Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Report No: 37981-KE

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT Public Disclosure Authorized

lN THE AMOUNT OF SDR 57.8 MILLION (US$86.0 MILLION EQUIVALENT)

TO THE

GOVERNMENT OF KENYA

FOR A

WESTERN KENYA COMMUNITY DRIVEN DEVELOPMENT AND FLOOD MITIGATION PROJECT Public Disclosure Authorized

February 26,2007

SD Operations for Eastern Africa Eastern Africa Country Cluster Two Africa Region Public Disclosure Authorized 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 January 3 1,2007)

Currency Unit = Kenya Shillings (Kshs.) US$1 = 70.45Kshs US1.48945 = SDR 1

FISCAL YEAR July 1 - June 30

ABBREVIATIONS AND ACRONYMS

ACT Artemisinin Combination Therapy ALRMP Arid Lands Resource Management Project BCM Billion Cubic Meters CAAC Catchment Area Advisory Committee CAP Community Action Plan CAS Country Assistance Strategy CBA Cost-Benefit Analysis CBMIS Community Based Management Information S ys tem CBO Community-Based Organization CDC Community Development Committee CDD Community Driven Development CDF Constituency Development Fund CMS Catchment Management Strategies CORPS Community Owned Resource Persons CPIA Country Policy and Institutional Assessment CQ Consultants Qualifications CSA Country Social Analysis cso Civil Society Organization DANIDA Danish International Development Assistance DCU District Coordination Unit DfID The United Kingdom Department for International Development DIR Detailed Implementation Review DOMC Division of Malaria Control DPC District Project Coordinator DSG District Steering Group ECA Economic Crimes Act EL4 Environment Impact Assessment EMP Environmental Management Plan ESMF Environmental and Social Management Framework FA Financing Agreement FMR Financial Monitoring Report FY Fiscal Year FOR OFFICIAL USE ONLY GAC Governance and Anticorruption GAP Governance Strategy and Action Plan GEF Global Environment Fund GIS Geographic Information System GJLOS Governance Justice Law, Order and Security GSPK Governance Strategy for Building a Prosperous Kenya GTZ Deutsche Gesellschaft fur Technische Zusammenarbeit HA Hectares HMIS Health Management Information Systems IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ICIPE International Centre ofInsect Physiology and Ecology IDA International Development Association IEC Information, Education and Communication IFMIS Integrated Financial Management and Information System IGA Initial Governance Assessment IMF International Monetary Fund IP-ERS Investment Program for the Economic Recovery Strategy IP Indigenous Peoples IPP Indigenous Peoples Plan IPPF Indigenous Peoples Planning Framework IPSS Indigenous Peoples’ Screening Structure JRCB Institutional Reform and Capacity Building IRR Internal Rate of Return IRS Indoors Residual Spraying ITN Insecticide-TreatedNets J4P Justice for the Poor KACAl3 Kenya Anti-Corruption Advisory Board KACC Kenya Anti-Conuption Commission KAPP Kenya Agricultural Productivity Project KAPSLM Kenya Agricultural Productivity and Sustainable Land Management Project KARI Kenya Agricultural Research Institute KDHS Kenya Demographic and Health Survey KEEP Kakamega Environmental Education Program KFS Kenya Forest Service KNAO Kenya National Audit Office KWSP Kenya Water and Sanitation Sector Programme LATF Local Authority Transfer Fund LCS Least Cost Selection LIB Limited International Bidding LLrn Long Lasting Insecticide-Treated Nets LVEMP Lake Victoria Environnemental Management Project LVNWRMA Lake Victoria North Water Resources Management Authority M&E Monitoring and Evaluation MAT Mobile Advisory Team

11

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. MCAP Micro-Catchment Action Plan MDG Millennium Development Goal MICC Malaria Inter-Agency Coordinating Committee MOF Ministry ofFinance MOH Ministry ofHealth MTEF Medium Term Expenditure Framework MTR Mid-Term Review MoWI Ministry ofWater and Irrigation NBI Nile Basin Initiative NCB National Competitive Bidding NCTIP Northern Corridor Transport Improvement Project NEMA National Environment Management Agency NEPAD New Partnership for Africa’s Development NGO Non-Governmental Organization NIB National Irrigation Board NPV Net Present Value NRM Natural Resource Management NSSF National Social Security Fund O&M Operation and Maintenance OP Office ofthe President ovcs Orphans and Vulnerable Children PAPS Project Affected Persons PCU Project Coordination Unit PDO Project Development Objective PES Payment for Environmental Services PFM Public Financial Management PHRD Policy and Human Resource Development PIP Project Implementation Plan PLWA People Living with HIV/AIDS PPF Project Preparation Facility PPOA Public Procurement Oversight Authority PRA Participatory Rural Appraisal PRSP Poverty Reduction Strategy Paper PSC Project Steering Committee RAP Resettlement Action Plan RBM Results-based Management RGS River Gauging Station RPF Resettlement Policy Framework SA Social Analysis SBD Standard Bidding Document SLDA Swedish International Development Co-operation Agency SIL Specific Investment Loan SLM Sustainable Land Management SLO State Law Office SOE Statement ofExpenditure S WAp Sector Wide Approach

111 SWC Soil and Water Conservation TASAF Tanzania First Social Action Fund Project UNDP United Nations Development Programme USAID The United States Agency for International Development WHO World Health Organization WKCDDFM Western Kenya Community Driven Development and Flood Mitigation WKIEMP Western Kenya Integrated Ecosystem Management Project WMO World Meteorological Organization WRM Water Resource Management WRMA Water Resources Management Authority WRUA Water Resources Users Association wss Water Supply and Sanitation WSTF Water Services Trust Fund YAP Youth Action Plan

~ Acting Vice President: Hartwig Schafer Country Director: Colin Bruce Sector Manager: Karen Brooks Task Team Leader: Nyambura Githagui

iv

KENYA

Western Kenya Community Driven Development and Flood Mitigation Project

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ...... 1 1. Country and sector issues...... 1 2 . Rationale for Bank involvement ...... 3 3 . Higher level objectives to which the project contributes ...... 4 B. PROJECT DESCRTPTION...... 4 1. Lending instrument ...... 4 2 . Project development objective and key indicators ...... 5 3 . Project components ...... 6 4 . Lessons learned and reflected in the project design...... 12 5 . Alternatives considered and reasons for rejection ...... 13 C . IMPLEMENTATION...... 14 1. Partnership arrangements ...... :...... 14 2 . Institutional and implementation arrangements ...... 14 3 . Monitoring and evaluation of outcomes/results., ...... 17 4 . Sustainability...... 18 5 . Critical risks and possible controversial aspects ...... 19 6 . Loadcredit conditions and covenants ...... 19 D. APPRAISAL SUMMARY ...... 21 1. Economic and financial analyses ...... 21 2 . Technical...... 22 3 . Fiduciary ...... 24 4 . Social...... 25 5 . Environment...... 28 6 . Safeguard policies ...... 31 7 . Policy Exceptions and Readiness ...... 31 Annex 1: Kenya’s Fight against Corruption: Progress. Setbacks. New Frontiers ...... 32

Annex 2: Country and Sector or Program Background ...... 49

Annex 3: Major Related Projects Financed by the Bank and/or other Agencies ...... 59

Annex 4: Results Framework and Monitoring...... 62

Annex 5: Detailed Project Description ...... 72

Annex 6: Project Cost ...... 83

Annex 7: Implementation Arrangements ...... 84 Annex 8: Financial Management and Disbursement Arrangements ...... 89

Annex 9: Government’s Side Letter on Transparency and Accountability ...... 107

Annex 10: Procurement Arrangements ...... 111

Annex 11 : Economic and Financial Analysis ...... 119

Annex 12: Safeguard Policy Issues ...... 131

Annex 13: Alternative Livelihood Options and Strategies Linked to Micro-Catchment Management...... 143

Annex 14: Malaria Interventions under the WKCDD/FM Project ...... 150

Annex 15: Government’s Letter of Sectoral Policy ...... 155

Annex 16: Project Preparation and Supervision ...... 161

Annex 17: Documents in the Project File ...... 163

Annex 18: Statement ofLoans and Credits ...... 166 Annex 19: Country at a Glance ...... 168

Map No. IBRD 35276

.. 11 KENYA

WESTERN KENYA CDD AND FLOOD MITIGATIONPROJECT

PROJECT APPRAISAL DOCUMENT

AFRICA

AFTS2

Date: February 26, 2007 Team Leader: Nyambura Githagui Country Director: Colin Bruce Sectors: General agriculture, fishing and Sector Manager: Karen Brooks forestry sector (20%);Flood protection (20%);Irrigation and drainage (20%);0ther social services (20%);General water, sanitation and flood protection sector (20%) Themes: Participation and civic engagement (P);Other social protection and risk management (S) Project ID: PO74106 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan

[ ]Loan [XI Credit [ ]Grant [ ]Guarantee [ ]Other:

For Loans/Credits/Others: Total Bank financing (uS$m.): 86.00 Proposed terms: Standard IDA terms, with a maturity of40 years, including a grace period often Years

BORROWERiRECIPIENT 6.80 0.00 6.80 International Development Association 67.00 19.00 86.00 (IDA) Local Communities 7.20 0.00 7.20 Total: 81.00 19.00 100.00

Borrower: Ministry ofFinance, The Treasury, Nairobi, Kenya

Responsible Agency: Office ofthe President, Ministry of State for Programmes, Harambee House, Nairobi, Kenya 8 9 16 hual 8.00 10.00 10.00 10.00 12.00 15.00 10.00 9.50 1.50 hmulative 8.00 18.00 28.00 38.00 50.00 65.00 75.00 84.50 86.00

Expected effectiveness date: June 30, 2007 Expected closing date: June 30, 2015 Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINO Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 Have these been approved by Bank management? Is approval for any policy exception sought from the Board? [ ]Yes [ IN0 Does the project include any critical risks rated “substantial” or “high”? [XIYes [ ]No Ref:.I PAD C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Ref:.I PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 4 The objective ofthe proposed project is to empower local communities ofmen and women to engage in sustainable and wealth creating livelihood activities and reduce their vulnerability to flooding. Progress towards achieving the project development objective (PDO) will be monitored through a set of indicators including: (a) Number ofmen and women actively participating in decision making at community and district levels; (b) Percent of community and youth investment projects rated satisfactory or better by participating communities; (c) Percentage increase in real income ofhouseholds in project intervention areas; and (d) Percentage reduction of financial cost induced by average annual flooding in the Budalangi flood plain. Project description [one-sentence summay of each component] Re$ PAD B.3.a, Technical Annex 5

The project has three major components as follows:

(a) Community Driven Development (CDD). This component will support community- prioritized investment projects to improve livelihoods and build demand and capacity for local level development at community and district level.

(b) Flood Mitigation. This component will address four aspects in the Nzoia and Yala River Basins: a) catchment management to address catchment degradation which exacerbates flooding; b) identification and preparation ofmid-catchment multipurpose structural flood protection options; c) immediate floodplain management options; and d) establishment ofa flood early warning system.

(c) Implementation Support. Through support to research, market assessments, and advocacy work. this comDonent will sumort the identification and develoDment ofnew

.. 11 opportunities for economic growth in the region. This component will also fund the establishment and running ofkey coordination mechanisms in the Office ofthe President (OP), Ministry of State for Special Programmes.

Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 12

In accordance with the Bank guidelines, the Western Kenya Community Driven Development and Flood Mitigation (WKCDDFM) Project has been classified as category B. The following safeguards are triggered: Environmental Assessment (OP 4.01), Natural Habitats (OP 4.04), Forests (OP 4.36), Physical Cultural Resources (OP 4.1 l),Indigenous Peoples (OP 4. lo), Involuntary Resettlement (OP 4.12) and Projects on International Waterways (OP 7.50). While the project is conceived and designed to have significant positive environment and social impacts, the sub-projects will have potential risks ofsite-specific adverse environmental and social impacts. In compliance with Bank requirements, an Environment and Social Management Framework, Resettlement Framework Paper and Indigenous Peoples Planning Framework have been prepared, and have been disclosed in country (project site) and in the Info shop before appraisal. Significant, non-standard conditions, if any, for: Re$ PAD C.6 Board presentation: None Loadcredit effectiveness: Establishment ofan Institutional Risk Management Policy Framework (details in Annex 8). The Recipient has opened a Project Account and deposited therein Kenya Shillings twenty nine million two hundred and fifty thousand (KShs29,250,000).

Covenants applicable to project implementation: The Recipient shall designate the Ministry ofState for Special Programs in the OP, with the responsibility for the overall project implementation to be supported by a Project Coordination Unit to be set up no later than July 3 1, 2007 or any other date to be agreed with the Association, with staffing and resources satisfactory to the Association. The Recipient shall, no later than December 3 1,2007 or any other date to be agreed with the Association, establish a District Steering Group for each district in the Project Area, consisting ofkey stakeholders including civil society with the responsibility for developing and approving annual work programs, monitoring and implementation ofthe Project at the district level. In implementing the Project at the community level, the Recipient shall no later than June 30,2009 or any other date agreed with the Association, establish multi-purpose Community Development Committee in all identified intervention areas within the Project Area. In implementing Community Foundation Pilot, the Recipient shall no later than July 3 1, 2009 or any other date to be agreed with the Association set up a Community Foundation under terms ofreference satisfactory to the Association to finance activities approved by an Advisory Board comprising local community leaders and representatives selected in accordance with the criteria set forth in the Project Implementation Plan.

... 111

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

1. Economic growth has been varied and unequal. Kenya has experienced varied and unequal growth since independence in 1963. In its early years ofindependence, Kenya was the most prosperous country in East Africa, its GDP per capita rising by 38 percent between 1960 and 1980. The following two decades to 2000, however, recorded a zero increase in per capita GDP, while per capita income in 2003, at US$360, was lower than in 1990. Poverty in Kenya is widespread; more than half (52 percent) ofthe country’s population lives below the poverty line. Kenya’s social indicators have declined in tandem with the economy: infant mortality rose from 64 (per 1,000 births) in 1990 to 79 in 2004. Life expectancy declined from 58 in 1990 to 48 years in 2004, in part due to the HIV/AIDS epidemic. The persisting hunger ofchildren is evidenced in the 20 percent ofunder-fives who are underweight, and almost one in three (3 1 percent) who are wasting (World Development Indicators, 2006). These are averages, but Kenya is a highly unequal society, with exclusion reflecting stratification by class, gender, and region. Kenya’s Gini coefficient for household income, at 0.43, is much higher than that ofits neighbors, Ethiopia and Tanzania, whose coefficients stand at 0.30 and 0.35 respectively.’ This ranks Kenya as one ofthe more unequal countries in the world and in Sub-Saharan Africa.

2. The recent record on governance and anticorruption is mixed. Poor governance and endemic corruption have been major obstacles to poverty alleviation and development in Kenya in the 1980s and 1990s. Since coming to power in 2003, however, the current Government has instituted a number ofbold measures and initiatives in fulfillment ofits campaign pledge to halt corruption. While it is difficult to assess and agree on the results that these measures have generated, empirical evidence indicates that corruption fell in 2003-04 but has stagnated since then (see Annex 1, Kenya’s Fight Against Corruption: Progress, Setbacks and New Frontiers).

3. Recent macroeconomic management has been good. Good macroeconomic management and the reforms implemented by the Government since 2003 have contributed to the strongest economic growth (5.8 percent in 2005 compared to 2.8 percent in 2003) in Kenya since the 1980s. But while growth has rebounded, much higher broad-based growth (7-8 percent) and a targeted focus on inequity are needed if measurable and effective gains are to be achieved in reducing poverty. The economic transition since 2003 is a product ofthe Government ofKenya’s Investment Program for the Economic Recovery Strategy for Wealth and Employment Creation (IP-ERS, its Poverty Strategy Paper) centered on three interlinked pillars: promoting economic growth, reducing poverty and inequality, and promoting good governance.

4. Western Kenya has a high incidence of poverty, but also has a rich natural resource endowment. While the Western Kenyan region is endowed with natural resources such as forests, rivers and lakes, which should be adequate for poverty

I World Bank (2006). World Development Indicators 2006.. reduction, poverty and vulnerability, nonetheless afflict many in the region. Particular features that make communities in Western Kenya vulnerable include flooding, disease, and degradation ofnatural resources, especially land. According to “Geographic Dimensions ofWell-Being in Kenya: Who and Where are the Poor?” (Central Bureau of Statistics, 2005), the poverty incidence in Western Province is 61 percent, and in Nyanza 64.6 percent.2 The urban centers ofWestern Kenya have the highest incidence ofpoverty at 80 percent. The situation is aggravated by perennial flooding, mismanagement of natural resources, and the HIV/AIDS pandemic. Women and children (particularly orphans and widows) are especially vulnerable. Malaria rates are high, and impose an additional burden on poor households. Flood areas are particularly prone to a culture of dependency.

5. Western Kenya is the most flood prone region in Kenya. A combination of poor land-use practices, deforestation and pollution in the watershed catchment areas, and accumulation ofsilt in the lower sections ofthe main rivers causes floods in areas such as Budalang’i and Bunyala. In addition, the Nzoia catchment in western Kenya is the largest ofthe four sub-basins ofLake Victoria, an important economic resource internationally and to the local communities. Floods occur during the long rainy seasons, and due to natural resource degradation, are now more frequent than before. Such frequent flooding creates problems in water supply and sanitation (WSS), agriculture, health, education, communication, and transport. Although communities have invented many ways to cope with the floods, recurrent interruption ofeconomic activity and loss ofassets divert scarce resources from alternative and more productive uses.

6. Western Kenyan stakeholders participated in the Poverty Reduction Strategy consultations. During the preparation ofKenya’s Poverty Reduction Strategy in 200 1, the Government together with partners carried out consultations among key stakeholders, in particular the poor. Participants enumerated factors contributing to the high levels ofpoverty in the area: high population density, excessively top-down developmental approaches, high burden ofdiseases such as malaria, gender disparities in empowennent, lack ofdiversified investments, backward technology, soil erosion and deforestation, frequent floods, lack ofopportunities for the youth, increasing dependency, poor governance, lack ofinformation, poor job skills, lack ofentrepreneurial culture, and collapse ofvarious critical institutions.

7. Community level developmental capacity, involvement, and resources will be enhanced. The high levels ofpoverty and vulnerability as well increasing population have compromised the capacities oflocal communities to manage their resources (especially land, forests, and water). The proposed Western Kenya Community Driven Development and Flood Mitigation (WKCDDEM) Project will address the causal factors that produce recurrent floods and simultaneously help communities to identify livelihoods that can be productively pursued in a more stable natural environment.

2 Government of Kenya (2005). Geographic Dimensions ofWell-Being in Kenya: Who and Where are the Poor? A Constituency Level Profile Volume 11. Nairobi: Kenya Central Bureau of Statistics.

2 2. Rationale for Bank involvement

9. The proposed WKCDD/FM operation supports the Bank’s Country Assistance Strategy (CAS) and more recently, the CAS Progress Report. In June 2004, the World Bank’s Board endorsed a CAS for Kenya. The CAS is a strategy of reengagement, and is closely linked with the Government’s JP-ERS. The CAS Progress Report, which the Board is expected to consider in March 2007, continues the Bank Group’s strategic emphasis on growth and poverty reduction but gives enhanced attention to equity and governance. The proposed project, with its focus on enhancing the capacity and resources available to poor and vulnerable communities, is consistent with the proposed CAS Progress Report. The Bank’s CAS proposes to help Kenya achieve its developmental objectives through four key areas of support, reflecting the Bank Group’s comparative advantage in its partnership with the Government ofKenya and other development partners. These pillars are:

(a) strengthening public sector management and accountability, parastatal reform and privatization, and monitoring and evaluation (M&E) capacity;

(b) reducing the cost ofdoing business and improving the investment climate, including support for restructuring the financial sector, promoting private sector development, improving infrastructure, and reducing barriers to trade;

(c) reducing vulnerability and strengthening communities, including support for increased agricultural productivity and competitiveness, improved environmental management, strengthened local governments, and reducing poverty in the poorest rural areas and urban slums; and

(d) investing in people, including support for the education and health sectors and the fight against HIV/AIDS.

10. The WKCDD/FM Project will contribute to the promotion of equity in Kenya. The World Bank’s strategy in Kenya seeks not only to assist the Government in accelerating overall economic growth, but also to ensure that growth takes place in a way that is both environmentally sustainable and inclusive ofthe poor. The project will contribute to greater equity in Kenya by enhancing capacity, investment, and opportunity for and by targeted communities. Meaningful partnership with communities will be built upon understanding ofthe needs and priorities ofthe constituent groups, and conferring voice in the planning and implementation ofproject activities, so as to ensure ownership and sustainability.

11. The project will also support the governance pillar of the CAS Progress Report. In promoting good governance, the Bank’s overall approach is to use the range ofits lending and non-lending instruments to support those in the Government, local communities, civil society, media, etc. who are making concerted and effective efforts to diminish corruption. Features ofWKCDD/FM design that contribute to reduced potential for corruption include: (a) the social accountability strategy, which includes systematic mechanisms to provide information to and feedback from communities; (b) the results-

3 based framework for monitoring and impact evaluation that incorporates widely agreed participatory indicators and measurement methods; (c) timely public disclosure of information related to project expenditures and results; (d) a mechanism for airing complaints; (e) mechanisms to address risks deriving from weak institutions; and (0 other requirements that reinforce compliance by Kenyan officials participating in the project with Kenyan anticorruption laws. The operational details ofthis approach can be found in Annex 4, Section 111, and Annex 9 ofthis report. Capacity building ofstakeholders on social accountability will be undertaken at the early stage ofimplementation. A national or regional level institution will be charged with the implementation ofthe social accountability framework which will include building capacity ofcommunities, development ofsocial analysis (SA) mechanisms, and supervision ofimplementation. These processes are mainstreamed into the monitoring and evaluation (M&E) system of the project.

3. Higher level objectives to which the project contributes

12. The proposed project will also support the Government’s efforts to achieve the Millennium Development Goals (MDGs). Specifically, the project proposes to enhance impact in the following areas:

(a) increasing the incomes ofmembers ofpoor communities in Western Kenya, contributing to the achievement ofMDG #I;

(b) promoting gender equality and in the empowerment ofwomen through specific initiatives promoting women’s rights and economic empowerment, contributing to the achievement ofMDG #3;

(c) incorporating a community-based malaria intervention strategy, contributing to the achievement ofMDGs #2, 4, 5 and 6;3 and

(d) adopting an integrated approach to flood mitigation, contributing to the achievement ofMDG # 7.

B. PROJECT DESCRIPTION

1. Lending instrument

13. The project supports a community-based program of targeted poverty interventions. The project will adopt a Community Driven Development (CDD) approach aimed at reducing rural poverty in Western KenyaY4through investing in

3 In addition to helping to achieve MDG #6, malaria control also contributes to MDG # 2 through reducing malaria-related school absenteeism and poor academic performance; and to MDGs ## 4 and 5 by reducing malaria-attributable child and maternal mortality.

4 The project area includes ten districts in the Nzoia and Yala River Catchment Ecosystem, including the entire Western Province (Mt. Elgon, Lugari, Butere-Mumias, Bungoma, Teso, Busia, Kakamega, Vihiga, and two districts in Nyanza province, Siaya and Bondo. Some districts in Rift

4 prioritized community projects, building capacity oflocal level institutions to respond to these needs, and scaling up innovative approaches to poverty reduction that have been proven to make a difference in people's livelihoods. The lending instrument identified as appropriate is a Specific Investment Loan (SIL), with the life span ofeight years to allow for the full development ofhuman and physical capacities needed to address comprehensively the developmental challenges facing this region ofKenya.

