Operation resources are budgeted for and disbursed within the
expenditure framework.

o Accounting for the UIIDP funds to MoFEC.

o Evaluating the performance of team members as per the agreement made

between UREFMFB and the FMT team members.

 MoFEC is responsible for fund flow, disbursement, financial reporting and

arranging program auditing for the Operation. MoFEC will also be responsible for
compilation of financial reports, drawdown of funds from IDA, transfers of funds to
MUDHo, Regional States (including Dire Dawa City Administration) and through
Regional BoFEDs, to the ULGs as per the request from MUDHo.

(b) Ministries, departments, and agencies with guiding/supporting roles

 Several other federal entities have guiding and supporting roles in UIIDP. These
include the OFAG, especially for the annual program audits; the FPPPAA on
procurement procedures; ERCA on revenue generation, MEFCC on environmental and
social management, the FUJCFSA, Ministry of Industry on job creation and support to
MSEs, the FEACC on fraud and corruption monitoring and reporting and Ministry of
Federal Affairs which has special responsibility for DRS and will work with MUDHo
to support participating cities in these regions.

(c) Ministries, departments, and agencies with technical oversight roles–UIIDP TC

 A UIIDP TC will support the SC, providing advice, conflict resolution at the
technical level, and verify Program performance and compliance. Like the SC, the

113
 ULGDP II TC will transition into the UIIDP TC. It will comprise key technical staff
(at least directors or director general level) of the MUDHo, MoFEC, MEFCC,
Ministry of Federal Affairs, Ministry of Labor and Social Affairs, FUJCFSA, OFAG,
FEACC, FPPPAA, and ERCA. It will verify the results of the APAs and resolve
complaints that cannot be resolved at entity level. The TC is expected to meet
quarterly and to review Program implementation against objectives, bring policy issues
to the SC, and ensure that the Operation is implemented in line with the POM.

(d) Ministries, department, and agencies with policy roles–UIIDP SC

 A UIIDP SC will provide Operation oversight, endorse Program performance

and allocations, arbitrate conflicts and strengthen inter-ministerial coordination.
The ULGDP II SC will transition into the UIIDP SC as ULGDP II concludes. The SC
comprises representatives (Minister and heads of agencies) from MUDHo, MoFEC,
MEFCC, Ministry of Federal Affairs, FEACC, OFAG, Ministry of Industry, and the
Ministry of Labor and Social Affairs (new additions under the UIIDP). It will ensure
proper coordination of issues on planning, allocations, flow of funds, compilation of
data, and endorsement of the results of the APA and final yearly allocations. It will
meet at least quarterly and as and when required.

Regional Level

13. Regional governments will have a greater role under the UIIDP as compared to ULGDP II, in
providing oversight and in building ULGs’ capacity. Six of the nine regional governments, each with
many participating ULGs, will establish RMTs that will directly backstop ULGs as well as strengthen the
regional BUD’s own capacity to guide and support the ULGs. The FMT will directly support the other
three regional governments, which have fewer participating ULGs and relatively modest capacity.

14. At the regional government level:

 The respective regional BUDs are responsible for daily coordination of the Operation
at the regional level. Specifically, the BUDs are responsible for:

o Capacity building support of the ULGs in their jurisdiction.

o Preparation of consolidated (ULG and regional government) progress reports covering

all ULGs in their jurisdiction.

o Oversight and backstopping support related to aspects of the Operation.

 Other regional entities will play important roles. The (a) ORAGs will conduct external
audits of ULG financial reports; (b) the REFAs will oversee the Program’s environmental
and social safeguards agreements; (c) the BoFEDs will manage the regional fund flow and
reporting, (d) the Regional public procurement and property administration agencies will
guide and support on procurement procedures and capacity building; (d) the RRBs will
support ULGs in the areas of OSR generation; (e) the RPPPAA to conduct the annual
procurement audits of ULGs; and (f) the REACCs will be responsible for fraud and
corruption monitoring and reporting.

ULG Level

114
15. At the ULG level:

 The Mayor and the Mayor’s office in each ULG is responsible for overall performance
of the ULG. It ensures compliance with all FM, procurement, and Operation environmental
and social safeguards and regulations. It also facilitates access to the information required as
part of the APA. Finally, it will be responsible for public private dialogue and involving the
private sector in planning activities.

 Each city is required to establish a UIIDP Coordination Team, reporting to the City
Manager. This team will be responsible for day-to-day coordination of the Operation,
working closely with relevant offices of the city. The team should consist of full-time focal
persons from the relevant departments for each Operation focus area (as defined in the
MCs). Their key responsibilities would include liaising with respective city offices to ensure
implementation are in accordance with the Operation’s environmental and social safeguards
and fiduciary guidelines; monitoring, reporting and disseminating information about the
Operation (including contract awards, physical and financial progress of works contracts,
and so on), contribute to capacity building activities, and act as resource persons for the
Operation.

 The various offices of the City Manager will be responsible for implementation of
infrastructure and activities supported through Program Funds. Implementation of
infrastructure, services and activities supported through Program funds are mainstreamed in
each ULG and carried out by the relevant offices in the city administration.

 The OFEDs hold overall fiduciary responsibilities. They will ensure that all Operation
funds are included in IBEX and that financial reports are submitted to ORAG as soon as
possible after the end of the Ethiopian fiscal year.

 The ethics liaison unit of the ULG is responsible for dealing with fraud and corruption,
handling related complaints and consolidating reporting of complaints on environment
and social aspect as well as procurement.119

 City councils are responsible for reviewing and approving cities’ CIPs, REPs, AMPs and
capacity building plans.

 Each ULG will also establish a capacity building coordination unit. This will coordinate
the planning and implementation of capacity building activities, and reporting of these
activities.

 FUJCFSA is responsible for leading initiatives relating to supporting micro, small and
medium size enterprises.

 The WCO is responsible for leading and coordinating initiatives identified in the gender
action plan and champion gender mainstreaming in planning, M&E, reporting and
management.

 A DRM unit is proposed to be established in each ULG. This will lead efforts in risk
assessment, develop emergency response plans and related capacity building activities.

119
Note that units with the same mandates may have different names in different places.

115
D. Economic Evaluation

16. Benefits of investment in urban infrastructure and services. The primary objective of the
performance-based grant is to improve urban infrastructure and services. The menu of eligible
investments includes among others: (a) construction of roads (cobblestone, red ash, and gravel), (b)
rehabilitation of roads, footpaths, bridges, and installation of street lights; (c) storm water drainage, (d)
sanitation; (e) solid waste management; and (f) urban economic and social infrastructure (markets, public
parks, bus parks, facilities for micro, small, and medium-sized enterprises). ULGs will select investments
from this menu through a participatory process that will take place only after the program is effective.
Therefore, this economic evaluation is based on investments that have been made in the past in Ethiopia
under the previous urban development operations.

Urban Roads

17. Under the ULGDP II, some 69 percent of the performance-based grant has been spent on constructing
or rehabilitating roads (see table 5.3). Most of the work has been to upgrade dirt tracks that flood and
become impassable during rains to all-season cobblestone roads. Because this trend is expected to
continue under the proposed UIIDP, a specific cost-benefit analysis was conducted for cobblestone roads.

Table 5.3. ULGDP II Expenditure by Category of Investment

EFY 2007 EFY 2008 Average (EFY 2007+2008)

Birr Percentage Birr Percentage Birr
Percentage
Roads 902,357,068 66 1,433,171,605 60 2,335,528,672
63
Rehabilitation
of roads 82,244,763 6 147,331,248 6 229,576,011
6
Integrated
infrastructure 30,745,696 2 93,647,270 4 124,392,966
3
Sanitation 2,910,646 0 14,306,186 1 17,216,832
0
Solid Waste 19,601,858 1 60,943,853 3 80,545,711
2
Urban drainage 215,614,189 16 322,490,146 14 538,104,33
14
Built facilities 41,016,267 3 131,260,387 6 172,276,654
5
Urban
park/greenery 29,201,341 2 92,807,928 4 122,009,269
3
Consultancy 16,032,273 1 28,890,979 1 44,923,253
1
Capacity
building for
ULGs 20,852,991 2 47,204,516 2 68,057,506
2
Total 1,360,577,091 100 2,372,054,117 100 3,732,631,209
100

Assumptions of the Analysis

116
18. The analysis is based on the following assumptions:

 ULGs benefiting from the program will allocate about 60 percent of their performance
grants on construction of cobblestone roads. Accordingly, about US$413.7 million will be
spent on cobblestone roads.

 The program is expected to be implemented over a period of five years and four months
(2018/19-2022/23).

 Cobblestone roads have economic life of 20 years, with zero residual value at the end.

 The number of motor vehicles traveling on the roads in the participating ULGs varies
depending on level and nature of economic activities, place within the regional hierarchy of
urban centers, proximity to major trunk roads, and the like. Although no mobility survey
was conducted showing mode of transport used, most residents in the participating ULGs
are expected to walk as their primary means of transport.

 In the larger ULGs (such as those benefiting from the ULGDP II), some 35 percent of the
residents use motorized transport and one person (household head) in each household will
make one unavoidable trip per week using motorized transport (to market, bank, health
facility, and the like).

 In the 73 new Program ULGs, about 20 percent of the residents will use motorized
transport, and one person in each household will make one unavoidable trip per week using
motorized transport (to market, bank, health facility, and the like).

 Residents living within 500 meters’ radius of the cobblestone road in each program town are
direct beneficiaries of the cobblestone roads (calculated based on the average effective
population density per square kilometer).

 Pedestrians (ages 10 to 64 years) will walk an average of 3.5 kilometers per day. 120 The
average speed without the cobblestone road was 4 kilometers per hour, and 5 kilometers per
hour with the cobblestone road.

 The annual inflation rate is 8 percent.

 The exchange rate is 23.3 ETB per 1 US dollar.121

 O&M cost of the cobblestone road is assumed to be 10 percent of the total investment cost
evenly distributed over the operations 20 years of the life of the road.

Costs

19. Investment cost. Of US$689.5 million allocated for performance-based grants, about US$413.7
million is expected to be spent on cobblestone roads. This is fully spent in domestic currency. The
average unit cost per kilometer of cobblestone road constructed is estimated at ETB 4,230,800
(US$181,579 equivalent) in line with the actual costs of cobblestone road construction under the ULGDP
120
The Ethiopia time use survey has estimated that students spent 23 minutes per day for learning related travel on foot.
Ethiopian CSA, 2014.
121
Inflation is projected to remain single digit around 8 percent through the medium term (during the GTP II period). Since 2010
the real exchange rate appreciation of ETB against U.S. dollar is 2.5 percent annually (IMF country Report October 2016).

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II.122 Accordingly, a total of 2,278 kilometers of cobblestone roads will be constructed over the three-year
period.

20. Maintenance costs. It is assumed that annual maintenance costs will be 10 percent of the
construction cost over the life of the road. Although the unit cost of maintenance increases as the road
gets older, the analysis assumes that maintenance costs are evenly distributed during the life of the road.

Benefits

21. The benefits associated with improved roads are (a) travel time savings; (b) travel cost savings; (c)
enhanced access to jobs, markets, health facilities schools, and other services at lower cost than otherwise
available (reflected in enhanced land values); and (d) promotion of economic growth in the region
through enhanced trade, increased efficiency, and higher productivity. Due to data limitations, this cost-
benefit analysis is based on travel time savings and travel costs savings alone.

Quantified Benefits

22. Travel time savings. Reduced travel time permits people to engage in more productive and enjoyable
activities.123 However, attaching a value to time savings is complex and depends on various factors
including purpose of the trip (work versus leisure), the hourly wage rate of traveler, the length of the
journey, and the total time spent travelling. This analysis measures travel time savings by (a) work and
business-related travel, and (b) nonwork-related travel.

23. Work and business travel. This analysis assumes that the time saved from work/business related
travel is used in productive activities. People between the ages of 15–64 will travel to work 300 days each
year, excluding Sundays and holidays. The average wage rate of ETB 60 for unskilled labor is used to
estimate the value of time saved. 124 This analysis uses ETB 60 birr daily average wage rate to value the
time saved from all work-related travels.

24. Nonwork-related travel. The value of time saved from non-work related trips is calculated at 30
percent of the value of time saving for work travel. 125

25. Travel cost savings. Users of cobblestone roads interviewed as part of the preparation of the MTR
report for ULGDP II126 and other studies127 have stated that public transport service providers now enter
122
The unit cost is adjusted for inflation over the project implementation period.
123
Reducing travel times is assumed to provide three major benefits. First, time saved from travel could be dedicated to
production, yielding a monetary benefit to either travelers or their employers. Second, time saved could be spent in recreation or
other enjoyable or necessary activities for which individuals are willing to pay. Third, time saved may reduce tension, fatigue, or
discomfort associated with some trips.
124
The average daily wage for unskilled workers ranges between ETB 40–100, according to the 2015 Urban Employment and
Unemployment Survey. Salaried jobs are more common in large urban centers than in small ones and rural areas. About 21
percent of men and 12 percent of women have salaried jobs in large urban centers. In small urban centers, only about 14 percent
of men and 6 percent women have salaried jobs.
125
Many studies recommend that a common value of time be used for non-work journeys unless there is strong local evidence to
the contrary with a default value of 30 percent of household income per hour being used for the valuation of nonwork time.
126
According to one respondent, transportation costs from the neighborhood to the main city (two kilometers) have fallen from
five to two ETB using a small three-wheel vehicle. Respondent in Harar for the MTR, 2016.
127
Per a respondent to a UN Habitat study, “Minibus drivers declined to operate in the area. Residents thus had to pay two to
three euro per trip, which was a major financial burden for most families. A minibus line now operates on the new all-season
cobblestone road, and 7,200 residents are currently benefitting from public transport services for only nine euro cents per trip.”
The Selle condominium site in Adama, UN Habitat, 2013.

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their neighborhoods, making it much easier and less costly to access services outside their neighborhoods.
For this evaluation, it is assumed that transport costs fall from 5 to 2 birr in the program towns.

Total Quantified Benefits

26. Cost-benefit analysis is used to assess the economic rate of return of the cobblestone roads. With and
without project scenarios are defined based on the findings of the ULGDP II MTR and other studies on
the benefits of cobblestone roads. Cash flows are discounted at 12 percent. The results of the cost benefit
analysis as measured by the NPV and IRR and its sensitivity to changes in cost and benefit streams are
summarized on the table 5.4.

Table 5.4. Summary of Economic Analysis

Descriptions NPV (US$, millions) IRR in percent

Base case 63.9 19.3
Sensitivity analysis
20 percent cost increase 35.0 15.5
20 percent reduction in benefits 22.3 14.7

27. The NPV of US$63.9 million and an IRR of 19.3 percent indicate that construction of cobblestone
roads is economically viable even without considering the non-quantified benefits. An analysis of the
project sensitivity test results at 20 percent increase in cost and 20 percent reduction in benefits shows
that the NPV and rate of return remain at acceptable levels. The IRR remains higher than the 12 percent
opportunity cost of capital and NPVs are positive, thus confirming the viability of the project under
various scenarios.

Switching Values

28. The inability of the 73 newly participating ULGs to successfully manage new responsibilities and
resources, delays in implementation of the program, and limited capacity of the private sector are some of
the risks that may raise the costs or lower benefits of the investments in cobblestone roads. The program’s
resilience against these risks is assessed by estimating the switching values on the cost and benefits of the
project. Accordingly, for the NPV to drop to zero or the IRR to be equal to the discount rate, the
investment costs must increase by 44.2 percent, or the benefits must fall by more than 30.6 percent. A
combination of 18 percent cost increases with 18 percent decline in benefit will result in negative NPV
and an IRR of less than the discount rate.

29. Estimates from other studies of the returns of investment in infrastructure. The World Economic
Forum estimates that every dollar spent on infrastructure (utilities, energy, transport, waste management,
flood defense or telecommunications) generates an economic return of between 5–25 percent per year. 128
The estimated rates of return for urban infrastructure projects in Ethiopia and other relevant countries
have revealed high returns to the investments. The Project Appraisal Documents for the Ethiopia’s Water
Supply and Sanitation Project and the Urban Water Supply and Sanitation Project have estimated that
investment in water supply and sanitation services have IRRs ranging from 16 percent in cities to 23.8
percent in Addis Ababa. In Uganda, the weighted average rate of return for standard protected springs,
shallow wells and boreholes is estimated at 18 percent. In Indonesia, a newly paved road is estimated to
generate an IRR of 19 percent and a new market is estimated to produce an IRR of 25 percent. 129 In
Uganda, construction of a road is estimated to generate an IRR between 27.5–33 percent, investment in
128
Cited in Price Waterhouse Coopers, “Trends, challenges and future outlook capital projects and infrastructure in East Africa,
Southern Africa and West Africa. November 2014. www.pwc.co.za/infrastructure.
129
World Bank. Indonesia: Regional Infrastructure Development Fund Project Appraisal Document. February 16, 2017.

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drainage produces an IRR of 10.6 percent, and erection and operation of streetlights results in an IRR of
27 percent.130

Non-quantified Benefits of Urban Infrastructure

30. Roads. Newly paved roads allow users to more cheaply access jobs, markets, health facilities,
schools, and other services. Such access to opportunities is more likely to benefit the poor than saving
time traveling. Moreover, many of the new paved roads financed under the ULGDP II and likely to be
financed under the UIIDP are opening new areas of the ULG to housing and development. This links well
with one of the UIIDP’s objectives of improving urban planning and land management, tools which can
be used to manage traffic flows and mitigate traffic congestion. 131 Indeed a VfM study carried out by the
German Technical Cooperation in 2011 on cobblestone roads constructed under the ULGDP, indicates
that there is often a change in land use that following the construction of a cobblestone road. Many
structures that were previously used as residences transformed into commercial properties following the
opening of the road. Increases in the price of land adjacent to the roads were also a notable. With a robust
property tax system, such enhanced property values could result in higher own-source revenues for
ULGs.

31. Non-motorized transport facilities. Non-motorized transport facilities—including, traffic calming

measures (for example, speed bumps, zebra crossings), footpaths, cycle tracks, and foot bridges—provide
significant benefits. These include (a) reductions in fatal or serious injuries due to vehicle-pedestrian and
cycle accidents; and (b) time savings for pedestrians and cyclists, who can now walk on smooth pathways
without interference from trucks, buses, vans, and cars. Under the ULGDP, about 25 percent of the
cobblestone roads are dedicated to pedestrians and cyclists. Such benefits are in addition to those of travel
time and travel cost savings presented above.

32. Stormwater drainage. Some 14 percent of the ULGDP II performance-based grants have been spent
on storm water drainage. Storm water drainage provides significant benefits in reduced flooding during
rainy periods, resulting in reduced property damage in addition to improved accessibility. 132 Well-
constructed and maintained storm water drains also reduce costs of maintaining roads and lengthen their
useful life. The NPV and ERR of such investments cannot be calculated for the analysis, due to lack of
data, and are in addition to those named above.133
130
World Bank. Uganda Support to Municipal Infrastructure Development Program, Technical Assessment. November 2012.
131
See Robert Cervero for the value of shifting the framing of the objective of new roads as making cities more accessible versus
more mobile by prompting a paradigmatic shift in planning, elevating land-use management and information technologies as
tools for managing traffic flows and mitigating traffic congestion. Cervero, Robert. 2011. “Beyond Travel Time Savings.”
Transport Research Support, World Bank, Washington, DC.
132
Per a respondent during the MTR when asked about the new drainage system, “Our homes are built around the slopes of the
Hakimgara mountainous areas, which experiences flooding, especially during the rainy season in the months of June–September.
The floods led to death of one member, caused us to leave our homes for safety due to fear of the in-coming floods, at times we
would lose our property. Floods used to also cause blockage of the road causing difficulty in mobility by foot in the community.
But after the ULGDP II program intervention, we are now happy the drainage has been setup” and we request it continue up to
the mountain to assure us of no further flooding. It has eased mobility by foot and we feel more secure in our homes…”
Beneficiary in Harar.
Another person interviewed stated, “…Before the drainage was constructed, this place used to receive partial flush floods
from water gushing down a deep river gulley. Movement of people was difficult and the flood pools would ramify into breeding
places for malaria causing mosquitoes. The situation had deteriorated and epitomized by the death of one person who drowned
into the running water. After a lot of pressing by residents, the city administration prioritized and constructed the drainage and
put a five-meter-wide cover slab that also acts as a walk way for the people. As a result of this landmark project, many
commercial units have come up hosting medium enterprises such as produce (red pepper and garlic stores) as well as Buna
kiosks. The major complaint now is that during heavy rains, some inlets cannot accommodate the large volume of water ends up
temporarily flooding…” Focus group discussion with beneficiaries (three women and seven men) residing and doing business in
the area adjacent to drainage at Kebele 4; Shire Endaselassie city, Tigray.
133
The result of economic analysis for the drainage systems in Kampala shows positive NPVs and IRRs of 18 percent and higher.

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33. Institutional benefits. The ULGDP II provides capacity building support and incentives for
participating ULGs to improve spatial and investment planning, public FM, and governance
improvements across a broad range of core areas, and has introduced a good sense of competition and
awareness across the ULGs. Compared with the baselines, there are significant improvements in areas of
audit reports, planning documents (CIP, procurement plans, REPs, planning and budgeting for
maintenance and operations), revenue enhancement, and in accountability and involvement of citizen
groups in local planning. The UIIDP will continue to strengthen core urban management functions in both
the existing and the newly participating ULGs. The improved performance will affect the use of all funds
available to ULGs for urban development, not just those available under the UIIDP.

34. Job creation. Cobblestone road construction is highly labor intensive and supports job creation.
Under the ULGDP II, some 321,430 jobs134 were created in EFY 2007–2009. Of these, some 44 percent
went to women. About one-third of the jobs created are permanent. Overall, the jobs created under the
ULGDP II contributed 45 percent of the GTP II target (717,114 jobs created under the urban
development, housing and construction).135

With and Without Program Interventions

35. Under the counterfactual scenario, without the WB-supported UIIDP, the target ULGs would
continue to face a large urban fiscal gap which 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 WB-supported Program, the support to ULGs under the existing intergovernmental fiscal
architecture would be highly inadequate in achieving the proposed objective in the GTP and urban
policies of increased ULGs performance in expanding urban infrastructure.

36. To the extent possible and appropriate, the Program will promote local private sector
development. As under ULGDP II, the implementation of almost all Program activities will be
contracted out to the private sector. More than 2,000 MSEs were involved in the construction of
investment projects from ULGDP II from 2013–2016 and this is expected to expand with the proposed
investment menu and likely investments. 136 ULGs, as implementing agencies, will retain supervisory role
and the MUDHo, 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.

37. 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 WB’s expertise in those areas in Ethiopia and elsewhere are
comprehensive. The experiences from ULGDP I and ULGDP II shows that in addition to the necessary
support for financing of these interventions, the expertise that the WB can offer in the support of the
design, technical advice, monitoring and backstopping, is highly appreciated and valuable for the GoE
and the GoE’s urban program. Experiences from VfM audits for the ULGDP II and other countries such
as Uganda, also show strong VfM in investment modalities like the proposed Program. 137

134
The job numbers are not derived from a robust or consistent methodology or definition, and hence the number should be
viewed as rough estimates only.
135
MUDHo. 2016. Midterm review.
136
German Technical Cooperation, (GIZ), 2011.
137
Uganda, Ministry of Local Government. “Technical and Value for Money Audit of LGDP II, Synthesis Report,” December,
2007.

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 Annex 6: Fiduciary Systems Assessment Summary for the Operation

1. The UIIDP is designed as a hybrid Operation that includes two windows, one of which uses
the PforR instrument and the other uses the IPF instrument. The design of the UIIDP is based on the
lessons learned under the ULGDP I and II that were successful in getting funds out to the ULG 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, FM, procurement,
accountability, social and environmental systems management, controlling fraud and corruption, and
responding to complaints. The Operation will also address the challenges identified under ULGDP II by
strengthening capacity for procurement and contract management, improving the quality of the
procurement audit, enhancing generation of own-source revenue, improving intra-governmental
coordination, and strengthening M&E. It will also include the new core areas of resilience, LED, and
gender equality.

2. This annex provides a summary of the assessments conducted for both windows, following
relevant WB policy and directive. The section is divided into (a) For the PforR window and (b) for the
IPF window.

(a) For the PforR window (the Program)

3. The objective of the integrated fiduciary assessment is to ensure that implementation

arrangements are adequate and risks are reasonably mitigated by the existing framework. The
fiduciary assessment entailed a review of the capacity of the sampled participating entities on their ability
(a) to record, control, and manage all Program resources and produce timely, understandable, relevant,
and reliable information for the borrower and the WB; (b) to follow procurement rules and procedures,
capacity, and performance focusing on procurement performance indicators and the extent to which the
capacity and performance support the PDOs and risks associated with the Program and the implementing
agencies; and (c) to identify and mitigate fraud and corruption and effectively handle public grievances
and complaints. A special survey was designed for the fiduciary assessment of the ULGs that will
participate in the UIIDP. While the assessment of the new 73 cities was conducted on a sample basis, the
fiduciary team used data obtained from the past APAs for the assessment of the 44 ULGs participating in
the ULGDP II.

4. The assessment highlights risks and internal weaknesses of Program implementing

agencies, which will be mitigated through measures to be included as MCs and PMs and through
actions specified in the PAP. For the reasons mentioned below, the fiduciary risk of the proposed
Program is rated as Substantial.138 For details of the issues, risks, and proposed mitigation measures, see
below and annex 9 (PAP). Overall, the fiduciary assessment concludes that the examined program FM
and procurement systems are adequate to provide reasonable assurance that the financing proceeds will be
used for intended purposes, with due attention to principles of economy, efficiency, effectiveness,
transparency and accountability, and for safeguarding Program assets once the proposed mitigation
measures have been implemented. Further details of the Integrated Fiduciary Assessment and associated
actions required are detailed below and in annex 9.

5. Overall, the fiduciary assessment concludes that the examined program FM and procurement
systems are adequate to provide reasonable assurance that the financing proceeds will be used for
intended purposes, with due attention to principles of economy, efficiency, effectiveness, transparency
and accountability, and for safeguarding Program assets once the proposed mitigation measures have
been implemented.

138
The fiduciary risk rating is the combination of the overall risk ratings of the FM, procurement, and fraud and corruption.

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Financial Management

6. The 2014 PEFA for the Federal Government noted the major improvements that have been
made. Ethiopia has significantly improved its performance over the last three years. Expenditure
deviation was less than 5 percent per year during EFY 2003–2005, which is less than half of what it was
noted during the period of EFY 1999 to 2001 (11.6 percent). Revenue forecasting also improved with
revenue collection being 94 percent to 112 percent of the budget during the last three years. Bills are
cleared on time. Arrears are therefore, not a major issue. The internal control system is comprehensive,
widely understood and effective at the federal government level. Audit coverage at the Federal level has
increased in recent years from 56 percent to 100 percent of budgetary institutions and audit reports are
produced in a timely manner. However, the federal government needs to improve its PEFA ratings in
following areas: (a) legislative scrutiny of audit reports; (b) oversight of fiscal risk from public sector
entities (c) public access to key fiscal information effectiveness in collection of tax payments and (d)
predictability of funds for commitment of funds and quality of in-year budget execution reports.

7. At the same time, as per the PEFA assessment, the regional government entities need to
improve in several areas. These are: (a) the extent of unreported government operations, (b)
effectiveness in collection of taxes, (c) comprehensiveness of information included in budget documents,
(d) weaknesses in multi-year planning, (e) composition of expenditure outturn compared to the original
budget, and (f) availability of information received by service delivery units. However, it was noted that
some of these issues are being addressed through the GoE’s flagship public FM reform program, the
Expenditure Management and Control Program. The following key FM findings and performance issues
and risks, and the envisaged Program FM arrangements are detailed below.

8. Planning and budgeting. The GoE has a well-functioning planning and budgeting system, as
indicated in the PEFA. Under the ULGDP II, budgeting and budget preparation is well structured. The
budget of the Program is proclaimed under the name of MUDHo. The contributions of the regional
governments are declared through regional proclamations. The three-year CIP is approved by the city
council and made public using notice boards and mass media. All the new ULGs visited have prepared a
five years’ urban strategic plan from which the annual budget is prepared based on the government
budget system. However, about 50 percent of the visited cities prepared a three-year rolling CIP, REPs,
and AMPs. However, only 55 percent the visited ULGs produced evidence for the approval of the budget
by the city council, and only 64 percent provided evidence of BoFEDs annual budget notification. The
filing system should be strengthened at all ULGs to produce documentation that the proper process has
been followed. The budgets of some ULGs visited have credibility challenges, as actual expenditures
deviated from budget by more than 10 percent. Experience from the ULGDP II, however, shows that the
budget amount notified by MoFEC and reported in the financial reports often does not match the budget
amount in the approved CIP and in IBEX records. Some visited ULGs did not record the Program budget
in the stand-alone IBEX. There are also instances of erroneous recordings. All this will lead to distorted
performance reporting. Overall budget utilization could be improved, particularly in the Harari region, the
Dire Dawa city administration, and the MUDHo. On the other hand, the budget control for the existing
ULGs and the new ULGs visited is reasonable, where budget checks are done at the transaction level.
However, system based control is not adequate, as ULGs do not use the budget control module of the
IBEX system to track expenditure.

9. Transparency. The PEFA highlighted challenges with fiscal transparency. However, experience
under the ULGDP II shows that MoFEC has not started disclosing the Program budget and expenditure.
On the other hand, as stated in the fourth APA report, the clear majority of the existing ULGs
demonstrated transparency by disseminating information to the public on the annual budget, approved
projects, expenditure, and findings of external audit reports using notice boards and, in some ULGs, other
print formats. About 83 percent of the new ULGs visited disclosed their approved budget for EFY and 67

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percent disclosed their quarterly budget utilization. However, none of the ULGs visited have never
disclosed external audit reports.

10. Program budgeting arrangements. The Program will continue to follow GoE planning and
budgeting accounting and internal control arrangements. The Program budget will be included at in the
national budget and will be proclaimed at the federal level at the MUDHo as a special purpose grant
classified by regions, ULGs, and the MUDHo. The Program budgeting is structured as an upstream
process starting at the ULGs and moving upwards to the regional and the federal levels, where it is
consolidated and approved. To ensure reporting of the Program expenditures is integrated in the national
public financial system and codes, the established charts of account (codes) under the ULGDP II will be
continued under the UIIDP, taking into consideration the new features of the UIIDP. Budget control is
exercised at all levels at transaction level, using the IBEX or other systems and at report level. Budget
control is exercised at all levels at the transaction level, using the IBEX or other systems, and at the report
level. For the Program the semiannual interim financial reports will document and compare the Program
budget with actual expenditures and report on variances. The POM will provide details of these
arrangements.

11. Treasury management and fund flow. The PEFA notes robust systems of treasury management
and flow of funds. Funds flow from MoFEC to ministries is based on cash flow forecast prepared and
approved and daily zero balance account withdrawal limit. At the Program level, the main observation
from ULGDP II is that there is some delay in fund releases from MoFEC to BoFEDs. Apart from the
ULGDP II funds, the sources of funds for the ULGs were municipal and state revenue as well as a block
grant subsidy and the federal road fund and other special grant funds. As per the fourth APA, all ULGs
fulfilled their minimum co-funding requirement and most exceeded it. Only 21 percent of the ULGs
visited recorded state and municipal revenue in the IBEX, inhibiting availability on revenue collection
performance. Some 67 percent of the ULGs visited collected land lease revenue, which constitutes a large
amount of the municipal revenue, and about 75 percent contribute funds for infrastructure development.

12. Program disbursement and flow of funds arrangement. Disbursements under the Program are
subject to PforR procedures and disbursed against DLIs. The PforR funds will be disbursed from the WB
to MoFEC once a year upon confirmation of achievement of the DLIs. Fund transfers from MoFEC to the
regional government entities and ULGs will be made based on results and will be either annually or
semiannually. IDA funds will be deposited to a separate foreign currency account (as per the request of
the government). Local currency accounts also will be opened. Upon achievement of the results, the
MUDHo will work with MoFEC to inform the WB and provide evidence, as per the verification
protocols, that the results of the DLI have been met. For a scalable DLI, the task team will determine the
amount to be disbursed on the basis of the Program’s progress report and DLI verification protocol. A
notification will be made to the Borrower on the amount to be disbursed against a scalable DLI.
Disbursement requests will be submitted to the WB using the WB’s standard disbursement forms signed
by an authorized signatory. Although PforR operations do not link disbursements to individual
expenditure transactions, the aggregate disbursements under such operations should not exceed the total
program expenditures framework under the Program over its implementation period. If, by Program
completion, WB financing disbursed exceeds the total amount of Program expenditures, the Borrower
will be required to refund the difference to the WB. Once IDA resources reach the separate foreign
currency account, the funds can be used to finance Program expenditures or can be transferred to a local
currency account. Funds from the local currency account can be transferred to federal level implementing
entities and to regions’ BoFEDs. At the regional level, BoFEDs will, in consultation with the BUDs,
disburse resources to ULGs and regional entities. Duties and responsibilities of the various implementing
entities and their roles in fund flows and management of resources will be documented in the POM.

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13. Accounting and reporting. The PEFA notes strong accounting and reporting systems in the
country. The existing ULGs and majority of the new ULGs visited use the government accounting
system, which is a double entry and a modified cash basis of accounting. Most existing ULGs also use the
government chart of account, which includes municipal revenue. Most cities use double-entry accounting.
IBEX is rolled out in most ULGs and about 92 percent of ULGs visited record their transactions on time.
However, access to the IBEX system was not granted to the internal audit unit. At all new ULGs visited,
finance-related proclamations, regulations, directives, guidelines, and working manuals (for budget,
accounting, IBEX, cash management and internal audit) are available. In regards to financial reporting,
for the ULGDP II, ULGs send semi-annual interim financial reports to their respective BoFEDs. BoFEDs
in turn consolidate the reports and send them to MoFEC. MoFEC then submits the consolidated reports to
the WB within 45 days of the end of the half year (semiannual). On the other hand, OFEDs in existing
ULGs and new ULGs visited submit monthly reports to their respective zonal OFED and some to
BoFEDs. The monthly financial statements are submitted in both soft and hard copies. Some ULGs in the
Amhara and Tigray regions submit only soft copies. About 92 percent of the new ULGs visited submitted
their monthly financial statements within the deadline. Only 67 percent retained and filed hard copies of
the submitted reports. All ULGs participating in the UIIDP are required to retain complete official hard
copies in the future.

14. Program accounting and reporting arrangements. Government rules, regulations, and directives
as well as manuals will be in use for the Program in respect to accounting policies and procedures. Chart
of accounts will reflect Program accounting and reporting needs, and this will be documented in the
POM. A double-entry accounting system will be implemented in all newly participating cities, and IBEX
will be rolled out in either a stand-alone or integrated manner. Adequate capacity building will be
provided to new participating ULGs to enable them to utilize the IBEX effectively. Internal auditors will
be granted system access. Under the ULGDP II, adequate FM staff were in place at MoFEC and the
MUDHo to perform Program FM duties. This will continue under the proposed UIIDP. A semiannual
interim financial report will continue to be used. MoFEC will submit these reports to the WB within 60
days at the end of the half year (semiannual end date). The Program financial reports will be produced
from the existing system and their production will be the responsibility of each implementing entity,
which will be consolidated at the higher level, and finally by MoFEC. The format of the semiannual
financial report of the existing Program will be used, with some amendments as appropriate and agreed
by negotiations. MoFEC will also prepare annual Program financial statements in accordance with
acceptable standards, within three months of the end of fiscal year and provide them to the auditors to
enable them to carry out and complete the financial audit on time.

15. Internal controls (including internal audit). The PEFA notes strong internal controls. At the
Program level, the internal control framework is generally robust. However, weaknesses were noted in
some of the new ULGs visited on segregation of duties where there were challenges in the bank
reconciliation functions and stock handling functions. Cash management control weaknesses were also
observed, whereby there were failures to conduct regular cash count and when conducted there were
unexplained discrepancies between cash count and ledger balances. There were cases where monthly
bank reconciliations were not performed at all. In some cases, improper bank reconciliations were done.
In addition, there were weak property management control (absence of proper fixed asset register, not
reconciling inventory count balance with record). Weaknesses was also observed in the internal audit
area. About 25 percent of the ULGs visited do not have an internal audit unit. About 50 percent have
established internal audit units, but they are not adequately staffed. The audit coverage in many of the
ULGs visited was also inadequate. Internal auditors in most of the ULGs do not provide their quarterly
reports to the mayors.

16. Program internal control and internal audit arrangements. Government rules, regulations, and
directives, as well as manuals on internal control procedures will apply to the Program. The internal

125
control framework is generally recognized as being robust. However, challenges in internal control noted
during the assessment must be addressed. Continuous training and support to all ULGs will be provided
to enhance capacity in these areas. Internal audit units will need to be established and made functional at
all ULGs entering the UIIDP, and internal audit units will need to be adequately staffed. Copies of
internal audit reports will need to be sent to mayors. Continuous training will be provided through the IPF
window to internal auditors to build their capacity. It is envisaged that the ULG internal auditor will audit
Program activities and will report to the mayor on weaknesses.

17. External audit. The financial statement audit of the ULGDP II is conducted annually. The latest
audit was for the year ended July 7, 2016. The audit report was submitted timely, and a clean audit
opinion was given by the auditors. An action plan has been prepared to rectify findings raised in the
management letter, and the feedback on the status of the rectification has been submitted to the WB. The
Program financial statement audit was complemented with VfM audit that was performed by the same
external auditors. So far two VfM audits were conducted on all the 44 ULGs participating in the ULGDP
II. The latest was for the year ended July 7, 2016. The report was submitted within the deadline. The
second VfM audit noted significant improvements in ULGs on efficiency, effectiveness, and economy.
Another complementary audit are ULGs financial statement audits, which is conducted by ORAGs.
Audits have been conducted of the financial of all 44 ULGs, and all backlogs have been cleared. For the
year ended July 7, 2016 audit, all ORAGs have submitted the audit reports of the 44 ULGs, within the
deadline. A total of 13 ULGs received a clean opinion. Compared to the previous year, the number of
ULGs receiving a clean opinion has increased by 63 percent. More than 90 percent of the ULGs rectified
most of the audit findings raised in the audit report.

18. The financial statements of 83 percent of the new ULGs visited were audited annually by their
respective ORAGs. External audit reports for EFY 2008 were issued to 50 percent of the ULGs, and
external audit reports for EFY 2007 were issued to 90 percent of the ULGs. For EFY 2007 and 2008, the
short form report, which contains opinion, was issued to only 80 percent of the cities, while the others
were provided only with the long form report (management letter). Audited financial statements were
attached with the short form report only to 50 percent of the cities. In EFY 2008 audit, one qualified
(adverse) opinion and 4 qualified (except for) opinions were given. In EFY 2007 all the opinions were
“except for”. There was no practice in preparing action plan to rectify audit findings and status reports on
rectified audit findings except for one city. Quality issues were noted such as no uniform basis of opinion
in use, not attaching audited financial statements with the short form report, unclear qualification points,
insignificant issues incorporated in qualification points, issuance of separate audit reports for
state/municipal and ULGDP (SNNPR, Dire Dawa, and Harari) were noted, which needs improvement in
future audit.

19. Program external audit. As under the ULGDP II, the both financial and VfM audits will be
carried out under the UIIDP. The OFAGs or a delegated auditor acceptable to the WB will conduct the
annual financial and VfM audits. The audits will be conducted in accordance with ToR agreed during
negotiations. The audit reports and management letters will be submitted to the WB within six months of
the end of the GoE’s fiscal year. Following the WB’s formal receipt of these statements from the
borrower, the WB will make them available to the public in accordance with the WB Policy on Access to
Information. During implementation of the new Program, annual financial statements of all ULGs
entering the UIIDP will need to be audited by ORAGs or other external auditors endorsed by ORAGs.
ORAGs will issue both the short form report (with attached audited financial statements) and long form
report (management letter) within the agreed deadline. All the new ULGs will prepare action plans to
rectify weaknesses identified in the external audit reports and implementation status of previous actions.
The OFAG will intensively intervene in capacity building of the regional auditors to apply uniform
reporting format across the regions and improve the quality and reliability of the audit. The IPF will
support training of ORAGs to improve on quality of audit and reports.

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20. Staffing and facilities. The ULGs visited have inadequate staff to maintain proper FM system.
However, in about 25 percent of the ULGs, fewer than 75 percent of the required positions are filled.
Staff of internal audit units, especially at ULGs in Amhara and Tigray, were too few compared to the
volume of work. During implementation of the UIIDP, existing positions will need to be filled. Various
training on budget, accounts, IBEX, internal audit, and property were given in EFY 2008 and 2009.
However, additional training is needed. About 17 percent of the ULGs visited have inadequate facilities
to discharge their duties effectively. This should be addressed during the implementation of the new
Program.

21. Conclusion. It is the conclusion of the assessment that the FM risk is rated as “Substantial.” A
combination of DLIs and PAPs have been proposed as risk mitigation measures for the identified risks
and to improve the quality of the FM performance.

Procurement

22. As part of the fiduciary assessment, the WB carried out a procurement system assessment
between March and May 2017. The assessment included: (a) review of applicable procurement systems,
rules and procedures, practices, including complaint handling, and oversight mechanisms; (b)
procurement organization and capacity of the implementing entities; and (c) procurement cycle
management. The Program implementing entities include the federal MUDHo, regional BoFEDs, and
participating ULGs. The team visited 12 of 73 new cities, two of which were later excluded from the
Program.

23. Applicable procurement rules and procedures. In Ethiopia, for federal level budgetary bodies,
public procurement is regulated by the Public Procurement and Property Administration Proclamation
No. 649/2009. The Proclamation established the FPPPAA as a body responsible for regulation and
monitoring of federal bodies’ public procurement activities. The nine regional states and two federal city
administrations, Addis Ababa and Dire Dawa, have their own procurement proclamations and directives,
which are based on the federal prototype. The ULGs are required to abide by their respective regional
procurement laws. At the federal level, directives, manuals, and standard bidding documents and standard
requests for proposals templates have been issued. Most of the regional states have also issued these.
However, some of the standard bidding documents and standard requests for proposals templates are not
comprehensive, and some of the procuring entities lack knowledge and understanding of the proper
implementations of the procurement legal framework. As a general assessment, the procurement legal
framework of the nine regional states and two city administrations are found to be sufficient, with some
shortcomings with respect to content and many weaknesses in implementation.

24. Country procurement assessment (CPA). A CPA was carried out in 2002 and updated in 2010
mainly to respond to Ethiopia’s progress in decentralization since 2002 and to address the gaps identified
during the 2002 CPA. Although some improvements were achieved since 2002, the 2010 report
highlighted several risk areas and inadequacies in the legal, institutional setup, and procurement practices.
These include: (a) the FPPPAA does not have regulatory and monitoring responsibility over government
owned enterprises; (b) the FPPPAA reports to MoFEC and the Regional Public Procurement and Property
Administration Agencies report to their respective BoFEDs and cannot be considered independent of the
executive bodies (although it seems they have some level of management autonomy); (c) capacity of
FPPPAA and regional agencies to monitor procurement activities and carry out comprehensive
procurement audits are weak; (d) there are no formal oversight or complaint mechanisms in some regional
states; (e) there is lack of adequate recognition for the procurement profession, and a shortage of capacity
to effectively enforce and implement the procurement law; and (f) staff skills in understanding
procurement process and management requirements of the government’s own system is low and the
private sector is not organized and mature. The 2010 CPA also highlighted concerns with: (a) the

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minimum time given to bidders to prepare meaningful bids; (b) the local preferences given to MSEs; and
(c) the legal framework which allows a merit point system to be used for both goods and works
procurement, which may lead to reduced transparency in the award of contracts.

25. Program procurement capacity assessment. The assessment included four cities from the
Amhara, one from Tigray, four from Oromia, two from SNNPR and one from the Somali region. Of
these, nine ULGs have their own procurement units, and three handle procurements through their woreda
OFED. Overall, the performance of the ULGs assessed appears to be low regarding implementation of
regional government procurement proclamations and directives.

26. Procurement organization. Most of the ULGs have their own procurement units, but the
organizational arrangement differs by region. Some of the ULGs carry out procurement through a pool
system based at the woreda OFED. For Tigray, the procurement unit is positioned in a core process level
reporting to the bureau of plan and finance. In the OFEDs, the unit responsible for managing procurement
activities is finance, procurement, and property administration process owner. In all cases, purchase up to
ETB 100,000 (~US$4,400) is approved and signed by this person, while procurements above ETB
100,000 are approved by head of the OFEDs, upon recommendation of the tender/procurement endorsing
committee. In some of the regions, different thresholds for award approval is practiced. For example, in
Tigray, all goods contracts categorized above ETB 1 million are subject to approval of the head of the
office of plan and finance, while for contracts below ETB 1 million, the process owner of Procurement
and Property Management Support approves. Similarly, for works contracts, the approvals are made by
the office of construction and road transport and the relevant process owner respectively. Award
notifications are posted on notice boards inside the ULGs office allowing for a period of five days to
receive complaints from bidders before awarding the contract. However, award notifications are generally
not officially issued to bidders.