2. Project development objective and key indicators

14. Local community empowerment 'for wealth creation, particularly targeted towards vulnerable people, is a central objective of the project. Therefore, the objective ofproject is to empower local communities ofmen and women to engage in sustainable and wealth creating livelihood activities and reduce their vulnerability to flooding. Progress towards achieving the project development objective (PDO) will be monitored through a set ofindicators (see Annex 4 for a full description ofthe results framework and monitoring). These include:

(a) number ofmen and women actively participating in decision making at community and district levels;

(b) percent ofcommunity and youth investment projects rated satisfactory or better by participating communities;

(c) percentage increase in real income ofhouseholds in project intervention areas; and

(d) percentage reduction offinancial cost induced by average annual flooding in the Budalangi flood plain (property damages, agricultural damages and resettlement costs).

15. The success of this project will be measured through indicators of poverty and income, flood mitigation, empowerment, and community health. Poverty and income will be measured through baseline and periodic surveys ofparticipating households to determine increased household incomes. Empowerment will be assessed in terms ofthe extent to which communities or groups specify goals for project-supported activities, implement these activities successfully (including the management oftheir own contributions), and manage and maintain the resulting assets. The specific focus on youth empowerment will be monitored by tracking the proportion ofyouths in targeted communities who participate in project activities and are aware ofnew opportunities. Flood mitigation will be measured by incidence ofdisplacement ofcommunities due to flooding and costs associated with floods. Management ofnatural resources more generally will be measured by indicators ofthe health ofthe ecosystem characterized by

~~ ~~ Valley which include the Cherangani Hills will be included in the upper catchment management component as particular hotspots of environmental degradation are found there.

5 In the context ofthis project community empowerment is defined as the ability ofcommunities to effectively plan, manage, implement and benefit from community investment projects.

5 decreased siltation load in the Nzoia River, increased forest species, increased number of communities that participate in management ofthe catchment areas, increased benign use offorest and other natural resources by communities. Improvement in community health will be measured through the coverage ofcommunity interventions for malaria (such as bed nets and vector control activities) and HIV/AIDS.

16. Flood mitigation will be supported by an early warning system. The flooding emanating from major rivers in the Western Kenya region will be addressed in the short- and medium-term through improved flood plain management and the establishment ofan early warning system. Detailed planning and preparation for longer term investments to provide greater protection against flooding, such as a multipurpose dam, will be undertaken, but this project will not finance the actual investment.

3. Project components

17. The project has three major components: (a) Community Driven Development (CDD), which will support community-prioritized investment projects to improve livelihoods and build capacity for development at the community and district levels; (b) Flood Mitigation, which will address four aspects offlooding in the Nzoia and Yala River Basins: (i)catchment management; (ii)identification and preparation ofmid- catchment multipurpose structural flood protection options; (iii)immediate floodplain management options; and (iv) establishment ofa flood early warning system, and; (c) Implementation Support, consisting of: (i)research, market assessments, and advocacy work for identification and development ofnew opportunities for economic growth in the region, and (ii)establishment and running ofkey coordination mechanisms in the Office ofthe President (OP), Ministry ofState for Special Programmes.

Component 1: Community Driven Development (US$45.8 million, of which US$37.1 million funded by International Development Association [IDA])

18. Community driven investments. The CDD component will support community- prioritized investment projects to improve livelihoods and build demand and capacity development at the community and district levels.

19. Subcomponent 1.1 - Prioritized Investments and Capacity Building at Community Level (US$33.2 million, of which US$26.0million funded by IDA). This component will finance livelihoods-based micro-projects identified by communities and enhance their capacities to plan, manage and implement them. Over the eight years, 480 communities would have the opportunity to implement one or more micro-projects, with an average of US$15,000 made available for each micro-project. Given the availability ofother sources offunding for social infrastructure such as the Constituency Development Fund (CDF), project financing will focus on supporting the promotion oflivelihoods and income generating activities (see Annex 13), and assistance to vulnerable groups. The communities can select from a wide range ofpotential activities that are assessed to be viable, such as mushroom growing, chicken farming, goat keeping, craft making, basket weaving, medicinal plants (including processing), indigenous vegetables, beekeeping, soap making, services (such as Cyber Cafes, catering, and silk worm production. Micro-

6 project grants will be provided to groups rather than to individuals, so as to spread the benefits to a larger number ofpeople, facilitate shared learning, and to finance assets that could not be financed by a grant to an individual. Candidate investments will also include those that raise the productive potential of the community through improved technical knowledge, productivity, or marketing. For example, support in feeder road rehabilitation or processing and marketing facilities would be considered. Support may also include the development oflocal organizations and the creation oflinkages between communities and the private sector. Initiatives supporting vulnerable groups will also be eligible for funding. A contribution from the beneficiaries of30 percent ofthe subproject cost will be required, either in cash or in kind. Each micro-project will incorporate a mechanism for social monitoring and disclosure ofpublic information to ensure transparency and accountability in the use ofproject funds.

20. Targeting involves demographic and spatial considerations. A GIS-based technology was used during project preparation to identify localities where the needs are greatest. The GIs-based technology will be employed during project implementation for supervision, impact evaluation (using randomized design), and to strengthen transparency. The procedure to be adopted for selecting communities within the target area will assure both poverty targeting and spatial representativeness. Targeted communities will be randomly selected from the poorest strata as measured by the most recent poverty data, and spread evenly across constituencies. Communities will be defined in terms ofgeographical location, utilization ofshared resources, and self- characterization.

21. Mobile advisory teams will provide technical support and build capacity. The critical facilitation and capacity building support for participating communities will be provided by three Mobile Advisory Teams (MATs) in each project district, comprising technical personnel from district level government and civil society organizations (CSO). MATs will support communities in the preparation of Community Action Plans (CAPS) through a process ofParticipatory Rural Appraisal (PRA) that includes a range of community interest groups, especially the vulnerable. MATs will also be responsible for building communities’ capacity to organize, manage their own contributions, and plan, implement and monitor the selected sub-projects. Communities will exchange visits to enable members to learn from each other. The detailed design of community facilitation and planning processes and procedures will incorporate best practice established in the Kenya Arid Lands Resource Management Project (ALRMP), Credit 2797-KE, as well as the Common Interest Group approach being implemented by the Kenya Agricultural Productivity Project (KAPP), Credit 3929-KE.

22. To participate in the project, CSOs must have a good track record. CSOs will participate in this sub-component in several capacities; e.g., as members ofMATs, as trainers for both communities and MAT members, as communication agents, and as M&E implementers. They will be contracted for these functions. Only local CSOs already established in the project districts and with demonstrated capacities and strong track records ofperformance will be eligible.

7 23. WKCDD/FM also provides targeted support to youth. Young people in the project area face particular challenges related to unemployment, livelihoods, health, and security. The component will include a special focus on youth inclusion, with US$1 million dedicated to support micro-projects ofup to US$5,000 undertaken for and by young people.

24. Community interventions to counter malaria will be integrated into the CDD approach. Malaria initiatives, including training and investments up to US$5,000 per community, would be funded under the project. These include: (a) information, education and communication (IEC) for malaria control; (b) scaling up ofLong Lasting Insecticide-Treated Nets (LLIN) with increased coverage and re-treatment program for existing regular Insecticide-TreatedNets (ITN)6, (c) piloting the use ofcommunity owned resource persons (CORPS) for community-based management offever with Coartem (the newly adopted anti malarial therapy in Kenya); (d) indoor residual spraying (IRS) where appropriate and in close coordination with the IRS program supported by the Government and other development partners; and (e) source reduction and larvicidal measures (where appropriate). Communities will be encouraged to implement a combination ofthe above interventions (or at least the first three) as part oftheir micro- projects in an integrated approach. The Integrated Vector Management Plan and a district mapping ofmalaria breeding sites will provide guidance to communities as to where IRS and source reduction should be conducted. At the national level, the Ministry ofHealth (MOH) and the Malaria Inter-Agency Coordinating Committee (MICC) will provide technical guidance and coordination respectively for community malaria interventions under the project. At the local level implementation will be closely coordinated with the local health system structure such as the District Health Management Teams and the Village Health Committees (see Annex 14 for more details on malaria interventions).

25. The private sector will participate in the project. The project will promote a mechanism for harnessing the interest and resources ofthe formal private sector operating in the area, as well as the energy and goodwill ofWestern Kenyans in the diaspora. The project will provide technical assistance and financial resources for the establishment of a governance structure for a self-sustaining Community Foundation. There is increasing interest from the Kenyan private sector, for example the Mumias Sugar Company, in corporate social responsibility. At the same time, members ofthe extensive Western Kenyan diaspora in Kenya and overseas make a large contribution to the project area through remittances. Community Foundations have six salient characteristics - they serve as grant-making foundations, possess a broadly defined mandate addressing crucial social development needs, serve a geographically defined community, draw on a broad range ofdonors (especially the private sector), are governed by a board reflecting key community stakeholders, and possess sustainable endowments. These six characteristics, along with their potential to build social capital by forging networks within and outside communities, make the Community Foundation a platform

~~ ~ Retreatment for ITNs is likely to be a one-off exercise LLINs are expected to replace regular ITNs in the near future.

8 well suited to bringing together the diaspora and the private sector in the service oflocal development.

26. Component 1.2. - Local Level Development Support (US$12.6million, of which US$ll.1 million funded by IDA). This subcomponent will fund priority investments at district level the implementation and impact ofwhich are beyond the scope of individual communities. These inter-community investments will include development andor improvement ofmarket infrastructure in the urban centers, cattle sale yards, enhancement ofhealth and education facilities for vulnerable groups, and improvement and development ofrural infrastructure for enhanced access to markets. Local governments at the district level will benefit from capacity building for planning and implementation ofdevelopment programs, an enhancement critical for determination of inter-community developmental priorities. Pooling offunds from other sources for the co-financing of district level investments will be encouraged.

27. This sub-component is patterned after the successful district development model implemented in 26 districts under the ALRMP. The District Steering Group (DSG) will be responsible for management ofresources under this component, and will lead the process ofconsultation and prioritization for development ofannual work plans. Broad guidelines for the use ofresources will be determined in the Project Implementation Plan (PIP), and the DSG will have discretion to allocate these resources within the limits set by the guidelines. Allocation offunds will be made in accordance with annual work plans.

Component 2: Flood Mitigation (US$35.6 million, of which US$32.9 million funded by IDA).

28. Flood mitigation will focus on the Nzoia and Yala River Basins. The flood mitigation component will address four aspects in the Nzoia and Yala River Basins: (a) catchment management to address degradation; (b) the identification and preparation of options for mid-catchment structural protection; (c) options for immediate floodplain management; and (d) the establishment ofa flood early warning system. The possibility oflong-term structural solutions to the flooding, including the construction ofsubstantial multi-purpose storage and attenuation structures, will be fully investigated through detailed analysis, including, if warranted, feasibility studies, economic analysis, social and environmental impact assessments, and exploration offinancing. This project, however, will not undertake actual investment in long-term structural solutions. The project will also establish a community based flood early warning system that links international and national information systems with local communities. Linkages will be established with the Nile Basin Initiative (NBI) to explore further investment opportunities in the catchment area. Investments in this component will benefit from activities to be funded under the proposed Kenya NRM Project, including capacity building for the newly established Kenya Forest Service (KFS), investments in gazetted forests, capacity building for the Water Resources Management Authority (WRMA), and irrigation investments in the lower catchment.

9 29. Subcomponent 2.1 - Catchment Management (US$20.7 million, of which US$19.6millionfunded by IDA). One ofthe main causes ofthe increased flooding in the Nzoia plain is the heavy silt load resulting from the degradation ofthe river’s upper catchment area.’ Improving management of the upper catchment will require a concerted effort, including reforestation and protecting gazetted forests, changing land use patterns on steep slopes and degraded areas, river bank protection, improved water management including check dams and small scale regulating mechanisms. Following the pilot catchment activities being carried out by the Lake Victoria North WRMA (LVNWRMA), key micro-catchments will be identified and prioritized for on-farm and off-farm catchment investments. Communities will be assisted to take advantage ofthe resources allocated for catchment management. In addition, the project will complement the on- going Global Environment Facility (GEF) funded Western Kenya Integrated Ecosystem Management Project (WKIEMP) by scaling up interventions introduced under that project in the targeted micro-catchments.

30. Catchment management will be community-based. Communities will be assisted to identify and implement interventions that will improve livelihoods and conserve catchments (see Annex 13). Peer to peer technology transfer from experienced groups who have been exposed to technical training to be provided under the project will be encouraged. Technical support to communities for catchment management will be coordinated and supervised by the LVNWRMA, and implemented by a variety of district-based support teams formed through the DSG’s.

3 1. Anti-larval interventions are included. The catchment offices ofthe WRMA, the DSGs and the district health teams, under the technical guidance ofthe Division of Malaria Control (DOMC), the Division ofVector Borne Diseases and Division of Environmental Health ofthe MOH, will work together to identify and implement appropriate anti-larval interventions for any new water bodies created under the component,

32. Subcomponent 2.2 - Multi-purpose Flood Management (US$4.7million, of which US$4.7 million funded by IDA). This subcomponent will focus on the identification and preparation ofmulti-purpose flood protection structures in the mid-catchment zone ofthe Nzoia River Basin.

33. Multipurpose flood water storage and attenuation infrastructure is a future possibility. Analysis ofthe floodplain indicates that flooding is worsening due to the deterioration ofboth the floodplain and the catchment area. It is also clear that there are no feasible options to protect the floodplain from significant floods-the dikes which have been built over the past 45 years provide limited protection even from seasonal high flows. An initial assessment of the hydrology and topography ofthe mid-catchment section ofthe Nzoia River Basin indicates that there are possible sites for constructing multipurpose flood water storage and attenuation infrastructure that will provide protection against a 100 year return period flood. The project will invest in a detailed analysis ofthe various possible sites and options to develop an integrated flood

’ The Project activities will also cover part of Yala River basin.

10 management strategy. Work will include activities such as mapping, hydrological studies, engineering, and feasibility studies. A detailed economic analysis will be undertaken of multi-purpose use ofstored flood waters for functions such as irrigation, hydropower generation, and municipal water supplies. Activities will include all ofthe work necessary to prepare the identified optimum multi-purpose flood protection works for financing as a separate stand-alone operation.

34. A communications strategy will be developed and implemented under this subcomponent. Consultations will encompass communities and other stakeholders in the basin, including exploring and enhancing appropriate public-private partnerships such as the Mumias Sugar Company’s Nzoia River Management Initiative.

35. Subcomponent 2.3 -Floodplain Management (US$6.7 million, of which US$5.4 million funded by IDA). Flood plain management in Budalangi will be targeted at alleviating the social and economic costs of flooding in the plain. The project will invest in flood mitigation structures, including the rehabilitation and strengthening the existing dikes, in order to provide protection against average seasonal river flows and floods up to a 10 year return event. Measures will be investigated to address high levels of sedimentation between the existing levies, and to increase the safe discharge capacity in order to reduce the storage and attenuation requirements in the mid-catchment reaches of the basin. Flood plain management activities will be undertaken in close collaboration with communities in order to accommodate controlled seasonal flooding offields, maintain soil fertility, increase agricultural incomes and also enhance the capacity of communities to own and maintain floodplain investments. The communities have in the past deliberately damaged the dikes in order to allow fertile silt to wash into their farms, reflecting inadequate engagement ofcommunities in the process. Protection of assets in the floodplain will be undertaken together with ancillary activities such as supporting fish farming, which has developed in recent years using flood waters.

36. Subcomponent 2.4 - Flood Early Warning System (US$3.5 million, of which US$3.2 million funded by IDA). The establishment and running ofan effective flood early warning system is an important dimension to flood mitigation. An effective, two way flow ofinformation will assist communities and the Government in decreasing the social and economic cost offloods in the project area, and will also serve as a model for the establishment ofsystems in other catchments. This component will support the collection ofinformation on rainfall and river levels in the catchment, as well as information from computer modeling and satellite imagery, with the objective of providing timely information to decision makers and communities. The development of capacity for flood disaster management and the development ofnational and local flood mitigation plans will also be supported.

Component 3: Implementation Support (US$18.4 million, of which US$15.8 million funded by IDA).

37. Subcomponent 3.1 - Support to Policy Analysis, Advocacy and Local Development (US$l,1 million, of which US$l.I million funded by IDA). Through support to research, market assessments, and advocacy work, this component will support the

11 identification and development ofnew opportunities for economic growth in the region. Analytical work on gender rights and women’s needs for agricultural and NRM technologies will be supported. Support to a comprehensive proj ect-wide communication strategy will be resourced under this component.

38. Subcomponent 3.2 - Management, Monitoring, and Evaluation (US$l7.3 million, of which US$14.7million funded by IDA). This component will fund the establishment and running ofkey coordination mechanisms in the Office ofthe President (OP), Ministry of State for Special Programmes. OP is the Government entity mandated with disaster management, including floods and drought. The project coordination structure mirrors the successful ALRMP, with a strong emphasis on building capacity at local level through the empowerment ofthe DSG. The DSG in the ten project districts will be supported by a district project coordinator (DPC) and a small staff who will manage the development ofannual work programs and fiduciary and safeguards management. Substantial training ofdistrict and project staff in various project management skills, fiduciary and accountability skills, environmental management, community participatory processes, watershed management, and communications has been included. The M&E system will comprise both an internal monitoring and information system and an external impact assessment system. The internal M&E system supported by project funds will include participatory assessments, qualitative report and score cards, expenditure tracking surveys, quantitative socio-economic household surveys and the collection of environmental indicators. For anti-malaria activities, the project will liaise with the DOMC in the MOHfor technical input. Using these M&E data, especially the socio- economic household surveys, the external independent impact assessment system will measure changes in poverty and well-being attributable to the project. See Annex 4 for a description ofhow this system will be fully integrated with the overall evaluation system being developed in conjunction with four other World Bank-financed projects.

4. Lessons learned and reflected in the project design

39. The design ofthe WKCDD/FM Project incorporates approaches proven to be successful in other settings:

(a) intense local community involvement. The CDD approach through which community needs and priorities will be elicited, prioritized and implemented draws key design features from the successful World Bank financed ALRMP, including institutional mechanisms for working with communities, facilitating their engagement, building institutions and capacity, and ensuring coordination at the district level. The project’s disease control activities draw upon the extensive experience in community response to HIV/AIDS in Kenya and other countries in the region accumulated under the IDA-funded Multi-Country HIV/AIDS Program;

(b) micvo-catchment focus. With regard to the micro-catchment approach, project design lessons from other successful Bank projects including the China Loess Plateau Watershed Rehabilitation Project (Cr. 2616-CN) and the Brazil NRM and Poverty Reduction Project (Ln. 4660-BR) , indicate that while river

12 basins/watersheds may be selected as entry points, the design should use micro- catchments as the primary operational unit. Decentralizing to this level can lead to optimal community involvement, showing the interdependence ofall farm units and contributing to an approach that treats all stakeholders/producers as complementary elements ofthe larger system. Thus the WKCDDFM Project activities will be focused at district and micro catchment levels;

comprehensive and customized communications campaign. The WKCDDFM Project will have a comprehensive, widespread media publicity campaign (i.e., information, awareness, and education campaign) in national (Kiswahili) and local languages (Luhya, Luo). In the World Bank supported China Loess Plateau Watershed Project, radio, television, schools, and newspapers promoted the project every week for several years until it became well known nationally. This engendered strong ownership and success ofthe project;

DSGs will be empowered to play a supportive role. A DSG will be established in all districts and will be supported with project funds to plan, manage and guide participatory development. This approach has proved successful in the ALRMP. By empowering the DSGs, it has been seen that this effort contributes toward reducing bottlenecks in both administrative and financial flows and enhances decision making at the local/community level; and

strong social accountability mechanisms. The project would promote and set up social accountability mechanisms and systems within and between all stakeholders; project management, central and local government institutions, CSOs, communities, and service providers. Among other instruments, score cards, report cards and social audits will be used to ensure accountability. The project would promote transparency by openly displaying all financial and physical information in accessible form. Social Audit sub-committees will use input and expenditure tracking and report cards to develop a culture of accountability within communities. This information will be used for developing a rating system for project components, and would be scaled up with local government and other participating institutions.

Alternatives considered and reasons for rejection

Stand alone sectoral CDD project. A stand alone sectoral CDD project (i.e., a community based natural resource management project) was rejected in favor ofa multi sectoral approach. The latter has the advantage oftaking into consideration all critical areas ofvulnerability including floods, malaria, and poverty with all its social and economic dimensions.

41. Country-wide CDD project. A country-wide CDD program is not feasible, given regional differences and the need to work closely with and at a pace that is meaningful to diverse communities. A nation-wide CDD program would limit regional specificity and create pressure for a centralized system ofdelivery not likely to incorporate the close engagement required.

13 42. Alternative institutional arrangements. The placement ofthe project in a sectoral ministry was debated and rejected due to the lesser ability of line ministries to implement multi-sectoral projects. The key to the success ofthe ALRMP was the convening power entrusted in the OP. Also considered was the OP experience and mandate in dealing with disasters such as drought and floods, both resulting in widespread distress ofcommunities and requiring quick intervention with sufficient resources at hand. The OP has proven that it can effectively respond to disasters. The early warning system included in this project is better housed under OP (which is already successfully managing the drought early warning system) for ease of access by all technical and administrative arms ofthe Government and other stakeholders.

C. IMPLEMENTATION

1. Partnership arrangements

43. A wide range of internal partnerships is being promoted. These include Community Development Committees (CDCs), which channel the substantial CDF and other decentralized funds such as the National Youth Enterprise Fund, the Road Levy Funds, Bursary Funds and the Local Authority Transfer Fund (LATF). The project will partner with the Kenya Agricultural Research Institute (KARI) and the Secretariat ofthe KAPP supporting the long-term transformation ofKenya’s research and extension system better to support growth and respond to farmers’ needs. A public-private sector partnership has been established with the Mumias Sugar Company and other corporate bodies in the region.

44. Development partners include SIDA, GTZ, WHO, USAID, Global Fund and DFID. In the water sector, collaboration with Swedish International Development Co- operation Agency (SIDA), Deutsche Gesellschaft fur Technische Zusammenarbeit (GTZ) and other bilateral partners has been integral to preparation and will be intensified during implementation. For malaria control, the project will work closely with the DOMC and the district health management teams ofthe MOH; as well as with other malaria stakeholders such as the World Health Organization (WHO), the Global Fund for HIVIAIDS, Tuberculosis and Malaria, the United States Agency for International Development (US AID), the United Kingdom Department for International Development (DfiD) and various non-governmental organizations (NGOs) active in malaria in the region. The project will also link with future IDA-supported health operations in Kenya.

2. Institutional and implementation arrangements

45. Successful implementation will require strong institutional capacity at the community, district and national levels:

(a) at community level, multi-purpose CDCs will be established in each community participating in CDD. Three MATS,comprised oftechnical line ministry and CSO staff, will be established in each district. One ofthese teams in each district will be led by a CSO. These teams will be responsible for conducting a PRA, supporting community planning processes and ensuring that the necessary

14 technical and managerial skills are established in each CDC. This would include promoting mechanisms to ensure maintenance of project financed assets;

(b) at district level, project coordination will be the responsibility ofthe DSG in each ofthe ten project districts. Each DSG will be supported by a DPC and a small staff who will manage development of annual work programs, fiduciary and safeguards management. The composition ofthe DSG will include the key stakeholders in district and local government and all other civil society stakeholders operating in the districts. The secretary of the DSG will be the DPC. A minimum number ofcivil society representatives will be required to be present for a DSG to constitute a quorum. Substantial training ofdistrict and project staff has been allowed for in project management skills, fiduciary and accountability skills, environmental management, community participatory processes, watershed management, and communications. The work program and budget at district level and progress reports on all aspects ofproject implementation in each district will be displayed on a prominent information board at district headquarters; and

(c) at the national level, the project will be coordinated by the OP, Special Programmes. This institution has the mandate for disaster management, including floods and drought. A Project Coordination Unit (PCU) will be established in the OP with strong ties with the District and Provincial Administrations for the effective coordination ofresponse to floods.

46. Potential constitutional changes regarding decentralization and devolution of power will be incorporated The project’s institutional structures, especially those that are anchored in the Government, will be subject to revision throughout the project implementation phase in view ofpotential institutional or constitutional changes relating to decentralization and devolution ofpower proposed by the Government.