27. Staffing. Most of the procurement officers in all ULGs assessed have the required general
qualification, however, their specific procurement experience is limited. All assessed offices have three
procurement staff on average including their procurement case team leader, and the deployment of staff
seems to be adequate for the current workload. However, additional procurement proficient staff will be
needed to handle procurement activities under the proposed UIIDP. In most ULGs, the provision of
procurement training to the staffs appears to be inadequate, but there are cases procurement staff not
having benefited from any training. In all ULGs assessed, there is no issued code of ethics related to
procurement processes other than what was mentioned in the regional procurement proclamations and
directives.

28. Procurement planning. Preparation of annual procurement plan is a requirement by under

regions’ procurement directives (prototype of the FPPPAA directives). The directives have detailed
parameters to be included in the procurement planning template and accordingly consists: procurement
type/category, description of contract, lots, quantity, procurement method, procurement lead time for
different milestones, and estimated contract amount and the source of financing as well as contract type.
However, the quality of the procurement plans being prepared by most of the ULGs are not up to the
required standard. Most of the ULGs assessed do not update their procurement plans, even though it is
required. ULGs which do revise their procurement plans do not include the items already procured during
the financial year. Another challenge is lack of knowledge on the use of procurement plan as a monitoring
tool and absence of updated contract registers. The assessment found that, in general, the ULGs prepare a
list of procurement items with budgets only for budget processing purposes, but not for proper planning,
managing and monitoring of all procurement processes. This is mainly due to lack of experience and skill
limitations in preparation and use of a procurement plan. Moreover, there is lack of proper enforcement
through regional public procurement bodies on the requirement of proper procurement planning and its
update by all entities.

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29. Procurement market assessment. There are adequate suppliers of goods, works and services in
most regions. For most national competitive bids, the number of bidders is overwhelming, making the
evaluation process cumbersome. This may partly be due to not using appropriate qualification criteria to
screen out non-capable bidders. Similarly, for local competitive bidding, for which MSEs are bidders,
there is no shortage, as the city administrations can organize, train, and deploy as many MSEs as they
require, if there are sufficient contracts to engage them. The assessment of the regional procurement
markets has not identified any exceptional circumstances involving natural monopolies that could be
involved in the supply of goods, works, and services under the Program. Technical experts who prepare
the design and bidding documents also prepare cost estimates for works contracts.

30. The participation of government-owned enterprises, in bids for supply of goods, works and
services is allowed in some cases through direct contracting and in some cases on a competitive
basis. Like the federal procurement law, the regional procurement laws have provisions that allow a
domestic margin of preference to be applied in the following three cases: (a) pharmaceutical materials,
which are produced locally will be given 25 percent of margin of preference, (b) other goods, which are
produced in the country will be given 15 percent of margin of preference, and (c) works and consultancy
services are given a margin of preference of 7.5 percent.

31. Procurement notices. In all the ULGs assessed, tenders under national competitive bidding are
advertised in widely circulated national and regional newspapers. Regional television and radio
broadcasts are also used in some ULGs. Local tenders are posted inside ULG offices and notice boards
located in different parts of the city. Tenders under national competitive bidding are advertised in the
Ethiopian Herald, and not in international media.

32. Bidding document preparation. In the regional procurement directives, there is a requirement for
procurement staff to include important information such as instructions to bidders, bid data sheet,
conditions of contract, bill of quantities, specifications, and the like in the bidding documents. Standard
Bidding Documents are also issued by the regional public procurement agencies, and for low-value
contracts they are prepared in local languages. The assessment noted that in most ULGs, the Standard
Bidding Documents are not used consistently and in their complete form. Mainly, the bidding documents
prepared by the ULGs lack completeness on basic information required for implementation of the
procurement process, such as instructions to bidders, evaluation and qualification criteria, general and
special condition of contracts. It was further noted that preparing the right specifications for the specified
procurement type is a challenge. Specifications for goods procurement are prepared by the respective user
sectors, but most sector offices have limited capacity for preparation of technical specifications
(purchaser’s requirements) in their procurement requests. Specifications for works contract are prepared
by the construction units of the ULGs or the woredas. However, most specifications are presented as item
descriptions in the bills of quantity, and such presentations do not clearly specify the measurement and
payment provisions and detailed quality requirements. In general, bids are retendered due to insufficient
and incorrect specifications prepared for works and goods procurements.

33. Bidding and bid opening. As per the regional procurement proclamations and directives, the
default procurement method is an open tendering, which includes, international competitive bidding,
national competitive bidding, regional, and local open bidding. A clear and applicable guideline for
procurement method selection is elaborated in the procurement manual of the regions. The most common
procurement method for medium to large value procurement in most of the visited ULGs is national
competitive bidding, followed by local competitive bidding. Almost all procurement directives discourage
direct contracting and shopping. However, the actual practice by some procuring entities is contrary to the
legal provisions. For example, award of contracts through direct contracting to private or government
owned enterprise is a common practice in Amhara Region. It was noted that some large value contracts
were procured using direct contracting, although the default procurement method is open bidding.

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Generally, bids are opened and closed on the dates and times specified in the bidding documents. Bid
submission and closing times are generally observed and bids are opened promptly after the closing time.
However, during the bid opening sessions, inconsistencies are sometimes observed through disclosing
unnecessary information such as declaring rejection of a bidder. In addition, bid opening minutes and
related records lack adequate information.

34. Evaluation and award. After bid opening, evaluation of goods contracts is done by the tender
committee, which normally is comprised of five members from procurement, finance, user sector and
internal auditor as observer. The Finance, Procurement, and Property Administration process owner
works as chairman of the tender committee and one procurement officer works as secretary. The secretary
is responsible for safe keeping of bid documents and evaluation recommendations. For evaluation of
works contracts, professionals from infrastructure design and construction units work jointly with the
tender committee. It was noted that ULGs do not use a standard evaluation format. Instead the evaluation
and approval of bids are recorded in the respective tender committee diaries, and mostly in handwritten
form. In all procurement directives, it is a requirement that evaluations shall be carried out using the
evaluation criteria provided in the bidding documents and requests for proposal. However, the assessment
found various shortcomings in the evaluation process, including (a) disqualifying a bidder during the bid
opening session, (b) disqualifying bids because of non-material non-conformities, (c) introducing
qualification criteria during the evaluation process, and (d) not using some of the evaluation criteria
included in the bidding documents. The use of a merit point system in the evaluation process of non-
complex goods and works is also prevalent. These types of practices in most cases disqualify attractive
bids or quotations, and most importantly compromise the VfM, transparency, fairness and integrity of the
evaluation process.

35. Complaint handling. Reports from REACCs/FEACC have shown that about half of the
complaints submitted by bidders/stakeholders were on procurement. The ToRs of RPPPAAs and APA
should include adequate provisions to closely examine any potential loopholes in the procurement process
which might be source of complaints.

36. Contract management. In most cases, bidding documents are distributed to bidders without
including both general and special conditions of contact, and hence bidders are not well informed about
the conditions of contract to be applied. In addition, there is capacity limitation on contract documents
preparation and contract administration of works contracts. In most of the selected cases, there is no
proper and complete contract documents; and the signed contracts do not exhaustively include important
contract conditions; in most cases, contract documents contain only form of agreement and the priced
bills of quantity, missing the general and special conditions, completed contract forms and specifications.
It is commendable that most ULGs are submitting the draft contract documents for legal review and
endorsement by the city justice bureau. Works contracts are administered by the relevant construction
units of the ULGs, woredas or the region, as appropriate, based on the applicable regulations. The
regional directives contain reasonably adequate guidance on basic contracts administration procedures
like the FPPPAA. But the awareness and implementation of the contract administration procedures is very
limited. In general, the staff engaged in contract management do not have adequate knowledge and
experience on contract administration and they are not aware of the contract administration procedures.
Management of goods contracts are handled by procurement and property administration officers, without
involving technical staff from the respective user sections. Inspection and acceptance of goods is done by
the procurement units. All purchased goods are inspected and verified against the specifications in the
contract by TCs before they delivered. A good practice has been observed in Tigray region that goods
inspections are made using a checklist. Generally, payments are made on time and contracts are
implemented with no substantial cost and time overruns. Actions have been included in the PAP to
strengthen contract management.

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37. Dispute handling. To acceptably resolve contractual disputes, proper contract documents are
required. But in most cases, the contract agreements lack detailed contractual clauses and provisions not
only for dispute resolution, but also for obligations and rights of the parties. Thus, ability to resolve
contractual disputes in a proactive manner is very limited.

38. Recording. In all the ULGs assessed procurement documents are filed in the procurement unit.
However, there is concern that the procurement records are not kept in a safe and proper manner. There is
inadequate space and adequate basic facilities such as computers, tables, chairs, shelves and filing
cabinets, lockers and the like for safe keeping of and management of procurement records and data.

39. Procurement oversight. The FPPPAA and the RPPPAA are responsible for oversight and
auditing of public procurement processes. However, regional agencies do not regularly inspect, audit, and
monitor procurement processes in all ULGs. ORAGs audit procurement activities of ULGs every six
months. However, the audits lack specificity. This needs to be improved. There are also internal Audit
units in ULGs, but their capacity is inadequate and internal audits are functional only in selective sectors
where frequent auditing is required.

40. Procurement performance and monitoring. All regional states and ULGs spend more than 50
percent of their annual budget procuring goods, works, and services. At the federal level, this percentage
is 65 percent. The scope of procurement of contracts in terms of number and value of items undertaken by
the towns/cities, each year, varies from city to city. The total number of contracts procured each year
ranges from 13 in smaller towns to 58 in some larger cities. Procurement of works and goods contracts
account for the largest numbers, while procurement of works contracts is the largest in terms of contract
values. ULGs do not have procurement performance monitoring and measurement system to monitor
their procurement workload and measure their procurement performance.

41. Several risks have been identified for Program procurement and contracts administration.
These are (a) non-compliance with national and regional directives; (b) weak procurement capacity at the
ULGs; (c) transparency and fairness issues related to procurement process, as the result of not
implementing the legal procedures available; (d) competitiveness issues as the result of involvement of
state-owned enterprises in tenders and application of different preferential treatment and reservation
schemes to MSEs; (d) weak accountability, integrity and oversight arrangements; (e) weak contracts
administration, complaints handling mechanism, and the inefficient resolution of contractual disputes; and
(f) poor procurement recording. Based on the assessment, the procurement risk in the 73 new ULGs is
rated as High, before risk mitigation measures are put in place.

42. Four types of risk mitigation measures are proposed. First, ULGs must comply with the MCs
to participate in the Program. These include having the minimum institutional and staff capacity in place.
This will be checked annually through APA. Second, implementation of activities specified in the PAP
will be closely monitored. This includes measures to build capacity of ULGs and other entities for
procurement. Third, an annual procurement performance audit will be carried out through the RPPPAAs.
This will also be supported by DLI 9 providing an incentive for the RPPPAAs to perform. Fourth, the
MUDHo through the OFAG or an independent consultant will carry out VfM audits of ULGs’
investments in infrastructure. The APAs, under DLI 2 and DLI 3, will consider the performance of the
ULGs based on the findings of the procurement and VfM audits.

Fraud and Corruption and Complaint Handling Mechanism

43. Fraud and corruption and compliant handling mechanisms were assessed for ten new cities of
the 73 new ULGs during April–June 2017. Based on the assessment, fraud and corruption risk is rated as
Substantial. In line with the WB’s Anti-Corruption Guidelines, the FEACC verified and provided fraud

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and corruption allegations biannual reports on ULGDP II covering the existing ULGs and conducted
investigations jointly as needed. Despite the progress made in tackling fraud and corruption in the
ULGDP II, the risk/challenges of fraud and corruption and grievance in urban land administration and
provision of municipal services is still high. Allegations of fraud and corruption take the form of abuse of
power and bribery, breach of trust, fraud and deception, preparing and using forged certificates and
documents, illegal revenue collection, procurement handling, construction design, supervision and
payment certification, and low quality of constructed activities. On the other hand, the rate of
responsiveness to public grievances regarding land and related Program activities is generally low. Some
of the reasons for complaints include delay of compensation of land, not providing compensation in kind,
illegal landholdings and buildings, and demolitions, transferring land or sheds to others, not being
selected as a beneficiary of an MSE, and the lack of provision of land and inputs.

44. At country level, the systems to handle the risks of fraud and corruption, including checks and
balances, have been established. Fraud and corruption complaints handling mechanisms are in place as
per the requirement of the two national proclamations (433/2005 and 434/2005); and the Council of
Ministers Regulation No. 144/2008 that provides for the functioning of ethics liaison units across public
offices and public enterprises in the country. As required by the proclamation and operational regulation,
the scope of FEACC and REACCs covers all sectors, including the UIIDP. Thus, the existence of ethics
and anticorruption officer with renewed functional responsibilities in ULGs is mandatory for the
operation of the UIIDP. FEACC has also introduced an integrated corruption prevention strategic
approach, including oversight forums. In line with this, the ethics and anticorruption officers have adapted
the strategy of integrated prevention of corruption and illicit acts, drafted corruption and
maladministration prevention strategic plan.

45. Public grievance handling mechanism. Regional states and ULGs have established the legal
framework and structure for public grievance hearing. The regional regulations, proclamations provide
for the establishment and functioning of grievance handling bodies at different administrative levels of
regional states. The ULGs have deployed the structure of primary and secondary level of handling service
delivery grievances follow up the regional procedures, regulations, and proclamations on public grievance
hearings. Public grievance hearings are handled within the mayor’s office and has at least one staff. On
the other hand, the enforcement of decisions required involvement of different of actors in the realization
of decisions. Many of the complaints remained suspended after creating contacts with legal and executing
institutions. Therefore, to enhance responsiveness, experts that follow up the enforcement of decisions
and action must be assigned properly.

46. The system and procedures for handling bidder’s enquiries and complaints at federal level for
procurement under the ULGDP II will continue. Remedial actions are taken on complaint review Board
decisions and observations made following appeals. At the regional level, the Public Procurement
Agency, head of BoFED gives final approval of the recommendation of the board or committee.
However, the complaint handling in ULGs as a public procuring entity requires strengthening. Most of
the ULGs lack internal process committed to primary complaint receiving/hearing. On the other hand,
responsiveness to public grievances of land and closely related program activities is generally low. The
performance of ULGs on public grievance handling must be improved.

47. Moreover, the incidents of fraud and corruption are not yet systematically tracked in
ULGs. A few new ULGs responded and organized data on response rates of public grievances and
complaints on land and closely related program activities. The response rates of public
grievances/complaints on land and closely related program activities are not recorded in detail and
reliably. For the analysis of public grievance, the responses decided and enforcement actions taken must
be properly recorded and verified with reliable data of indicators. The data recording both in the ethics
and anti-corruption officer or public grievance office is not supported by information technology,

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computers, adequate logistics, and the like. The ULGs lack unified reports on fraud and corruption, public
grievances, and procurement complaints. It is necessary to develop action and streamline the fraud and
corruption, public grievance and procurement complaint functions, recording and reporting arrangements
in the ULG including in the .

48. Risks mitigation measures will be carried out through PMs, the PAP, and capacity building
under the IPF window by focusing on perceived and real incident areas and strengthening of the
fiduciary system. With respect to the incident area, the perceived and real corruption areas must be
searched, investigated, and prosecuted. It is also necessary to enhance the rate of responsiveness to public
grievances on land and closely related program activities. Others include strengthening the weak fiduciary
environment in handling fraud and corruption and public grievances. The MUDHo together with the
BUDs must play important roles in setting up coordinators as member of capacity building mobile team,
in building capacities of the public grievance offices and monitoring the performance of ULGs as well as
organizing an overall performance report about the risk areas of the program. Appropriate systems to
handle the risks of fraud and corruption, including effective complaint-handling mechanisms, have been
agreed on and established.

49. Several actions are proposed for effective handling of the risks of fraud and corruption and
public grievances in ULGs. These are: (a) FEACC will share the unified data on Fraud and Corruption
and public grievances with the WB bi-annually with regards to program activities at the ULG level; (b)
streamline the fraud and corruption function, recording and reporting arrangements in ULG (c) assign
coordinating mobile team members and ethics and anticorruption officer in the MUDHo for
supporting/building accountability and monitoring fiduciary personnel at ULGs; (d) start introducing
systematic measures to record, respond to public grievances effectively, monitor response rate,
enforcement of actions and disclose to public grievances in regards to public grievances/complaints on
program activities in sample ULGs; (e) provide cascaded training on the functional roles, process of
tracking, recording, and data organization and reporting to ULGs; (f) supervise/check sample
participating ULGs for effective recording of fraud and corruption cases/tip-offs as per the format (to be
verified by report of REACCs/FEACC); (g) use public media for disclosure and information sharing
related to program activities, procurements and providing awareness to the public and enhances
transparency of the procedures of the fraud and corruption and grievance/complaint handling system

Conclusion

50. For the reasons mentioned above, the fiduciary risk of the proposed Program is rated as
Substantial.139 The main risk areas and the mitigation measures that should be put in place are provided in
the full Integrated Fiduciary Assessment. In addition, details of risks identified and mitigation measures
are included in the PAP in annex 9.

(b) For the IPF window (the Project)

Financial Management

51. Budgeting. Both MoFEC and MUDHo follow the Federal GoE's budgeting procedure and
calendar. Budget procedures are documented in the Federal GoE Budget manual. In addition, the
Operation will have a Project Operation Manual prepared that will have the overall arrangements
including FM laid out. The Project will also follow these budget procedures. PIU will prepare an annual
work plan and budget for the Project, considering the project’s objectives and resources. The work plan
and budgets will identify the activities to be undertaken by each implementing entities at Federal level.
The project budget preparation should be prudent, realistic, and made with professional estimates to avoid
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The fiduciary risk rating is the combination of the overall risk ratings of the FM, procurement, and fraud and corruption.

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unrealistic budgets. Then the annual work plan and budget will be forwarded to the project SC for
approval. The WB no objection is also required. Finally, the budget will be submitted to MoFEC for final
endorsement and proclamation. The project budget will be proclaimed under MUDHo budget.

52. Budget control and monitoring. Before payments are effected, verification of availability of
budget is made at both MoFEC and MUDHo. Both the Integrated Financial Management Information
System (IFMIS) (MoFEC) and IBEX (MUDHo) system produce comparison of budget with actual
expenditures reports for monitoring. The Project will use the existing budget controlling and monitoring
systems. The budget utilization by MUDHo was not at satisfactory level for ULGDP II (EFY 2009-76
percent, project cumulative- 61 percent). To improve the budget utilization, the project budget will be
monitored at least quarterly against actual expenditure. The budget variances will be adequately explained
and justified through the quarterly IFRs.

53. Accounting. The Government’s accounting policies and procedures 140 will be largely used for the
accounting of the project. In addition, the Operation will have a Project Operation Manual that will have
the overall arrangements including FM laid out. Further, the project will use the FM manual of the
ULGDP II (updated to address differences in the UIIDP). The FM manual will largely follow the
Government accounting manual and will incorporate budgeting, accounting policies, procedures, chart of
account, internal control issues, financial reporting, fund flow arrangements, and external audit. Training
will be conducted on the FM manual after the FM manual is approved by the WB.

54. Accounting software and chart of account. MoFEC uses IFMIS while MUDHo uses IBEX
system to record transactions and producing reports. The proposed project will use the respective system
at the two entities. Chart of accounts: the chart of account for the project will be developed using the
government’s chart of account to properly capture the components, sub components and categories. The
chart of account should enable the budget codes to be identified and the IBEX system to be used easily.
The developed chart of accounts shall form part of the FM Manual.

55. Accounting center. The Accounting center for the project will be MUDHo and MoFEC.
Currently no fund is expected to flow to other Federal implementing entities. Both will maintain
accounting books and records and prepare financial reports in line with the system outlined in the FM
Manual. The two are responsible for maintaining the project’s records and documents of the project
transactions which will be made available to the WB’s regular supervision missions and to the external
auditors. Detail procedures for maintaining and retaining documents are discussed in the FM Manual.

56. Capacity building/training. Focused and continued training on FM is essential for the success of
the project. Once the project becomes effective, the accountants at both entities will be trained on the
basics of the project including FM manual, WB policies and procedures, preparation of IFRs, among
others.

57. Accounting staff. In MoFEC under the Finance and Procurement Service Directorate, the
program and project fund team is responsible for maintaining the projects’ bank accounts and
disbursement activities. Two Government accountants are assigned in the team. Under Channel One
Program Coordination Directorate, two accountants are assigned for ULGDP II project and will transition
to support UIIDP. Both have BA degrees and adequate experience on the WB project. The two accounts
collect the necessary supporting documents (payment vouchers, receipts, and journal vouchers, and so on)
from finance and procurement service and maintain for the account. They are responsible to collect semi-
annual IFRs from federal implementing entities and prepare consolidated IFRs and submit to the WB.
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The Ethiopian Government follows a double entry bookkeeping system and modified cash basis of accounting. This is
documented in the Government’s Accounting Manual. This has been implemented at the federal level and in many regions. The
Government’s Accounting Manual provides detailed information on the major accounting procedures.

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They are also responsible for the annual project financial audit. The assessment team believes that the
existing number and experience of accountant is adequate to handle the proposed project accounts. Under
UREFMFB s, Project Finance Directorate is responsible to handle projects’ accounts. The Directorate
currently handles the ULGDP II accounts and will do so for UIIDP. Currently there are nine staff
including the Director Budget (2), accountant (5) and cashier (1). All have BA degrees. Only one staff
(accountant) is recruited by the project on contract basis. The proposed number of accountants for the
Directorate is six (four regular and two contract) but one contract account has not yet been recruited and
assigned. Again, the assessment team believes that the existing number and experience of accountants is
adequate to handle the proposed project account if the one vacant accountant position is filled.

58. Internal controls. This comprises the whole system of control, financial or otherwise, established
by management in order to: (a) carry out the project activities in an orderly and efficient manner; (b)
ensure adherence to policies and procedures; (c) ensure maintenance of complete and accurate accounting
records; and (d) safeguard the assets of the project. Regular government systems and procedures will be
followed, including those relating to authorization, recording and custody controls. The project’s internal
controls, including segregation of duties on payments, cash management control, and safeguarding of
assets, will be documented in the project’s FM manual (included as an annex to the Program Operation
Manual). The internal control in the two entities (MUDHo & MoFEC) found to be adequate. Monthly
bank reconciliation is prepared and up-to-date. Cash count is conducted once a month and reconciled with
ledger balance. The control on payroll process is good. Furthermore, there was proper segregation of
duties on the payment approval cycle. However as disclosed in OFAG report and program audit there is
weak advance settlement, long outstanding receivable and payable balances and weak property
management. The FM manual will clearly capture these weaknesses to strengthen the system for the
project.

59. Internal audit. There is an internal audit directorate and department at MoFEC and MUDHo
respectively. At MoFEC all project funds are properly reviewed by the Directorate. However, at MUDHo
the review is unsatisfactory because of insufficient number of internal auditors in the department. The
department is understaffed with only six auditors (including the head) in place, out of a structure for 15.
Budget is available but the allocated salary does not attract new applicants though the vacant positions are
repeatedly advertised. If it is not possible to attract the required internal auditors with the current salary,
other options to strengthen the department should be explored such as recruiting and assigning contract
audit staff . Although the capacity limitations exist, effort should be exerted to review the proposed
project’s account.

60. Fund flow and disbursement arrangement. IDA funds will be deposited into a separate
designated account to be opened at the NBE by MoFEC. The authorized ceiling of the Designated
Account would be two quarters forecasted expenditure based on the approved annual work plan and
budget. MoFEC will also open a local currency account in the name of the project. Report-based
disbursements will be made quarterly and cover cash requirements for the next six months, based on the
forecasts contained in the IFRs. Provision would also be made in the Disbursement letter for the other
disbursement methods, that is, direct payments, special commitments and reimbursements.

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61. The fund flow and report chart is depicted in figure 6.1.

Figure 6.1. Funds Flow

The World Bank (IDA)

U.S. dollar Designated Account at

NBE managed by MoFEC

ETB account at MoFEC

ETB account at MUDHo

Fund Flow
Reporting

62. Financial reporting. For Government budget, MUDHo sends monthly reports to MoFEC both in
soft and hard copies. The Ministry is required to submit the monthly report within 15 days after the end of
the month. The Ministry was submitting the monthly reports within the deadline. MUDHo also was
submitting the semi-annual IFR for ULGDP II to MoFEC within the deadline.

63. For the project, MUDHo will prepare quarterly IFRs and submit to MoFEC within 30 days after
the end of the quarter. MoFEC in turn will prepare quarterly consolidated Interim Unaudited Financial
Reports (IFR). This will be submitted to the WB within 45 days of the end of the quarter, using the agreed
format and content, consistent with the WB’s standards. At a minimum, the report will include: A
statement of sources and uses of funds and opening and closing balances for the quarter and cumulative, a
statement of uses of fund that shows actual expenditures, appropriately classified by main project
activities (categories, components, and subcomponents), actual versus budget comparisons for the quarter,
annual and cumulative will also be included, a statement on movements (inflows and outflows) of the
project Designated Account, including opening and closing balances, expenditure forecast for the next
two quarters together with the cash requirement and notes and explanations, other supporting schedules
and documents.

64. In compliance with the government’s financial rules and regulations as well as IDA requirements,
MoFEC will produce annual financial statements similar to the contents of the quarterly IFRs. The annual
financial statement will be similar to the IFRs with some modifications as to be indicated in the audit
TOR. These financial statements will be submitted for audit at the end of each year.

65. External audit. MUDHo’ s regular account is audited by OFAG, while the ULGDP II account is
audited by Audit Service Corporation. Qualified (except for) and unqualified audit opinions were issued
respectively for the year ended July 7, 2016. Some of the qualification points in the OFAG report were
long outstanding receivables and payable balances, expenditure recognized without the proper budget
year, unutilized budget.

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66. Annual audited financial statements and audit reports (including Management Letter) will be
submitted to IDA within 6 months from the end of the fiscal year. The annual financial statements will be
prepared in accordance with the standards indicated in the audit TOR agreed during negotiation. The
audit will be carried out by the OFAG, or a qualified auditor nominated by OFAG and acceptable to IDA.
The audit will be carried out in accordance with the International Standards of Auditing issued by the
International Federation of Accountants. The auditor will prepare a work plan to ensure adequate
coverage of both entities (MoFEC & MUDHo) and cover all the major risk areas. Once the audit report is
issued, the audit report findings should be rectified within a maximum of two months’ times from the
receipt of the audit report. In accordance with the WB’s policies, the WB requires that the borrower
disclose the audited financial statements in a manner acceptable to the WB; following the WB’s formal
receipt of these statements from the borrower, the WB makes them available to the public in accordance
with the WB Policy on Access to Information.

67. FM risk assessment, strengths, weaknesses, lessons learned, action plan. The FM residual risk
for the project is rated as substantial. The mitigation measures proposed in the action plan will help to
reduce the risk of the project once implemented. The main strengths are the project will inherit the
various strengths of the country’s PFM system. Several aspects of the PFM system function well, such as
the budget process, classification system, and compliance with financial regulations. Significant ongoing
work is directed at improving country PFM systems through the Government’s Expenditure Management
and Control Sub-Program. The program also benefits from the country’s internal control system, which
provides sufficiently for the separation of responsibilities, powers, and duties. In addition, both entities
(MoFEC & MUDHo) have experience for the operation of the WB’ projects. The main weaknesses noted
are at MUDHo budget utilization for both government budget and ULGDP II was not at satisfactory level
and understaffing of internal audit department. In addition, delay was noted in finalizing the FM manual
for the existing project (ULGDP II). Factoring in the above strengths and weaknesses, the inherent and
control risk of the project is rated as substantial. The following actions are agreed to be performed to
mitigate the identified risks in the project.

Table 6.1. List of Agreed Action to Mitigate FM Risk

# Action Due Responsible
1 Budget: Every year following the MoFEC &
1. Annual budget for the project proclaimed at MUDHo government budget calendar MUDHo
2. Follow the budget calendar to prepare budgets and on going
3. Follow on the performance of budget utilization
4. Prepare detailed budget variance
2 Expedite the preparation of the FM manual (already started for 1 month after effectiveness MoFEC
ULGDP II) which will largely follow the Government accounting
manual and will incorporate budgeting, accounting policies,
procedures, chart of account internal control issues, financial
reporting, fund flow arrangements, and external audit.
3 Fill the vacant one project accountant at MUDHo 1 month after effectiveness MUDHo
4 Capacity building: On going MoFEC &
Ongoing FM training will be conducted (Budget analysis, basics MUDHo
FM, IFR preparation, IBEX and other themes to be covered.)
5 Internal audit: fill the vacant positions at MUDHo and provide Immediate MUDHo
training on the FM of the project
6 Submit quarterly IFRs Quarterly MoFEC
7 External audit for the project a) Within three months of MoFEC
a) Early Recruitment of external auditors. effectiveness
b) Closing annual financial statement b) Three months after the end
c) Comply with the audit ToR. of the fiscal year
d) Submission of the annual financial audit report c) Ongoing on yearly basis
e) Prepare audit action plan for all findings reported d) January 7 of every year

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 f) Preparing status report on action taken on audit findings e) one month after receipt of
g) Disclosure of the audit report as per the WBs Access to the audit report
Information policy. f) Four months after the
receipt of the audit report
g) Annually
68. FM-related covenants for the IPF include:

(a) Maintenance of a satisfactory FM system for the project;

(b) Submission of IFRs for the project for each fiscal quarter within 45 days after the end of
the quarter by MoFEC; and

(c) Submission of annual audited financial statements and audit report within six months after
the end of each fiscal year, at January 7.

69. The project will be supervised twice per year in view of the risk rating. Following each
supervision risks will be measured and recalibrated accordingly. Implementation support will also
include: follow up of compliance with the agreed upon FM arrangements; review of quarterly IFRs;
review of annual audited financial statements, timely follow-up of issues arising and updating the FM
rating in the Implementation Status Report.

Procurement

70. The implementing agency for the IPF window is the MUDHo. The PCA was carried out between
September 20 and 26, 2017. The assessment included applicable procurement systems, Proclamations,
Directives, Rules, Regulations, Manuals and procedures, and procurement processes including control
and oversight mechanisms. Details of the assessment carried out is presented below.

71. Procurement legal framework. MUDHo follows the federal government procurement legal
framework for the project implementations. During the assessment, it was noted that the procurement
staffs have adequate understanding and application of procurement legal framework for the effective
implementation of the project procurement. The legal framework is further supported with federal public
procumbent directive, manual and standard bidding documents. open tender is the default procurement
method for NCB and ICB contracts with wider circulation and bidding opportunity. The Ministry doesn’t
have fit for purpose internal procurement manual for day-to-day reference of staff. The TA to be engaged
under the project will prepare a step-by-step internal procurement manual for day-to-day reference of
staff.

72. Accountability for procurement decisions. In MUDHo, ULGDPII is implemented under Urban
Revenue Enhancements, Fund Mobilization and Finance Bureau. There are four Bureaus and two State
Ministers under the Ministry. Urban Revenue Enhancements, Fund Mobilization and Finance Bureau is
one of the four bureaus working under the Ministry. The Bureau has six directorates working under it.
The Project Procurement Management Directorate is one of the six directorates under Urban Revenue
Enhancements, Fund Mobilization and Finance Bureau, responsible for all procurement activities of the
program implementation in MUDHo.

73. The Bureau has authority to initiate and approve procurement processes with clear accountability
and responsibility. The Head of Urban Revenue Enhancements, Fund Mobilization and Finance Bureau
approves procurement initiations and signs all the contracts executed under the program. During the
assessment, it was noted that the director of the Project Procurement Management directorate has no
authority to initiate and approve any procurement activities. The bureau should revise the Authority

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delegation of Project Procurement Management directorate to initiate and approve procurements up to a
certain value of contracts to facilitate the procurement processes.

Procurement Cycle Management

74. Procurement planning. Procurement accomplished in MUDHo under ULGDP II program is

mostly procurement of goods and consultancy services. Consultancy services are predominantly on the
sectorial capacity buildings and performance audits. These capacity buildings activities consider other
related sectors in the program in addition to the minister bureaus.

75. Procurement plan preparations and implementations is one of the focus of MUDHo. Procurement
Plan preparation is the responsibility of project procurement management directorate. Before procurement
planning, the directorate prepares capacity building Budget utilizations of all bureaus under the minister.
Budget for the New Year is prepared including consideration of the remaining budget of the previous
year. Accordingly, Bureaus are requested to give their capacity building procurement plans based on the
prepared budget. Thus, compiled capacity building plan proposal of all bureaus is submitted to TC for
review and comment, before it is submitted to the SC of the program for final approval. Following the
approval of the SC, annual procurement plan is prepared by the project procurement management unit
and approved by the Tender Awarding Committee (TAC) of the Ministry. In MUDHo, there is one
common TAC for capital and project budget procurements. Annual procurement plan is given adequate
considerations. Estimated cost, quantity, procurement methods, bid preparation evaluation, contract
preparation and implementation dates are described in detail in the procurement plan. However, annual
procurement plan updates and revisions were not regularly done. During the assessment, it was noted that
some procurements are executed without considering the procurement plan, even unrelated activities are
procured under the program with direct instructions. MUDHo shall update their procurement plan and
use it as progress monitoring tool, as well as for proper utilizations of the project program budget for the
intended purpose. Furthermore, procurements shall not be conducted outside the procurement plan.

76. Record-keeping. Project procurement management unit of the MUDHo has sufficient recording
system for procurement process and contract management records. Relevant files and documents are
recorded in one project file for easy reference. Moreover, the unit is under preparations to improve its
quality of recording system. Procurement staffs have awareness and understanding on the importance of
quality recording system. Moreover, the unit has sufficient space and recording facilities under the
program.

77. Staffing. The Project Procurement management directorate has adequate procurement proficiency
staff to handle all procurement activities for the program implementation. As per the organization
structure of the directorate, it was provided to have four senior, two junior and four assistant procurement
staffs. However, currently there are three senior, two junior and two assistant procurement staffs available
for all project procurement under the program. It is, however, necessary to assign the required staffs to
properly handle the procurement activities under the project.

78. Most of the Procurement staffs have exposure in WB projects as they were in position when
ULGDP I was implemented by WB financing. Three of the seven procurement staffs have taken training
on WB procurement guidelines. Generally, it’s noted that the qualification of staff deployed for
procurement activities in Project Procurement Management units of MUDHo is seen to be reasonable.
However, the vacant positions shall be filled in order to handle the workload under the project and
relevant basic and refresher trainings shall be given for the staff.

79. Bidding document. MUDHo mostly procures goods and consulting services intended for
institutional capacity building under the project. Since ULGDPII is implemented through PforR program

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operation, Federal PPPAA Standard Bidding Documents and Standard RFP are used for bidding
document preparation under the project. Procurement notices are advertised in nationally circulated
newspaper (Ethiopian Herald, Reporter) and on UNDB websites. It is observed that project procurement
management office of MUDHo, has prepared adequate quality bidding document with clear selection
criteria and detailed specifications. Specifications and estimated costs are prepared by the user Bureaus
and other parts of the bidding document are prepared by the project procurement unit. It takes 2-4 weeks
to prepare bidding documents including technical specifications. Prompt actions are also taken to give
response for bidders’ request for clarifications during tendering. Bid opening is held immediately after bid
submission deadline. Three procurement staffs in the presence of bidder’s representative open the bids.
During consultancy service, procurement financial proposals are kept under the custody of the project
procurement management directorate director until technical evaluation is finalized.

80. Bid evaluation and award. Evaluation of bids/RFPs is carried out using the evaluation criteria
provided in the BDs/RFPs and the evaluation reports are substantially completed that provide the required
information. Generally, Evaluation is done by ad-hoc committees composed of representative from user
Bureaus and project finance and procurement including relevant technical experts. The ad-hoc technical
evaluation committees conduct evaluation of bids and submit the report to Virtual committee. In
MUDHo, Virtual committee is the one who reviews and comments the bid evaluation reports of the ad-
hoc committees. The Virtual Committee reviews all procurement process, such as approval of the TOR by
the TAC, bid advertisements and selection criteria and evaluation of respective bidders’ bids. Thus, after
reviewing the report, the virtual committee gives recommendation to TAC for approval. After financial
proposal is opened, other ad-hoc Committee is selected for financial evaluation. Virtual Committee
reviews the financial evaluations including complaints on the technical result and how the complaints are
resolved. Contract award recommendations are finally approved by the TAC. Procurement staff shall be
given refreshment trainings on bid preparation, evaluation, award of contract and contract management.
Evaluation of technical and financial proposals shall be done with same ad-hoc evaluation committee as
well as Virtual Committee to facilitate the bid evaluation process and improve quality of bid evaluation.
MUDHo shall also secure space for bid evaluation and for safe keeping of bids and proposals until the
evaluation process is over.

81. Complaint handling mechanisms. Complaint handling procedures at MUDHo follow the federal
public procurement compliant handling procedures, as the project is implemented under PforR operations.
As observed in the assessment, procurement staffs of the procurement unit have good knowledge and
understanding about the compliant handling procedures described in the FPPAA directives. In MUDHo,
procurement complaints are submitted either for Project Procurement Management directorate or Bureau
Head. After consulting with the technical evaluators as well as the virtual committees, necessary actions
are taken including prompt clarification responses to complaint. However, during the assessment, it was
noted that both complaint receiving bodies are not independent from the procurement processes.

82. In some cases, complaints are presented to the Ministry directly in which the minister assigned an
Ad-hoc complaint handling committee for the specific complaint to investigate and report. After checking
the committee review and recommendations, the minister takes appropriate actions and gives responses to
the complaint. If complainants are not satisfied by the response of the Ministry, the case will be
forwarded to the public procurement complaint Board. During the assessment, it was noted that no
complaint case was presented so far to the complaint Board under the project program. In MUDHo,
however, there is no system which keeps complaint data with respect to volume and nature of complaints.
Incoming complaints are recorded in their respective contract files. Moreover, procurement complaints
and responses given are not disclosed to the public. MUDHo shall create awareness on complaint
handling and ensure independent complaint handling mechanism. Complaints shall be properly recorded
and reported to the public. Furthermore, complaints shall be handled by the Ministry not the Bureau to
ensure independence of the complaint handling process.

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83. Contract management. Contract Administration Capacity limitation is a source for poor
procurement and contract administration performance. In MUDHo, there is no separate contract
management unit responsible to manage all project contracts under the program. The procurement unit
mostly procures consultancy service for sectorial capacity buildings and goods for its service and office
facilities. Hence, responsibility for contract administration and management for both goods and
consultancy services are given for user Bureaus, where there are no experienced contract administration
officers.

84. Project procurement management unit approves payment certificate after getting verification from
user bureaus of the work executed; then payment is forwarded to project finance directorate to be paid.
However, during the assessment it was noted that since there is no responsible contract staff in user
Bureaus, verification of payment certificates takes longer time than the usual, thus most of the delay in
payment certificate verifications and approval is source of contractual claims. MUDHo shall improve the
current contract management and administration system through appointing experienced contract
administrator in project procurement management directorate office.

85. Procurement audit. MUDHo internal audit service was supposed to conduct audits every three
months. However, due lack of experienced staff, internal audit is done once in a year. Internal audit
examines all the procurement process cycles. Although internal audits are working in MUDHo, its
obligations and responsibility is under MoFEC. In addition, MUDHo is audited externally by Auditor
General once a year. Currently, the Auditor General gave delegation to Audit Service Corporations
(Government Owned Enterprise) to audit every year the procurement processes and VfM. Further to this,
APA was also carried out by the WB once a year. FPPPAA is responsible to provide oversight in public
procurement performance at federal level. However, MUDHo is not yet audited by FPPPAA. Federal
Anti-corruption agency has reviewed procurement processes recordings of MUDHo at different times but
no official investigations are done so far. MUDHo shall strengthen internal audit system to ensure that
procurement is examined under the internal control system appropriately on timely manner.

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 Annex 7: Environmental and Social Systems Assessment Summary

1. This ESSA has been carried out to review the systems and procedures followed by federal,
regional and ULG levels of government to address social and environmental issues related to the
UIIDP. The ESSA review and update is limited to the scope of the proposed UIIDP, and provides an
assessment and a summary of the key environment and social risks associated with the program and
existing institutions and system of the GoE to manage and mitigate associated risks and ensure effective
and successful implementation of the Program. As is a standard practice, operations to be prepared under
this lending instrument will follow a set of principles and attributes as set out in the WB policy on PforR
financing. The purpose of this ESSA is to: (a) review the environmental and social management rules
and procedures and institutional responsibilities that are being used by the Program; (b) assess the
implementing agency MUDHo institutional capacity and performance to date to manage potential
adverse environmental and social issues; and (c) recommend specific actions for improving the capacity
of the main implementing institutions with regard to effective management of environmental, social,
health and safety issues during implementation.

2. The ESSA provides a comprehensive review of relevant government systems and

procedures that address environmental and social issues associated with the Program. The ESSA
describes the extent to which the applicable government environmental and social policies, legislations,
program procedures and institutional systems are consistent with the six ‘core principles’ of the WB
policy for PforR financing, and recommends actions to address the gaps and to enhance
performance during Program implementation. This ESSA presents summary of findings based on
assessment of extent to which the existing program procedures for social and environment meet the
applicable core principles, and where they do not, recommends an action plan to address shortfalls.

Scope and Methodology

3. Various methods were used for the assessment. These include: (a) desk review of policies,
legal framework, environment and social audits and APAs; (b) institutional analysis conducted to identify
the roles and responsibilities of implementing institutions and the respective capacity in place to
implement the environmental and social management systems of UIIDP, (c) interviews were held with
key experts/decision makers at the federal, regional, and ULG level; (d) field visits conducted at the
regional capitals (Oromia, Amhara, Somali, and SNNPR) and at eleven new ULGs cities (Gode, Injibara,
Woreta, Kobo, Holeta, Modjo, Arsi Negele, Dodolla, Halaba Kulito, Durame, Bodit) and three existing
ULGs cities, to assesss existing systems and practices of ULGs as part of the ESSA.

Institutional Arrangement

4. The institutional arrangements for program implementation will be based on the

experiences from the current ULGDP, with clear division of tasks and responsibilities between
federal government, regional government and ULGs levels. At the central level, the MUDHo will be
responsible for the overall proposed program management and operations through its UREFMFB. At the
regional level, the regional BUDs assisted by respective regional environmental authorities and bureaus
will be responsible to implement and monitor the environmental and social aspects of the program, while
at Local Government level, a unit/office in charge of environment and social management will be
responsible for effective implementation of environment and social management activities over the UIID
program period. The division of tasks will be clearly outlined in the UIIDP POM.

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Findings

5. The ESSA provides an assessment of the current conditions of environmental and social
management system and proposes measures that are built into the Program in order to strengthen
implementing institutions towards sound implementation of environmental and social safeguards
and management. The ESSA reviewed and evaluated the Ethiopian environmental and social
management system against the following six core principles of environment and social sustainability:

 Core principle 1: General Principle of Environmental and Social Management

 Core principle 2: Natural Habitats and Physical Cultural Resources

 Core principle 3: Public and Worker Safety.

 Core principle 4: Land Acquisition.

 Core principle 5: Indigenous Peoples and Vulnerable Groups.

 Core principle 6: Social Conflict.

6. The UIIDP ESSA identified the gaps and opportunities in Ethiopia’s environmental and
social management system to effectively addressing the environmental and social risks associated
with the Program. An assessment of environmental and social regulations, policies, and procedures,
including institutional capacity and practices indicate “Substantial” environment and social risk
associated with the program design and implementation. Many of the risks relate to implementation stage,
including lack of application of standard procedures for risk screening and implementation of mitigation
measures by ULGs; lack of coordination among relevant agencies; and lack of technical capacity among
implementers at different levels.

7. The ESSA shows that Ethiopia has an adequate legal framework, including environment
and social regulations, which are basically in line with PforR financing core principles. Under the
ULGDP II guidelines on environment and social management system and resettlement management have
been put into place. Safeguard specialists have been assigned to strengthen the system. Moreover, annual
environmental and social audits have been conducted. Many of the ULGs participating in the ULGDP II
have made significant improvements in integrating the environmental and social management system
requirements into their development planning and creating the basic capacity to implement them, as
shown by the screening carried for all CIP sub-projects and the opening of permanent positions for
safeguard specialists within the infrastructure offices. These achievements represent the growing
institutionalization and strengthening of the environmental and social management systems within the
ULGs.

8. Although there is a general improvement in strengthening the institutional mechanism for

environmental and social management in the ULGs and growing clarity in the roles and
responsibilities of the regulatory agencies, the experience of the ULGDP II shows mixed
implementation of the ESMSG and the RSG. While some of the ULGs are able to use the prepared
safeguards instruments properly, others are not. There are also staffing (for instance social experts) and
training gaps in some ULGs. The capacity of some of the ULGs that will newly participate in the UIIDP
is low, with some ULGs having no system at all.