47. Flood mitigation activities will be coordinated by the LVNWRMA in Kakamega. Prioritization ofcatchments and micro-catchments will be undertaken by the LVNWRMA in conjunction with the NRM and Flood Mitigation officers in the PCU. Staffing ofthe LVNWRMA will be strengthened with a data officer and other technical support to be determined. Funds for this key planning and supervision function will flow from the PCU in OP directly to the Kakamega WRMA team. Activities will take place at three levels:

(a) river basin level for support and development ofinter-ministerial river basin management steering committees, strategies, baselines, and M&E;

+ (b) district level support to DSGs, implementation of training, information and awareness programs to enhance local capacity and engendering public support for WKCDD/FM supported activities; and

(c) micro-catchment level support to selected microcatchments based on criteria such as community readiness, significance of the micro-catchment for downstream sedimentation, environmental sensitivity or criticality, and concentration of small

15 producers. Funds would flow through the DPC in the project districts. The project institutional arrangements are detailed in Annex 7.

48. Robust financial management arrangements will be put in place ahead of project effectiveness as part of country systems building. Appropriately experienced financial management staff at various levels including the PCU, DSGs, MATSand CDCs will be deployed. Operations manuals and simplified guidelines for financial accountability and reporting at all levels, including simplified financial management arrangements provided under IDA CDD guidelines, will be developed.* In addition, skills ofexisting staff of the LVNWRMA in financial management will be upgraded.

49. An effective approach to management of institutional and fiduciary risk will be established as part of the project and the building of country systems. The Government’s management of risks will include establishment ofthe following:

(a) Fiduciary Oversight Committees: two financial management sub-committees of the Project Steering Committee (PSC) with clear mandates, composition and functions : An Audit Committee which has in its mandate responsibility for: (i)development and operationalization ofa Risk Management Policy Framework; (ii)monitoring and ensuring timely effectiveness of audit and operational review recommendations ofvarious fiduciary oversight responsibilities including, internal and external auditors, Government project monitoring agencies and periodic review and supervision missions; (iii)overseeing the effectiveness of accounting and internal control standards, policies and practices; (iv) ensuring compliance with legal covenants and terms of funding agreements; (v) overseeing the effectiveness ofthe internal audit function; (vi) monitoring the performance of key internal audit staff against approved performance contracts; and (vii) packaging and disclosing relevant findings, on a quarterly basis, in publicly accessible ways that facilitate timely and effective monitoring and accountability at the community, district and national levels. A Finance Committee that will have as its mandate responsibility for: (i) comprehensive review ofquarterly Financial Monitoring Reports (FMR); (ii) approval ofperiodic operational budgets and monitoring offinancial performance; (iii)review and approval ofannual financial statements; (iv) monitoring the performance of key financial management staff against approved performance contracts; and (v) packaging and disclosing relevant findings, on a quarterly basis, in publicly accessible ways that facilitate timely and effective monitoring and accountability at the community, district and national levels. The committees will be staffed with appropriately experienced persons and will meet regularly, at least once each quarter.

8 As described in “Financial Management for Community-Driven Development Projects - A Reference Guide”.

16 (b) Internal Audit function: as per the new Government regulations, an independent and effective internal audit arrangement in OP will be established, responsible for oversight ofthe activities ofthe project’s accounting and internal control functions at both national and district levels. An independent institutional risk management review will also be conducted on an ongoing basis, monitoring compliance with laid down policies and procedures, and reviewing and recommending enhancement ofaccounting and internal controls. It is proposed that this function be carried out by the Government Internal Auditor General, an independent unit under the Ministry of Finance (MOF), and adopting the risk- based approach that is currently being rolled out with the support ofthe IDA funded Institutional Reform and Capacity Building Project. External support will mainly be in: (i)the oversight ofperiodic risk assessment and audit planning processes; and (ii)operational quality assurance. The Internal Audit function will report directly to the Audit Committee, presenting findings and recommendations in implementation progress reports on at least a quarterly basis. The audit findings will be disclosed in publicly accessible ways that facilitate timely and effective monitoring and accountability at the community, district and national levels. The Government has provided a side letter on transparency and accountability which is attached as Annex 9. Financial management arrangements for the project are detailed in Annex 8.

3. Monitoring and evaluation of outcomes/results

50. Means and ends will be monitored and evaluated. M&E will entail tracking progress in implementation as well as investigating levels, changes and causes ofpoverty in Western Kenya. A number ofintermediate (inputs, activities, processes and output) and final (outcome and impact) indicators will be used to monitor changes in factors contributing to poverty and changes in realized poverty levels.

5 1. Indicators will provide measures of the scope and distribution of WKCDD/FM activities. The project proposes to use a wide range ofselection criteria. Measuring coverage indicators with GIs, such as the distribution ofriverine/micro- catchment restoration activities and number ofyouthlwomen projects, should show the scope and effectiveness ofthe WKCDD/FM portfolio ofactivities. Coverage indicators will also be included for anti-malaria activities, such as the percentage ofhouseholds with ITNs, percentage ofunder-five and pregnant women sleeping under ITNs, and the percentage ofhouse units in areas eligible for IRS were sprayed.

52. Process indicators will measure the effectiveness of a selected set of actions taken jointly or singly by districts/communities. A good example would be establishment of functional multi-sectoral DSGs to deliver resources for implementation ofproject activities, and the effective management ofmicrocatchments by WRUAs.

53. A centralized MIS for M&E supports the project as part of country systems building. In collaboration with other projects, a centralized MIS will be established at KARI to support the M&E activities of WKCDD/FM and other projects being implemented by the Government. This facility will assist in institutionalizing M&E as an

17 integral part ofthe Government by offering necessary capacity building and technical backstopping activities to the PCU. It will also help to promote the standardization ofthe data collection instruments and methodologies to enable effective impact evaluation of development programs. Institutionalization ofM&E in the Government will also promote sustainability ofthe project activities as reference data and information will remain available beyond the life ofthe project. A detailed description ofthe centralized MIS can be found in Annex 4.

4. Sustainability

54. Measures to promote good governance will enhance sustainability. Good governance is the most important assurance that development resources are applied for the intended purposes. Champions ofreform within the Government, communities, churches, youth, civil society, elected officials and presdmedia reinforce positive and accountable governance. Poor governance and corruption thrive on lack ofinformation and disempowerment ofcommunities. Transparency, participation, and accountability that come from an empowered citizenry are thus the strongest antidote to corruption. The project will promote these values and processes in order to assure sustainable outcomes.

55. Community empowerment will contribute to improved governance and project sustainability. The WKCDDFM Project design pioneers newer approaches to purposeful bottom-up accountability mechanisms. The project would strengthen mechanisms of local accountability including specific community consultative forums, social audits, fiduciary and audit activities and public disclosure ofresource allocation and expenditure information at district and community levels. Use of vernacular/community radio, widespread information campaigns, and citizen oversight in tracking ofproject expenditures will strengthen transparency. Such mechanisms could be replicated to cover other non-WKCDDFM expenditures in the project area, such as those under the CDF.

56. Addressing environmental degradation will enhance sustainability. Sustainability will require changes in activities and land-use patterns that negatively affect environmental quality. The project mainstreams environmental concerns and natural resource management into its activities through specific sustainable land management (SLM) in the micro-catchments, participatory forest management, on-farm agro forestry, community-based afforestationheafforestation programs, and management ofwetlands, springs, riverbanks and riverine areas.

18 5. Critical risks and possible controversial aspects

Risks Mitigation Measures Capture by local elites or Selection criteria for investments will be? clear, agreed, and political interests as the transparently applied. elections of2007 approach. Dependency on the part ofthe The project will invest in active and effective community communities. advisors. Cultural practices and social The project will create space for debates on cultural and pathologies undermine social issues. development. Institutional housing ofthe The Financing Agreement (FA) specifies that the project project may change during remains with the OP, Special Projects. implementation. Procurement risk. The Bank’s program will continue to support the Government in implementation ofthe Procurement Act. Project resources may not be (a) Establishment ofan institutional risk management policy used for intended purposes framework comprising ongoing risk identification and owing to weak governance. response initiatives by management. (b) Establishment offiduciary oversight fbnctions by the OP Ministerial Audit Committee. (c) Deployment ofa risk based internal audit function. (d) Quarterly financial and project progress reporting to stakeholders. Technical difficulties identifying key investments that will reduce flooding, and possible slow start up of the Water Resource Management Authorities.

6; Loadcredit conditions and covenants

57. Conditions of Effectiveness:

(a) the Recipient has developed an Institutional Risk Management Policy Framework satisfactory to the Association which shall comprise the following:

i) establishment ofNational Project Coordinating Unit, Audit Committee and Finance Committee with clear terms ofreference consistent with Government’s financial management guidelines;

ii) updated financial management manuals setting out operational policies, procedures and fiduciary oversight methods;

19 iii) complaint handling mechanisms; and

iv) an effective system ofinternal and external audits.

(b) the Recipient has prepared and adopted a PIP in form and substance satisfactory to the Association; and

(c) the Recipient has opened a Project Account and deposited therein Kenya Shillings twenty nine million two hundred and fifty thousand (KShs29,250,000).

58. Dated Covenants:

(a) the Recipient shall designate the Ministry ofState for Special Programs in the OP, with the responsibility for the overall project implementation to be supported by a PCUto be set up no later than July 31,2007 or any other date to be agreed with the Association, with staffing and resources satisfactory to the Association;

(b) the Recipient shall, no later than December 3 1, 2007 or any other date to be agreed with the Association, establish a DSG for each district in the Project Area, consisting ofkey stakeholders including civil society with the responsibility for developing and approving annual work programs, monitoring and implementation ofthe Project at the district level;

(c) in implementing the Project at the community level, the Recipient shall no later than June 30, 2009 or any other date agreed with the Association, establish multi- purpose CDC in all identified intervention areas within the Project Area;

(d) in implementing Community Foundation Pilot, the Recipient shall no later than July 3 1, 2009 or any other date to be agreed with the Association set up a Community Foundation under terms ofreference satisfactory to the Association to finance activities approved by an Advisory Board comprising local community leaders and representatives selected in accordance with the criteria set forth in the PIP;

(e) the Recipient shall review with the Association, by July 3 1 2009, or such later date as the Association shall request, and prepare a report on the progress on Project implementation and thereafter, take all measures required to ensure the efficient implementation ofthe Project and the achievement ofthe objectives thereof, based on the conclusions and recommendations ofthe report; and

(f) the Recipient shall, no later than July 3 1, 201 1 carry out jointly with the Association, a Mid-Term Review (MTR) ofthe progress made in carrying out the Project and no later than thirty days after the completion ofthe Mid-Term Review, commence the implementation ofthe recommendations ofthe Mid-Term Review as agreed with the Association.

20 59. Other Covenants: (4 No withdrawal ofproceeds ofthe Financing shall be made under the subcategory on Community Foundation until an Advisory Board with terms ofreference satisfactory to the Association has been set up to oversee implementation ofthe activities under the Community Foundation.

D. APPRAISAL SUMMARY

1. Economic and financial analyses

60. A comprehensive economic and financial analysis of the project has been carried out. The analysis includes: (a) an overview ofthe economic importance of natural resources and agricultural production in Kenya; (b) a brief summary ofgeneral issues for economic analysis ofNRM-related projects; (c) estimation ofthe potential Internal Rate ofReturn (IRR) and Net Present Value (NPV) for the proposed project investment; and (d) conclusions and recommendations (see Annex 11 for details).

61. Interventions have strong economic, financial, and social justification. The ex-ante financial and economic evaluation ofthe different WKCDDEM Project interventions, such as sustainable land management (SLM) practices, flood mitigation, CDD micro-projects, and alternative livelihood activities, has indicated that most activities planned are likely to be profitable from the participants’ and project’s perspective. In many cases, the off-site effects add significantly to economic viability. As part ofthe SLM analysis, the private cost-benefit analysis (CBA) estimates the financial returns of SLM interventions selected by the KARI from farmers’ perspective over a period of 50 years using a discount rate of 10 percent. Long-term data from KARI Kabete and Embu Research Stations were used to compute NPV and IRR with and without SLM practices based on regression analyses. In addition, the social CBA includes the impacts of SLM on reduced sedimentation and carbon sequestration. Assuming a 10 percent adoption rate, the private IRR would be 43 percent (NPV of US$310 per ha) and the social IRR would be 46 percent (NPV ofUS$337 per ha). If all costs for promotion ofon-farm activities and overhead costs ofthe respective component are added the IRR would be 26 percent (NPV ofUS$279 per ha). These figures indicate that the selected SLM practices would meet the necessary condition offinancial profitability from the fanners’ perspective. It is important to note that the adoption of these SLM practices would imply high initial investment costs which could constitute a barrier for adoption.

62. Flood mitigation has a significant economic IRR and NPV. Another major objective ofthe project is to reduce the frequency and severity of flooding in the project area, in particular in the Budalangi Flood Plain. Flooding in the project areas has become more frequent and more severe in the last decades. The project would finance the rehabilitation ofthe levees in the flood plain with a length ofabout 16.5 km on both sides of the river. The cost ofrehabilitating the levee with its current height of4.5 m is estimated to be US$137,143 per km. Based on the current discharge capacity ofthe river and associated water flows of flooding events, the levee would be able to prevent 25 year

21 floods. Consequently, the economic benefits oflevee rehabilitation occur through minimizing the risk of flooding (and the associated damage) to a probability of2 percent annually. Over a period of25 years, the economic IRR and NPV would be 21 percent and US$4.9 million respectively.

63. The project will exploit synergies between CDD micro-projects and flood mitigation activities. The WKCDDEM Project would also support the preparation and implementation ofCDD micro-projects focusing on livelihood-enhancing interventions which simultaneously improve the condition of the natural resource base. Based on discussions with communities in the targeted areas, Government officials and project team members the following activities have been identified as likely CDD interventions and have been evaluated: (a) woodlots; (b) medicinal plants (including processing); (c) SLM practices; (d) beekeeping; and (e) indigenous vegetables. As an example, intercropping of Ocimum, Mondia and Sesbania is expected to result in an IRR of 101 percent from the perspective ofthe participating community; i.e., when costs for non- production purposes and overheads are not included. Ifboth costs are taken into account, the IRR would be 37 percent. Production ofindigenous vegetables could be highly profitable from the farmers’ perspective, assuming maize production would reflect the without-project scenario. The financial IRR for Amaranthus production would be 15 1 percent (NPV ofUS$66 per ha). The economic IRR, which is including overhead costs ofthe community capacity building component, would be 24 percent (NPV ofUS$26 per ha). Nightshade would achieve a financial IRR of 106 percent and an economic IRR of 13 percent.

64. The results of the analysis have important implications for the design and implementation of the parallel NRM Project. The analysis: (a) informs the selection ofprofitable SLM practices; (b) identifies barriers for adoption ofNRM interventions; (c) stresses the importance ofan enabling policy and socio-economic environment for a sustainable watershed approach; (d) points out the importance oflocal enforcement of NRM-related rules and regulations; and (e) suggests the introduction ofinnovative approaches to promote NRM intervention at the watershed level (see Annex 11 for details).

2. Technical

65. The technical choices and recommendations underlying the project’s design are based on various studies and analyses of the key sector issues.

The CDD approach is at the core of theproject. The livelihood systems of Western Kenya are diverse, but have been eroded by changing economic, institutional, and social conditions, as well as environmental degradation. Households are faced by multiple challenges, including the scarcity, fragmentation and declining fertility of land, inadequate transport infrastructure, poorly functioning credit, input supply, and marketing institutions and high dependency rates due to ill health, migration and mortality. Resolving these problems will require an integrated, multisectoral and community-level response. The CDD mechanism, since it is driven by local demand, will allow for the design

22 and adoption ofinvestments sensitive to local variation, new opportunities, and environmental sustainability. Technology developed by other agencies, including KARI, Technoserve and International Centre ofInsect Physiology and Ecology (ICIPE), which are appropriate to the environment ofWestern Kenya will be identified and disseminated through MATS,community networks. In addition, a feasibility study on the economic viability ofa range ofmicro-enterprises will provide guidance on candidate enterprises replicable in the project area.

Malaria control willfollow internationally accepted approaches. Cost-effective interventions at the community level are well known and established. The project will only apply internationally accepted interventions for the control of this disease.

Flood and NRM are closely linked. Flooding is mainly associated with Nzoia River. The Nzoia River originates at an elevation ofabout 2,300 m in the South East ofMt. Elgon and Western slopes ofthe Cherangani Hills. It discharges into Lake Victoria a short distance north ofYala Swamp in Bunyala location, Budalangi Division ofBusia District. The catchment area is 12,600 km2. The length ofthe main artery is about 335 km with a fall ofabout 1,200 m giving a 0.5 percent slope in the upper reaches, which reduces to 0.04 percent in the lower reaches over the last 30 km. The river meanders and causes deposition of silt resulting in low gradients. The sediment accumulates and reduces the capacity of the channel so that the river overflows the banks forming the delta. The discharge varies from a low flow of28 m3per second to a 100 year flood flow of3,380 m3 per second. The Flood Mitigation Component will be guided by the results ofon- going engineering analyses and studies that are currently being conducted as part ofproject preparation activities. Community contributions to the construction of small dams, localized erosion control, improved soil moisture conservation methodologies, the cessation of damaging activities such as cultivation ofsteep slopes and banks, etc. will need to be carefully structured and implemented in close collaboration with community representatives to be regarded as fair and workable. If activities and factors such as community contributions in cash or kind are not viewed as immediately improving incomes and conditions by local people, implementation will be difficult and the sustainability ofthe results questionable.

An integrated, multi-faceted, livelihoods based catchment management exercise will require the coordination of a variety of inputs from different sectors including water, agricultural extension, soil conservation and others. Capacity building and cooperation will be necessary to ensure that the skills exist to support the project at the local level and that all involved share the same understanding ofthe objectives of the project.

67. Environmental degradation in the project area catchments is widespread and the project is designed to contribute directly to reversing it. Poverty has exacerbated chronically weak environmental management. The Kenya Country Social Analysis (CSA) Study conducted as part ofWKCDDPM Project preparation recommended

23 emphasis on watershed management and participatory flood management (Appropriate Development Consultants LimitedWorld Bank, 2006). An integrated, multi-faceted, livelihoods based catchment management exercise will require the coordination ofa variety ofinputs from different sectors including water, agricultural extension, soil conservation and others. Scientific evidence suggests that planting appropriate trees and cover crops in these degraded catchments can indeed have an appreciable impact on mitigating (non-extreme) floods. Measures to rehabilitate these areas will be guided by such scientific underpinnings.

3. Fiduciary

68. Financial management risk is rated substantial given that a number of proposed institutional arrangements are not yet in place. The assessment will be revised as soon as ongoing institutional arrangements, particularly the hiring ofstaff, are put in place. Institutional arrangements are expected to comprise: (a) the establishment of acceptable financial management systems; and (b) safeguards that respond to country level fiduciary risks ofweak governance and corruption. Once these measures are satisfactorily implemented, the financial management risk rating is expected to improve to modest.

69. The procurement responsibility at the three levels will include:

(a) PCU (i)preparation ofits own procurement plan and consolidation of procurement plans ofPCU and all CDCs; (ii)administration ofthe procurement process and management ofimplementation contracts for goods and services required for its operations, all ICB contracts and any other contract pertaining to goods or services required in more than one project district; (iii)overseeing procurement implementation at District Coordination Units (DCUs) and CDCs; (iv) carrying out periodical procurement audits on contracts executed by DCUs, and CDCs; (v) conducting and arranging training opportunities for DCUand CDC members; and (vi) maintaining a good record ofprocurement documentation;

(b) DCUs: (i)preparation oftheir individual procurement plans and updates and submitting them to PCU at agreed submission deadlines; (ii)administration ofthe procurement process and management of implementation contracts for goods and services required for its operations, all contracts pertaining to goods or services required in more than one community area; (iii)overseeing procurement implementation at CDCs; (iv) providing advice to CDCs in procurement matters; (v) creating and regularly updating a databank on unit prices ofitems commonly used in implementation ofcommunity micro-projects, e.g., materials, labor, etc. The data will be made easily accessible to communities preparing micro-projects, and at the same time it will serve a reliable source ofinformation during supervision ofmicro-proj ects; and (vi) maintaining a good record ofprocurement documentation;

(c) CDCs: (i)collating unit costs ofrequired inputs for the preparation ofmicro- project proposals; (ii)identification ofsources ofrequired inputs for the

24 implementation of approved proposals; (iii)solicitation ofquotations from suppliers; (iv) acceptance ofdeliveries; and (v) maintaining a good record of procurement documentation; and

(d) MATSwill provide technical support to CDCs in procurement planning and processes as necessary

70. The WKCDD/FM Project will benefit from and contribute to enhanced supervision for accountability and governance within the Bank’s Kenya Portfolio. As part ofthis portfolio-wide effort, a field-based governance adviser will be recruited for the Nairobi office to guide the Bank’s work on governance, and recruitment of additional field-based procurement and financial management specialists is in process. A cross-sectoral Operations Risk Mitigation Team will be established, to be chaired by the governance adviser, with a mandate to oversee risk-mitigation actions, advise task teams in the design and preparation ofprojects, share and disseminate information on risks, advise the country management team on strategy for mitigating governance risks, and interface with INT as necessary. In addition, the rolling intensive Country Program Review (CPR) process will sharpen its focus on corruption issues. Mechanisms to assess the impact ofsocial accountability and other governance measures in Bank-supported operations (e.g., by over-sampling areas receiving support under the Arid Lands Project and Education SWAPSin the forthcoming governance surveys) will also be enhanced. In addition, the Bank is mainstreaming mechanisms to support impact assessments that would measure changes in poverty attributable specifically to a given project. The WKCDD/FM project will pilot this approach by using baseline and follow-up household surveys that are designed to include communities that are randomly selected to receive support for microprojects; these will be compared with those that are eligible but not randomly selected and those that are deemed ineligible. This will enable specific attribution ofimprovements in outcome indicators to the project as well as examining whether and why some households are able to benefit relatively more than others. This approach will provide valuable insights for improving implementation during midterm reviews and for possibly scaling up project components in other areas.

4. Social

71. A project-specific social assessment was conducted. The assessment built upon earlier analytic work, including the Kenya CSA (2006) and the Kenya Youth Development Study, for which field studies were undertaken in Western Kenya. The findings ofthe Strategic Country Gender Assessment for Kenya conducted in the 2001 were also utilized.

72. Institutional and economic conditions are changing significantly in rural areas. The Kenya CSA (2006) has documented the impact ofchanging institutional and economic conditions on livelihood systems in rural areas. Decreasing access to land, declining services and infrastructure, and deteriorating human capital have seriously eroded livelihood systems. The impact has had a markedly gendered character. Those systems that have been most severely eroded (e.g., cash crop production, labor migration, etc) were those dominated by men (though underpinned by female productive and

25 domestic labor), In contrast, new opportunities such as food crop production, petty trade, informal services, beer brewing, casual labor, domestic service, and the gathering of forest products and firewood often extend what were traditionally female activities. As a result, men find themselves unable to meet their economic roles in supporting the household, and their characteristic response has been one ofwithdrawal. For women, on the other hand, burdens in the economic, domestic and collective spheres have all intensified. These shifts in gender roles have had a destabilizing effect on households, which, while not empowering women in any real sense, leave men feeling disempowered. The strain placed on relations between men and women leads increasingly to tension and violence. At the same time, declining opportunities for young people are leading to increasing tension between the generations as educated or semi-educated youths find themselves without employment or assets, and forced to remain within the parental household well into adulthood. Intergenerational conflict over land, family property, income, and resources for education has increased in intensity. Household conflict is expressed in gender and household violence, alcoholism and other psycho-social pathologies that are on the rise in many communities. These findings underscore the importance ofa holistic approach to the household, in which all members may feel disempowered by economic marginalization and the inadequacies of institutions and services. These insights will be embodied in the approach taken to PRA and community- level planning.

73. Households and communities in the region face challenging social issues. These can be grouped in the following areas:

(a) gender. Two related initiatives will support, respectively, the rights and economic empowerment ofwomen. Women’s participation in implementation, and their wider access to justice, human rights, and empowerment will be promoted through a strategy founded on the knowledge base generated by the ‘Justice for the Poor’ (J4P) research and development program in Western Kenya. J4P will investigate women’s roles in and access to local power relations and claims and dispute resolution processes. It will also evaluate the effectiveness of innovative initiatives aimed at implementing human rights at the local level such as the project on women’s inheritance rights by the Kenyan National Human Rights Commission, which uses cultural values to challenge discriminatory attitudes. At the economic level, a Women’s Economic Empowerment Results-based Initiative will assess women’s agricultural production and land use needs in target communities, appraise women’s needs for NRM and agricultural technology to enhance their productivity, and target these needs through supporting women’s groups in improving their livelihoods;

(b) youth. Young people are a demographically prominent group in the project area and throughout Kenya, and face particular challenges including to employment, livelihoods, health, and security. Funds have been earmarked within the CDD component to support priority activities for them;

(c) other Vulnerable groups. Kenya CSA (2006) has identified other vulnerable groups in the population ofthe project area, and underscored the need to include

26 them while avoiding the dependency that previous development initiatives have created. These include: people living with HIV/AIDS (PLWA), orphans and vulnerable children (OVCs), female and child-headed households, and people whose traditional livelihoods depend on the forest. PLWAs and OVCs are also vulnerable to malaria and will therefore be a priority for community malaria interventions under the project. The CDD component will be the main avenue for addressing vulnerability, through the PRA and community planning processes and assurance that the needs and preferences ofvulnerable groups are included. Groups whose livelihoods traditionally depend upon the forest will receive specific attention appropriate to their cultural preferences and livelihoods, as detailed in the Indigenous Peoples (IP) Development Plan (Annex 12);

(d) social capital. Levels ofsocial capital and solidarity in Western Kenyan communities are relatively high. Community-level organizations include women’s groups, parents’ associations’, farmers’ cooperatives and religious associations. These groups support livelihoods or make up for the short-fall in provision of public services. Women’s groups are particularly widespread and active, providing savings and loans services and support for income generating activities such as tree planting, dairy cows, and collectively farmed plots. They are also a source ofmutual moral and financial support for their members, as well as providing access to information and knowledge (Appropriate Development Consultants LimitedworldBank, 2006). Religious associations, especially Church groups formed around the numerous denominations found in Western Kenya, are ubiquitous and active in development activities. The WKCDD/FM community-level planning processes will be designed to support existing social groups and their efforts to improve livelihoods;

(e) local livelihood opportunities. Social capital at the household level has been eroded by declining local livelihood opportunities, especially for men, and migration to Nairobi and other urban areas. As a result, women and even children may be left alone to cope with difficulties ofsupporting households. The HIV/AIDS epidemic also eroded household well-being;

(0 community level management of natural resources. The sustainability ofNRM depends upon (i)the incentives facing individual users ofresources; (ii)the ability of communities and user groups to plan, control, and sanction natural resource use; and (iii)the role played by formal institutions, including the Government in regulating local practices. As emerged clearly from the SA, farmers are well aware of good conservation practices and their importance to conservation. In the absence ofthe enforcement, however, which used to be the function ofthe Agricultural Extension Officers and Chiefs, urgent livelihood needs lead people to seek short-term returns over sustainability. Similarly, in the flood-prone lowlands, the neglect ofcommunity needs in water management has led to deliberate damage to water control structures to capture benefits from the plentiful fish and fertile silt carried by floodwaters;

27 (g) community-wideplanning. Particular attention will be paid to the role ofthe community in the development of forest management and dike management at local level;

(h) corruption and political patronage. In both the Poverty Reduction Strategy Paper (PRSP) consultations and the CSA, citizens ofWestern Kenya cited corruption and poor governance as a major hindrance to development. Their concerns included the lack ofequity and transparency in the allocation ofpublic funds, and the failure ofsuch funding to reach communities. In order to promote transparency and accountability, a social accountability strategy will be developed for the project (elaborated in Annex 4), including mechanisms to monitor expenditure and channel community feedback, including community score cards; and

(i) violence and crime. As in many other rural parts ofthe country, crime and violence are ofgrowing concern in Western Kenya. Crime, increasingly accompanied by violence, is particularly prevalent in the hungry season and around the time ofthe Christmas and Easter celebrations. Farmers known to be holding cash in their homes from harvest payments are frequently victims. The causes ofgrowing crime are complex, and include declining social capital and ineffective law enforcement by formal agencies. One economic result ofpoor security is to drive businesses and better offhouseholds out ofrural communities. Some communities have developed collective responses to maintaining community peace and order. The possibility ofextending such solutions will be explored through promoting debate within the community during the planning process, and supporting solutions where this issue emerges as a priority.

5. Environment

74. The legal framework for environmental management is place. The Water Act 2002 (No. 8 of2002), the recent passage ofthe Forest Act, and the draft Lands Act, coupled with the associated National Environment Management and Coordination Act of 1999, underpin both the NRM Project and the WKCDD/FM Project.

75. Beyond laws, environmental management is critical. Kenya's endowment of water, forests, land and mineral resources serves as the foundation for much ofthe country's economic activity. The project is designed in recognition ofthe need for particular attention to environmental management in general, and catchment, forest and ecosystem management in particular.

76. The projects will support environmental planning and management. Both projects will support the mainstreaming ofenvironmental concerns in water resource planning, development and management. In addition, attention to sustainable land management and forestry will be guided by the draft Land Policy and its recognition of customary rights to land. Land issues such as historical injustices, land rights ofminority communities, forests dwellers, pastoralists, hunters and gathers and vulnerable groups have been appropriately addressed and shall be given particular attention, as affirmed in

28 the draft Indigenous Peoples Planning Framework (IPPF) document prepared by the Government for these two projects. The draft lands policy as well as the Resettlement Policy Framework (RPF) document will guide resettlement. The Government and the Bank have agreed to assist within the framework ofthe NRM Project in designing a National Resettlement Policy and establishing the institutional framework for its implementation.

77. Other relevant aspects of environmental planning are also addressed by the projects. The two projects will additionally support:

participatory catchment management;

improved governance of water resources both within and outside irrigation schemes;

consolidation ofirrigation reforms and investments;

flood mitigation and management;

enhanced institutional and human capacity for environmental management at various levels including River Basin Authorities, the Ministry of Water and Irrigation (MoWI), the WRMA as well as KFS and Community Forest Associations;

solutions to important ecosystems that are degraded such as flood management and dry season flows; and

establishment ofenvironmental flow requirements.

Issues raised by relevant safeguard policies are being addressed. The proposed projects were reviewed and screened at concept note stage and designated as Category B, which is appropriate and consistent with the provisions ofthe Bank's Safeguards Policy on Environmental Assessment OP/BP 4.01. The outlined activities led to the projects triggering other safeguard policies, including the Policies on Involuntary Resettlement OP/BP 4.12, the Natural Resources Policy OP/BP 4.04, the Forest Policy OP/BP 4.36, the IP Policy OP/BP 4.10 and the policy on International Waterways OP/BP 7.50.

79. The required frameworks have been prepared jointly with the NRM Project. In order to address the safeguard policy issues triggered by the NRM Project and the WKCDDRM Project, and to ensure that implementation ofproject activities will be carried out in an environmentally and socially sustainable manner, the Government prepared a joint Environmental and Social Management Framework (ESMF), a RPF and an IPPF and to address the policy on International Waterways (OP/BP 7.50). A Riparian Notification Document was prepared by the Government and sent to the Nile Basin Council ofMinisters for their notification on January 11, 2007. The ESMF, RPF and the IPPF prepared for the two projects were reviewed, commented on and approved by both

29 the Government and the World Bank. The three documents were disclosed to the public in-country and at the Bank's Information Centre in Washington, DCon January 10,2007.

80. The project will fund capacity building and remedial measures. The capacity building and remedial measures required for the ESMF, the RPF and the IPPF will be funded by both the NRM Project and the WKCDDFM Project. The WKCDDFM and the NRM Projects have set aside resources to cover all associated costs for resettlement planning, management and implementation as well as building the institutional and human capacities for managing the ESMF, IPPF and RAPS. This includes the funds to be allocated for the preparation of annual environmental audits in accordance with the National Environmental Management and Coordination Act .of Kenya as well as the World Bank Safeguard Policy on Environmental Assessment OP/BP 4.01. The training requirements for the implementation ofthe recommendations ofthe safeguard documents and for overall environmental management have been factored into both projects' cost. Consultations and training activities will be funded to ensure the inclusive approach to implementation concerning indigenous and vulnerable groups and to ensure ownership of the P and RPF processes.

8 1. Institutional arrangements for implementing safeguard requirements will follow a tested and successful approach. The two projects will follow the implementation arrangements tested and found satisfactory under the ALRMP. The implementation ofResettlement Action Plans (RAPS),Indigenous Peoples Plans (IPPs) and Environmental Management Plans (EMPs) are critical to ensuring sustainable management and undisturbed implementation ofall the other keys components ofthe two projects. Clarity on the institutional arrangements for purposes ofcarrying out ofthe prescribed actions and monitoring oftheir outcomes is therefore crucial. The project will work with the implementing agencies to ensure that the competent authorities are assigned responsibility to carry out such actions and most importantly to ensure ownership and the capacity to mainstream them as part oftheir core business.

30 6. Safeguard policies

Safeguard Policies Triggered Environmental Assessment (OP/BP 4.01) Since the exact locations ofproposed activities has not been identified at this stage and as the proposed approach for community investments is CDD, the safeguard instrument used will be the ESMF. Natural Habitats (OP/BP 4.04) The ESMF addresses issues pertaining to this policy. Forests (OP/BP 4.36) This policy is triggered, and the NRM Project will address policy issues and investments in the use and management offorests. The ESMF addresses issues pertaining to this policy. Pest Management (OP 4.09) The ESMF identifies and addresses issues related to this policy. Cultural ProDertv (OPN 11.03) Indigenous Peoples (OP/BP 4.10) An IPP (adopted from the Kenya Agricultural Productivity and Sustainable Land Management Project [KAPSLM] Project with appropriate approvals to be sought) was prepared and disclosed. Involuntary Resettlement (OP/BP 4.12) The project addresses two key sectors, water and forests, that is likely to have an impact on the pattern ofuse by the communities. A Resettlement Policy Framework has been developed in order to address any related issues. Safety of Dams (OP/BP 4.37) The preparation has identified the nature and scope ofcapital investments in irrigation and water infrastructure and has determined that this policy is not triggered. Projects on International Waterways (OP/BP 7.50) The preparation identified the water sector activities and impacts, on international water agreements and international waterways. The White Nile rbarians were notified.

7. Policy Exceptions and Readiness

82. This Project complies with all applicable Bank policies. The preparation process has been supported through a PHRD grant in the amount ofUS$75 1,800, and a Project Preparation Facility (PPF) in the amount of US$500,000. The PIP and Procurement Plan for Project Year 1 were prepared.

31 Annex 1: Kenya’s Fight against Corruption: Progress, Setbacks and New Frontiers

KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

I.Introduction

1. Some surveys ofKenyan households, firms and individuals suggest widespread concern about corruption in the public service. Some ofthese surveys also suggest that in specific areas like free primary education and health, the public is reporting improvements in service delivery, while in other areas, like procurement and the judiciary, the situation continues to cause public concern.

2. This Annex discusses highlights ofKenya’s efforts since 2003 to address the problem of corruption, including steps taken and setbacks experienced, and further actions that are planned by the Government. These actions build on lessons of experience and look at corruption through a broader governance lens. The Annex also updates the information on Kenya’s anti-corruption effort provided in the project paper for the Additional Financing Credit for Drought Emergency under the Arid Lands Resource Management Project Phase 11, which the Board approved on August 3,2006, the Education Sector Wide Approaches (SWAps) which the Board approved on November 7,2006, and the briefing provided to the Board on December 14,2006. Another important source ofinput has been consultations held in January 2007 with a wide variety ofstakeholders around the World Bank’s Board Paper on Governance and Anticorruption (GAC) as part ofthe global consultation exercise.

11. Selected Highlights

3. Historical Perspective. Historically in Kenya, power has operated through a web of informal networks based on personal ties, often with a strong ethnic and gender element, between leaders and supporters at all levels. The networks permeated public institutions, subverted formal rules and severely compromised systems ofpublic accountability. As a result, key institutions decayed. The judiciary, for example, became largely ineffectual and corrupt, and presidential powers (and single-party democracy until 1992) supplanted other vital institutions such as Parliament. Theft ofpublic resources, including procurement fraud, was documented by controllers and auditors general, but corrupt individuals used the court powers and other means to punish critics. Media freedoms suffered, and the police emerged in Kenya’s public opinion surveys as the most corrupt institution. When it came to power at the beginning of2003, the new Government made a number ofbold moves in fulfillment ofits campaign pledge to put a halt to corruption. These actions are discussed below.

4. Legislative Actions. In 2003, Parliament passed the Public Officer Ethics Act, requiring civil servants to file annual declarations ofincome, assets and liabilities, and the Anti-Corruption and Economic Crimes Act (ECA), which set up the Kenya Anti- Corruption Commission (KACC). The Government also enacted key legislation aimed at improving governance and public service delivery which include the Government

32 Financial Management Act (2004) and the Public Audit Office Act (2004). In fulfillment ofthe Anti-corruption Action Plan for April 2005-June 2006, a landmark Procurement Bill received Presidential assent in November 2005, establishing a semi-autonomous Public Procurement Oversight Authority (PPOA) responsible for the regulation of procurement in the public sector, including procurement ofsecurity related contracts- transactions which were shrouded in secrecy in the past and associated with high level graft. In addition, the Privatization Act received Presidential assent in October 2005 setting the stage for the privatization ofpublic assets and operations including state corporations, as part ofthe privatization program under a new privatization commission. In late 2006, legislation was introduced to Parliament that would increase the number of judges, significantly reduce delays in corruption trials, fight money-laundering, and provide a framework for political party funding. Parliament recessed in December before completing this legislative agenda, but these items are expected to be reintroduced when Parliament reconvenes in March 2007. The Government is also at an advanced stage in developing a Freedom ofInformation Bill that will ensure public access to information. Meanwhile, implementation ofthe new procurement act and regulations began in January 2007.

5. Capacity Building and Administrative Actions. After 2003 there was a four- fold increase in the professional staff ofthe KACC, recruitment magistrates and other legal staff, and the launch ofpublic education campaigns. The Attorney General's Office had 126 new state attorneys in January 2006, significantly increasing its capacity. To speed up trials, the Chief Justice changed the 'mles ofthe court in January 2006 to set rigorous time limits for disposing ofConstitutional references which tend to add years to the disposal ofcases. Responding to criticism that it relied too heavily on legislative measures, the Government began to take administrative steps more regularly. For example, in December 2005, the Government annulled the recruitment of3,000 police officers and suspended senior officers involved in the recruitment exercise, pending further investigation. The Kenya Revenue Authority also announced that it was suspending several senior officers who work at the Port pending investigation into why they were not achieving performance targets for customs revenues. In addition, the Government fired the Managing Trustee ofthe National Social Security Fund (NSSF) following investigation by the KACC, although months later he was appointed to head another parastatal (Meanwhile, a Bank-sponsored study ofthe NSSF has shown it to be severely dysfunctional; for example, as a result ofmismanagement and low return on fund investments, the typical Kenyan retired worker can expect to receive a total retirement package that would cover no more than 12 months ofincome). The Governor ofthe Central Bank was also suspended pending investigations ofwrongdoing and is now being prosecuted. Such suspensions and firings have become somewhat more frequent. For example, the Government recently suspended senior staff in the Ministry ofLands and two senior executives at the Kenya Re-Insurance pending investigations into corrupt practices. Also on the administrative front, the judiciary has instituted a self-rejuvenating mechanism through a peer review on integrity and handling ofcomplaints, which is expected to improve its systems and performance.

6. Results-based Management and Performance Contracts. Consistent with the focus on the effective and accountable use ofpublic resources, the Government has

33 introduced a Results-Based Management (RBM) system as a tool for helping public sector institutions to focus their work, plan strategically and demonstrate the difference that each organization is making to development. This focus on “Practical Results for Kenyans” is based on international best practice in countries such as Canada, Sweden and the United Kingdom. The Government has also introduced performance contracts for all its senior officials including those in parastatals. The contracts are meant to create incentives for public sector managers and their staff to improve performance and accountability by undertaking to deliver specific outputs in line with their mandates. The availability ofthese contracts (at http://www.dpm.go.ke/pages/splans.litnil) is not widely known, and is therefore a missed opportunity for public monitoring, assessment and pressure for enforcement. There is also room to improve the focus ofthe contracts themselves on issues of corruption. Public sector management reform has also focused on introducing rapid results initiatives, service charters, codes ofconduct, and citizen scorecards. One important milestone in this home-grown reform program occurred in December 2006, when the President officiated at a public event in which all Ministers, Assistant Ministers, and their permanent secretaries received their perfonnance scores as assessed by expert stakeholders on the basis ofthe results-based management performance contracts their departments had signed.

7. Alleged Corruption Among Ministers. Following the constitutional referendum ofNovember 2005, the President reshuffled his Cabinet, removing ministers alleged to have been involved in large scale corruption and appointing a new and respected minister ofjustice and constitutional affairs. During February 2006 two ofthe ministers named in the report prepared by the former Permanent Secretary for Governance and Anti- corruption resigned from office to allow for investigations to proceed. KACC began to investigate these and all others mentioned as possibly involved in corrupt activities. A third minister, the Minister ofEducation who had been the Minister ofFinance at the time ofthe Goldenberg affair occurred in the early 1990s, resigned following his implication in the Goldenberg Commission report which was also released at this time (in July 2006, however, Kenya’s High Court ruled that he had acted appropriately in his role as Minister for Finance, and that because Kenya’s Attorney General ofa decade ago had cleared him of wrong-doing in a statement to Parliament at the time he could not be prosecuted - this High Court ruling is being appealed against by the Hon. Attorney General on behalf ofthe Government. This was followed by Government seizure of passports and firearms of several individuals associated with Goldenberg. Prosecutions in the Goldenberg scandals began in mid-June 2006 but prosecutions in the Anglo-leasing case are awaiting the completion ofinvestigations by the KACC. The ongoing investigation and the status oflegal action in the Anglo-leasing affair have been much in the news recently. In October 2006, the Attorney General sent the investigative files of 12 prominent individuals (including former Cabinet members), who had been recommended for prosecution, back to the KACC for lack ofevidence that would sustain prosecution. In late November 2006, the President reappointed two Ministers who had earlier left Cabinet because oftheir alleged involvement in corruption scandals (both had undergone judicial processes that appear to have cleared them ofcriminal wrongdoing). On January 19, 2007, local journals reported that the Attorney-General had cleared all four Ministers implicated in the scandal ofany wrongdoing, and this was received with a large-scale public outcry against the decision. The Attorney-General has, however,

34 issued a statement indicating that in fact investigations are ongoing and that there has not been a judicial clearance on substantive issues ofcorruption.

8. Other Measures. Separately, the President has required that members of the new cabinet sign a code of conduct, and that the KACC verify their declaration of assets. These declarations are now being vetted by the KACC. The Government has ended ‘land grabbing’ and state sponsored ‘harambees’ or fund-raising. It also set up the Ndungu Commission to look into the illegal allocation of public lands and after making public the report in February 2006, gave individuals and organizations implicated a three month period to return land that was obtained illegally (whether deliberately or not). That period has now expired and further action by the Government is awaited. As of January 2007, 133 title deeds for illegally or irregularly acquired public land had been surrendered to the Ministry ofLands. Measures were also taken to improve the governance ofpublic finances. They included enhancing the capacity ofthe National Audit Office, which was then able to clear the long-standing backlog ofpublic accounts audits. In October 2005, the Government established independent audit committees in all ministries, departments, state corporations and local authorities. This step is part ofa new risk-based internal audit approach, supported by the World Bank and other donors, that involves identifying the potential for fraud in advance and building the necessary risk mitigation processes into the design ofGovernment systems and processes. The prospects for reducing rent seeking were further enhanced in November 2005 through additional measures such as the liberalization ofcoffee marketing (after over a decade of policy debate about it). Under the ongoing licensing reform program, about 9 percent of licenses have been abolished, and another 50 percent are scheduled for harmonization, simplification, or elimination by December 2007 (including about 23 licenses that the private sector has identified as priorities).

111. Assessment

9. Despite the range ofactions on legislative, administrative, political and other fronts discussed above, the Government has acknowledged that the fight against corruption is an uphill task. At a National Stakeholder Conference convened in late May 2006 by the Government to discuss future plans for fighting corruption, the Minister of Justice and Constitutional Affairs noted that efforts so far ‘have only scratched the surface’. Meanwhile, the peer review by the New Partnership for Africa’s Development (NEPAD) indicates that 60 percent ofKenyans feel that the Government has not gone far enough in the fight against corruption and over 90 percent believe that there is still corruption in Government.

10. Doubts about the Government’s Commitment. In January 2006 the former Permanent Secretary for Governance and Anti-Corruption alleged that some Cabinet ministers and other senior civil servants in the new Government were involved in big graft. In March 2006, hooded men raided the headquarters ofthe Standard Media Group late at night, allegedly for national security reasons. In October 2006, the Attorney General sent the investigative files of 12 prominent individuals (including former Cabinet members), who had been recommended for prosecution, back to the KACC. In late November 2006, the President reappointed two Ministers who had earlier left Cabinet

35 because oftheir alleged involvement in corruption scandals (both had undergone judicial processes that appear to have cleared them ofcriminal wrongdoing, but public confidence in these processes is quite low). In January 2007 two other Minister were cleared by the KACC ofinterference with an investigation. Other allegations against them are being looked into. Overall, Kenyans continue to cite governance as the most pressing concern, and want more action on it, but some are concerned about the Government’s commitment to the fight.

11. Measuring Results to Date. While there is a broad domestic and international consensus on where Kenya is coming from on corruption (historically) and where it needs to go, there is much less agreement on the results that have been generated so far, and on the prospects for winning the fight. Transparency International’s Annual Corruption Perceptions Index has consistently placed Kenya towards the bottom ofthe list (in 2006 it ranked 142 of 163 countries, whereas in 2005 it had ranked 144 of 159 countries). In June 2006, Transparency International (Kenya branch) reported that bribery increased in 2005 following declines in 2003 and 2004. Ranking public institutions for the occurrence ofbribery include the police, state corporations, and local authorities. Roughly 55 percent ofKenyans felt that corruption was unchanged; the same number as in 2003. But while 13 percent felt in had worsened in 2003, the number jumped to 19 percent in 2006. A larger household survey released in early July 2006, conducted by the KACC and covering 2 1 districts in all provinces, found that public awareness of corruption has risen from about 75 percent in 2000 to 99 percent in 2005. The survey concurred that the police, the Ministries ofHealth and Lands, and local and district governments were perceived as the most corrupt. Roughly 41 percent of respondents believed that corruption has decreased from a year ago, 22 percent believed that there has been no change and 37 percent believe that it has worsened. About 60 percent felt that the Government was performing badly on corruption, a figure similar to the NEPAD assessment. Contrasting with these more negative findings, Kenya’s score of 3.0 (of a possible 6) on the question on “Transparency, Accountability and Corruption in the Public Sector” in the most recent Country Policy and Institutional Assessment (CPIA) conducted globally by the World Bank and released at end-May 2006 places Kenya at roughly the mid-point among the 79 low income developing countries covered in the exercise. Meanwhile, the 2006 Global Integrity Index, released in January 2007, gives Kenya a score of 71 out of 100, up from 61 in 2004, placing it the same cluster of “moderate” performers as Argentina, Uganda, and Brazil, well ahead ofMozambique, Russia, and Senegal, and far ahead ofTanzania, Egypt, and Vietnam.