9. To maximize gains and minimize risks, the investment menu excludes WB environmental
assessment category A sub-projects and infrastructure subprojects that require displacement of more

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than 200 individuals. All investment activities under the UIIDP will go through stringent screening
process and any project falling under “Category A” would not be eligible for financing by the UIIDP.
Based on the output of the screening result, the corresponding instruments ESIA/ESMP/RAP will be
prepared and cleared by designated authority before the commencement of the construction activities.

10. The ESSA analysis identified and proposed the following main areas for
actions/recommendations to ensure that the Program interventions are sustainable and aligned
with the core principles specified above:

 Establishing and strengthening the environmental and social management system at ULG
level. Under UIIDP, all ULGs must demonstrate that they have established a functional system
for Environmental and Social Management as a minimum requirement to access grant. However,
a distinction needs to be made between the performance of the 44 ULGs currently participating in
the ULGDP II, and the 73 new ULGs. Before commencement of the program MUDHo should
update the ESMSG and RSG prepared under the ULGDP II. Accordingly, during the first year of
the program implementation period, all participating ULGs will be required to endorse ESMSG
and RSG and demonstrate that all projects are screened for environmental and social impacts and
to prepare and implement the required safeguards instruments with appropriate mitigation
measures, and that all projects shall have approvals from the relevant woreda, zonal or REFAs
before initiating sub project activities/works. The same applies also for the 44 ULGs participating
in the ULGDP II, but they should demonstrate the presence of a higher quality and seamless
system in place with better knowledge and understanding of the guidelines and tools. All ULGs
need a system that will outline specific roles and responsibilities for environmental and social risk
screening, due diligence and regulatory requirements, consultations and coordination with other
local and regional agencies, technical instruments for safeguards implementation and monitoring,
staffing, and training and capacity building.

 Providing technical guidance and capacity building support. ULGs can benefit significantly
from sector specific technical guidelines that integrates environmental and social management
requirements for subprojects under each sector such as road and drainage construction, waste and
landfill site management, building slaughter houses, water supply, and so on. MUDHo shall
update the existing guidelines (ESMSG, RSG) and share for all ULGs to be used as a safeguards
instrument for sound management of environmental and social risks. ULGs participating in the
ULGDP II have learned and establish environmental and social management system from
ESMSG and RSG implementation, through the preparation of relevant documents including
screening report, Abbreviated Resettlement Action Plans, Environmental Management Plans
(EMPs).

 The new ULGs joining the proposed UIIDP required to raise environment and social management
awareness for all participants and community residing in the project area, including city
administrators and experts, endorse and implement the two guidelines and other environmental
and social management tools, assign a dedicated and qualified social and environmental
safeguards staffs/specialists and train professionals to put in place a well-functioning
environmental and social management system. It is also essential to provide a refresher course for
the specialists under 44 cities from ULGDPII. All UIIDP cities institutional strengthening
endeavors should focus on environmental and social safeguards and include diversity in expertise
(for example more social workers) and gender balance (hiring more female workers) for
enhanced performance. Continuous training should be effective over the program implementation
period to ensure the level of understanding of environmental and social risk management along
with the project activities and to broaden knowledge and understanding of new thinking and
practice of safeguards management, which align with the UIIDP scope. This will not only

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 enhance performance but also help to minimize staff turnover that all ULG faced particularly at
local governments levels in emerging regions.

 Addressing resource constraints. This area includes measures to overcome constraints with
respect to human and budgetary resources, through the Program incentive structure, as well as
capacity building and training. Transport and other logistics are required to ensure close follow
up and monitoring of environmental and social management issues, as stated in the environmental
and social guidelines and management plans that will be prepared for the UIIDP. Both the
financial and human resources are required to address the identified gaps during the assessment
of environmental and social management system. Moreover, a capacity building and training
program will be key to ensure that staff within ULGs understand their roles, have adequate
capacity on environmental and social risk management during program implementation period
and clearly understand how they will be evaluated through the APAs.

 Undertaking annual environmental and social performance review and audit. Annual
performance reviews and audits on environment and social safeguards management have a vital
role to ensure the implementation of safeguards instruments to avoid and/or minimize potential
negative impacts associated with the UIID Program. From ULGDP II experience, the
environmental and social audit needs to improve and strengthen by developing a harmonized and
standardized ToRs that define the environmental and social management audit objectives, scope,
tasks and criteria, so that comparable audit results could be obtained from all ULGs in
environmental and social management.

 Increasing community awareness on social and respective management practices. Throughout

the program implementation period, the MUDHo will organize briefings and awareness creation
on social and environmental impacts and the respective mitigation measures for ULG
administrators and other relevant experts, as well as affected communities.

 Strengthening consultation and stakeholders’ collaboration. Like the already existing

safeguards management practice under the ULGDP II, all ULGs in UIIDP need to establish and
strengthen the consultation and stakeholder collaboration with community members and other
relevant beneficiaries and institutions. Previous practices have shown that well informed residents
tend to support local governments efforts by cooperating in fund raising, organizing themselves
and regulating performance of contractors. UIIDP intends not only strengthen results achieved in
ULGDP II but also broaden coverage which requires broadening stakeholders and actors’
including the involvement of office of Labour and social affairs and Women and child affairs in
the program planning and implementation process, including supervision of subprojects, as
required.

11. The UIIDP will adopt similar tools to ULGDP II with concrete results, to scaling up its coverage
as well as addressing persisting environmental and social challenges and gaps by integrating into the
overall Program a minimum condition, and PMs. These include:

 Prior agreement and planning for environmental and social risk screening. Each participating
Cities/ULGs will sign a Participatory Performance Agreement with the respective region (in
addition to Participation Agreements to be signed between MUDHo and each region) to show
commitment by all parties to work under a common set of rules. This includes a process for ULG
to prepare an approved CIP, annual plan, and budget. This will allow timely environment and
social risk-screening and monitoring before endorsing environmentally and socially sensitive
investments.

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 Institutional capacity and systems. To ensure that there is minimum capacity to handle the entire
project implementation process at ULGs, key positions, including environment and social
development specialists will be in place at the MUDHo, regional and ULGs levels, with a clear
distinction among new and previously covered cities. Under the UIIDP, ULGs will demonstrate
that they have established a functional system for environmental and social management and
appointed environmental and social specialists as a minimum condition to access Program funds.
This will ensure that there is a mechanism and capacity to screen environmental and social risks
of the CIP before implementation. The ULG level environment and social management system to
be adopted for new 73 cities will include procedures for due diligence; institutional procedures
for grievance management and environmental, managing resettlement/land-take processes and
environmental and social mitigation and monitoring plan.

 Prerequisite for environmentally and socially sensitive investments. Investments like landfills
and slaughterhouse could cause significant environmental and social impacts if not
planned/designed, screened, managed properly as per the MUDHo standards, with all required
measures stated to avoid and/or minimize the potential impacts and risks. Experience from
current ULGDP II sub projects shows that application of ESMSG and RSG have created
opportunities to minimize environmental and social risks as well as prepare sound mitigation
measures, when it is inevitable. Moreover, to ensure the management of waste impacts and
sustainable implementation of landfills and abattoirs during program implementation period,
MUDHo will develop a waste management plan (WMP) that encompasses the general waste
management practices applicable to UIIDP, including land fill and abattoirs management. These
activities will be supported by respective institution at Regions / Ministry levels before dealing
with sensitive investments. However, all ULGs should be aware and commit to avoid the
undertaking investments listed under UIIDP’s exclusion list.

 Training. Appropriate induction and on job training will be provided to the environmental and
social specialists and other technical staffs, as required, in the following major topics, subproject
screening, identification and management of environment and social impacts, preparation and
implementation of safeguards instruments, implementation of program safeguards instruments
(WMP, LIMP, Safety Management Paln [SMP], ESMP), and so on. These training activities will
be supported by MEFCC and regional environmental agencies before dealing with sensitive
investments. However, all ULGs should be aware and commit to avoid the implementation of
sensitive subprojects under the exclusion lists of sensitive project for the UIIDP.

 Grievance redress system (GRS). To receive, review and address complaints related to
environmental degradation of the surrounding and adverse social and health impacts on people
including; loss of livelihood, income or assets, a function office and GRS committee needs to be
in place with members who are independent from the government and represent interest of
potentially affected people.

 Evidence of implementation. As one of the PMs under DLI 1, the ULGs will be required to
generate evidence that all capital sub projects in previous fiscal year were screened against the set
of environment and social criteria in the planning stage, including preparation and approval of
EMPs, RAPs by relevant authority. Evidence of public consultation as a process of the
environmental and social management process should also be generated.

 Incentive to ULGs for being environmentally responsible and socially inclusive. Against DLI 7,
the REFAs will be able to access grants by supporting and reviewing the preparation of
environmental and social management instruments, which ultimately demonstrates a functioning
environment and social management system for all ULGs under their jurisdiction.

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147
 Annex 8: Systematic Operations Risk Rating (SORT)

Systematic Operations Risk-Rating Tool (SORT)

Risk Category Rating (H, S, M, L)
1. Political and Governance S
2. Macroeconomic M
3. Sector Strategies and Policies M
4. Technical Design of Project or Program S
5. Institutional Capacity for Implementation and Sustainability S
6. Fiduciary S
7. Environment and Social S
8. Stakeholders M
9. Other M
OVERALL S

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 Annex 9: PAP

Responsible
Action Description DLI IPF Covenant Due Date Completion Measurement
Party
General
The UIIDP Unit in REFMFB will be further enhanced to 32 staff. Program effectiveness MUDHo
MUDHo filled its vacant positions and engage additional staff to fulfill the
32 staff positions.
To ensure that the independent APA is completed on time, MUDHo will To be engaged and MUDHo
initiate the procurement process for selection and assignment of onboard by August 2018
independent consultants for the APA through multi-year contract. for the first UIIDP APA
which commences in
October 2018
To enable the supply-side capacity building activities for ULGs, MUDHo Program effectiveness MUDHo
will sign agreement(s) (memorandum of understanding) with relevant
federal, and regional training institutions for course design and
administration for new ULGs.
To ensure sufficient capacity in regional governments to support the up- Program effectiveness regional
scaled UIIDP, the regional governments will fill staffing gaps and procure governments
and deploy RMTs.
Annual Performance review and audit on Environment and social Prior to the launch of first MUDHo
management: Produce the Performance Assessment Manual, as part of the APA.
Program Operation Manual and share with 117 ULGs
Establish Program technical subcommittee comprising key technical staff Program effectiveness MUDHo  Briefing note on established
of MUDHo and MoFEC including environmental and social management. Program technical
subcommittee
Local Economic Development
Revision of the program’s Employment / Job Creation Guideline to better By end of Year 1 of UIIDP MUDHo
clarify the two ways in which the program contributes to job creation, (a) implementation
direct employment in public works and (b) indirect employment creation
through providing serviced land, MSE sheds and other built facilities
benefiting local firms. The guidelines also need to be clearer on the
standards that need to be followed by ULGs under these two types of
employment creating activities. Clear guidelines need to be established on
what should be considered temporary versus permanent employment.
Guidelines also need to be given regarding what other types of follow up
and support ULGs need to give MSEs to increase their chances of survival
and success.
Resilience
Identify needs and develop local DRM and emergency plan (building on By end of Year 2 of UIIDP MUDHo,
woreda risk profile) implementation NDRMC
With NDRMC, carry out detailed risk assessment to develop national By end of Year 2 of UIIDP
MUDHo,
urban DRM plan; establish information and warning system; and develop implementation
NDRMC
training program and guidance notes
Gender
Development and adaptation of (a) code of conduct in employment and  UIIDP Code of conduct
MUDHo,
sub-project contract documents for women’s rights in workplace including document and
By end of Year 1 of UIIDP regional
gender based violence, sexual harassment, and equal payment for equal protocol/procedure
implementation governments,
work and (b) potential procedures for addressing complaints about document
ULGs
women’s rights in workplace (including complaint addressing system,
 Responsible
Action Description DLI IPF Covenant Due Date Completion Measurement
Party
accountability measures, M&E, awareness-raising strategy, response
protocol, sanctions)
Financial Management
Conduct FM Trainings to cities on the following 6 areas to build  Trainings conducted
capacities and reduce risks:
1. Budgeting-Budget preparation (including both expenditure and
revenue) and Budget monitoring
2. IBEX system (on its full functionalities)
3. Accounting processes and procedures Annually MUDHo
4. Internal control procedures with a focus on cash management,
bank reconciliations, stock and fixed asset controls
5. Internal audit
6. External audit- on audit preparation planning, on conducting,
and most importantly on audit report preparation
Prepare detailed annual training report and submit to the WB on the By August 30 of each year  Training report submitted
MUDHo
conduct of the FM trainings noted above for the past year trainings
Program funds need to be transferred in the agreed time to cities MoFEC and  Funds transfer data reported
Annually
BoFED on IFRs
Ensure correct recording of budget figures in accounts/IBEX. Close MoFEC and  Reported on APA and IFRs
Annually
follow up is required by stakeholders on low budget utilization MUDHo
Transparency -MUDHo should disclose on its website the program annual  APA
budget, in year budget executions, and program financial and VfM MUDHo and
Annually
external audit reports. Cities should also disclose annual budget, in year ULGs
budget executions, and external audit reports.
For VFM audit findings -Prepare time bounded action plan for rectifying  Reports submitted by
audit findings, follow up with Cities. Prepare regular follow up status Annually MUDHo MUDHo
report on rectified audit findings
Procurement
Provide intensive procurement and contracts management training to staff Within six months of MUDHo  Training Reports and
of the ULGs. The IPF component of the Program will deploy a TA Program effectiveness and contract management
consultant who will provide technical support and training to the ULGs; continuous guidelines/manuals
prepare step-by step contract management guidelines/manuals, which
should include dispute handling mechanisms; and prepare customized
procurement and VfM/performance audit guidelines/manuals. The training
shall include ULGs Procurement staff, and staff involved in the
implementation of procurement activities such as procurement committee
members, user department staff and tender/procurement endorsing
committee members.
The ToRs of RPPPAAs and APA should include adequate provisions to Each annual audit MUDHo  Approved ToRs
closely examine any potential loopholes in the procurement process which /assessment and
might be source of complaints. Continuous
The POM to state that ICB contracts should also be published in the By program effectiveness MUDHo  POM
international media such as UNDB online. and continuous
As part of the Project Operations Manual (POM), MUDHo to prepare and By Program effectiveness MUDHo  POM
agree with the WB on the procedures of use of SOEs and MSEs including
their registration, incentive mechanisms, monitoring and graduation
procedures without affecting the participation of other non-SOE and non-
MSE actors. Non-MSE actors will not be excluded from bidding with
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 Responsible
Action Description DLI IPF Covenant Due Date Completion Measurement
Party
MSEs of similar capacity.
Include a provision in the Project Operations Manual (POM) for the ULGs By Program effectiveness MUDHo  POM
to state in the bidding documents to exclude award to WB debarred and
suspended firms
Provide Regional Public Procurement and Property Administration Within four months of MUDHo  Training Reports
Agencies and Internal Audit units of ULGs with Procurement Audit Program effectiveness and
Training Continuous

Fraud and Corruption & Compliant Handling Mechanism

FEACC will share the data with the WB Semi-annually on Fraud and FEACC/  Semi-annual Report
Corruption, public grievances, procurement complaints in regard to Semi-annual Report for the REACCs,
program activities at the ULG level. whole Program Period ULGs

Assign complaint handling focal person for recording processing and By end of Year 1 of UIIDP ULGs/
reporting F&C, grievances and procumbent complaints at ULGs implementation MUDHo
Allocate sufficient TA resource and assign coordinating mobile team focal
person/ Ethics and Anticorruption officer in MUDHo and RMT for By end of Year 1 of UIIDP MUDHo/
supporting/ building accountability and monitoring fiduciary personnel at implementation BUD
ULGs
Develop a prototype template and provide cascaded training to streamline
FEACC/
the F & C, public grievance and procurement function, recording and By end of Year 1 of UIIDP
REACCs,
reporting arrangements in those ULGs where public grievance office also implementation
MUDHo
follow up F & C cases.
Provide cascaded training on the functional roles, process of tracking, FEACC/
recording, data organization, reporting and related methods, approaches. Year 1, 2 REACCs,
MUDHo
Use public media for disclosure and information sharing related to FEACC/
program activities, providing awareness to the public and enhancing the Year 1,2,3 REACCs,
transparency of the procedures of grievance/complaint handling system. MUDHo
Environment and Social risk management
Establishing the Environmental and Social Management System at new Program effectiveness  Established and
73 UIIDP cities and strengthen at MUDHo, BoU and previous ULGDP strengthened ESMS
II 44 cities;  Updated ESMG and RSG
 Update and endorse ULGDP II environment and social risk management  Staffs in place
MUDHo and
guidelines mainly on Health and Safety (ESMSG, RSG)  Screening reports
BUDs
 Staffing (Environmentalist, Social development specialist, gender  Safeguards instruments are
specialist) in place prepared, as required
 Screening for Environment and Social Risks of all proposed investments Before commencing of
and preparation of safeguards instruments (ESMP, RAP, WMP, SMP) construction activities
Ensure that the federal and RMTs are adequately staffed with environment MUDHo and  The mentioned staffing in
Program effectiveness
gender and social management specialists having appropriate skills BUDs place, Program Reports
Technical Guidance and Capacity Building: Develop capacity building  Prepared Capacity building
and training plans, Procure and ensure implementation of standard ULG and Training plans
environment and social management training program from University Program MUDHo, BUDs  Training reports
and/or other designated centres of excellence on urban Environment and implementation and ULGs
 Procurement reports on
Social Management System (ESMS) and Addressing Resource resources and facilities
Constraints through availing the required facilities for environmental and

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 Responsible
Action Description DLI IPF Covenant Due Date Completion Measurement
Party
social management activities at all level
Increase stakeholders’ awareness on social and environmental impacts of  Developed service delivery
UIIDP sub-projects by standards, and citizen
developing a guideline for setting service delivery standards, and citizen charters
charters including vulnerable groups and organize awareness raising MUDHo, BoUD  Briefing note on conducted
session for city administrators and other experts and community members Throughout program and local level awareness and sensitization
as applicable on environment and social risk management implementation UGs, MoEFCC program
and REFA  Environment and Social
Management
Implementation Reports
 Training reports
Broaden stakeholders’ involvement by including and working closely with MUDHo  Briefing note on
the offices in charge of environmental protection, Labour and Social BUD, ULGs, coordination mechanism of
Affairs and WCOs to improve planning and implementation of MoEFCC, REFA, the various relevant parties
environment and social management instruments, health, safety and Ministry of Labor  Annual Plans, and progress
During Annual Planning,
gender equality issues and access to service by vulnerable group (specially and Social reports
program implementation
the elderly and people with disabilities). Affairs, MoWCA  Joint monitoring reports
and Monitoring
BoLSA,
BoWCA
City LSA and
WAs offices
Develop a harmonized and standardized Environment and Social Audit  Developed TOR
ToRs; and ensure quarterly performance review and annual environmental Quarterly  Quarterly performance
and social audit. REFA
review report
MUDHo
At the end of every year  Annual audit report

Ensure management of community and worker’s health and safety risk Program effectiveness  Developed SMP
and develop  Included EHS code of
SMP as required, include Health and Safety considerations/articles in the Program implementation practice on contract
MUDHo,
program design, make available safety protection materials, tools and document
BoUD and ULGs
Personal Protective Equipment over the program implementation period Prior to validating civil  Progress report and incident
works contracts notification checklist

Conduct adequate consultations where land (communal or private) is  Minutes of Consultations

acquired and/or vulnerable person is involved and ensure proper MUDHo, BUD,  Implementation Reports
Throughout the program
documentation of the same ULGs

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 Annex 10: Implementation Support Plan

1. The key objectives for the implementation support are: to (a) review Program implementation
progress and achievement of Operation results and DLIs, (b) provide technical advice, as necessary, to
GoE for implementation of the PAP and to contribute to the quality of the institutional development and
capacity building of stakeholders by providing best practices and benchmarks; (c) provide support for
resolving emerging Operation implementation issues; (d) monitor changes in risks and the
implementation of the risk mitigation defined in the technical, fiduciary, and safeguard assessments, and
(e) ensure compliance with the provisions of legal covenants.

2. Strategy and approach to implementation support. UIIDP includes a number of measures

aimed at ensuring implementation progress as expected:

 First, most of WB’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 and facilitate overall implementation and timely communication with the client, and
various stakeholders involved in the implementation phase;

 Second, the WB will conduct routine implementation supervision missions and additional
technical assistance. Formal implementation support missions and field visits will be carried
out semi-annually, or as deemed necessary. The missions will be carried out jointly with
development partners and will include the WB’s FM, safeguards specialists, procurement
staff and other specialists as required.

 Third, the WB will focus on strengthening the Program’s systems and institutional activities
necessary to achieve the DLIs. The first implementation support mission will take place
after the Operation becomes effective to provide direct and timely feedback on quality of
implementation.

 Lastly, a multi-disciplinary WB team will be deployed during the Operation’s mid-term

review (MTR). They will join the GoE team and other development partners. The
Operation’s progress will be reviewed with a particular focus on the performance
mechanism and associated disbursement, as well as the capacity building activities and
necessary adjustments will be made to the Program structure as required.

3. Further to the above, due to the complex nature of the Program, there will be focused
implementation support that will be provided by the WB in a number of areas and especially related to the
IPF components. The WB will be primarily responsible for:

 Support and monitor the implementation of the IPF window, review ToRs, and the like.

 M&E: Review of the APA, verification protocol and provide technical input.

 Environmental and social: Provide the necessary training and support during
implementation and on the implementation of the POM

 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.

153
  Procurement: (a) review of procurement performance from APAs/independent procurement
audits; and (b) provide training and guidance on Procurement to MUDHo, regional
governments and ULGs; and

 FM: 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.

 Specific focus on the IPF component which compared with the PforR modality will require
additional support and monitoring.