12. Synthesis. Notwithstanding important legislative and institutional developments and the beginnings ofpolitical accountability, more efforts need to be done to assure the public ofits commitment to fighting graft. This will ensure that the efforts already made and the ones that are planned, shall produce tangible and measurable results. This would require strong leadership at all levels, with an almost single-minded focus on reversing behaviors that have been entrenched, politically, socially and culturally for decades.

36 IV. Further Steps toward Better Governance

13. Broad-based Stakeholders Participation. There appears to be a growing realization among governance reformers in Kenya that the war against corruption requires the mobilization of a broad range ofstakeholders, including civil society, the media, private sector, faith-based organizations and professional bodies. For example, as recent experience indicates, civil society and the media can have a powerful impact as sources of information on corruption and as advocates for change. There is some evidence that the reformers in Kenya might wish to reach out to these groups in a more systematic way. For example, the June 2006 Stakeholder Conference on the Draft National Anti-corruption Strategy, the largest ofthe three held since September 2005, brought together Kenyans from the executive, parliament, the judiciary, the private sector, the media, trade unions, faith-based organizations, professional bodies, and NGOs to consider the Government’s national multi-year strategy for fighting corruption. The Draft Strategy itself arose from a process conducted years ago and updated recently that involved grass-roots inputs and consultations in all eight provinces. The other recent broad-based consultations have focused on the Strategic Plan ofthe Kenya Anti- corruption Commission. A particular challenge is to ensure that all the broad-based participation and consultations cohere around a focused set ofworkable initiatives oriented toward demonstrable results, while leaving participants the freedoms they need to serve as both advocates and critics.

14. Formulation of the Government of Kenya’s updated Governance Strategy and Action Plan. Concurrently with these stakeholder consultations, Bank sponsored audit work at the project level (the INT-led Detailed Implementation Review [DIR]) and at the level ofnational and sectoral policy (the WBI-led Initial Governance Assessment (IGA]) gave fresh insights into anti-corruption measures that the Government itself could take. These inputs all contributed to the formulation ofthe Government’s Governance Strategy and Action Plan (GAP) through December 2007. The GAP reviews progress in terms oflegislation passed since 2003, administrative actions taken, public sector and financial management reforms, the role for the private sector, public education efforts, investigatiodprosecution, and restitution ofstolen assets. It sets forth a matrix of specific, time-bound actions accompanied by progress indicators in areas that include: (a) strengthening the legislative platform for the fight against corruption (e.g., legislation for witness protection, anti-money laundering and greater disclosure ofpersonal wealth declarations ofGovernment officials); (b) facilitations transparency and public access to Government information; (c) deepening public financial management reforms; deepening procurement reforms; (d) scaling down the role ofGovernment; and (e) strengthening capacity for investigation and prosecution ofcorruption.

15. Transparency, Public Access to Information and Public Education. The Government is at an advanced stage ofassuring public access to information through the proposed Freedom of Information Bill, which seeks to empower members ofthe public to have free access to information held by Government. The right ofthe media to access and disseminate information will further enhance transparency and accountability. The Media Bill, at an advanced stage, will promote and protect a professional, self-regulating free and independent media. The Media Bill seeks to establish a Media Council ofKenya

37 and enshrine the “freedom to hold opinions without interference and to seek, receive and impart information and ideas through any Media regardless of frontiers.” Both the above Bills will be submitted to Parliament when it reconvenes in March 2007. These legislative developments complement another initiative by Government to establish a National Bureau of Statistics, through the Statistics Bill of 2006. The Bureau, which will replace the Central Bureau of Statistics, will collect, compile, analyze, and publish statistical information, and will be guided by explicit provisions for public access and dissemination. A related aspect ofthese transparency initiatives is heavy investments in e-government, including e-procurement, and continued investment in public education and awareness-raising. To improve accountability in budget implementation, the Budget Monitoring Unit at Ministry of Finance will be revamped, initially paying particular attention to roads and water programs. The Unit will prepare comprehensive quarterly reports on budget implementation for dissemination to the public.

16. Further Legislative Advances. A number ofbills were on the parliament’s list to be passed into law in late 2006. The Witness Protection Act was passed but Bills on anti-money laundering and political party financing were not acted upon by the time Parliament recessed in early December. It is expected that they will be considered when Parliament reconvenes in March 2007. The pending Statute Law (Miscellaneous Amendment) Bill proposes to amend the following laws, namely; the Judicature Act (Cap 8) to increase the number ofjudges ofthe High Court from fifty to seventy and those in the Court ofAppeal from eleven to fourteen; the Constitutional Officers (Remuneration) Act, (Cap 423) to implement the new salary structure for constitutional office holders; and the ECA 2003 to disallow applications for stay ofproceedings in cases involving economic crimes and corruption. The Miscellaneous Amendments Bill will also harmonize the penalties for offenses that can be prosecuted under both the ECA and the Penal Code and amend the Public Officer Ethics Act, 2003, to regulate the public officers’ declaration ofwealth. The Witness Protection Bill, 2006, if passed will provide for the regulation and operation ofa scheme for the protection ofwitnesses in criminal cases, commissions ofinquiries and similar proceedings that are critical to the prosecution ofcorruption cases. The proposed scheme under this Bill will be established and coordinated by the Attorney General. Legislation on political party financing is also proposed.

17. Capacity to Prosecute. Despite improvements in the investigation of corruption cases, the current capacity to prosecute is still inadequate. This has affected efforts to effectively prosecute past and on-going cases on corruption. A number oftraining programs have been launched to strengthen the capacity ofthe State Law Office (SLO) and the Director ofPublic Prosecutions in the Attorney General’s Office. The Government is in the process ofrecruiting additional lawyers, (130), including specialized and competent prosecutors with proven integrity. Ofthese, 65 will serve the SLO, 42 to the Department of Public Prosecutions to make a total of 104 and 23 to the Civil Litigation Department. Other initiatives include addressing legal challenges arising from corruption prosecutions (see paragraph 15) by, among others: publishing judgment and court statements; and establishing open hearings.

38 18. Disposal of Cases. In 2005, there were 503,948 new cases filed together with those pending at the beginning ofthat year, bringing the total number to 1,074,602 cases. Of these, the courts were only able to deal with 541,167 cases, rolling over 535,840 to 2006. As part ofthe effort to address this challenge, the following initiatives will be implemented. As indicated in the Miscellaneous Bill, the number ofjudges will be increased to 70 from 50. In addition to the absence ofjudicial officers, the Government’s efforts to effectively dispose ofcases (including corruption cases) have been hampered also by the lack of basic facilities such as court rooms, manual filling and retrieval of cases, lack of equipment such as computers, poor remuneration and terms of service for the judiciary especially for the magistrates. The World Bank-financed Financial Legal and Technical Assistance Project is currently supporting the training ofjudges and modernization ofthe court system through automation of the courts. It will also finance the recording ofcourt proceedings, better case management methods and improvement of court administration. Meanwhile, the judiciary has proposed amendments to the Civil Procedure Rules to simplify the court processes and include alternative methods of dispute resolution to shorten the time taken to dispose ofcases and reduce the backlog. The Chief Justice also issued a circular (January 2007) to address the problem ofmultiple suits on the same issue being filed in different courts.

19. Implementation of Procurement Reform. In order to enforce the Procurement Act, passed by Parliament and assented to by the President in November 2005, gazettement ofthe Public Procurement Regulations and establishment of an independent PPOA received Parliamentary approval (December 2006). The main objective ofthe proposed procurement reforms is to strengthen the institutional capacity ofthe public procurement in order to enhance accountability and effectiveness by reducing rent- seeking opportunities and corruption. Among the initiatives proposed for implementation over the next one year are: (a) establishing and making fully operational (by March 2007) the Public Procurement Oversight Authority ensuring its independence and objectivity, and fully rolling out ofthe new procurement regulations and guidelines; (b) posting on the ministries’ websites all information on contracts, including names of contractors, decisions ofProcurement Appeals Board, bidders and tender outcomes, and contractors’ performance; (c) introducing a transparent Vetting System to pre-qualify companies interested in bidding for contracts to address conflict of interest and to enable exposure of fraudulent companies; and (d) blacklististing companies found to have been involved in cases ofcorruption in accordance with the new procurement law, and make this information publicly available.

20. Implementation of Privatization. Further participation ofthe private sector in the economy will be enhanced over the next year through privatization, restructuring of the public sector and removal ofadministrative barriers to trade. Among the initiatives to be implemented over the next year to enhance efficiency in the economy and encourage private sector participation include: (a) establishment ofa privatization commission by the end ofMarch 2007. The privatization commission will pave the way for a transparent and accountable process ofprivatization, thereby making it difficult to disguise corruption in the privatization transactions; (b) restructuring/privatization ofTelkom Kenya is moving forward with IFC technical assistance (e.g. retrenchment completed, Kshs 5.6 billion secured by Telkom from local banks, etc.). while the National Bank of

39 Kenya will be restructured in tandem with privatization (the Government’s Fiscal Year (FY) 2006-07 budget includes Kshs20 billion for the NBK restructuring approved by Cabinet); (c) sale ofpart of Government shares in Mumias Sugar Company was completed end-December 2006, and the action plan for further divestiture ofthe Kenya Reinsurance Company, and KenGen for March 2007 remains in force; (d) plans for increased private sector participation also remain in place for the ports: and (e) liberalization ofthe telecomm sector has already happened, including a recent Communications Commission ofKenya decision approving an application from Reliance Consortium for the second fixed line license; (f) including in the finance bill for FY2007- 08 the elimination ofbusiness licenses found not to serve a usehlpurpose; (8) initiating a legal and institutional framework to operationalize public-private partnership, allowing the private sector to participate in the provision ofwater, energy, roads and transport services and limit the potential risks from contingent liabilities that may arise in such operations; (h) submission to Cabinet ofa market-oriented financial sector reform strategy by March 2007; and (i)a diagnostic audit ofNSSF will be undertaken to form the basis for restructuring and reforms ofits governance.

Public Financial Management. Planned PFM reforms include:

preparing and publishing external audit reports ofthe Kenya National Audit Office in a timely fashion in accordance with The Public Audit Act 2003;

adopting a risk-based internal audit approach, including establishment ofthe Ministerial Audit Committees expected to provide oversight. Empowering Ministerial Audit Committees and providing them a mandate for ensuring implementation of audit recommendations. And, develop audit’s post- implementation reviews by the National Audit Office, communicate the results to the Public Accounts Committee, and publish them;

enhancing transparency and broader stakeholder participation, including members ofparliament and public in the preparation of2007/08 budget cycle;

conducting expenditure-tracking surveys in at least one ministry to inform budget implementation and improve its effectiveness in achieving development goals;

strengthening management and audit capacity for efficient and effective use of devolved funds under the LATF, Constituency Roads Fund and Bursary Fund, among others;

accelerating the implementation ofintegrated financial management and information system (IFMIS) and make it operational in four spending ministries (including education, health) for the management ofthe FY2007-08 budget; and

developing and enforcing objective criteria for granting tax exemptions and waivers to regulate the exercise of discretionary powers and improve transparency and accountability in the tax exemption regime. This will be complemented by publication oftax expenditure budgets from FY2007-08 onward.

40 Other measures being taken include preparing and publishing external audit reports in a timely fashion in accordance with the Public Audit Act 2003 and adopting a risk based internal audit approach, including establishment ofthe ministerial audit committees. These measures are expected to improve Parliamentary oversight on the executive’s use ofpublic funds.

22. Results Measurement and Performance Management. Government is deepening the focus on results as an integral part ofgood governance, and is making progress in rolling out the RJ3M system in the public sector. Now that a Results office has been established within the Public Sector Reform and Development Secretariat, additional steps related to the RBM’s implementation include developing systems for performance management and integrated performance appraisal, performance audits and monitoring and evaluation. Other actions include introducing service charters and score cards for selected Government ministries and departments.

23. Governance and Accountability Programs in Selected Key Ministries. Several Ministries that are central to the achievement of ERS objectives are putting in place governance and anticorruption programs. Here are some examples:

(a) Health. The health sector faces substantial governance strengthening challenges. The management structure is not aligned to the implementation ofthe national health plan; accountability and transparency are weak; there is poor utilization of information for monitoring purposes; and tendering has been plagued by accusations ofcorruption, failure to follow procedures and delays. In recent months, however, there have been some important developments. These include the initiation ofa SWAP, with teams appointed to work on key issues, including procurement, financial management, and M&E. The MOH has developed a risk management approach to internal audit, and initial steps have been taken to improve procurement procedures, including through support from the Millennium Challenge Corporation with the redrafting ofprocurement regulations for the Government as a whole (but with the MOHas a lead sector for the reforms). Service delivery will be addressed through the adoption ofa risk-based management approach to internal audit; monitoring full implementation ofthe recommendations by KACC into the operations ofthe Kenya Medical Supplies Agency (KEMSA); and improved management of the Global Fund Program. Weaknesses in the area ofprocurement, financial management and governance identified by the World Bank’s Detailed Implementation Review will be addressed as follows:

(i)Procurement: finalization ofthe sector specific procurement manuals, independent procurement actions, scaling up the capacity and involvement ofKEMSA in procurement and public notification of contract awards;

(ii)DARE: undertake a comprehensive update ofprogress on action plan from forensic audit; recruit auditors; and investigate and where necessary prosecute those found guilty; and

41 @)Financial management: remittance of funds directly to health facilities using commercial banks, instituting effective internal and external audit functions using a risk-based framework, disclosure ofinformation on financing and support to community monitoring over expenditure.

(b) Education. The Government has developed its policy for strengthened governance and accountability in the education sector around the following themes: (i)community involvement through decentralized financing and procurement; (ii)resource allocation; (iii)consultation and social accountability; (iv) teacher management; and (v) public expenditure and management. The plan shows commitments for the future towards a more transparent and accountable environment in the education sector, but it also shows important progress already made. An independent public expenditure tracking survey has already been completed, and it concluded that “Overall, the flow of funds has been efficient, with schools receiving funds allocated on time. Bottlenecks encountered in the flow are being addressed by the ministry. At school level, funds received have been correctly recorded and used for intended purposes. A large majority ofthe schools have put in place systems that ensure transparency and value for money.”

(c) Water. Since mid-2003, the Government through the MoWIhas embarked on far reaching reforms in the water sector based on the Water Act gazetted in late 2002. These reforms have involved comprehensive institutional reforms and increased investments in water supply and sanitation to remove the bottlenecks to achieving safe and sustainable services. The continuing reforms include: (i)separation of functions between each aspect ofservice delivery - policy making, regulation, and service delivery; (ii)clarifying the role and responsibilities ofeach new institution; and (iii)ensuring the new institutions are given the mandate and autonomy to perfonn, but at the same time are made accountable in meeting their responsibilities.

(d) Road Sector. The Government plans to establish three autonomous road authorities to streamline ownership, management, accountability and financing of all road network activities in the country. This action will be implemented as soon as Parliament approves the legislative instruments. On-going actions to improve governance in the roads subsector include: (i)re-enforcement of procurement regulations-for example, GOK funded contracts are no longer “given out” but advertised; and award ofall contracts is based on contractor capability, current workload and past performance to encourage competition and fairness); and (ii)in-depth analysis ofthe cost ofroad construction in Kenya and other countries in the region to update market prices and improve project cost estimation. In addition, at least two actions agreed with Government in 2004 have already been effected. First, road sub sector staff who previously owned road construction companies removed themselves from such companies and kept their jobs, or left Government to manage them. Second, lengthy payment procedures requiring 23 approvals and signatures, which led to delays in payments and cost inflation, were reduced to 6 approval steps, and the oversight function was also strengthened.

42 24. Measuring Progress in Governance and Anti-corruption. The KACC household (2006) survey cited earlier will be done annually. In addition, the Government has resolved to carry out a nation-wide assessment to measure how corruption and other issues related to public sector performance in governance are perceived by the public. The assessment will examine public service delivery, functioning ofGovernment staff, financial management and procurement. The activity is intended to support a unified vision and design for a statistical development strategy that will improve policy and decision making in the area ofgovernance. It will facilitate monitoring the progress made in broad governance indicators, including targets specified in the IP-ERS and the Anti-corruption Action Plan. To ensure integrity and broad participation, the Government intends to establish a Steering Committee comprising of Permanent Secretaries and representatives ofthe private sector, civil society, media, Parliament and development partners. In addition, to ensure independence ofthe diagnostic process from the executive and credibility ofthe process, data collection and analysis will be undertaken by an independent firm. The time frame for this assessment is currently under discussion, but is expected to be carried out in August-September, 2006. The results are to be widely shared, including through workshops at local and national levels. Currently, the Bank and other development partners, through the Statistical Capacity Building Project, are supporting the collection and analysis ofjustice and crime statistics which would measure the impact ofcrime on the public and the working ofthe criminal and civil justice systems. In March 2006, the project provided computers, software and training for the police, prisons, the judiciary and the probation department to improve the quality and timeliness ofstatistics. Government plans to publish these statistics regularly and to place them in websites from mid-FY2006-07. These steps, and others, have been integrated by Government into the Governance Strategy for Building a Prosperous Kenya (GSPK).

V. World Bank Involvement in the Fight Against Corruption

25. The Bank Group is Directly Supporting a Subset of Priority Actions in Kenya’s GAP. Given the prominence ofthe corruption issue in Kenya, the Bank’s Country Assistance Strategy 2004-2007 (now extended through June 2008) has recently been updated to account for the findings of the numerous audits and analyses of governance at the general and the sector level. In supporting the GSPK and the GAP, the Bank will focus on transparency initiatives (including transparency in the judiciary, and capacity building in the prosecutorial and judicial services); broadening stakeholder involvement, including additional private participation in infrastructure services such as the ports; accelerating public financial management reforms; and improving governance in high-priority sectors-education, HIV/AIDS, health, and roads. Analytic work in such areas as media development, parliamentary and judicial capacity, and police oversight mechanisms will help lay the foundation for the development and governance agenda beyond this GSPWGAP and for the next CAS.

26. Bank’s Comparative Advantage. In identifying priorities for Bank support, we take account of the importance (drawing in part on empirical evidence in the IGA and the findings ofthe DIR) and potential impact ofthe actions; the Government’s leadership and readiness for implementation; the comparative advantage ofthe Bank Group; and what

43 other partners are doing. It should be emphasized that while the GAP is a short-term strategy, focused on actions in the year 2007, the challenges of governance and corruption are large in scale and will require sustained efforts over an extended period of time. Our analytic work (including ongoing audits at the level ofprojects and Government systems) will focus on longer-term objectives and how policy and investments can reinforce them, while laying the groundwork for future operations. Operations-for example, the Institutional Reform and Capacity Building project (IRCB), but also sectoral projects-will also continue to focus on the longer term by supporting the Government in building the capacity of its systems to control corruption.

27. Transparency Initiatives are the First Governance Priority Area for Bank Support. A major pillar ofthe updated GAP is the Government’s significant “transparency deficit.” A Transparency and Communications Infrastructure project, which is part ofa regional ICT initiative, will support the implementation of“e- government,” which will both vastly increase public access to Government information and advance the eventual implementation ofpending freedom-of-information legislation. The Bank is also providing additional support for transparency in specific areas of potential impact. For example, the Bank has provided technical support for the recently passed Statistics Act (2006) and is collaborating in strengthening national capacity to collect, compile, analyze, and publish statistical information. Its assistance in this area will be channeled through a Statistical Capacity Building Project, which will also include support for in-depth governance surveys. Another example is a pilot program to record and disclose court proceedings, in collaboration with the National Council ofLaw Reporting (NCLR). The ongoing Financial and Legal Technical Assistance Project is supporting this pilot and other measures to improve performance along the judicial chain.

28. Broadening Stakeholder Involvement is the Second Governance Priority Area for Bank Support. Given Kenya’s history ofpatrimonial politics, a central challenge is to identify and support interventions that can “crowd in” more stakeholders to ensure that public resources are efficiently and effectively used for the purposes intended. A greater focus on stakeholder involvement will include the following kinds of initiatives:

(a) those that involve informed communities and service users in the delivery and oversight ofservice provision at the front line, including oversight of procurement-for example, parents in school committees in the education S WAp, or community-driven development in the Arid Lands Additional Financing project;

(b) those that foster competitive arrangements for service provision-for example, by supporting private sector participation in the provision ofwater, energy, roads (including a toll-road concession for a stretch of77 km in and around Nairobi), and port services while limiting the potential risks from contingent liabilities that may arise in such public-private partnerships. In addition, LFC has extended a pilot program originally developed in Ghana to support private educational institutions in Kenya and has invested US$32 million investment in the Kenya-

44 Uganda railways. MIGA is providing support for a 45 MW private geothermal power plant;

those that promote synergies between governance and equity-for example, by improving poor people’s access to justice, and increasing opportunities for participation in community-level development planning, monitoring, and evaluation;

those that further develop, deploy, and integrate practical tools for systematic citizedstakeholder participation and monitoring; and

those that create pilots aimed at testing new participatory approaches for service delivery with built-in social accountability.

Selected Public Financial Management and Licensing Reforms are the Third Governance Priority Area for Bank Support. Here Bank support will focus on: (a) procurement reform, including related transparency initiatives; (b) accelerated implementation ofan IFMIS; (c) support for risk-based auditing throughout the Government; and (d) licensing reforms under which about 9 percent of licenses have been eliminated, and another 50 percent are scheduled for harmonization, simplification, or elimination by December 2007 (including about 23 licenses that the private sector has identified as priorities). The financial management activities will be supported mainly through ongoing programs, principally the IRCB project. They will also involve scaled- up attention to standards in the accounting profession through a new partnership with the umbrella professional body, the Institute ofCertified Public Accountants ofKenya. In addition, the Bank Group will scale up its advisory services on licensing reform

30. Governance reforms in high-priority sectors-education, HIV/AIDS, health, roads, and the judiciary-are the fourth area for Bank support. For education, the governance agenda is being extended to the secondary and postsecondary levels and to the Teachers Service Commission under the Bank-supported education S WAp. In HIV/AIDS, the key issues involve remedial action for past misuse offunds administered by the National AIDS Control Council (NACC), and creating a new transparency regime and social accountability measures, including an independent complaint mechanism. Because ofthe measurable progress being made, the World Bank plans to join with the DfID to provide a credit during the first half of 2007 based on the full rollout and careful monitoring ofthe new operational arrangements. In the health sector, the Bank is proceeding on three tracks: (a) through the existing IRCB project, it is providing assistance for the rollout of IFMIS in the Ministry; (b) as chair ofthe donor subgroup on health, it is heavily involved with others in developing a SWAP for health for which the centerpiece will be community-based management ofhealth facilities, with strong fiduciary safeguards, to support piloting this approach);’ and (c) it will partner with

A staff-monitored program (without financing) is in place, with monthly reporting and verification ofprogress.

45 others to scale up successful preventive efforts." For roads, the key governance actions proposed include establishing three autonomous road authorities to streamlined ownership, management, accountability, and financing of all road network activities in the country. These activities (and physical investments) are being supported under the ongoing Northern Corridor Transport Improvement Project (NCTIP), and additional financing would be considered in line with progress in these reforms. Working with development partners in Governance Justice Law, Order and Security (GJL0S")-where the Bank heads the sub-committee on the judiciary-the Bank will provide support for improving the performance ofKenya's judiciary (including clearing the 1.1 million case backlog) through such measures as improved case management, process re-engineering, initiatives such as piloting a judicial clerkship program for top Kenyan law students, and training in Alternative Dispute Resolution methods. It will also support the full automation ofthe recording ofcourt proceedings, building on the pilot exercise.

3 1. Vigorous Efforts will be Required During and Well Beyond the CAS Period. Given the history and scale ofKenya's governance problems, it will take vigorous actions on a broad front over the medium term to achieve sustained gains. The dynamics ofthe election year are also likely to make significant reforms difficult, although not impossible. The Government has enumerated priority actions-from a larger work program-that it believes it can achieve in the short run. In areas in which preparation for implementation is already well advanced-for example, procurement and other financial management reforms-such progress is very likely to occur. We are also working to help consolidate governance improvements in water and sanitation, which the Bank has been supporting since 2004 through a technical assistance project. Other areas that require Parliamentary approval, such as the increase in the number ofjudges, could be delayed. Meanwhile, analytic work in such areas as media development and parliamentary capacity, and police oversight mechanisms will help prepare the governance agenda beyond the timetable set out in the GAP.