Table 10.1. Task Team Skill-mix Needed for Implementation Support

Skill Number of Staff Travel Frequency Location
Weeks (annual) (annual)
Task team leader 25 4 field trips Country office based
Senior Urban Specialist 20 4 field trips HQ based
Urban Specialist 25 8 field trips Country office based
Urban Specialist 20 4 field trips HQ based
Sr Infrastructure Specialist/Engineer 20 8 field trips Country office based
Senior urban economist 10 4 field trips HQ based
Senior Governance Specialist 20 8 field trips Country office based
Capacity building/communication 8 2 field trips Country office based
Senior Procurement specialist 12 3 and field trips as Country office based
required
Procurement specialist 12 3 and field trips as Country office based
required
Senior FM specialist 12 3 and field trips as Country office based
required
FM specialist 12 3 and field trips as Country office based
required
Senior Environment specialist 12 3 and field trips as Country office based
required
Environment specialist 12 3 and field trips as Country office based
required
Senior Social specialist 12 3 and field trips as Country office based
required
Social specialist 12 3 and field trips as Country office based
required
LED specialist 10 1 field trip as required HQ based
Gender specialist 5 1 field trip as required HQ based
Urban Resilience specialist 5 1 field trip as required HQ based
Cultural Heritage specialist 5 1 field trip as required HQ based

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 Annex 11: Program Minimum Conditions and Performance Measures

1. DLI 1 - Minimum Conditions

Justification for Minimum

No. Minimum Condition Evidences to be Produced Comments, phasing in and others
Condition
1.1 ULG has produced and the council Document minimum The subject for review is the plans developed in the
approved a: capacity in planning and 1. A consolidated CIP document previous year for the year where assessments are
project handling. prepared as per CIP manual conducted, for example, if assessment is conducted in
 Rolling three-year CIP with 2. Annual Action Plan September 2018, it is the plans for FY 2018/19 /EFY
 Annual action plan; Implementation readiness. 2011), which are typically developed from March – June
3. Annual Budget 2018.
 Annual budget;
 Annual procurement plan 4. Annual Procurement Plan. The plans to be reviewed are as follows: -
1st APA (September 2018) for EFY 2012 Allocations:
5. Minutes of meeting of city Plans for EFY 2011 (2018/19);
 The planned use of the
councils showing the approval 2nd APA (September 2019) for EFY 2013 Allocations:
performance-based grants
of CIP or published Plans for EFY 2012 (2019/20);
from UIIDP follows
newsletter/newspaper that 3rd APA (September 2020) for EFY 2014 Allocations:
investment menu (only from
reports approval of CIP, AAP, Plans for EFY 2013 (2020/21);
assessment in 2019 of the
annual budget and APP by the 4th APA (September 2021) for EFY 2015 Allocations:
performance in FY2018/19).
council Plans for EFY 2014 (2021/22);
6. IBEX report on Capital
To make this effective it is important that the APAs are
Expenditures to verify actual
conducted timely in the future, see Section on APA
use of grants as per the
procedures.
investment menu
Transitional arrangements. For new ULGs, 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.
 Justification for Minimum
No. Minimum Condition Evidences to be Produced Comments, phasing in and others
Condition
1.2. Submission of financial statements Show evidence on minimum (a) Financial statements folder For the external audits to start as early as possible cities
prepared from IBEX for the last capacity in PFM with should close their accounts by October 10 / each year.
FY (closure of the EFY accounts This will be applied from the first APA for all ULGs. The
on time) by October 10 each year. 1. Balance sheet financial statements should be consolidated by the ULGs
2. Income and Expenditure to include all sources (income) and uses (expenditure) of
Summary of the last EFY, the ULG
and
3. Post-closing trial balance
of the last EFY.
(b) Official Letters submitting the
financial statements to Council
and external auditor. This can also
be verified or double checked with
ORAG.
1.3. Audit report from previous fiscal To reduce fiduciary risks Audit Report - consolidated audit report for the ULG
year should be issued by the 1. Audit report of ORAG for should be issued which review all sources and expenditure
deadline of January 7 of the previous EFY. If done by an of the ULG.
following year and should not be external private or government It should be ensured that audit quality continues, and there
adverse or with a disclaimer audit firms; letter of is need to combine with other minimum conditions to
opinion. endorsement by ORAG for the ensure sufficient safeguards on PFM. Compared to the
clearance of the TOR and previous system, this is a strengthening of the
endorsement of the audit requirements, as it is reviewing the audit report from
findings. previous financial year.
If the ORAG cannot conduct the audit in time, external
audit firms must be contracted, and their results applied.
(ORAG should clear the TOR and makes QA/endorsement
of the results).
Transitional arrangements:
In the first APA the audit report is a waiver for the new
ULGs.
Second and subsequent years (2nd- 4th APAs): All should
be on time, that is, January 7.
The deadlines for audit reports are as follows:
2nd APA (September 2019): Audit Report for EFY 2010
(2017/18, deadline January 7, 2019;
3rd APA (September 2020): Audit Report for EFY 2011
(2018/19), deadline January 7, 2020;
4th APA (September 2021): Audit Report for EFY 2012
(2019/20, deadline January 7, 2021;
The audit report is the last “trigger” in the assessment
process, and will be checked after the field-work, but

156
 Justification for Minimum
No. Minimum Condition Evidences to be Produced Comments, phasing in and others
Condition
before the consolidation of the results.
1.4. Co-funding requirements (defined Reflect sustainability of the Budget Plan documents: Is combined with performance measures so that
with various rates of co-funding program and ensure that the contribution above the minimum level is rewarded.
depending on the type of ULG). rule on counterpart funding 1. Budget for own Revenue Co-funding should be budgeted for before the start of the
The co-funding requirements are is adhered with. The co- 2. Budget for recurrent fiscal year, and by the end of a fiscal year ULGs should
the following: funding is set at a realistic expenditure have contributed with the specific percentage, measured
10 percent for the new ULGs in the level and further by actual use of funding on capital investments on areas
DRS contributions are promoted 3. Budget (surplus) for Capital defined in the investment menu and source of funding
20 percent for the new ULGs in the through the performance Expenditure from own (IBEX coding).
non-DRS regions. measures. Revenue Transitional arrangements/Phasing in: ULGs can only
40 percent for the “old” 16 ULGs. Promote improved revenue 4. Budget from (IDA) budget for this in the second assessment, as they do not
(ULGDP One) mobilization and incentives Performance Grant (as know the level for this coming financial year. The
50 percent for Dire Dawa and to focus on longer-term approved by the UIIDP assessment of actual utilization of funds can only be done
Harar. sustainable urban finance. Federal SC) in the assessment following a year of actual disbursements
A higher level of co-funding is of UIIDP funds, that is, from the September 2019
promoted in the performance 5. Budget for ‘Capital assessments. (after a full year of spending in EFY2012
measures. Investment Projects’ /FY2019/20
The % of co-funding to be assessed will be as follows:
6. % of co-funding from ULG
2nd APA (September 2019) for EFY 2013 Allocations:
calculated from the
Budgeted co-funding for EFY 2012 (2019/20);
approved CIP and the
3rd APA (September 2020) for EFY 2014 Allocations:
proclaimed Annual Budget.
Budgeted co-funding for EFY 2013 (2020/21) and Actual
7. Bank statement to show co-funding applied for EFY 2012 (2019/20), that is, year
actual co-funding before assessment.
contributed for the prior 4th APA (September 2021) for EFY 2015 Allocations:
year Budgeted co-funding for EFY 2014 (2021/22) and Actual
co-funding applied for EFY 2013 (2020/21), that is, year
before assessment.
Note: As the first APA is in Sep. 2018, and as the first
grant allocation is for EFY 2012/FY2019/20, the ULGs
cannot budget fully for the co-funding at the point of time
for this first APA, but must revise their budgets and
allocations when results are known.
1.5. Key staff in place/coordination To ensure that there is The position should be filled for more than six months
team with the following staff under minimum capacity to handle 1. Box file with personnel within a year
the coordination of the city the entire program assignment letters signed by Transitional arrangement/phasing in (first year only): The
manager: full-time focal persons implementation process at City Mayor and copied to the minimum period of position being filled is waived for new
from relevant departments for the ULG level. City Manager and operational ULGs
revenue, procurement, office of the staff.
environmental, social management,
M&E, PFM, and civil engineering,
AMP expert, Urban planning and

157
 Justification for Minimum
No. Minimum Condition Evidences to be Produced Comments, phasing in and others
Condition
land management, plus an internal
auditor.
1.6. Safeguards: ULGs have To ensure that there is a Defined by:
demonstrated that they have mechanism and capacity to 1. A letter of appointment or Appointment/assignment of environmental and social
established a functional system for screen environmental and assignment of focal person safeguards focal person at the city level;
environmental and social social risks of the CIP before signed by City Mayor and Endorsement of city level ESMSG and RSG documents
management including full time implementation. copied to the City Manager that includes procedures for due diligence; institutional
dedicated one environmental and and host office of the staff procedures for grievance management (see below under
one social safeguards person and 2. Minutes of meeting of city number 8) and management of environmental risks,
updated ESMSG and RSG council for endorsing city managing resettlement/land take processes and
endorsed by City Councils level ESMSG and RSG environmental social mitigation and monitoring plan.
documents The minimum period for the position being filled (review
past year’s performance) is: 06 months. Transitional
3. A folder containing endorsed arrangement/phasing in: In the first assessment conducted
city level ESMSG and RSG from September 2018, it is sufficient for the new ULGs
documents that includes: that the positions are in place.
a. ESMSG provides procedures
for due diligence; ESIAs,
EMPs, RAPs, SMP, WMP
b. institutional procedures for
complaints handling,
environmental management,
resettlement and land
acquisition processes
1.7. Functional institutional set-up for Procurement is a high-risk 1. Functional unit is one None
procurement system in place area, hence need to ensure recognized by the city’s The minimum period for the position being filled (review
according to public procurement that basic systems, and organizational structure, having past year’s performance) is: 06 months
proclamation including: functioning of this is in place defined mandate, working
1. Procurement function and before transfer of PB grant procedures, with defined * Transitional arrangement/phasing in: 1st APA: For new
minimum core staff in place – installments. responsibilities, accountability ULGs it is sufficient that the positions are in place.
at least two procurement The existence and and decision matrix, and the ** Transitional arrangement/phasing in: For new ULGs,
specialists within procurement functionality of the like. it is applicable from the 2nd APA
unit in ULG; with first degree procurement system is basic 2. (i) Box file with letters of
and experience in to make sure that Program assignment, signed by City
procurement at least for two systems coupled with the Mayor or authorized
years* mitigation measures provide government officials copied to
reasonable assurance that the the host office of the staff to be
2. Functional tender financing proceeds will be a member of tender committee/
committee/TAC at ULG level used for intended purposes TAC.
in place; with due consideration of 2. (ii) Box file with minutes of
economy, efficiency, TAC for recent procurements

158
 Justification for Minimum
No. Minimum Condition Evidences to be Produced Comments, phasing in and others
Condition
transparency and fairness. 3. (i) A folder containing copies of
3. Participating cities have the their respective region’s
copies of their respective procurement law, directives,
region’s procurement law, manuals and standard
directives, manuals and procurement documents in
standard procurement secured space for Procurement
documents and staffs are Records
familiar with these legal 3. (ii) Training report/plan: with
documents ‘pre and post-test’ to ensure
staffs are familiar with these
4. Establishment of procurement legal documents. Plus, ULG
performance monitoring and staff involved are conversant
measurement using Public with the RGs procurement law,
Procurement Key directives, manuals and standard
Performance Indicators procurement documents if asked
Guideline or equivalent. ** by APA assessors.
4. A record or spreadsheet
containing data on procurement
performance for the agreed
KPIs141 as per procurement
guideline.
1.8. Complaints handling system Receiving, reviewing and The UIIDP Program Operations Manual defines further
related to corrupt practice, addressing complaints within 1. The existence of legal base the requirements within this area.
environment and social aspect as core areas such as fraud and (Proclamation, regulation or
well as related to procurement in corruption; related to Minutes of meeting of city
place. The system at least consists environmental and social cabinet for endorsing city level
of legal base, existence of impact; loss of livelihood, complaints handling system in
permanent structure with sufficient income or assets is an core areas that is fraud and
manpower, recording and important aspect of any corruption, procurement and
consolidated reporting mechanism grievance redress grievance related to
through the ethics unit and mechanism. The system will environment and social
addressing the complaints. encompass a system for impact);
complaints received, 2. Existence of permanent
registration of these, structure with at least a person
description of where to send in each structure to handle
the various types of complaints related to the core
complaints, to whom, and areas (Fraud and corruption,
141
(i)Percentage (by no. and value) of procurement items not included in the original annual procurement plan should not exceed 5 percent; (ii) Average deviation between original
Planned and Actual Procurement cycle time (procurement initiation-contract completion) should not exceed 5 percent; (iii) deviation between original price in the procurement
plan and award price should not exceed 20 percent; (iv) deviation between contract price and completion price (turnout cost) should not exceed 25 percent; (v) Percentage (by no.
and value) of procurements conducted through open bidding procedure is 85 percent ; (vi) Complaints resolved within the standard time frame is 100 percent; and (vii) the
percentage of action taken from the previous procurement audit qualifications/ recommendations equals or exceeds 90 percent.

159
 Justification for Minimum
No. Minimum Condition Evidences to be Produced Comments, phasing in and others
Condition
how and description of the
procedures. The information procurement and grievance
about these procedures related to environment and
should be published. social impact);
3. Existence of recording on
received complaints and the
follow-up measures
undertaken;
4. Existence of reporting system
this include a consolidated
report on the complaint cases
and measures taken (in all
areas through the Ethic
officers to REACC), and
reports on the respective areas
to the mayor and city council
as appropriate.

2. DLI 2 - Institutional Performance (ULG Performance Measures)

Year Evidence to be Produced Objective

Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
2.1 Planning and Budgeting 1
. 0
1. CIP with linkages among the current 3 1. A consolidated CIP document with rolling three- To promote
annual budget, annual action year Capital Investment Projects, annual budget, efficient planning,
plan, annual procurement plan, annual action plan, and annual procurement plan budgeting and
asset management plan and 2. REP procurement for
REP 3. AMP effective
1st APA (September 2018 for EFY 2012 Allocations: infrastructure
Plans for EFY 2011 (2018/19); development
2nd APA (September 2019) for EFY 2013
Allocations: Plans for EFY 2012 (2019/120);
3rd APA (September 2020) for EFY 2014 Allocations:
Plans for EFY 2013 (2020/21);
4th APA (September 2021) for EFY 2015 Allocations:
Plans for EFY 2014 (2021/22);
1 Quality, consistency, and current 2 1. CIP should include: expenditure framework for 3 To promote the
. alignment years, source of finance, REP and AMP rolling nature

160
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
In rolling three 3-year CIP, to 2. Consistency of figures on all tables (summary, should not be
ensure effective rolling in the yearly budget, budget source, annual procurement fictitious and
planning process plan and annual action plan) encourage ULGs
3. Alignment with REP and AMP forecast of three to rely on the five-
years year strategic plan
If all satisfied, then point 2. Otherwise 0. to derive the three-
year rolling plan
2 Capturing infrastructure, O&M, current 1 1. Check the IBEX code in the annual budget applied
. including using the is capturing the correct code of infrastructure, O&M.
appropriate IBEX code in the 2. Total O&M budget for infrastructure should be
annual budget captured in IBEX (excluding Road Fund).
2. Participation of citizens in the 2 . To ensure citizens’
planning process to meet involvement and
service delivery priorities promote good
identified by citizens governance
1 No. of public consultations current 1 Invitation letters or call for the meeting notice posted
. (lower level and city level) in the public places or through mass media for the
public to attend public consultations meeting
indicating date of meeting and purpose of the
meeting.
Public consultations should be held at least two
times:
(a) initial consultation, separated organized by
women and men, and (b) meeting for the final choice
of investments, invited both women and men.
2 1. Increase in no. of people current 1 1. Signed attendance sheets of the meetings
. involved &prior participants indicating sex of participants, community
2. Evidence of agenda and or Citizens/ Social groups they represent both for:
issues discussed initial consultation and for the final choice of
investments

1st APA: Current is CIP 2011-13; Prior is CIP 2010-

12;
2nd APA: Current is CIP 2012-14; Prior is CIP 2011-
13;
3rd APA: Current is CIP 2013-15; Prior is CIP 2012-
14;
4th APA: Current is CIP 2014-16; Prior is CIP 2013-
15;

The increase in number of people to be assessed is

161
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
from the prior year to the current year.
2. Minutes of participatory consultations indicating:
a) Agendas for the meetings, b) Other issues raised
by the participants and discussed, and c) lists of
priorities and voting results of the participants/
stakeholders + photographs and/or audio/video
records- both for initial consultation and for the final
choice of investments.
If 1 and 2 satisfied, then 1 point.
3. Budget appropriation 2
To promote
effective political
leadership and
good urban
governance
1 Budget approved by Council current 2 1. Minutes of meeting of councils or published
(Yes/No Indicator) newsletter/newspaper that reported approval of
the budget by the council AND
2. Budget proclamation or notification to the
citizens using public notice board and/or mass
media showing the budget following the standard
charts of accounts
Scoring: (Yes/No indicator)
If all satisfied, point 2. Otherwise 0.
4. Budget Reliability 1 1. Consolidated capital and recurrent budget vs. To promote proper
expenditure for all city’s funds (including state, budgeting and
municipal services, ULG program, and so on) as implementation
generated by IBEX, for the last year
1 Variance between overall city prior 1 1st APA: EFY 2010 expenditures;
budget and actual expenditure 2nd APA: EFY 2011 expenditures;
(each capital and recurrent) 3rd APA: EFY 2012 expenditures;
for previous EFY less than 4th APA: EFY 2013 expenditures
10%. Yes/No
5 Capacity building performance 2
1 Capacity building planning: current 1 1. The documented assessment reports clearly To help ULGs Review the capacity
1. The capacity building plan has identifying and prioritizing capacity gaps in each positively respond building and check
been produced through a of the thematic focus areas through participatory to institutional the planning.
systematic assessment and gap community involvement, internal self-assessment, performance gaps
analysis in the main thematic and APA report. and access fund
focus areas. 2. The capacity building plan prepared in the format

162
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
2. The capacity building plan detailed in the capacity building manual.
includes activities covering at
least two capacity building
modalities.
3. The capacity building
activities are clearly traceable
to the identified capacity
building gaps
If all above satisfied, then 1 point.
2 Implementation of capacity Prior 1 1. Capacity building plans To ensure that
building activities: 2. Execution and reporting on capacity building planning is
1. More than 80% of capacity 3. Annual financial statements. realistic and
building activities included in activities are
the capacity building plan implemented.
successfully completed
2. More than 80% of the funds
budgeted in the capacity
building plan are utilized
If all above satisfied, then 1 point.

1
2.2
Asset Management 1
.
0
1 Asset Management Plan 1 To strengthen the
prepared and updated142 0 management of
ULG assets -
infrastructure and
facilities.
1 Asset inventory143 updated as prior 4 Consolidated Asset Inventory updated, for all
per Asset Management categories of assets, for the last EFY as per the Asset
Manual featuring a tabular and Management Manual.
spatial database of all 1st APA: EFY 2010 asset inventory (conducted during
infrastructure, with EFY 2010);
specification and 2nd APA: EFY 2011 asset inventory;
characteristics, for all 3rd APA: EFY 2012 asset inventory;
142
Where a ULG has not correctly updated asset inventory, the APA cannot then award points for subsequent steps of asset management without considering that those subsequent
steps would be deeply flawed if they were based on a deeply flawed inventory. Awarding points for such deeply flawed subsequent steps do not reflect the expectation that is
obviously expressed in the indicator, namely that the ULGs manage their assets professionally.
143
An asset inventory which qualifies should feature a tabular and spatial database of all infrastructure, with specification and characteristics, at least for the five categories of
municipal assets (roads and drainage, solid and liquid waste, socioeconomic infrastructure and public parks and greenery, utilities, public buildings including abattoirs).

163
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
categories of assets of the 4th APA: EFY 2013 asset inventory;
cities as listed in the AMM 144
APA consultants are required to review and apply the
latest Asset Management Manual (applicable for the
year being reviewed) in their assessment.
2 Asset conditions correctly prior 3 Consolidated Asset Inventory updated, for at least
reflected in inventories as per five categories of municipal assets, for the last EFY
procedures in Asset as per the Asset Management Manual.
Management Manual Evidence from selective field checks by APA team
APA Consultant to provide/state in the city reports
the names of the sampled infrastructure used in the
field checks.
APA consultants are required to review and apply the
latest Asset Management Manual (applicable for the
year being reviewed) in their assessment.
3 Asset inventory shows an prior 3 Consolidated Asset Inventory updated, for at least
asset value and deficit, which five categories of municipal assets, for the last EFY
calculates the remaining asset as per the Asset Management Manual.
value, maintenance and APA consultants are required to review and apply the
rehabilitation deficit based on latest Asset Management Manual (applicable for the
annual depreciation rates as year being reviewed) in their assessment.
per procedures in Asset
Management Manual.

2.3. Public Financial Management 1

6
1 Accounting and timely 4 To strengthen
reporting accountability,
proper
management of
ULG finances and
ensure provision
of useful up-to-
date management
information.
1 Use of IBEX for all operations prior 1 Consolidated Capital Budget vs. Expenditure as per As above
. except Road Fund and other the budget proclamation and as generated by IBEX,
specialist projects done by for the last year
ULGs that are not part of Income and Expenditure Summary of the last EFY, as

144
The existence of two or more tabulations with different figures is in itself not sufficient evidence of correct updating.