32. Safeguarding Bank-funded Operations: Experience highlights the importance ofattention not only to broad strategic aspirations, but also to practical issues of implementation, such as the risk of corruption during project execution, operational staffing and budgets, and partnerships.

33. Additional Measures will Address Systemic Corruption Risks in Lending. All Bank-funded projects benefit from a range ofmeasures (e.g., results-based auditing) being rolled out across Government. In addition, recently approved operations contain a range ofprovisions that reflect the Bank's selective engagement with ministries, agencies, and institutions that champion good governance, and make clear that funds must be used for their intended purpose. For example, the Education Sector Support Program and Arid Lands Additional Financing contain enhanced public disclosure provisions, mechanisms for community monitoring, and independent complaints

10 One example is the private sector/civil society's Global Water Challenge, which involves multinationals, international NGOs, and UNICEF to deliver clean water, sanitation, and hygiene education and support. l1 GJLOS seeks to improve transparency and accountability, empower the poor, marginalized and the vulnerable inter alia by promoting equal access to justice, and police and penal reforms.

46 mechanisms. We will use similar measures to ensure that both existing and new Bank- supported lending operations address issues of governance. In addition, beyond the regular project supervision that addresses policy and institutional issues, each year beginning in FY07 the Bank will undertake an integrated and in-depth technical, procurement, and financial management review ofprojects with high fiduciary risk. This review may include sampling contracts, visually inspecting the actual delivery ofwork, following up on audit findings and recommendations, and reviewing interim financial management reviews. The Bank will also agree with the Government on the release of certain documents that will help enhance the transparency and accountability of Bank- financed projects-for example, aide-mCmoire ofimplementation review missions, audit reports and the Government’s formal responses to them, procurement plans and schedules, bidding documents and requests for proposals, shortlists ofconsultants, and summaries ofbid evaluations that do not reveal confidential commercial information provided by bidders.

34. Work to Build Country Systems will Continue to be an Integral Part of Managing Project Corruption Risks. With overall donor support accounting for only about 5 percent of Kenya’s development spending, measures aimed at protecting externally funded projects (including activities supported by the World Bank Group) are being carefully tailored to maximize impact by benefiting all Government spending. For example, after forensic audits ofBank operations in 2005 showed problems related to faulty accounting practices, lack of fraud risk management, weak oversight by senior Government officials, inconsistent application of the Bank’s Procurement Guidelines, and failure to share lessons learned and best practices, the Bank initiated a dialogue with the Government over systemic anticorruption measures (such as risk-based audit procedures) that the Government has since applied to Bank operations, and more broadly, to strengthen Kenya’s systems. In the same spirit ofKenyan system building, side letters are also being used in project agreements with the World Bank to reinforce implementing agency staff compliance with Kenyan anticorruption laws such as asset declaration, and to promote other transparency measures such as disclosure offinancial statements and audit reports.

35. Bank Staffing, Processes, and Internal Organization will Better Reflect Operational Priorities. A field-based governance adviser will be recruited for the Nairobi office to guide the Bank’s work on governance, and recruitment of additional field-based staff procurement and financial management specialists is in process. A cross-sectoral Operations Risk Mitigation Team will be established, to be chaired by the governance adviser, with a mandate to oversee risk-mitigation actions, advise task teams in the design and preparation ofprojects, share and disseminate information on risks, advise the country management team on strategy for mitigating governance risks, and interface with INT as necessary. In addition, the rolling intensive Country Program Review process will sharpen its focus on corruption issues.

36. Development Partnerships will be Deepened. As we intensify the equity and governance agenda in the Bank assistance program, it will be important to partner meaningfully and transparently with other stakeholders in the spirit ofmutual accountability. The Bank’s comparative advantage is ESW, grounded in qualitative and

47 quantitative research and comparative analysis. But even here the Bank will seek partnerships with other development and research agencies. During the rest ofthe CAS period, we will also mobilize a small team ofexternal reviewers comprising a representative from each ofthe following: (a) the donor subgroup on harmonization, alignment, ,and coordination; (b) the relevant donor sector working group; (c) the relevant professional association; and (d) the civil society/governance network. This team will review all projects proposed for Bank financing. The Bank has also committed to preparing the next Kenya CAS in the context of a Joint Country Assistance Strategy, and to identifying opportunities for greater selectivity and division of labor based on comparative advantage. A particularly important partnership has been that with the International Monetary Fund (IMF): for example, in recent months there has been close collaboration and information sharing between staff ofthe two organizations on issues of governance, structural reforms, and the growth outlook during the preparation for and discussions on the second review under the IMF’s PRGF arrangement and the Article IV consultation. IMF staff also participated in a Bank-led governance mission in July 2006. This close partnership is expected to continue.

Civil Society Partnerships will Receive Additional Support. Within Kenyan society, we propose deepening our partnerships with the private sector, professional bodies, faith- based organizations, youth groups, foundations, and trade unions, and our engagement with parliamentarians and NGOs. For example, through the World Bank’s Parliamentary Network, parliamentarians have engaged the Bank on such issues as the need for analytic work on the functioning ofParliament, collaboration in monitoring and evaluation at the community level, and technical support for key oversight committees. The Institute of Certified Public Accountants ofKenya has approached the Bank for institutional strengthening support to help ensure the quality ofthe professional accounting practice and adoption ofbest practice, including enforcing compliance with international standards. The Bank will seek trust-funded resources to finance a multiyear grants program to support such partnerships.

48 Annex 2: Country and Sector or Program Background

KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

I.Growth and Equity

1. The Country’s rebounding growth continues to be highly unequal. In its early years ofindependence, Kenya was the most prosperous country in East Africa, its GDP per capita rising by 38 percent between 1960 and 1980. The following two decades to 2000, however, recorded a zero increase in per capita GDP, while per capita income in 2003, at US$360, was lower than in 1990. Poverty incidence rose from 49 percent in 1990 to 56 percent in 2003. Kenya’s social indicators have declined in tandem with the economy: infant mortality rose from 63 (per 1,000 births) in 1990 to 78 in 2002. Life expectancy declined from 57 to 46 years, in part due to the HIV/AIDS epidemic. The persisting hunger ofchildren is evidenced in the 19 percent ofunder-fives who are underweight, and almost one in three (3 1 percent) who are wasting (Central Bureau of Statistics, 2004). These are averages, but Kenya is a highly unequal society, with exclusion and disadvantage reflecting stratification by class, gender, and region. Kenya’s Gini coefficient for household income, at 0.57, is much higher than that of its East African neighbors, Uganda and Tanzania, whose coefficients stand at 0.37 and 0.38 respectively (Government ofKenya, 2003). This ranks Kenya as one ofthe ten most unequal countries in the world, and the five most unequal in Africa.

2. The Bank Group’s Kenya CAS 2004-07, was conceived as a strategy of reengagement with Kenya in support of the efforts of a new Government. This entailed supporting an entirely new generation ofprojects and programs that: (i)were closely aligned with Kenya’s PRSP document (the Investment Programme for the Economic Recovery Strategy, or IP-ERS); (ii)reflected the findings ofa large body of analytical work and lessons ofexperience; and (iii)paid considerable attention to institutional reforms in key sectors (energy, water, roads, etc) after over two decades of institutional neglect and deterioration. There is clear evidence that growth has rebounded, in line with base case expectations but even higher broad-based growth is needed, and inequity requires much greater attention. Good macroeconomic management and the reforms implemented contributed to the strongest economic growth in Kenya since the 1980s. GDP growth is expected to exceed 5 percent in 2006, compared to 5.8 percent in 2005 and 4.9 percent in 2004. Growth has resulted primarily from strong increases in agriculture, tourism, building and construction, electricity, telecommunications, and transportation. Manufacturing also contributed to growth, with output up by 5.5 percent in 2005, surpassing the contribution oftraditional exports oftea and coffee combined. Assuming normal rainfall, steady improvements in investment levels and performance, an absence of significant external shocks, growth is expected to remain above 5 percent for the medium term. Analysis shows that total factor productivity and physical capital per capita have been growing at an annual average of 0.8 percent during 2001-05.

49 3. Poverty in Kenya is widespread and deep. About 56 percent ofhouseholds were estimated to be below the poverty line in 2003. At a deeper level, income disparities mirror regional and ethnic divisions. In 1998-2002 the poorest 20 percent of the population received only 6 percent ofnational income, while the richest 20 percent took 49 percent. Therefore, growth will need to be sustained at about 7-8 percent for measurable poverty reduction to be achieved.

4. According to the 1999 national population census, Western Kenya province had a total population of around 4 million people. The districts with the highest population are Bungoma, Kakamega, Vihiga, and Butere. The highest density is in Vihiga (886 per sq km) followed by Butere (508 per sq km), Kakamega (433 per sq km), and Bungoma at (424 per sq km). The poverty incidence in Western Province as a whole is 61 percent (well above the national average). The urban centers ofWestern Kenya have the highest incidences ofpoverty at 80 percent. The poverty situation is aggravated by perennial flooding, mismanagement of natural resources and the HIV/AIDS pandemic, The most affected are women and children, orphans and widows. The poverty situation is making dependency a new culture in many households in Western Kenya, more so in flood-prone areas like Budalang’i.

11. Kenya Water Resource Management (WRM)

5. There are four principal characteristics of Kenya’s water resources that make the management of this key natural resource a articular challenge in Kenya. First, the country has a limited endowment ofjust 650 mY per capita per year of freshwater. This puts it in the “water-scarce” category (the bottom 8 percent ofcountries globally), and means that Kenya has significantly less water per capita than its neighbors. Second, the annual rainfall is highly variable in space and time and varies annually by up to 30 percent above or below the long-term average, partly because Kenya experiences El Nifio-La Nifia- type climate variations. Third, the major rivers ofKenya all originate from only five specific mountainous areas. The management ofthese few “water towers” has consequences throughout Kenya. Fourth, over half ofKenya’s water resources are shared with its neighbors, and is therefore ‘international’ water. These resources need to be managed cooperatively within agreed frameworks in order to avoid tensions and ensure that the benefits ofthe nation’s water are available to all.

6. Degradation of critical catchments is compounding an already difficult challenge. In addition to the natural variability ofrainfall, there are many factors which affect the quantity and quality ofwater which is available to perform essential environmental functions and for productive use. A key factor is the degradation of catchment areas as a result ofincreasing population pressure. Deforestation, poor land use practices, steep slope and river bank cultivation, all lead to erosion and the loss of valuable soil cover which in turn results in very high sediment loads in streams and rivers which is carried downstream and deposited in reservoirs, lakes, wetlands, and coastal areas. This reduces the economic life ofreservoirs, reduces the hydraulic capacity of water conveyance facilities, disrupts water supply operations, and affects the ecological functioning ofnatural areas.

50 7. There has been underinvestment is water storage facilities. Kenya has not invested adequately in the water storage called for by the 1992 National Water Master Plan and the subsequent After Care Study Report of 1998. The consequence is that, in the face ofboth population growth and the depreciating asset base, the maximum per capita storage ofsurface water (excluding energy uses) has declined from 11.4 m3in 1969 to only 4.3 m3by 1999. The recent reforms ofpolicy, legislation and institutional arrangements in the sector have begun to redress some ofthese trends.

8. The World Bank undertook a detailed assessment of the water resources situation in Kenya which was published in May 2004. The Memorandum clearly indicated the linkages between the management and development ofwater resources and the performance ofthe economy, including the incidence ofpoverty. The consequences ofpoor management ofthe resource and long term under-investment in water related infrastructure has resulted in the country being critically vulnerable to water shocks of drought and flood. Recurrent droughts and floods have consequently directly resulted in identifiable impacts on the national economy - the largely unrecorded impacts on the poorest sections ofthe Kenyan population have been devastating and have contributed to sustained and deepening poverty in many regions in the country.

9. The National Policy on Water Resources Management and Development (Sessional Paper No. 1 of 1999) was adopted by the Cabinet in 1999. The policy addresses both WRM and WSS service delivery issues. Its objectives were to preserve, conserve, and protect available water resources and allocate those resources in a sustainable, rational, and economical way; supply water of good quality and in sufficient quantities to meet the various water needs, including poverty alleviation, while ensuring safe disposal ofwastewater and environmental protection; establish an efficient and effective institutional framework to achieve a systematic development and management ofthe water sector; and develop a sustainable financing system for effective WRM, water supply, and sanitation development.

10. The policy adopted integrated WRM as a framework for addressing water needs for multiple uses-domestic, agriculture, industry, and livestock. It clarified the roles of the Government as primarily the regulator and manager ofwater resources, the private and public sectors as providers ofWSS services, and the community as contributors to WRM. The policy adopts river basins (catchments) as planning and management units and proposes that catchment bodies become responsible for advising on water allocation decisions to promote transparency and accountability. It called for the WSS service delivery functions ofthe Water Department to be separated from water resources regulatory and management functions. The policy established volumetric fees for water abstraction for funding the assessment, monitoring, conservation, and management ofwater resources and adopted a “polluter pays principle” as a mechanism for controlling pollution. The policy committed to a review and update ofthe water legislation in order to implement these principles.

11. Important legislative reforms have been instituted The Water Act 2002 replaced the Water Act Cap 372 in late 2002. It provides an improved legislative framework for more effective “management, conservation, use and control ofwater

51 resources and for the acquisition and regulation ofrights to use water; and provide for the regulation and management ofwater supply and sewerage services.” The act provides legislative backing for many ofthe principles of the policy, including:

separating WRM from water services;

creating administrative autonomy by establishing the WRMA as an arm’s length institution charged with the management ofKenya’s water resources;

forming catchment area WRM strategies, establishing catchment-based regional offices ofthe WRMA, and appointing Catchment Area Advisory Committees (CAACs);

calling for a National Water Resources Management Strategies and Catchment Management Strategies (CMS);

providing for community involvement in WRM and conflict resolution through WRUAs;

introducing a system ofuser fees to be levied on the abstraction and use of raw water to fund the costs for WRM;

introducing polluter pays principles for enforcing pollution control; and

introducing a “water reserve” to safeguard minimum water requirements for basic human needs and ecosystem protection and granting the “water reserve” a high priority in the water allocation decision making.

The water reform process has received strong support from the donor community in particular the Swedish International Development Assistance (SIDA)/Danish International Development Assistance (Danida) Kenya WSS Programme which consists of support to 3 components: (a) rural WSS; (b) WRM; and (c) support to water sector reform (WSR). GTZ has also strongly supported the sector.

13. There remain a number of areas where harmonization of policy and legislation is required between the new water sector reforms and the policy and legislation of other sectors such as environment, land, and agriculture. This is being addressed through the NRM Project. The policy and legislation provide a sound basis for the reform ofthe sector in Kenya and significant progress has already been made in implementation, particularly with regards to the establishment ofnew institutions such as the WRMA.

14. Institution a1 Arrangements and Responsibilities:

(a) Mo WI. The MoWIis the lead agency in the sector and is responsible for sector strategy, policy and legislation. The Ministry has been substantially down-sized through the reform process from an institution with several thousand employees to ultimately under 200 once the reform process is complete. The four main

52 subsidiary institutions which fall under the authority ofthe Ministry and have responsibility for implementing water related activities are the newly established the National Water Conservation and Pipeline Corporation (NWCPC), WRMA, Water Services Boards and the National Irrigation Board (NIB).

(b) NWCPC. NWCPC was established under the State Corporations Act, Chapter 446 by Legal Notice No 270 of 1988. The role ofthe NWCPC is to construct and manage, on behalf ofthe Minster, publicly funded state schemes for the provision ofbulk water supplies, including water storage infrastructure. In addition, other works which the Minister is empowered to undertake, may be undertaken on his behalf either by the NWCPC or by other public bodies, which the Minister may appoint.

(c) Wuter Sewices Trust Fund (WSTF). WSTF (established in 2005) is responsible for resources mobilization and provision offinancial assistance towards water and sanitation services to areas ofKenya without adequate water and sanitation services. In discharging its mandate, the WSTF gives priority to poor and disadvantaged communities by capturing and disbursing donations, grants and funds allocated by the exchequer and development partners.

(d) WRMA. The WRMA will play a key role in the implementation ofthe project and is therefore described in detail. The authority is the lead agency in WRM and its overall development objective is to ensure a rational and effective framework to meet the water needs ofnational economic development, poverty alleviation, environmental protection and social well-being ofthe people.

15. WRMA is responsible for the regulation of the use of water resources with a view to ensuring the sustainable management of the nation’s water resources. The mandate ofWRMA includes responsibility for the conservation ofwater resources but does not however directly extend to responsibility for the construction implementation of water storage facilities such as dams.

16. The WRMA officially commenced it operations on the 1st July 2005 with approximately 20 staff. Since then it has established its National Office, 6 Regional Offices, and begun the process ofestablishing 25 sub regional offices (Figure 2-1). The mandate ofWRMA includes facilitating the establishment ofWRUAs and assisting them in their development and operation. The establishment ofthe CAACs and support to the operations ofnumerous WRUAs encompasses an important part ofits present work load.

17. The Nzoia River Basin and Yala River basin fall within the LVNWRMA which is headquartered in the town ofKakamega. Detailed information on the methodologies used and activities ofthe LVNWRMA Regional Office with regards to catchment management in the Nzoia River Basin is given in the Catchment Management section below.

18. In addition to establishing its institutional base throughout the country the WRMA is in the process ofclarifying its modus operandi related to how it engages with

53 different water users, how it supports WRUAs, how it performs its regulatory functions, how funds are allocated and flow for different activities etc. This is a critical phase ofthe country's reform process because many ofthese practical details are not addressed in the overarching national policy or the legislation. It is vitally important that conflicts of interest are avoided which in the long term will undermine the abilities ofthe different agencies to fulfill their mandates.

19. One of the most important issues is for the WRMA to maintain its role of regulator of all water resource related activities-it cannot at the same time be both the regulator and the developer ofwater resources at any scale (community or large scale water resources development). However, it cannot remain a passive player and needs to actively promote good practice in water resources and catchment management or the current degradation ofthe country's natural resources will continue and people's rights to the proper use ofresources (especially the poor) will not be met. The solution to this dilemma which the WRMA is in the process of setting up is to support the planning of WRUAs to undertake proper catchment management activities through the development of Catchment Management Plans, within the context ofregional CMS, and then provide a clearing function to ensure that plans meet required standards. The financing ofthe initial stages ofWRUA establishment and planning will be financed through the WRMA to catalyze the process but the financing ofthe implementation ofthe plans will not be through the WRMA to avoid the inherent conflict ofinterest for being regulator and developer.

111. Description of Nzoia River Basin

20. Catchment description: Nzoia Basin lies between latitudes 1'30'N and 0'05 'S and longitudes 34" and 35'45' E. The basin is approximately 334 km long, with a catchment area ofabout 12,900 km2 and a mean annual discharge of 1.78 x 106 m3. Nzoia River originates in Mt. Elgon and Cherangani Hills at a mean elevation of2,300 m and drains into Lake Victoria at an elevation of 1,000 m. It lies within the southeastern part ofMt. Elgon, the western slopes of Cherangani Hills and the northwestern slopes of Nandi Hills.

21. Nzoia River is ofinternational importance as it contributes the second highest flow to the shared waters ofLake Victoria which is part ofthe Nile Basin system. The mean annual night temperatures range from 4°C in the highland areas to 16°C in the semi- arid areas. Mean annual rainfall varies from a maximum of 1,100-2,700 mm to a minimum of600-1,100 mm.

22. The economy ofthe region is still largely rural and more than 90 percent ofthe population earns its living from agriculture and livestock. The farms are privately owned and on average are 1-3 ha in size. However, large commercial farms with an average of 50-100 ha or more characterize such districts as Trans-Nzoia and Uasin-Gishu. The main food crops include maize, sorghum, millet, bananas, groundnuts, beans, potatoes and cassava, while cash crops consist ofcoffee, sugarcane, tea, wheat, rice, sunflower and horticultural crops. Dairy farming is also practiced together with livestock keeping. The main challenges in the basin include soil erosion and sedimentation, deforestation,

54 flooding, wetland degradation, pollution and solid waste management, river bank cultivation, humadwildlife conflict and poorly developed infrastructure.

23. The economic importance of the Basin is substantial. The Nzoia River Basin is ofgreat economic importance at local as well as national levels especially in such sectors as agriculture, tourism, fishing, forestry and mining. It is also the main source of water for domestic, agricultural, commercial and industrial sectors. Major industries established in Western Kenya include Panpaper Mills at Webuye; Nzoia, Mumias and West Kenya Sugar Companies. In addition, there are numerous minor sugar factories Cjaggeries), coffee roasters, wood processors and tea factories. Other factories are found in Eldoret, Kitale and Kapsabet areas. The local communities provide labour for these industries, from which they obtain income to supplement their subsistence activities.

24. Hydrology. The Nzoia catchment experiences two rainy and two dry seasons. The rainy season are known as the long rains (March to May) and the short rains (October to December). The area is principally classified as tropical/humid. Average rainfall over the catchment is approximately 1,100 mm.

25. Average Annual Flow. Based on measured flow data at gauge 01EF01, the most downstream gauge in the Nzoia River, its average annual flow is 3,755 mcm per year. The time ofconcentration ofthe catchment, i.e. the time it takes for a drop ofwater to flow from the most upstream portion ofthe catchment to its mouth at Lake Victoria, is estimated as approximately three days.

26. Flood magnitude. Initial estimates ofthe magnitudes offloods at the lower end ofthe catchment, where it enters Lake Victoria, are shown in the Table 2-1. These initial estimates, taken from the preparation studies, appear high. The information available from historical stream flow records is very limited. Floods exceed the magnitude ofthe stream flow gauges in the catchment. The figures are therefore extrapolated using mathematical models. Further optimization ofthe hydrological models may indicate floods with lower magnitudes.

Table 2-1: Estimates of the Magnitudes of Floods at the Lower Catchment I Recurrence Interval (yr) I Peak Discharge (m3/s) 1 Volume (million m3> I 10 2,367 607 20 2,671 684 50 3,073 785 100 3.381 863

27. Sediment yield. The sediment yield from the catchment ofthe Nzoia River ranges from a low of about 50 t/km2/yr to maximum values ranging between 600-700 t/km2/year. The high sediment yields represent areas where severe land degradation has occurred. The Lake Victoria Environment Management Project (LVEMP) Sedimentation

55 StudyI2 estimated the average sediment yield at the mouth ofthe Nzoia River into Lake Victoria as 80 t/km2/yr (about 1,029,820 t/yr), with a high estimate ofthe probable value equaling 218 t/km2/yr (about 2,795,892 t/yr). Compared with rivers elsewhere in the world with very high sediment yields, such as the Yellow River in China with a sediment yield of2,270 t/km2/yr, the estimated range ofsediment yield for the Nzoia catchment is not exceptionally high. Preliminary estimates ofthe potential effects ofreservoir sedimentation on the flood control dams under consideration in the Nzoia catchment indicates that reservoir sedimentation is likely to have a minor to insignificant adverse effect on the economic viability ofthese facilities.

28. Nzoia Flood plain. In its upper reaches from 135-257 km in the highlands, the river flows in a slightly meandering V shaped valley. The width ofthe channel is about 40 m and bed gradient 1 in 240. There are a few human settlements on the valley bottom with uncontrolled cattle grazing in the watershed areas. In the middle reaches from 20- 135 km the river meanders over a narrow valley floor with a channel width of 50 m and bed slope of 1 in 390. The area has more human settlements on the valley bottom with increased human activity, mainly in the nature of subsistence agriculture and livestock farming. In the last 20 km reach up to its outfall into the lake, the bed slope flattens to 1 in 3,400 as the river meanders through a wide flood plain and the Yala Swamp. The channel width increases to 70 m and the height ofthe banks reduces considerably, which causes spilling of floodwaters over the banks and consequent flooding of large areas on either side. The density ofhuman settlements is pronounced with considerable economic activity in the form of agriculture and livestock farming.

29. The low-lying areas ofBusia district especially the Yala Swamp are affected due to large scale flooding from the Yala and Nzoia Rivers. An area of about 110 km2is affected almost every year with depth of inundation ranging from 0.5 m to 1 m and lasting about a month. The floods cause serious damage to agricultural crops-mainly paddy and maize, and loss oflivestock. Road communications are badly disrupted often with damage to roads and bridges.

30. Major floods occurred in the low-lying parts ofthe Lake Victoria catchment in 1937, 1947, 1951, 1957-58, 1961, 1978 and 1988. In recent years there were 3 major flood events in 1997-98,2002 and 2003. The 1997-98 flood was the consequence ofEl Nino related long and intensive rainfall during the months ofOctober and November when precipitation was 300 percent ofthe normal. The floods had a tremendous impact on the environment and the population. In Budalangi Division ofBusia district more than 12,000 people were affected due to floods in Nzoia River. The dikes suffered extensive damage due to over topping and breaches which cost the Government over Ksh 42 million in repair and rehabilitation. The floods of 2002 and 2003 were ofshorter duration. These events took place in April, May and November 2002 and April-May 2003 and affected the Kano Plains and the Budalangi area. These floods were caused due to heavy and concentrated rainfall in the upper catchments ofNzoia and Nyando rivers.

12 Lake Victoria Environnemental Management Project (LVEMP) (2005). Pilot Study on Sedimentation and Sediment Characteristics onNyando and Nzoia River Mouths and Winam Gulf ofLake Victoria. Matieland: Institute for Water and Environmental Engineering, University of Stellenbosch.

56 The problem in the Nyando river flood plains and the Budalangi division was aggravated due to breaches in the dikes caused during the 1997-98 floods.

3 1. There are significant financial costs directly attributable to the floods. The assessment made after 2003 floods, in the last 20 km reach ofthe Nzoia River showed that the annual damage is ofthe order ofKsh 46 million. An amount ofKsh 63 million is spent every year on relief and rehabilitation of about 12,000 displaced people. The repair and restoration of damaged dikes is expected to cost Ksh 37.2 million.

32. There is no sustained program of maintenance of the dikes or overall management of the floodplain. Occasional repair work is undertaken on breeches and eroded sections ofthe dikes. During high flow periods sediment loads of27,000 tons per day are recorded in the lower reaches ofthe Nzoia River. Sediment deposition in the floodplain has reduced the stream flow capacity ofthe lower reaches ofthe river and in places resulted in elevated river bed conditions. Flooding in the Budalang’i Division of the Busia District is clearly becoming more frequent and is caused by smaller rainfall events than in the past. Flooding is now expected during average rainy seasons. There is evidence, as quoted by the District Disaster Management Committee13, that community members are responsible for breaking dikes to provide water for fishing and to irrigate lands. The dikes are in a poor state ofrepair and the area between the dikes is overgrown with vegetation which constricts flow. In the current situation the structures originally designed to protect the community from flooding are now exacerbating the situation. Whereas previously flooding events were catastrophic but lasted for a relatively short period, now flood waters have no way ofdraining out ofthe floodplain and back into the river stream. The flood waters now inundate large areas for up to three months.

IV. Land Tenure and Resettlement

33. Kenya has not had a clearly defined or codified National Land Policy since independence. From 2004, the Government has embarked on the formulation ofa National Land Policy through a widely consultative process, with the aim ofproducing a policy whose vision is to guide the country towards a sustainable and equitable use of land. The first draft ofthe policy was published in October 2006. The policy designates all land in Kenya s public, community, or private. Most significantly, it recognizes and protects customary rights to land. Land issues requiring special intervention, such as historical injustices, land rights ofminority communities such as hunter-gatherers, forest dwellers and pastoralists, and vulnerable groups will be addressed. The rights ofthese groups will be recognized and protected. Measures will be initiated to identify such groups and ensure their access to land and participation in decision making over land and land based resources. In addition, the land policy intends to establish clear criteria and guidelines on resettlement to ensure it is carried out in a transparent and accountable manner. Mechanisms for extinction of land rights in the interest ofsustainable management ofland-based natural resource and also for prompt and adequate compensation to communities and/or private entities whose land rights are extinguished will be put in place. The parallel NRM Project w?llassist the Government in designing

13 Government of Kenya (2004). Red Cross Flood Assessment. ApriliMay.

57 the needed legislative and institutional framework for implementing the policy as regards forests and water catchments.

58 Annex 3: Major Related Projects Financed by the Bank and/or other Agencies KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

I.World Bank Financed Projects

Latest Supervision (PSR) Ratings* Sector Issues Projects (Bank-financed projects only) :mplementation Development Progress (IP) Objective (DO) Drought Management Arid Lands Resource Management S S and CDD Project Phase 2 (Ongoing) Western Kenya Integrated Environment Ecosystem Management Project S S (Ongoing) Agricultural Policy and Kenya Agricultural Productivity Institutional Reforms Project (Ongoing) I MS I MS I Government Sector Natural Resource Management Reform, NRM Project (Under preparation) Kenya Agricultural Productivity Agricultural Extension and Sustainable Land Management and Research (Under preparation) Lake Victoria Environmental Environment Management Projects Phase 2 (Under Preparation) Water and Sanitation Service Water and Improvement Project (Under Sanitation Preparation)

11. Projects Financed by Other development agencies I Development Agencies 1 Projects I Water Sector Development Programme (Nzoia-Cluster) Phase I I KfW I and11 Integrated Flood Management Study ofNyando River Basin ,ration Agency e FranGaise de Kisumu Water and Sanitation Project innernen t European Union Kakamega Forest Biodiversity Conservation Project Africa Development Bank Green Zones Development Support Project SIDAiDanida Kenya Water and Sanitation Sector Programme GTZ German Technical Co-operation Natural Disaster Prevention and Mitigation Programme Associated Programme on Flood Management urganization 1.ake Victoria Rasin Flood Strateuv I

59 1. Development Partners in the Water Sector: The World Bank has been in discussions with other development partners in recent years as the Kenya water sector reforms have been developed. In particular related to WRM, the World Bank has been supportive ofthe use of grant funds to support the establishment the WRMA and its Regional Offices and to build the capacity ofthese new institutions. Since 2004 discussions have been held regarding the support by the World Bank ofcatchment management investments through the WRMA and the WRUAs using credit finance. This strategy has worked well given to progress in the establishment of the WRMA and preparation ofthe current World Bank operations - the WKCDDFM and NRM Projects, both ofwhich will depend upon the WRMA and its regional offices for the implementation ofthe catchment management components of the project. The implementation ofthese investments would have been considerably more difficult (if possible at all) in the absence ofthe WRMA.

2. SIDA and Danida: The Kenya Water and Sanitation Sector Programme (KWSP) with Swedish and Danish support is a long-term commitment by the Donors, with the first Programme Document covering the period 2005-09. The primary objective ofthe program is to support the Water Sector Reform process and aims to pave the way for a SWAP to Planning. The current program has been preceded by support to the sector from SIDA for many years.

3. The KWSP comprises three components: (a) Rural WSS; (b) WRM; and (c) Support to Water Sector Reform. The WRM component ofthe KWSP has been central to the support ofthe establishment ofthe WRMA including the regional offices and initial catchment based activities throughout the country, particularly in light ofthe under-funding ofthe new institution from the central Government. Through both direct funding the provision ofhighly competent Technical Assistance, the KWSP, has been a key element in the successful implementation of sector reforms to date.

4. GTZ GTZ supports the Government in implementing the new water law, thereby promoting the poor population's access to quality-controlled drinking water and a regulated sanitation system.

5. The program is intended to optimize available resources and their management and use. Support measures include:

(a) setting up of an independent regulatory body for water utilities;

(b) commercialization ofwater utilities;

(c) establishment ofregional branch offices ofthe Water Authority, development of framework water management schedules; and

(d) development and introduction ofschedules to communicate reform measures and their implications.

6. Regional priorities ofthe program are in West and Central Kenya. The program executing body is the Water and Irrigation Ministry. The program is implemented in

60 close coordination with KfW Entwicklungsbank (development bank), the German Development Service and a number ofbilateral and multilateral development partners. Close cooperation with the World Bank has also been agreed.

7. The program has already shown some initial success and most ofthe new institutions are being established. WSS has improved in the towns ofNyeri and Eldoret, where local funding was used to reduce water losses by around 40 percent over the last three years, introduce water meters throughout the towns, and extend the area served by the facilities. The core element ofthe systematic drive in that area is the systematic expansion ofthe revenue base.

8. World Meteorological Organization (WMO): The WMO has been supporting countries in managing natural disasters through its different programs mainly by issuing forecasts and early warning ofhydrometeorological events and by providing long-term data on the weather, water and climate events for planning preventive measures. In addition WMO has launched the Natural Disaster Prevention and Mitigation Programme to help bring synergy among the related strategies, programs and plans ofaction and to inculcate a culture ofprevention.

9. Regarding flood management, the Associated Programme on Flood Management, a joint initiative ofthe WMO and the Global Water Partnership, promotes the concept of integrated flood management. Integrated flood management aims at maximizing net benefits from flood plains and minimizing loss oflife by reducing the vulnerability ofthe society to flood risks through an optimal mix of structural and non-structural measures. The Lake Victoria Basin Flood Strategy, prepared under the Associated Programme on Flood Management in 2004, is a pilot project which will lead to the development of a national Flood Management Strategy.

61 Annex 4: Results Framework and Monitoring

KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

‘ The objective of project is to Number of men and women To determine effective ways of empower local communities actively participating in decision engaging men and women in the of men and women to engage making at community and district decision making process. in sustainable and wealth levels. creating livelihood activities Percent of community and youth To evaluate impact of the interventions and reduce their vulnerability investment projects rated in reducing poverty and income to flooding. satisfactory or better by vulnerability of households. participating communities. Percentage increase in real income To assess the impact of the projects in of households in project reducing vulnerability of communities intervention areas. to flooding. Percentage reduction of financial cost induced by average annual flooding in the Budalangi flood plain (property damages, agricultural damages and resettlement costs.

Intermediate come Outcomes Component 1. Community Driven Development Sub-component 1.1 Sub-component 1.1 Sub-component 1.1 Enhanced communities’ 1. Number of Community Action To identify weaknesses and strengths in ability to plan, manage and Plans (CAPs ) and Youth Action the implementation of the community implement prioritized Plans (YAPs) developed and driven investments. investments at the community operationalized. level 2. The proportion of the population, To evaluate the community participation under-five children and pregnant in development through CAPs and women that sleep under ITNs. YAPs. 3. A community foundation established and facilitated in the To evaluate the projects effectiveness in project intervention area. providing increased access to and use of ITN. Sub-component 1.2 Sub-component 1.2 Sub-component 1.2 Enhanced capacity of local 1. Number of DSGs established with To evaluate the local government authorities for development the capacity to identify ability to prioritize and plan investments investment planning and appropriate intercommunity for improved resource allocation. response mechanisms at the investments. district and higher levels 2. Number of locally identified investment plans approved and funded. 3. Percent of DSG sanctioned annual work plans implemented.

Component 2. Flood Mitigation

62 Sub-component 2.1 Sub-component 2.1 Sub-component 2.1 Catchment management I. Percent of households adopting To assess the feasibility ofhouseholds enhanced by promoting recommended land use practices adopting sustainable land use practices. sustainable land use practices within the targeted micro- in the project intervention catchments. To evaluate the effectiveness of areas. l. Number of appropriate soil and investments in sustainable land use water conservation projects practices on sediment loads in the undertaken. catchment. 3. Percent reduction in sediment load in rivers in the targeted micro- The evaluate the community micro- catchments. catchment plans contribution in natural $. Number of Micro-Catchments resource management. Action Plans (MCAPs) prepared and approved.

Sub-component 2.2 Sub-component 2.2 Sub-component 2.2 Preparation for the 1. Percent completion of long-term Enable the Government to make multipurpose long-term flood multipurpose flood management informed decision on the multipurpose management option preparation up to but not flood mitigation investment. including detailed design

Sub-component 2.3 Sub-component 2.3 Sub-component 2.2 Enhanced flood plain 1. Length of dikes rehabilitated and To assess the effectiveness of flood management in the Budalangi maintained in the Nzoia River plain management activities. plains flood channel. 2. Proportion of households per hectare affected by floods in the Budalangi flood plain.

Sub-component 2.4 Sub-component 2.4 Sub-component 2.4 Develop and institutionalize a 1. Percent completion in To evaluate the reduction in the negative proactive mechanism for a establishment of a community impact of flooding to the communities community based flood early responsive flood monitoring due to the early warning system. warning system system. 2. Percent completion of Evaluate the effectiveness of relief establishment of a disaster efforts in the event of a disaster. management and communication system.

Intermediate Int e Outcomes

Component 3. Implementation Support Sub-component 3.1 Sub-component 3.1 Sub-component 3.1 Support to policy analysis, 1. Number policy-related studies To gauge how the voice of people from advocacy and local relevant to local socio-economic project areas in local and national development development and the environment development was strengthened as completed. reflected by integration oftheir concerns 2. Number of policy advocacy in national level policies. forums conducted.

63 Sub-component 3.2 Sub-component 3.2 Sub-Component 3.2 Capacity built for effective 1. Proportion of the DSGs whose data To assess the management effectiveness M&E and project base are complete every year.. of DSG’s. implementation 2. Proportion of the M&E indicators that are included in the semi- To evaluate the M&E capacity of the annual progress. PCU. 3. Proportion of external project impact evaluation that are rated To evaluate the ability to facilitate a satisfactory or above. rigorous impact evaluation analysis and 4. Percent of disbursements and attribute changes in project outcome procurements done according to indicators to the supported interventions. costs and time schedules identified in the PIP.

I.The M&E Framework

1. The M&E system will be supported by project funds and draw on a number of information sources including: (a) administrative data collected through the project information system; (b) specially designed qualitative and quantitative household survey instruments; (c) use ofexisting and collection ofnew geo-referenced data; as well as (d) specially collected environmental and ecosystem health indicators. This M&E system builds on the successful experience ofprevious projects; in particular the ALRMP in Kenya and Tanzania First Social Action Fund Project (TASAF) in Tanzania. This M&E framework will enable and ensure regular monitoring ofproject inputs, outputs and outcomes. Key measures ofsuccess in this project will include indicators ofpoverty, income diversification and vulnerability measured through carefully designed periodic household surveys in the ten Districts. Special attention will also be given to the measurement of“empowerment”-a core project outcome indicator-through a combination ofqualitative and quantitative techniques. Resource management success will be measured by tracking biodiversity and ecosystem health markers. Flood mitigation will be assessed through monitoring the incidence offlood-induced costs and the incidence ofcommunity displacements.

2. The M&E system will be an integral part ofthe project that appropriately informs the project management decision during project implementation. An M&E expert will be hired by the project at the national project coordination level to oversee the M&E process. At the DSG level, appropriate capacity building training will be undertaken for the key staff involved in the implementation, particularly the DPCs. The M&E activities will be supported by the centralized MIS at the KARI through which synergies with other programs being implemented by the Government and other partners will be exploited. The use of a centralized MIS to support M&E will also promote the institutionalization of M&E within the Government system.

3. Aiming to contribute towards a broader goal of setting new best practice standards, the project’s M&E system will be integrated in a broader framework that incorporates four other World Bank financed Kenyan projects in the rural development sector. A key feature ofthis integrated approach piloted in Kenya by the rural development sector is the inclusion of identical core modules in the project’s baseline and follow-up household surveys. These modules will be comparable to nationally

64 representative surveys and censuses collected independently by the Central Bureau of Statistics. This will enable a joint analysis to measure and determine how beneficiaries’ welfare conditions differ and evolve between various projects as well as vis-a-vis the national trends. In addition to linking household surveys, a geo-referenced database will be build to integrated key information on the various project areas including: agro- climatic conditions, access to service delivery points and networks as well as pinpointing specific project interventions.

65 11. The Impact Evaluation Framework

4. Impact Evaluation will be independently conducted by a recognized institution to ensure objectivity in the process. Using these M&E data, especially the socio-economic household surveys, the project will also support an independent impact assessment system to measure what changes in poverty and well-being can be attributed specifically to the project. The impact evaluation strategy will be developed around key design and implementation features ofthe project and of selection process ofbeneficiary communities under sub-component 1.1 in particular.

5. Not all the communities in the ten Districts can be covered by sub-component 1.1 and therefore consistent prioritization and targeting will be instituted. A sub- sample ofeligible communities will be identified on the basis ofeligibility criteria (based on a community-level database ofneeds and poverty indicators). To ensure a fair and equitable distribution ofproject funds, all ofthe eligible communities in each District will have an equal chance ofbeing selected for sub-component 1.1 via a random draw. The baseline and follow-up household survey sample will be designed to include communities that are randomly selected to receive support for micro-proj ects under sub-component 1.1, those that are eligible but where not randomly selected, and those that are deemed ineligible. The impact evaluation design will then utilize single and double difference comparison methods of project development indicators based on the randomized assignment of beneficiary villages. This will enable specific attribution of improvements in these outcome indicators to the project as well as examining whether some households are able to benefit relatively more than others and why. This carefully designed impact evaluation approach will provide valuable insights for making potential improvements in project implementation during the MTR and for possibly scaling up project components in other areas and regions.

111. Social Accountability Mechanisms

6. Mechanisms will be established. The project would promote and set up specific social accountability mechanisms and systems within and between all stakeholders; project management, central and local government institutions, CSOs, communities and service providers, and between the Foundation and the communities. Among other instruments, score cards, report cards and social audits will be used to ensure accountability. The project would promote transparency by openly displaying all financial and physical information in accessible form. Social Audit Sub-committees will use input and expenditure tracking and report cards to develop a culture of accountability within communities. This information will be used for developing rating system for project components, and would be scaled up with local government and other participating institutions.

7. The project will seek to develop and implement a social accountability strategy in the project area with a view to building a culture ofdownward and horizontal accountability among stakeholders with the hope ofultimately influencing social accountability at the national level. There will therefore be the need for an assessment of current levels and practices of social accountability so that the strategy builds and

66 strengthens current practice. Capacity building ofstakeholders on social accountability will need to be undertaken at the early stage ofimplementation; a national or regional level institution will be charged with the implementation ofthe social accountability framework which will include, building capacity ofcommunities, development of SA mechanisms, and supervision ofimplementation.

IV. Project implementation benchmarks

8. Given the length of the project, at the end of the second year of implementation, an intermediate and rigorous project review will be conducted. This review will assess the progress made by the implementing agency on the specified benchmarks. The MTR will be conducted during the fifth year ofthe project, three years after the intermediate extensive review. Regular supervision missions will be carried out every six months to monitor progress. This review will adopt the terms ofreference ofa regular midterm review and assess the progress to date on the implementation and disbursement schedules; assess the achievement ofthe objectives and outputs by component to date following the project design summary; assess the institutional development impact to date; identify major factors affecting implementation and outcome and discuss actions for improvement and assess the need for restructuring ofcomponents.

(a) Hiring of all staff at all levels within the first six months. Hiring of all project staff will be completed within the first six months of effectiveness. This is considered feasible since the hiring ofmost ofthe national level staff will have been started before effectiveness. The recruitment ofthe DPCs and other district level staff (financial assistant, supplies assistant, secretary) will be completed within the first six months ofproject effectiveness. Inability to hire staff within the specified period will be an indication oflack ofreadiness and may result in cancellation ofcertain resources earmarked for the year lost.

(b) Establishment of DSG and district offices during the first six months of the project. The DSGs are the instruments ofimplementation ofmajority ofthe activities ofthe project. In each ofthe 10 target districts, a DSG will be established within the first three months. Although the composition and the working arrangements ofthe DSGs will be district-specific, general guidelines provided by the PCUwhich is based on the project implementation manual will be followed. This will be followed by the setting up ofthe physical facilities (office space, computers, printers etc.). The offices will be necessary to facilitate implementation ofthe project at the district and community levels. Failure to set up functioning DSGs by the end ofthe second year would result in reallocation of from the district affected to a more proactive districts for scaling up ofits activities.

(c) Completion of collection of the baseline data within the first year. Baseline data is a necessary to be able to demonstrate the impact ofproject and for carrying out ofeffective impact evaluation. Many ofthe project’s intermediate outcome indicators already have baseline data. The gaps that exist in the baseline data for the indicators will be filled using different methods, and all completed within the

67 first year ofproject effectiveness. Surveys will be conducted at the household level and at the community level to generate the required indicators. The PCU will coordinate the execution ofthe surveys. Other baseline data like sedimentation rates will also be gathered by the respective implementing agencies under the auspices ofthe PCU. Collection ofall the baseline data should be completed by the first year after effectiveness. Failure to obtain appropriate baseline data within the first may be construed to imply the indicator(s) are inappropriate and warrant its (their) revision.

68 0>I c t 3 o?

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0 I 3 c^i

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3 b Annex 5: Detailed Project Description KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

1. The proposed Western Kenya CDD/FM Project will include the following three components :

Component 1: Community Driven Development (US$45.8 million, of which US$37.1 million funded by IDA)

2. The CDD component will support community-prioritized investment projects to improve livelihoods and build demand and capacity for local level development at community and district level.

3. Subcomponent 1.1 Prioritized Investments and Capacity Building at Community Level (US$33.2 million, of which US$26.0 million funded by IDA). This component will finance livelihoods-based micro-proj ects identified by communities and enhance their capacities to plan, manage and implement development activities. The target is to reach 480 communities over the eight years ofproject implementation, making available up to US$15,000 for micro-projects in each community.

4. Other sources offunding, notably the CDF, are available to finance social infrastructure, and the comprehensive planning process will take account ofthese in developing integrated community-level plans. It is therefore anticipated that project financing will support: (a) the promotion of livelihoods and income generation activities; and (b) the support ofvulnerable groups. Micro-project grants will be provided to groups rather than individuals, so as to spread the benefits to a larger number ofpeople and finance assets that could not be financed by a grant to an individual. Candidate investments will include activities or facilities that raise the productive potential ofthe community by facilitating the pursuit ofincome-generating activities by improving technical knowledge, input supply, productivity, marketing etc. Examples may include feeder road rehabilitation, processing facilities, a harbor or cold storage for fishing, marketing facilities, marketing opportunities and arrangements for products medicinal herbs, etc. Support may include the development of local organizations that can facilitate input supply, storage, and marketing, either directly or in partnership with other private firms, and the creation oflinkages between communities and the private sector. Initiatives supporting vulnerable groups (as enumerated in section 4) will also be eligible for funding. The risks of inefficient use ofpublic resources, political capture, nepotism or conflict will be mitigated by the transparent process of selection and the requirement for a beneficiary contribution of 30 percent ofproject costs shall be in cash or in kind or both. Each micro-project will incorporate transparent social monitoring mechanism to ensure accountability.

5. The procedure to be adopted for selecting communities will assure both poverty targeting and spatial representativeness. Target communities will be randomly selected from poorest as measured by the most recent poverty data, and spread evenly across

72 constituencies. ‘Communities’ will be defined in terms of geographical location, utilization of shared resources, and self-characterization.

6. The critical facilitation and capacity building support for participating communities will be provided by three MATs, in each project district, comprised of technical personnel from district governments and CSOs. MATs will support communities in the preparation ofCAPS through a process ofPRA which consults and reflects the interests ofthe range ofcommunity interest groups, especially the vulnerable. MATs will also be responsible for building communities’ capacity to organize themselves, manage their own contributions and plan, implement and monitor the prioritized sub-projects. One element ofcapacity building will exchange visits to enable community members to learn from each other. The detailed design ofcommunity facilitation and planning processes and procedures will incorporate best practice established in the ALRMP as well as the Common Interest Group approach being implemented by KARI.

7. CSOs will participate in this sub-component in several capacities as members of MATs, as trainers for both communities and MAT members, as communication agents, and to undertake M&E. They will be contracted for these functions. Only local CSOs already established in the project districts and with demonstrated capacities will be eligible.