164
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
Budget coding system for generated by IBEX
IBEX
2 prior 1 Quarterly financial reports formally submitted to the As above
. regional office with registered cover letter by
deadline in accordance with regional FM manual and
Timely financial reporting regulations
The date on the cover letter can be crosschecked with
date of the IBEX print out to ensure the reports are
submitted within the deadline.
3 prior 2 1. Cash count-Monthly cash count report and bank As above
. reconciliation formally submitted to the regional
office with registered cover letter to BoFED timely as
per regional regulations and manuals. In addition: -
(i) For any differences -The cash count report
and bank reconciliations statement should
provide valid justifications and explanations
for the differences between the count or
bank balance with the balance shown on
IBEX. Furthermore, it should recommend
specific actions to address the difference.
Monthly cash & bank (ii) For bank reconciliation- Proper monthly
reconciliation reports bank reconciliation should be prepared.
submitted to BoFED timely as  Break down for reconciling items with
per regional regulations and reference number and dates
manuals  Payments made by the bank but not
recorded in the IBEX should not be
shown in the reconciling items especially
at the yearend (should be recorded in the
IBEX)
 Deposits by the bank but not recorded in
the IBEX should not be shown as
reconciling items especially at the
yearend (should be identified and
recorded in the IBEX)
If both (i) and (ii) satisfied, then 2 points, otherwise 0
point
2 Audit Opinion 3 As above
1 The external financial audit prior 3 External audit report for the previous financial year
. report of the previous audit
has a clean opinion
3 Audit Compliance 2 As above

165
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
1 prior 2 1. External audit reports for the pervious FYs, both
. the short and long form reports
2. Audit findings rectification plan to address audit
queries raised in the previous year external audit
Evidence that audit queries raised report
in the external audit report have 3. Status report on audit findings rectification plan
been acted on – 80% minimum 4. Supporting documents such as letters, accounting
records, count sheets, registers, vouchers,
documents showing evidences such as refunds
and internal control procedures adopted as per
the recommendations of the auditors.
4 Internal Audit – adherence to 3 As above
procedures with good
practices, reflected by:
1 prior 1 The internal audit unit is adequately staffed (80%)
with required number and qualification of internal
Production of quarterly auditors as per the structure.
reports Quarterly internal audit reports produced by internal
audit unit

2 prior 1 Formal submission of Quarterly internal audit reports

Reports submitted to BoFED/
produced by internal audit unit to BoFED/ Zonal
Zonal Office of Finance and
Office of Finance and Economic Development and
Economic Development and
copied to Mayor with cover letter
copied to the Mayor
3 Evidence of follow-up of audit prior 1 Status report on external audit findings rectification
findings
5 ULG level Fixed asset and prior 4 As above
inventory (stock) management
weaknesses are addressed
1 1 (i)Fixed assert register which includes as a minimum
asset name, type, cost, date of purchase, location, user
or custodianship, identification number and condition
(ii) stock card kept with finance department – that
Record keeping- maintain fixed includes as a minimum the movement and balance of
asset register, stock card and bin inventory items, goods receiving vouchers and goods
card issuing vouchers
(iii) Bin cards kept at store -includes as a minimum
the movement and balance of inventory items, goods
receiving vouchers and goods issuing vouchers

166
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
If all satisfied, then 1 point, otherwise 0 point.
2 2 There should be a minimum of annual fixed asset and
stock/inventory count -The evidence for this is (a)
cover letter by the inventory/count team; (b) detail
listing of assets/stocks with quantities counted and
quantities in records (stock card/fixed asset register)
Count and Reconciliation
and differences there of; (c) final summary report
with recommendation for action on discrepancies,
obsolete stocks, damaged items, and so on.

If all satisfied 2 points, otherwise 0 point.

3 1 Placement of separate individuals one responsible for
stock cards at finance department and one person at
Segregation of duties
stores responsible for the inventory custodianship and
bin card.
2.4. Procurement 1
5
Procurement Performance Proportional scores will be provided based on level New ULGs will be
of compliance on the parameters to be assessed. assessed based on
performance
starting from the
second APA.
1 Annual Procurement 2 2 Parameters to be assessed.
Planning, Oversight and (i) Annual procurement plans are prepared and
Controls updated;
(ii) Internal procurement audits are conducted and
they are acceptable;
(iii) Follow up and update was done on the action
plan for implementation of internal and external audit
findings.
Evidences/documents to be assessed.
1. (i) Comprehensive and complete annual
procurement plan was prepared for the financial
year as part of the CIP in accordance with the
requirements of the regional procurement
proclamation, directive, manual and prescribed
templates and approved by procurement
endorsing committee and management.
(ii) Procurement plan was updated as necessary
with justifications.

167
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
2. Internal procurement audit reports (submitted by
31st August and the audit planning, execution and
reporting are as per accepted internal audit
standards)
3. Updated action plan for implementation of
internal and external audit findings.
If two out of three completed: 2 points, otherwise 0
point.
2 Individual Procurement 8 1. The assessment and scoring for individual To ensure that
Transactions procurement transactions will be based on a each individual
reasonable sample (minimum 25% of all procurement
contracts) with a good mixture of low risk-high transaction is
value, high risk-low value, high risk-high value carried out
contracts and different procurement methods and following the set-
categories. out procurement
NB. The APA Consultant will record and present in rules in a way that
all the city reports, the particulars of the reviewed assures VfM to the
contracts including contract description, contract ULG and fairness
reference numbers, name and address of awardee, to eligible bidders.
contract amount and implementation status of the
contracts that were sampled and reviewed.
2. The APA Consultants, in carrying out the
procurement performance assessment, are
required to also use the Procedures for selection
of sample contracts in annex
For the samples taken, average of the individual
score should be taken. If decimal, round it to the
nearest whole number.
1 Procurement Planning and 2 Parameters to be assessed.
. Bidding (i)The procurement item is included in the approved
annual procurement plan;
(ii) Advertisements were made as required by the
law;
(iii) Correct standard bidding documents are used;
(iv) Bid floating periods are as provided in the law;
(v) Bid openings are conducted immediately after bid
submission and minutes are acceptable
Evidences/documents to be assessed.
1. Annual Expenditure summary and Annual
Procurement Plan for the prior year and contract

168
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
registers
2. Extracts of adverts (as it was advertised) of
invitation for bid or request for expression of
interest using appropriate public media
3. Standard Bidding Documents issued by
RPPPAAs/FPPA
4. Folders for specific bidding documents issued
consisting: invitation for bids, invitation to bid, BDS,
Evaluation and Qualifications criteria, Schedule of
requirements (specifications and bill of quantities),
bidding forms, General Conditions of Contract,
Special Conditions of Contract and other necessary
formats for all items procured. Similar documents for
Consultancy services selection.
5. Bid opening records/minutes signed by the bid
opening committee and bid opening attendance sheet.
If all five completed: 2 points, otherwise 0 point.
2 Bid Evaluation and Contract 3 Parameters to be assessed.
. Award (i) Bid evaluations are consistent with bidding
documents;
(ii) Contract was awarded to the legitimate bidder
within bid validity period;
(iii) Bid evaluation results are announced to bidders
and public;
(iv) Contract document contents are complete
Evidences/documents to be assessed.
1. Folders for bid evaluation report and verify if only
those selection and qualification criteria stipulated in
the issued Bidding Document are applied during bid
evaluation for the sampled contract;
2. Check whether the legitimate bidder is awarded the
contract
3. (i) Issued bidding document containing the
required bid validity and submitted bids
containing the same.
(ii) Any requests for extension(s) of bid validity
and subsequent extension(s) including bid
securities.
(iii) Letter of Contract Award
(iv) Folders for bid evaluation results

169
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
announcement to bidders and to the general
public for all items procured (extracts of
advertisements, signed letters issued to bidders)
4. Contract documents containing all the relevant
sections included in the bidding document to be part
of the contract. Check for example, form of contract,
special conditions of contract, general conditions of
contract, priced schedule items /scope of works,
specifications, drawings, securities, and so on.
If three out of four satisfied, then 3 points.
If two out of four satisfied, then 2 points.
If less: 0 point.
3 Contract implementation and 3 Parameters to be assessed.
. procurement recording (i) Contracts implemented within planned time
(ii) Contracts implemented as per contract price
(iii) Availability of adequate auditable procurement
records in a secured space.
Evidences/documents to be assessed
(i) Approved annual procurement plan with
monitoring report, procurement and contract
management file including invoices and payment
certificates, commencement orders, provisional and
final acceptance letters, variation orders, and so on.
(ii) Check by comparing it with the contractual
provisions for acceptability of contract management
plan, agreed delivery/work program, timelines,
variation orders, cost overruns…)
(iii) Procurement documents (transactions records)
for the sample contract for review is kept in a secured
space and available and evidenced (procurements
documents for current year all key documents from
Advertisement up to contract closure or hand over)
1 point for each; if all satisfied, 3 points.
3 5 Procurement Outcomes 5 The assessment will be done based on the data
. available in the procurement performance monitoring
and measurement database/sheet. The APA
consultant shall verify the consistency of the
records/sheet to rely upon the data provided in the
records/sheet as measured below.
111 Procurement efficiency and 3 Parameters to be assessed.

170
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
effectiveness (i) Percentage (by no. and value) of procurement
items not included in the original annual procurement
plan should not exceed 5%;
(ii) Average deviation between original Planned and
Actual Procurement cycle time (procurement
initiation-contract completion) should not exceed 5%;
(iii) deviation between original price in the
procurement plan and award price should not exceed
20%;
(iv) deviation between contract price and completion
price (turnout cost) should not exceed 25%.
Evidences/documents to be assessed.
Procurement Performance Monitoring and
Measurement records/spreadsheet and procurement
files/records, for spot verification.
If one out of four satisfied, then 1 points.
If two out of four satisfied, then 2 points.
If three out of four or all four satisfied, then 3 points.
2 Competitiveness, Fairness and 2 Parameters to be assessed.
Transparency and Controls (i) Percentage (by no. and value) of procurements
conducted through open bidding procedure is 85%;
(ii) Complaints resolved within the standard time
frame is 100%;
(iii) the percentage of action taken from the previous
procurement audit qualifications/ recommendations
equals or exceeds 90%.
Evidences/documents to be assessed.
Procurement Performance Monitoring and
Measurement database/spreadsheet and procurement
files/records, for spot verification.
If two satisfied, then 1 point.
If all satisfied, then 2 points.
2.5. Own source revenue 1
enhancement 0
1 REP updated for prior year as per 2
the REP Manual
1 ULG has carried out detailed prior 1 1.Up-dated and approved REP of the city for the prior
. analysis of each main revenue EFY
source and potential as per the 2. APA consultants are also required to review and
REP Manual. (manual and apply the REP Manual in their assessment.

171
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
template to be provided)
2 ULG has developed strategies for prior 1 1. Up-dated and approved REP of the city for the
. revenue enhancement as per the prior EFY
REP Manual. 2. APA consultants are also required to review and
apply the REP Manual in their assessment.
2 ULG’s municipal revenues 3 1. Municipal revenues (excluding land lease income)
(excluding land lease income) by account code for prior year (EFY) and the year
increase before that, as generated by IBEX.
1 prior 1
5 to 10% increase
.
2 prior 2
11 to 20% increase
.
3 prior 3
Greater than 20% increase
.
3 Revenue Planning: Percentage of prior 2 1. Municipal revenues plan by account code for prior
municipal revenue (excluding land year (EFY). The municipal revenue budget should be
lease income) on business taxes, recorded in the IBEX. Planned figures should be
municipal rent and charges and obtained from IBEX which should be the same as the
fees collected against planned figure reported in the approved REP
target for the previous EFY 2. Actual Municipal Revenue by account code for
prior EFY, as generated by IBEX
1 Variation less than 5% prior 2
2 Variation less than 10% prior 1
4 prior 3 1. Approved CIP for prior year To promote
2. Schedule of Allocations and Disbursements for sustainability,
prior year. To be used by APA Consultants to cross ownership and
check figures in CIP. (MUDHo to provide accountability
schedule)
3. Bank statement showing deposit of co-funding
Co-funding from ULGs is above amount and date for prior year.
minimum threshold level – as The % of co-funding to be assessed will be as
percentage of performance grant follows:
amount 2nd APA (September 2019) for EFY 2013
Allocations: Budgeted co-funding for EFY 2012
(2019/20);
3rd APA (September 2020) for EFY 2014 Allocations:
Actual co-funding for EFY 2013 (2020/21);
4th APA (September 2021) for EFY 2015 Allocations:
Actual co-funding for EFY 2014 (2021/22)
1 Co-finance from 1-10 percentage for example, If the minimum requirement is 10%, and

172
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
points more than the minimum the city co-finances 12% (that is, 2 percentage points
required level: 2 points above), then the city gets 2 points.
2 Co-financing above 10 percentage for example, If the minimum requirement is 10%, and
points more than the minimum the city co-finances 22% (that is, 12 percentage
required level: 3 points points above), then the city gets 3 points.
2.6 Accountability and 1
. transparency145 4
1 Accountability and To strengthen
transparency in city operations accountability and
and service delivery good governance
1 Municipal service delivery as prior 6 1. Service delivery standards issued by the
per service standards for solid Ministry and endorsed by the cities (Minutes of
waste management, land Council showing endorsement or approval of
management, building permits service standards)
issued by the Ministry 2. Implementation report produced by the city for
a Solid Waste Management as 2 the prior year for solid waste management; land
per the standard management; building permits as per the
b Land Management as per the 2 standards
standard 3. On site verification by APA Consultant taking 3
c Building Permits as per the 2 service standard indicators146 from each of the 3
standard basic services (same indicators to be used across
all cities each year) making a total of nine
indicators for the city. The Consultant will
review the evidences/ documentation for the
indicators to see whether services where
actually delivered as per the service indicators.
Score will be split into 2 points for each of the
three services. Minimum of 80% achievement
for each of the three indicators for the service
will score 2 points for the service (All three
indicators need to score minimum 80%); 70-
79% achievement for each of the three
indicators for the service will score 1 point for
that service (All three indicators need to score
minimum 70%).
2 Public dissemination (in city prior 6 A box file/folder containing office notices, public
offices and other public places notices or newspapers or web-pages used to
or web-pages, newspapers) of disseminate information in city offices and for the
145
For all Yes/No indicators, partial points shall not be awarded. It is either Yes= full points or No = zero points.
146
Three indicators will be selected by APA consultants has to refer the Ministry’s standard document and select at least three indicators for each service. These indicators will be
presented in APA guideline.

173
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
information about: public on:
a Annual budgets prior 1 a. summary of annual budgets
b. approved projects,
b Approved projects prior 1
c. expenditures
c Expenditures prior 1 d. audited accounts, and
d Audited accounts prior 1 e. results of the procurement decisions.
f. APA results as reported by the consultants and
e Procurement decisions prior 1 endorsed by MUDHo
f APA results announced to 1
public
3 Timely submission of prior 2 2 Quarterly physical reports formally submitted to the
quarterly progress reports for regional office with registered cover letter.
UIIDP as per the UIIDP M &
E Guidelines (Yes/No
indicator)
2.7. Environment and Social 1
Safeguards 0
1 Environmental and Social 6 To avoid adverse
Screening environmental and
social impact and
promote
environmental and
social
sustainability
1 All capital project screened and prior 3 1. Screening reports of all capital projects in the
approved by REFA as per previous EFY against the set of environment and
ESMSG and RSG at planning social criteria
stage (before construction starts) 2. Letters of approval by regional or regional
(Yes/No indicator) designated authority

2 ESIAs, ESMPs, RAPs, and so on., prior 3 1. Environmental and Social Impact Assessments,
prepared and approved by Environmental and Social Management Plans and
regional or regional designated RAPs (as applicable) prepared by the city.
authority as required (Yes/No For schedule I projects (for example, abattoirs and
indicator) landfills), ESIA, ESMP, WMP and RAP should be
prepared by independent consultants on behalf of the
city.
2. Evidence of public consultation, minutes of the
meetings
3. Letters of approval by regional or regional
designated authority

174
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
2 RAPs are implemented before prior 4 4 1. Project design documents, contract documents As above.
commencement of construction and project progress reports
2. Physical (Field) check of sample of 3 projects that
Environmental and Social have EMPs and/or RAPs (sub-projects with RAPs
Management Plans are must be included in samples) and verification of
implemented before construction relevant implementation documentation.
and during construction and 3. Community consultation before and during
operation147 (Yes/No indicator). implementation of ESMP and RAPs
based on a sample of 3 projects 4. All sampled projects must comply to score the 4
that have ESMPs and/or RAPs points, otherwise 0 point.
and all three must comply 5. APA Consultant to provide/state in the city
reports the names of the sampled projects.
6. If cities have properly screened projects and, with
regional or regional designated authority
approval, it is clearly determined that they do not
require ESMPs or RAPs then 4 points can still be
awarded to these cities.
2.8. Land Management and Urban 1
Planning 5
1 Statutory structure plan and or 5 To promote
expansion plan approved/in place planned urban
development in
ULGs
1 Existence of up-to-date approved current 3 1. Approved statutory city-wide (structure) plans
statutory city-wide (structure) plan including base map, existing land use map, existing
and/or expansion plan as at the road network map, proposed road network,
point of assessment (Yes/No drainage and land use map
indicator) Excluding extension of
an existing plan 2. Council minutes approving statutory city-wide
(structure) plan
3. The period of coverage should be in the plan and
APA Consultant should check the expiry date to
see if the plan is “up-to-date”.
If all satisfied, then 3 points. Otherwise 0 point.
2 CIP is in accordance with city- prior 2 1. Approved statutory city-wide (structure) plans and
wide (structure) plan and/or local (neighborhood) development plans
expansion plan at the time of
preparation (Yes/No indicator) 2. Approved CIP document in accordance with

147
Depending on the project phase

175
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
structure plan
If all satisfied, then 2 points. Otherwise 0.
2 Effective land management 1 To promote
0 effective land
management and
serviced land
delivery of ULGs
1 Land released for different uses Prior 3 1. Location map/site plan of the released site and
are as per the laws of land basic infrastructure services;
management and have access to 2. Land lease records and documents showing land
basic infrastructure facilities i.e leased to the public;
road, water, electricity at a radius
of 250 meters To verify that the land released is as per the laws of
land management and have access to basic
infrastructure facilities, the APA Consultants will
take a sample of 3-4 sites and provide/state in the city
reports

Scoring: Yes/No indicator, based on a sample of 3-4

projects
Note: If city has not released any lands in the prior
year, 0 point.
2 Proportion of land plots released Prior 2 Land supply data and documents showing methods of
through competitive auction/ land release
bidding process (and not through Scoring: If more than 25%, then 2points. Otherwise
direct allocation) 0 point.

3 Updated land inventory featuring Current 5 Consolidated Urban Land Inventory updated for
a tabular and/or spatial database vacant, residential, commercial and industrial areas.
for example, a map148(Yes/No 1. Existence of tabular and/or spatial database for the
indicator) corresponding land uses
2. To verify that the land inventory is up to date, the
APA Consultant will take a sample of 3-4 land use
categories;
APA Consultant to provide/state in the city report the
names of the sampled land inventory used in the field
148
The linkage may not be fully automatic (e. g. by simple mouse click) but where maps show ID numbers of plots and these ID numbers are also included in the tabular database
then the linking is possible (in reverse direction, the linking is facilitated if the “kebele” – the urban neighborhood –is listed in every record

176
 Year Evidence to be Produced Objective
Performance Maximu Waivers/Exception
No. Assesse
Measure/Indicators m points s
d
checks;

3. DLI 3 - Service Delivery Performance (ULG Performance Measures)

Maximum
No. Performance Measure / Indicators Evidence to be Produced Objective
points Waivers
3. Urban Infrastructure Targets (for 3
1 weighting, see the note following this table) 0
1 Physical targets as included in the CIP and prior 30 1. Minimum condition for any point: To ensure effective
annual work plan implemented (The % of monthly progress reports (due by fifth implementation of
implementation against original plans will of the next month) from the engineer, infrastructure and
be reflected directly in the score multiplied based on the field verification and service delivery
by 30% (weight of this indicator), that is, compared with the plan. The report
100 % implemented = 30 points, 60 % should be submitted to the region and
implemented = 18 points. Note: MUDHo.
Assessment is done only for all civil works 2. Urban infrastructure development
projects planned in the CIP for that EFY plan (disaggregated by categories and
and the final contract prices should be used locations) under the CIP for the EFY
in the calculation. The assessment table 3. Urban infrastructure physical
should consist of ALL CIP civil works implementation/ progress report
projects and not just the sampled ones. (If (disaggregated by categories and
there is no monthly engineering standard locations) under the CIP for the EFY)
report no points will be given) 4. Field trip verification of a sample of
the projects. APA Consultant to state
in the city reports the names of
projects visited
3. Maintenance performance 30
2
1 Maintenance Budgeting and
Implementation
1 a. Maintenance plan derived from the prior 10 1. Assets management plan updated for Ensure sustainability
Assets Management Plan; the EFY as per the asset management in the investments
b. Maintenance Budget either 2% of the 10 manual/ guideline with clear budget through up-keep of
asset replacement cost or 10% of CIP for maintenance and new assets. infrastructure

177
 Maximum
No. Performance Measure / Indicators Evidence to be Produced Objective
points Waivers
budget (whichever is less) 2. Urban infrastructure maintenance
budget (disaggregated by categories)
under the CIP for the EFY
3. Urban infrastructure maintenance
expenditure report (disaggregated by
categories) under the CIP for the EFY
2 Actual Maintenance
1 ULGs have developed a clear maintenance prior 10 1. Urban infrastructure maintenance To ensure
budget and actual implementation rate physical plan (disaggregated by sustainability in the
(review overall budget and utilization rate categories and locations) under the investments through
in final accounts of all maintenance CIP for the EFY. effective recurrent
projects to review actual maintenance) is 2. Urban infrastructure maintenance and rehabilitative
minimum 80% (financial) of the planned. physical progress report maintenance of
indicator: The assessment table compiled (disaggregated by categories and infrastructure and
by the APA Consultants should consist of locations) under the CIP for the EFY. facilities
ALL planned maintenance projects as per
the AMP/CIP (and not just the sampled
ones) whose budgets and expenditures will
be individually stated and aggregated to
arrive at the utilization rate.

NB: only infrastructure asset including

construction machineries
3. Quality of Infrastructure 4
3 0
1 Value for the money in the infrastructure prior 30 The following evidence will be Ensure efficient and
investments funded by the UIIDP. The VfM presented by OFAG or independent high- quality
audit will be conducted as a separate exercise consultant to APA Consultants to infrastructure and
from the APA and then calibrated from 0 – 30 make the assessment on “quality of service delivery
points. infrastructure”:
1. Draft Final Report (or Final Report if
available at the time) from OFAG or
independent consultant on the VfM
Audit
The following evidences will be
presented by cities to OFAG or
independent consultant to carry out
the VfM Audit:
1.Urban infrastructure physical
implementation/ progress report
(disaggregated by categories and
locations) under the CIP for the

178
 Maximum
No. Performance Measure / Indicators Evidence to be Produced Objective
points Waivers
pervious FYs since the beginning of
the program
2. Urban infrastructure budget
expenditure report (disaggregated by
categories and locations) under the
CIP for the pervious FYs since the
beginning of the program
3. Design documents, bidding documents
including specifications and bill of
quantities for all items procured.
4. Contract agreement and contract
amendments for all items procured.
5. Change Orders and payment
certificates for all items procured.
Provisional and final handover
(acceptance) for all items procured.
2 Proportion of recommendations of previous prior 10 1. List of recommendations from the To ensure and New ULG’s will
VFM audit addressed (80 to 100% gets full previous VFM report. enhance the quality be waived from
mark; 50 to 80% gets half mark and below 2. Quarterly progress report of cities of VFM audit and this for the first
50% will get zero) 3. VfM auditor to report back on follow- response the year and will be
up actions for the previous implementation of part as of the
recommendations recommendations for second year. In
assuring the meantime,
sustainability and the point
operationality of the allocated for this
investment. indicator will be
divided among
infrastructure
target and
maintenance
equally.

4. DLI 4 - Performance on Local Economic Development, Urban Resilience and Gender Mainstreaming (ULG Performance Measures)

Year
Maximum Waivers/Excepti
No. Performance Measure / Indicators Assess Evidence to be Produced Objective
points ons
ed
4.1. Local Economic Development 4 DLI 4
0 performance
measures will
only be applied in
the 2nd APA

179
 Year
Maximum Waivers/Excepti
No. Performance Measure / Indicators Assess Evidence to be Produced Objective
points ons
ed
1 Job creation 20
1 No. of people employed through prior 10 1. No. of people employed in infrastructure
infrastructure works under UIIDP against works; disaggregated by gender and age
annual target 2. Data collected from contractor’s log books,
job registration in the M&E system of
projects, and so on.
Scoring: max 10 points for achieving 100%;
calibrated proportionally; decimals will be
rounded to the nearest whole number
2 No. of people employed in firms provided prior 10 1. No. of people employed in firms provided
with serviced land149 and/or MSE sheds150 with serviced land and/or MSE sheds in the
under CIP against annual target last year against targets in CIP
2. Data collected from ULG’s records, APA
consultants to visit minimum 3 plots of land
or MSE sheds to verify firms are
operational, and so on.
Scoring: max 10 points for achieving 100%;
calibrated proportionally; decimals will be
rounded to the nearest whole number
2 Public private dialogue 10
1 ULG held at least 2 public private selecte 5 1. Existence of meeting agenda and minutes,
dialogue/open meetings with city mayor d including participant list, agreed actions/
and a wide range of private sector responsibility/ timeline
representatives 2. Private sector representatives should include:
-structured meeting, mayor participation, (i) trader’s associations, (ii) local chamber of
presentation of constraints and economic commerce, (iii) local business owners and
potentials to inform the CIP. MSEs; and (iv) foreign and domestic
investors from industrial parks (if any)
Scoring: If all satisfied: 5 points, otherwise 0
point.
2 Implementation of min. 2 agreed actions selecte 5 1. Subsequent meeting minutes indicate that at
from each meeting d least 2 agreed actions were implemented per
meeting – 5 points, otherwise 0 point.
3 Micro Small Enterprise 10
1 No. of MSEs supported through open 3 1. Support can include: MSE setting up, working
business plan competitions, against premises, financing/loan or training
annual target 2. Open business plan competition will be
verified by evidence of public issue of call for

149
This refers to all serviced land allotted to firms engaged in economic activities including agriculture, services and manufacturing.
150
This refers to working premises / sheds allotted to microenterprises, which should be serviced and provided with water, electricity and a connective road

180
 Year
Maximum Waivers/Excepti
No. Performance Measure / Indicators Assess Evidence to be Produced Objective
points ons
ed
business plan through public media channels
3. Business plan
4. Records of MSE office

Scoring: Max 3 points for achieving

100%; otherwise calibrated
proportionally, decimals will be
rounded to the nearest whole number.
If 0 planned, then 0 point.
2 No. of MSE One Stop Center (OSC) 4 Fully functional OSC means:
supported to be fully functional against 1. caters for 15,000 individuals or maximum of
annual target 500 MSEs;
2. has at least 5 key positions filled151;
3. is equipped with equipment and furniture;
4. provides fundamental trainings to staffs, at
least 2 areas in the OSC Service Provision
Standard 2017;
5. documents consultation notes as an evidence
of operationality.

Scoring: max 4 points for achieving 100%;

otherwise calibrated proportionally, decimals
will be rounded to the nearest whole number. If 0
planned, then 0 point.
3 No. of graduated MSEs provided with 3 1. follow up of status/progress of graduated
support from the Medium Manufacturing MSEs and continue training and coaching for
Enterprises Development Unit in the city two years
administration, against annual target
Scoring: Max 3 points for achieving 100%;
otherwise calibrated proportionally, decimals
will be rounded to the nearest whole number. If 0
planned, then 0 point.
DLI 4
performance
3
4.2. Urban Resilience measures will
0
only be applied in
the 2nd APA
1. DRM and emergency response 30 To promote
151
According to the new One Stop Center Service Provision Standard (2017), the following seven positions are the key staffs: 1. OSC coordinator; 2. Office
Administrator/Secretary/Information Desk; 3. Job Seekers Registration, Trade Registration, Trade License, and TIN preparation Expert; 4. Saving and Loan Facilitation Officer; 5.
Accounts and Audit Officer; 6. Production and Sells Site Facilitation, Training Industry Extension and Market Linkage Expert; 7. Graduation/Transfer facilitation expert

181
 Year
Maximum Waivers/Excepti
No. Performance Measure / Indicators Assess Evidence to be Produced Objective
points ons
ed
disaster
management and
emergency
response
Risk map(s) developed showing
flood/landslide/earthquake risk areas, prepared in
1. Disaster and Climate Risk Management 10 accordance to guidelines developed by MUDHo
and Disaster Risk Management Commission.
Scoring: Yes/No
Emergency response unit established with
minimum staffing including DRM officer, rapid
Emergency Response institutional
2. 10 assessment officer, and emergency response
structure
officer. 
Scoring: Yes/No
3. Emergency Response Plan developed and
approved by the city council/mayor.
Emergency Response Plan
The emergency response plan should contain
these elements: (i) Emergency
Declaration/Proclamation Process; (ii) Response
10 Activities/Process; (iii) Direction, Control and
Coordination; (iv) Responsibilities; (v)
Communications; (vi) Administration, Finance
and Logistics; (vii) Plan Development and
Maintenance
Scoring: Yes/No
DLI 4
performance
3
4.3. Gender Mainstreaming measures will
0
only be applied in
the 2nd APA
1 Women’s voice and rights 7
.
1 Women’s participation in decision current 2 Invitation letters or call for the meeting notice
. making process: posted in the public places or through mass
media for the public to attend public
1. total women involved in all consultations meeting indicating date of meeting
consultation meetings > 50% and purpose of the meeting. Public consultations
should be held at least two times: (a) initial
2. women involved in the meeting for the consultation, organized separated for women
final choice of investments > 50% and men, and (b) meeting for the final choice of
investments, invited both women and men.

182
 Year
Maximum Waivers/Excepti
No. Performance Measure / Indicators Assess Evidence to be Produced Objective
points ons
ed
*Linked to Performance Measure Evidence: Signed attendance sheets of the
2.1.2 citizen participation meetings participants indicating sex of
participants, community or Citizens/ Social
groups they represent both for: initial
consultation and for the final choice of
investments
The percentage of women involved will be for
the current year.
Scoring: If all satisfied, then 2 points, otherwise
0 point.
2 Women’s voice heard 2 Minutes of participatory consultations indicating
. a compiled list of issues raised by women during
*Linked to Performance Measure consultations,
2.1.2 citizen participation Scoring: Yes/No

3 No. of awareness raising current 3 Workshop/training on women’s right in

. workshop/training on women’s right in workplace (gender based violence, sexual
workplace against annual target harassment, and equal payment) targeting both
men and women.
Annual target must be consistent with capacity
building plan and gender development plan.
Evidence: Program/workshop attendance sheet
(aggregated by gender), capacity building plan
and gender development plan.
Scoring:
Minimum three workshops/trainings in the year,
otherwise 0 point.
3 points for 100% achievement; otherwise,
calibrated proportionally, decimals will be
rounded to the nearest whole number.
2. Gender mainstreaming system 13
1 Gender-balanced employment: 3 Evidence: ULG HR plan
. 1. Proportion of women public Scoring:
professionals in city municipal service women professionals >= 25% (1 point)
administration women professionals >= 35% (2 points)
women professionals >= 45% (3 points)

183
 Year
Maximum Waivers/Excepti
No. Performance Measure / Indicators Assess Evidence to be Produced Objective
points ons
ed
2. Proportion of women as a head of 3 Evidence: ULG HR plan
office and above in city municipal service Scoring:
administration women leadership >= 20% (1 point)
women leadership >= 30% (2 points)
women leadership >= 40% (3 points)

2. 1. Gender focal person dedicated for current 3 Evidence:

UIIDP 1. Gender focal person dedicated for UIDP in
2. Annual gender and development place in WCO or/and UIIDP coordination team”
planning and budgeting 2. Annual gender development plan and budget
(template/manual in POM): i) approved by the
city council, ii) consistent with ULG annual plan
and budget, capacity building plan, and gender
mainstreaming guideline*
NB. *Gender mainstreaming guideline is only
valid when gender and youth mainstreaming
directorate in MUDHo developed and
disseminated it.
Scoring: If all above satisfied, then 3 points,
otherwise 0 point.
3 1.Quarterly meeting with gender focal prior 4 Evidence:
. persons from each sector Office 1.Signed attendance sheet of focal persons
2. More than 80% of gender activities in (indicating gender, occupation) from each sector
the gender plan successfully completed Office and meeting notes (quarterly)
and more than 80% of the funds budgeted 2. Compare annual gender plan to annual gender
in the gender plan are utilized. progress report
Scoring: If one of two satisfied, then 2 points.
If both satisfied, then 4 points.
3. Economic empowerment 10
1 % of women employed through 2 Evidence:
. infrastructure works under UIIDP 1. No. of people employed in infrastructure
works; disaggregated by gender and age
*linked to 4.1.1.1 LED indicator 2. Data collected from contractor’s log books,
job registration in the M&E system of
projects, and so on.
Scoring:
women >= 30% (1 point)
women >= 40% (2 points)
women >= 50% (3 points)

2 % of women employed in firms provided 3 Evidence:

184
 Year
Maximum Waivers/Excepti
No. Performance Measure / Indicators Assess Evidence to be Produced Objective
points ons
ed
. with serviced land152 and/or MSE sheds153 1. No. of people employed in firms provided
under CIP with serviced land and/or MSE sheds in the
last year against targets in CIP
*linked to 4.1.1.2 LED indicator 2. Data collected from ULG’s records, APA
consultants to visit minimum 3 plots of land
or MSE sheds to verify firms are
operational, and so on.
Scoring:
women >= 30% (1 point)
women >= 40% (2 points)
women >= 50% (3 points)
3 % of women-headed MSEs supported to 3 Evidence:
. access working premises/sheds and/or 1. Records of MSE office
serviced land under UIIDP 2. Data collected from ULG’s records
Scoring:
women >= 20% (1 point)
women >= 30% (2 points)
women >= 40% (3 points)
4 %of women-headed MSEs awarded with 2 Evidence:
civil contracts under UIIDP 1. Records of MSE office
More than 10% (1 point), more than 20% 2. Data collected from ULG’s records
(2 points) Scoring:
women >= 10% (1 point)
women >= 20% (2 points)

5. DLI 5, 6, 7, 8 and 9 - Regional Implementing Agencies’ performance measures

DLI No. Regional Implementing Agency / Performance Year Scoring Evidence to be Produced Application
Measures Assessed
5 Bureau of Urban Development, Housing and Construction (or regional state equivalent)
1. Regional government capacity building and support
teams in place and deliver effective capacity building
services to ULGs
1 1. Regional government has developed plans current 1. Capacity Building Plan of and TOR for CB Plan for region & 1st APA

152
This refers to all serviced land allotted to firms engaged in economic activities including agriculture, services and manufacturing.
153
This refers to working premises / sheds allotted to microenterprises, which should be serviced and provided with water, electricity and a connective road

185
DLI No. Regional Implementing Agency / Performance Year Scoring Evidence to be Produced Application
Measures Assessed
according to formats in the POM regional mobile capacity building and TOR for regional team. (2018 with
2. Regional mobile capacity building & mentoring mentoring teams and positions are in place. impact on
teams are in place and are operating. The capacity building plan cover all 4 FY2019/20)
modalities and at least 80% of the thematic
focus areas from the POM. The plan is
prepared with inputs from the regional
entities.
2. Teams are in place and operating. More
than 80% of the staff in place: 100%
allocation, 50-80%: 50% allocation, less
than 50%: No allocation.
Scoring: (Result 1) must be in achieved
before any points (allocations) are
awarded. Calibration (reduction) against
achievement rate on item 2: teams in place.
2 1. Regional government has developed plans current 1.Capacity Building Plan of and TOR for CBP; Staff assignment 2nd APA
according to formats in the POM. regional mobile CB & mentoring teams and letters and physical (2019 with
2. Regional mobile CB & mentoring teams are in positions are in place. The capacity building check/confirmation; impact on
place and are operating, plan cover all 4 modalities and at least 80% service delivery standards 2020/21)
3. Needs assessments of the thematic focus areas from the POM. issued to ULGs;
4. Regional governments have adopted service The plan is prepared with inputs from the implementation reports.
delivery standards (as issued by MUDHo) and issued regional entities. Work plan, evidence of
those for the cities, and provided guidance in 2.Teams are in place and operating. More approval by the client,
implementation (reports). than 80% of the staff in place: 100% approved ToR for
allocation; 50-80%: 50% allocation; less regional team.
than 50%: no allocation. (weight 40 %)
3. Annual capacity building need assessment
has been done by involving all regional
entities covering all thematic areas and
representatives of the ULGs. If not, 40%
reduction.

4. The region has adopted service delivery

standards (as issued by MUDHo). If not,
20% reduction.

Scoring: (Result 1) must be achieved to

get allocations. Calibration (reduction) in
allocation on target 2, 3 and 4 according to
weightage if no achievement of defined
result.

186
DLI No. Regional Implementing Agency / Performance Year Scoring Evidence to be Produced Application
Measures Assessed
3 1. Regional government has developed CB plan for current 1. Capacity Building Plan of and TOR for CBP for ongoing EFY; 3rdAPA
the ongoing EFY according to formats in the POM. regional mobile CB & mentoring teams and CBP for previous year and (2020 with
2. Regional CB & mentoring teams are in place current positions are in place. The capacity building expenditures; Staff impact on
3. Needs assessment previous plan cover at least 4 modalities and all 80% assignment letters and 2021/22.);
4. Execution of the CB plan. of the thematic focus areas from the POM. physical 4th APA
5. Improvement in average scores of the ULGs current The plan is prepared with inputs from the check/confirmation; (2021 with
within the region on DLIs 2 and 3. regional entities. service delivery standards impact on
2. Teams are in place and operating. More issued to ULGs; 2022/23)
than 80% of the staff in place: 100% implementation reports
allocation; 50-80%: 50% allocation; less
than 50%: no allocation. (weight 30%)
3. Annual capacity building need assessment
has been done by involving all regional
entities covering all thematic areas and
representatives of the ULGs. If not, 10 %
reduction.
4. Execution of plan above 80%: full
allocation; execution between 60-80%: 80%
allocation, 40-59%: 40% allocation; and
below 40%: no allocation. Reduction based
on a 30 % weightage.
5. Average score on the ULGs on DLIs 2
and 3 (average) in the region should increase
from the previous year’s APA, otherwise
proportional reduction (weight: 30%, that is,
max reduction 30 %)
Scoring: (Result 1) has to be in place to
get allocations. Calibration (Reduction) in
allocation on target 2, 3, 4, and 5 according
to weightage.
6 Office of the Regional Auditor General
1 ORAGs carry out timely audits of ULGs’ financial current Scoring calibrated by number of ULGs for Audit Reports of ULGs 1st to 4th
reports (final audit report is issued no later than which ORAG has conducted external audit and letters from ORAG APAs
January 7 after the EFY to which the audit applies). and delivered audit report in a thorough and issuing the audit report.
timely (by 7 January) manner.
As a minimum condition to access fund
related to audit of a ULG, ORAG must
deliver timely audit. If the condition is
satisfied, scoring calibrated as follow with
full unit allocation if all complied with:

187
DLI No. Regional Implementing Agency / Performance Year Scoring Evidence to be Produced Application
Measures Assessed
(i) Quality of the report- -Audit Report -
consolidated audit report for the ULG
should be issued which review all sources
and expenditure of the ULG. The audit
report should be structured to include the
following as a minimum:
a. Cover letter from ORAG to City
b. Audited financial statements (Audited
accounts)- which includes at least- (i)
Balance sheet and (ii) Incomes
statement or Income and expenditure
Statements or Sources and Uses of
Fund
c. Notes to the financial statements (notes
to the Accounts)
d. Short form Audit report which includes
as a minimum the following
paragraphs:
i. The mentioning of city’s
financial statement under audit
stating the period covered by
the audit;
ii. The main accounting
standards/policy in use by the
city and the audit standards
followed;
iii. The responsibilities of city
management and that of the
auditor,
iv. The basis of opinion- key
findings leading to
qualifications if any. This is
only needed if there are
qualification points that will
qualify the audit opinion;
v. The Audit opinion expressed-
clearly stating the opinion

188
DLI No. Regional Implementing Agency / Performance Year Scoring Evidence to be Produced Application
Measures Assessed

expressed-that is, Unqualified

(unmodified), qualified,
Adverse, Disclaimer.
e. Long for audit Report or Management
letter or Internal Control Memorandum
that details out findings on internal
control weaknesses and noncompliance
with rules/regulations
(ii) Audit opinion- -The fairness or
correctness of the opinion expressed -the
fairness of the audit opinion by looking at
the findings reported in the short form audit
report and the long form or management
letter.

Reduction by 25% per ULG if (i) is not

complied with for these ULGs,
Reduction by 25% per ULG if (ii) is not
complied with for these ULGs.

7 Regional Environmental Protection Agency

1 Regional environment, forest and climate change prior Scoring calibrated per ULG for which the Safeguards Audit/Review 1st to 4th
authorities (REFAs) carry out timely review of ULG REFA has performed timely review/audit as Reports. APAs
safeguards compliance. This indicator will be per standard (report template) and approval
fulfilled when the REFAs have carried out the of safeguard documents and review of
safeguards reviews/audits of ULGs in their implementation capacity for environmental
jurisdictions by end October and social mitigation and monitoring
measures for CIP and annual environmental
and social audits.

As a minimum condition to access funds for

audit of a ULG: timely environmental audit
(by end of October), and the calibration as
follows:

(i) Quality of audit must indicate:

 Key staffing involved:
environmental specialist, social

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DLI No. Regional Implementing Agency / Performance Year Scoring Evidence to be Produced Application
Measures Assessed
specialist
 Evidence of site visits
 Evidence of follow-up of previous
audit recommendations
(ii) REFA has to ensure timely review and
approval of safeguards instruments.

Reduction by 25% per ULG if (i) is not

complied with.
Reduction by 25% per ULG if (ii) is not
complied with.
8 Regional Revenue Authority
1 RRBs support ULGs’ efforts to mobilize revenue. prior As a minimum condition to access funds Minutes of consultation/ 1st to 4th
for support to a ULG is that: Capacity support meetings between APAs
building focal point in place to coordinate RRB/BoFED and ULGs;
with RMTs. up-to-date tax bands for
The RRB has provide inputs to annual major taxes and charges.
capacity building program. Then the
calibration is as follows:
(i) The numbers of ULGs where regions
have conducted consultative meetings
with ULGs of municipal
revenues/tariff/tax rates and bands,
evidenced by meeting minutes weighting
25% of total allocation per ULG.
(ii) Review tariff and tax directive and
provide ULG’s flexibility compared to the
previous year weighting 25% of total
allocation per ULG.
(iii) Technical review, feedback of ULG’s
REP, weighting 25% of total allocation
per ULG.
(iv) Undertake revenue potential studies
(including user fees) for at least 30% of
participating ULGs, weighing 25% of
total allocation per ULG.

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DLI No. Regional Implementing Agency / Performance Year Scoring Evidence to be Produced Application
Measures Assessed

For example, if a region has provided

support on (i) and (iii), but not (ii) and (iv)
for a ULG, it will get the annual
disbursement amount X 50% for this ULG.

9 Regional Procurement Audit by the RPPPAAs

1. Procurement Audit report produced timely. prior First Year, RPPPAA must prepare a 1st APA
procurement audit plan with TOR for the
audit to get access to funds.

Procurement Audit with

From Second APA: its transmittal letter dated 2st to 4th
As a minimum condition to access fund before 7 January of the APAs
related to audit of a ULG, RPPPAA must year following the
deliver timely audit (by 7 January of the performance year.
year following the performance year). If the
condition is satisfied, scoring calibrated as
shown in (2) and (3) below: -:
2. Quality of Audit (25% reduction max) prior Audit Planning Sampling, Audit Execution, Audit report duly signed
and Audit Reporting as per the TOR by the RPPPAA.
included in the POM Attendance sheets for
Audit entry and exit
 The Audit Planning includes audit
meetings.
schedules, audit entry meeting;
Letters from RPPPAA
timely notification of the auditee
notifying the auditee on
on the audit to be conducted;
the audit schedule;
 The Audit staff/consultant shall Letters from RPPPAA
have a minimum of 5 years submitting the Audit
relevant experience and BA/BSC reports.
Degree in procurement and supply
chain management, Economics,
Law, Engineering, Management,
Accounting or other related fields
of study
 The selected samples are
representative considering the
nature, complexity, value, and
method of procurement;

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DLI No. Regional Implementing Agency / Performance Year Scoring Evidence to be Produced Application
Measures Assessed
 The Audit was conducted as
schedule without unnecessary
disruptions;
 The Audit Report is completed
enough documenting the auditing
procedures followed, audits
carried out on all the stages of the
procurement and contract
management process, audit
findings/recommendations, audit
report written in a clear language
and concise and manner;
 Consistency of Audit
Recommendations with Audit
findings;
If 4 out of 6 satisfied, no reduction for
each ULG
Scoring:
If below, reduction for respective ULGs
that are not complied with 25 %
3. Follow up of implementation of Audit Findings and prior A checklist of audit RPPPAAs’ audit
Recommendations (25% reduction max) findings/recommendations showing all audit findings/recommendations
findings/recommendations of the previous follow up checklist.
year (including those spilled over from
previous years, if not addressed); status of
implementation of each
finding/recommendation, action taken on
offenders
Scoring:
If not complied with 25% reduction for each
ULG there this is not complied with.

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DLI 10 - Prior Result Performance Measures
DLI No. Scoring Verification Procedure Application
10 Prior results on institutional performance, service delivery, maintenance, and job creation for 44 ULGs.

1 Prior results on institutional performance, The target score for disbursement of TC, based on inputs from the independent 2017/18
service delivery, maintenance, and job creation US$63.74 million is an average score of private firm carrying out the APA APAs
for 44 ULGs. 92 for all ULGs on the two dimensions for Draft Assessment reports are submitted by
the 44 ULGDPII Program ULGs: the APA simultaneously for review to the
(a)institutional performance and (b) final verification entity – the TC, which
implementation of their local verifies the results*, and the WB for review.
infrastructure, maintenance, and job
creation activities (as measured against Neither party can modify such reports except
their CIPs and their Annual Action Plans) for factual errors.
as determined in the APA conducted in
FY2017/18 for FY2018/19 allocations. * The TC will have representation from
MUDHo (chair), MoFEC and other agencies
Proportional scalability up and down with as appropriate
less and more points than targeted, that is,
if 90 points, it is 90/92 X US$63.74
million, and so on.

193
Annex 12: Map of Ethiopia

194