8. Targeted support to youth: Youth are a demographically prominent group in the project area and throughout Kenya, and face particular challenges including to employment, livelihoods, health, and security. The component will include a special focus on youth inclusion, with US$l million dedicated to support youth-driven micro- projects which improve their livelihoods and well-being through income generation, employment creation, and social initiatives.

9. Malaria initiatives: In addition to livelihoods based micro projects, the project would fund training and micro projects up to US$5,000 per community, targeted at addressing the malaria scourge in Western Kenya. Community interventions to counter malaria will be integrated in the micro-projects. These interventions will include: (a) IEC for malaria control; (b) Scaling up ofITN coverage and ITNre-treatment program; and (c) piloting the use ofCORPS for community-based management offever with Coartem (the newly adopted antimalarial therapy in Kenya); (d) IRS (where appropriate); and (e) source reduction and larvicidal measures (where appropriate). Communities will be encouraged to implement a combination ofthe above interventions (or at least the first three) as part oftheir micro-projects in an integrated approach. The Integrated Vector Management Plan and a district risk mapping exercise ofmalaria breeding sites will provide guidance to communities as to where IRS and source reduction should be conducted (see Annex 14).

10. Community Foundation Pilot: There is an increasing interest from the Kenyan corporate private sector in corporate social responsibility. At the same time, members of the extensive Western Kenya Diaspora in Kenya and overseas make a large contribution to well-being in the project area through remittances. The project will promote a

73 mechanism for harnessing the interest ofthe formal private sector operating in the area and energy and goodwill ofWestern Kenyans abroad involving the Diaspora, and the formal private sector operating in the region initially through the provision oftechnical assistance and financial resources for the establishment a credible, accountable governance structure for a self-sustaining Community Foundation. Community Foundations have six salient characteristics-they serve as grant-making foundations, possess a broadly defined mandate addressing crucial social development needs, serve a geographically defined community, draw on a broad range ofdonors (especially the private sector), are governed by a board reflecting key community stakeholders, and possess sustainable endowments. These six characteristics, along with their potential to build social capital by forging networks within and outside communities, make the Community Foundation a platform well suited to bringing together the Diaspora and the private sector in the service oflocal development.

11. Component 1.2 - Local Level Development Support (US $12.6 million, of which US$ll.l million funded by IDA). This subcomponent will fund priority investments in the each often project districts whose implementation and impact are beyond the scope or individual communities. District-level capacity for planning and implementation will also be enhanced.

12. The sub-component is patterned after the successful district development model implemented in 22 districts under the ALRMP. The DSG will be responsible for management ofthese funds, leading a process ofconsultation and prioritization which will result in the drawing up of annual work plans reflecting local priorities, and implementing the investments.

Component 2: Flood Mitigation (US$35.6 million, of which US$32.9 million funded by IDA).

13. The flood mitigation component will address the root causes of flooding in the region by: (a) investing in the protection ofthe fragile upper catchments ofthe Nzoia; (b) exploring opportunities for flood management structures with multipurpose use in the middle catchment; and (c) improving flood mitigation structures in the lower catchment. The component will also establish an effective, community based flood early warning system, linking international and national information systems with local communities. Linkages will also be established with the NBI to explore hrther investment opportunities in the catchment area. Investments in this component will be supported by investments being funded under the proposed Kenya NRM Project, including capacity building for the soon to be established KFS, investments in gazetted forests, capacity building for the WRMA, and irrigation investments in the lower catchment.

14. Subcomponent 2.1 - Catchment Management (US$20.7 million, of which US$l9.6 million funded by IDA). Consultations with stakeholders and technical experts in the region have confirmed the view ofthe team that degradation ofthe upper catchment ofthe Nzoia River, and the resulting heavy silt load has caused increased flooding in the Nzoia flood plain. Improving management ofthe upper catchment will require a concerted effort, including reforesting and protecting gazetted forests, changing

74 land use patterns on steep slopes and eroded areas, river bank protection, improved agronomic practices in fragile areas, and improved water management including check dams and small scale regulating mechanisms. Following the pilot catchment activities being carried out by the LVNWRMA, key catchments will be identified and prioritized for on and off farm catchment investments. Communities will be having their capacity built to allow them to take advantage ofthe resources allocated to management ofthe upper catchment. Livelihood based catchment management by communities will allow these poor communities to realize benefits from their efforts in conserving these catchments. Exposure and dialogue with communities to arrive at the right community interventions will depend on the accelerated involvement ofexperienced groups among communities who can take advantage oftechnical training to be provided under the project. Technical support to for catchment management will be coordinated and supervised by the LVNWRMA, and implemented by a district-based support teams formed through the DSGs and comprising Government and non-government staff. These support teams will work with communities in individual micro catchments to design and implement micro catchment management plans. These plans will likely include on and off farm investments as listed above.

15. Catchment management activities which are water related will be undertaken by the WRMA through the Lake Victoria North regional office based in Kakamega. There are two three levels ofactivities which will be hnded by the project related to catchment management activities-these are:

(a) Level 1. WRUA activities, supported by WRMA funding, include the following (Note that the costs incurred by the WRMA in supporting these activities would be recouped by the WRMA retrospectively on the basis of 15 percent ofthe project costs) :

i) riparian demarcation;

ii) catchment protection;

iii) distribution ofseedlings;

iv) establishment ofWRUAs;

v) planning workshops; and

vi) preparation ofbankable proposals.

(b) Level 2. These will be WRUA activities, funded independently ofthe WRMA. The activities would be included in project proposals (which are subject to the approval ofthe WRMA) and could include, but not necessary be limited to the following:

i) training and capacity building for WRUA stakeholders;

ii) mobilization ofwater resource users in WRM activities;

75 iii) activities associated with mitigation ofwater use conflicts;

iv) works for abstraction works, including the costs related to the modification ofintakes, installation ofmaster meters and water abstraction control devises;

VI development and implementation ofwater allocation plans;

vi) development ofgauging stations and stations to assist in monitoring the quantity and quality ofthe Reserve;

vii) water storage development, including pans, small dams, rain water , harvesting;

viii) river bank protection and improved land use and delineation, conservation or protection ofriparian land;

ix) catchment protection, including the costs ofseedlings and other activities;

XI settling ponds, composting PCU and other structures to reduce effluent discharge;

xi) work and or activities orientated towards assisting abstractors or dischargers to become compliant to the WRM Rules;

xii) works to control runoff and soil erosion such as check dams, terraces, storm water drains, etc.; and

xiii) works associated with the protection, conservation or enhancement of the water resource quality.

16. Catchment management activities which are not directly water related, and therefore not the responsibility ofthe WRUAs, will be financed as CDD micro-projects. These will mainly be livelihood based and targeted at improving land use activities to reduce detrimental impacts, conserve soil and moisture, and improve incomes. In some instances, such as steep slope cultivation, activities may include providing support for alternative livelihoods (see Annex 13). Activities would include improved farming methods, afforestation and reforestation, alternative livelihoods such as bee keeping, etc.

17. In addition to funding the direct catchment management activities ofthe WRUAs, the project will also support the establishment ofthe LVNWRMA. Some ofthis support will be provided through the national WRMA office through the related NRM Project and some will be direct support through this project.

18. Subcomponent 2.2 - Multi-purpose Flood Management (US$4.7 million, of which US$4. 7 million funded by IDA). The Lake Victoria Basin drains several rivers from three countries-Kenya, Tanzania and Uganda. The lake is part ofthe Nile River

76 Basin and the headwaters ofthe White Nile. In Western Kenya the two major rivers Nzoia and Yala flow into the Lake through floodplains and cause recurrent and extensive flooding in their lower reaches. Floods in the Nzoia and Yala floodplains affect parts of three districts (Le., Busia, Bondo, and Siaya) covered by WKCDD/FM project. The flooding is a natural occurrence which has been happening for thousands ofyears, however, with increased population pressure, catchment degradation, and greater numbers ofpeople living in the flood plains, the impacts of floods are now more severe than before.

19. In the 1980s some 16 km of earthen dikes were built on both sides of the river in the flood plain to protect against flooding. This is the third generation ofdikes built on the flood plain-the first having been built in 1963. These are high maintenance structures and have never been adequately maintained. Vegetation and sedimentation have considerably reduced the safe capacity ofthe levied reach ofthe river, which, combined with breaches deliberately made by communities and erosion ofthe levies, has created a situation which has exacerbated the flooding in the area. Less extreme rainfall events cause worse flooding today than in the past. Also, whereas in the past a flood event would cause inundation for a limited period of two to three weeks, because floodwaters are unable to re-enter the river due to the presence ofthe levies and sediment deposition, today floodwaters remain for two or three months, significantly increasing the hardships experienced by the local communities. It is not possible therefore to provide a long-term significant solution to the flooding within the floodplain. This has long been recognized and is stated in reports and studies going back to the 1980s where the floodplain activities such as dike construction were regarded as short term measures. Early warning systems and better management ofthe floodplain will significantly assist however, and are included in the project as part ofa package ofactivities but they will not stop the flooding.

20. The dikes that have been constructed to provide protection against recurrent floods are neither sufficient nor sustainable. Analysis ofthe floodplain indicates that flooding is worsening due to the. deterioration ofboth the floodplain and the catchment area. It is also clear that there are no feasible options to protect the floodplain from significant flood events-the dikes which have been built over the past 45 years no longer provide protection even from seasonal high flows. Initial assessment ofthe flood hydrology and the topography ofthe mid-catchment section ofthe Nzoia River Basin indicate that there are possible sites to construct multipurpose flood water storage and attenuation infiastructure which will provide a long term solution against 100 year return period floods. The project will invest in detailed option analysis ofthe various possible sites and options to develop an integrated flood management strategy. This will include activities such as mapping, hydrological studies and engineering feasibility studies. Detailed economic analysis will be undertaken ofmulti-purpose use ofstored flood waters for functions such as irrigation, micro-hydropower generation, village and town water supplies etc. Activities will include all ofthe preparation work necessary to prepare the identified optimum multi-purpose flood protection works for financing as a separate stand-alone operation (Note: investments in construction ofmid-catchment multi-purpose flood protection structures will not be included in this operation). These preparation activities will address:

77 (a) social impacts, including resettlement and compensation;

(b) environmental impacts, including in stream flow requirements;

(c) technical issues such as basic design and sizing, reservoir sediment management, geotechnical investigations; and

(d) financial issues such as detailed costing and investment finance packaging.

21. Construction of a multi-purpose flood protection and water storage structure could enhance livelihood and economic opportunities in the area. Western Kenya is characterized by having very little infrastructure and a high degree ofpoverty. The construction offlood protection infrastructure, particularly water storage, presents an opportunity to extend the benefits ofthe investments to include other aspects such as water storage for irrigation, water supply to surrounding towns and villages, and the small scale generation ofhydro-power. Options will need thorough analysis to ensure that optimum solutions are determined. Multi-purpose objectives are often difficult to reconcile in terms ofoperating rules for reservoirs with different objectives requiring divergent storage-for example flood protection functions require reservoirs to be as empty as possible whilst hydro-power generation requires storage levels to be as high as possible to provide the greatest possible head. Reservoir sediment management also presents considerable challenges related to different multi-purpose objectives.

22. Considerable concern has arisen in recent months regarding the level ofLake Victoria. The levels have been falling which results in a range ofimpacts from receding shorelines, reduced access to lake-side infrastructure such as docks etc. and reduced hydropower generation at the outlet ofthe lake in Uganda. The primary reasons for the lake level reductions are the extended 3-year period ofdrought in the region and over abstraction ofwater for power generation. LVEMP studies determined that the primary source ofwater inflow to the lake is rainfall over the lake surface itself which contributes 127,762 Billion Cubic Meters (BCM-1O9m3) per year. River flows contribute 25,129 BCM-the proportion offlow from Nzoia River (average 3,688 BCMper year) is 14.6 percent ofriver flows and 2.4 percent oftotal inflow into the Lake-it is the second highest surface flow contribution to the Lake-the Kagera River (flowing from Burundi, Rwanda, Tanzania & Uganda) is highest contributing river with 32.7 percent ofriver flows.14 These figures are important to gauge the impact ofproposed project activities on Lake Victoria and the lake level problem.

23. A communications strategy involving consultations with communities and other stakeholders in the basin will be a major activity ofthis component, including the integration ofpublic-private partnerships such as the Nzoia River Management Initiative program developed by the Mumias Sugar Company.

~~ ~~ 14 Data from LVEMP IntegratedWater Quality and Limnology Study of Lake Victoria (2004).

78 24. Subcomponent 2.3 -Floodplain Management (US$6.7 million, of which US$5.4 million funded by IDA). Budalangi Flood Plain Management Activities will be targeted at alleviating the social and economic costs offlooding in the flood plain. The project will invest in flood mitigation structures, including the rehabilitation and strengthening the existing dikes in the flood plain in order to provide protection against average seasonal river flows and floods up to a 10-year return period event. Measures will be investigated to address high levels ofsedimentation between existing levies in the flood plain and increase the safe discharge capacity ofthe flood plain in order to reduce the flood storage and attenuation requirements in the mid catchment reaches ofthe Basin. Floodplain management activities will be done in close collaboration with communities in order to accommodate controlled seasonal flooding offields to maintain fertility and increase agricultural incomes. The communities have in the past deliberately damaged the dikes to ensure that fertile soils wash into their farms. This indicates inadequate engagement ofcommunities in the development process. In addition, the protection of assets in the floodplain will be undertaken together with ancillary activities such as supporting fisheries which have developed in recent years using flood waters. The activities will include:

(a) Detailed assessment including mapping. A detailed assessment ofthe floodplain will be undertaken including detailed mapping, hydrological analysis, and a detailed social and economic analysis. The detailed mapping is required because ofthe extremely flat profile ofthe floodplain where the slope ofthe river is 0.04 percent. The hydrological analysis will take into account the existing dikes, the impacts of sediment deposition, the backwater effects ofLake Victoria and the impacts oflake level changes. The analysis will also address such problems as drainage ofthe floodplain.

(b) Community engagement. Integrated flood management requires the full engagement of communities impacted by floods. It is clear that some members of the community have deliberately compromised the dikes so that flood waters can . be used to irrigate their lands and provide for fishing. This is evidence that communities were not hlly involved in making flood management decisions which directly affect their safety and livelihoods.

An extensive survey is required to canvass the views ofhouseholds and local authorities with regards to the floods and the proposed flood management activities both in terms ofthe proposed dam and floodplain management activities. It is important to determine views on the positive and negative impacts of floods and the potential uses offlood waters and sediment deposits, together with views on the extent to which flood waters could be used for fisheries and the potential to develop fisheries as an income generation and food provision activity. It is necessary to gain an overview ofthe impacts ofprevious and current emergency responses to flooding including the prevalence ofdependency on emergency feeding, resettlement issues, poverty impacts ofcurrent destruction of livelihoods and disruption ofsocial and economic activities. In order to plan such payment management activities it is also important to determine the interest ofthe

79 community in "controlled floods" which could irrigate farmland, provide water for fisheries and provide sediment deposits without causing destruction.

Those structures which exist such as the District Disaster Management Committee need to be reviewed to ensure that they represent all facets ofthe community. Residents' committees should also be established similar in concept to WRUAs to ensure that there are independent, community-based entities to guide the management ofthe floodplain.

(c) Remedialprotection works. The current dikes and the areas between the dikes need remedial attention to ensure that they provide adequate protection for regular seasonal river flows and to provide protection for the one in 10 year return period floods. The dikes have generally not been well maintained over the years. It is necessary to assess the impact ofvegetation growth both on the dikes and between the dikes in terms ofthe impact on the hydraulics ofthe channel and the integrity ofthe dikes. Such vegetation will need to be removed and the channel between the dikes maintained so that the vegetation does not grow back and constrict flood water flow. The dikes have been deliberately breached in some sections and have eroded for various reasons such as due to access paths for stock watering etc.

The capacity ofthe dikes in their current and rehabilitated state to safely convey flood waters up to a 10 year return period through the flood plain will need to be determined through hydraulic analysis and modeling and remedial / additional works undertaken to achieve this design objective. Designs should also provide for safe overtopping offloods in excess ofthe design flood. They should also accommodate managed flooding to meet community needs as described below to avoid community members breaching the dikes

(d) Floodplain management activities. Floodplain management activities, undertaken in consultation with the community, may include such activities as drainage, controlled flooding and irrigation, the construction offish ponds, support for raising household and community structures (schools etc.), the construction and maintenance ofaccess and evacuation routes, etc. These activities should be guided by the District Disaster Management Committee (strengthened with adequate community representation) in conjunction with the LVNWRMA and the Provincial Disaster Management Team. The management ofthe flood plain should be undertaken in close collaboration with the disaster management and early warning systems established for the flood plain.

25. Subcomponent 2.4 - Flood Early Warning System (US$3.5 million, of which US$3.2 million funded by IDA). The key objective ofthe flood mitigation component of this project is to reduce vulnerability and increase resilience to the flooding in the Nzoia River Basin which is a natural disaster exacerbated by human development impacts. An integrated and coordinated approach is needed which includes a number ofelements- addressing some ofthe root causes through livelihood based catchment management and

80 rehabilitation, physical infrastructure interventions to attenuate and store flood waters, and increasing preparedness which includes early warning and response systems.

26. The Government, through the MoWI, and in collaboration with the WMO and the Global Water Partnership have developed a draft Flood Management Strategy for the Lake Victoria Region. Based on the principles ofIntegrated Flood Management, a key element is the establishment ofearly warning systems which link national long and short term forecasting functions with basin level real-time monitoring and community based local public warning systems. The early warning system which will be developed in this subcomponent will implement the strategy in the Nzoia flood plain and provide a model for implementation in other vulnerable areas.

27. The early warning system will be developed jointly by local communities, the District and Provincial authorities, and the Kenya Meteorological Department. Different elements ofthe flood early warning system, including prediction, communication and response, are often undertaken by different agencies which require clear lines of responsibility, good coordination and effective communication. The project will provide funds to assist in the establishment ofthe Flood Early Warning System. The funds will support the development offlood prediction capabilities and community based early warning communication. Given that some aspects ofthe flood prediction system, such as RGSs, will be covered by Subcomponent 2.2 in the project as support to the functions of the WRMA, the system will be integrated into the flood plain management activities.

28. The development ofcapacity for disaster management and the development of national and local flood mitigation plans will also be included. A key to the sustainability ofthe Flood Early Warning system will be the extent to which it is integrated into local institutional structures both at District level and within the LVNWRMA which is responsible for the monitoring ofwater resources in the catchment.

Component 3: Implementation Support (US$18.4 million, of which US$15.8 million funded by IDA).

29. Subcomponent 3.1 - Support to policy analysis, advocacy and local development (US$l.l million, of which US$l.l million funded by IDA). Through support to research, market assessments, and advocacy work, this component will support the identification and development ofnew opportunities for economic growth in the region. Two related action research initiatives will support, respectively, the rights and economic empowerment ofwomen.

30. Subcomponent 3.2 - Management, monitoring, and evaluation (US$l734 million, of which US$14.7 million funded by IDA). The project will be coordinated by the OP, Ministry ofState for Special Programmes, as the Governmental entity mandated with disaster management, including floods and drought. The project coordination structure mirrors the successful ALRMP, with a strong emphasis on building capacity at local level through the empowerment ofthe DSGs. The DSG in the ten project districts will be supported by a DPC and a small staff who will manage development of annual work programs, fiduciary and safeguards management. Substantial training ofdistrict

81 and project staff in various project management skills, fiduciary and accountability skills, environmental management, community participatory processes, watershed management, and communications have been included. The M&E system supported by project funds will be participatory, and will include report and score cards and expenditure tracking, together with statistical surveys of economic, social, and environmental indicators. The M&E system will be integrated with a national system for M&E ofnatural resources being developed in conjunction with four other World Bank-financed projects (see Annex 4).

82 Annex 6: Project Cost KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

Local Foreign Total Project Cost By Component and/or Activity US$million US$million US$million Component 1: Community Driven 35.3 3.6 38.9 Development 1.1 Community Driven Development 27.9 0.5 28.4 1.2 District Level Sustainable Development - 7.4 3.1 10.5 Planning and Investment (Support to Local Development) Component 2: Flood Management 23.7 7.6 31.3 2.1 Catchment Management 16.9 1.1 18.0 2.2 Multipurpose Flood Management 4.1 4.1 2.3 Flood Plain Management 4.6 1.6 6.2 2.4 Flood Early Warning System 2.2 0.8 3.0 Component 3: Project Implementation 11.2 4.6 15.8 Support 3.1 Policy Support 1.o 1.o 3.2 Management, Monitoring and Evaluation 10.2 4.6 14.8

Total Baseline Cost 70.2 15.8 86.0 Physical Contingencies 0.9 0.7 1.7 Price Contingencies 9.9 2.3 12.1 Total Project Costs' 81.0 18.8 99.8 Interest during construction Front-end Fee Total Financing Required

1Identifiable taxes and duties are US$ 3.6 million and the total project cost, net of taxes, is US$ 96.2 million. Therefore, the share ofproject cost net oftaxes is 96%.

83 Annex 7: Implementation Arrangements KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

1. Project Coordination. The project will be coordinated at National level by the OP, Ministry ofState for Special Programmes, as the Government entity mandated with disaster management, including floods and drought. A PCUwill be established with very strong ties with Provincial Administration for effective coordination and response to the disasters emanating from flooding which is the key mandate ofthe OP. Figure 7- 1 illustrates the implementation arrangements ofthe project.

2. The project coordination structure mirrors the successful ALRMP, with a strong emphasis on building capacity at local level through the empowerment of the DSGs. All the ten districts will have a District Coordinating Unit (DCU) which will be headed by the District Project Coordinator (DPC). The DCUwill be supported by the DSG. The DCUwill have a small staff that will manage development ofannual work programs, fiduciary and safeguards issues. Substantial training ofdistrict and project staff in skills related to project management, fiduciary and accountability, environmental management, community participatory processes, watershed management, and communications have been included. The composition ofthe DSG will include the key stakeholders in district and local government and all other civil society stakeholders operating in the districts. A minimum number of civil society representatives must be present for a DSG to have constituted a quorum. Detailed implementation mechanisms for this project are elaborated in the PIP.

3. Community Outreach. The project will invest in building the capacity ofmulti- purpose CDCs which then provide entry points for other programs to include appropriate and effective investments in flood protection and NRM. MATS,three per district, will consist ofthe appropriate line ministry and CSO staff. One team per district will be led by a CSO. These teams will carry out the PRA process and will ensure that the needed technical and managerial skills are established in each CDC.

4. The DSG in each district will develop the work program for the local development component, through a transparent decision making process. The work program and budget at district level, and progress reports on all aspects ofproject implementation in each district will be displayed on a prominent information board at district headquarters.

5. The LVNWRMA in Kakamega will play a lead role in the flood mitigation component. Prioritization ofcatchments and micro catchments will be identified by the LVNWRMA in conjunction with the NRM and Flood Mitigation officers in the PCU. The project will reinforce the establishment ofthe WRMA and its LVN Regional Office by providing resources to enable the Authority to carry out its normal mandated activities using its established and emerging procedures and activities which, in terms of the Nzoia and Yala catchments, coincide with the objectives ofthis project. Staffing ofthe LVNWRMA will be strengthened with a data officer and other technical support to be determined. Funds for this key planning and supervision function will flow from the

84 PCU in OP directly to the Kakamega WRM team. Activities will take place at three levels:

(a) river basin level. Support development of WRUAs; strategies; baselines, M&E;

(b) district level. DSGs, implementation oftraining, information and awareness programs to enhance local capacity and increase public support for WKCDDEM supported activities, etc.; and

(c) micro catchment level. Micro catchments within the project areas would be selected based on criteria such as: (i)community readiness (such as pre-existing and functional river basin committees), significance ofthe micro-catchments, environmentally sensitive or critical areas, particularly those which are highly vulnerable to degradation (such as erosion); (ii)presence ofsprings or other sources ofsurface or ground water critical to the maintenance ofecosystem services; concentration ofsmall producers; forest resources; (iii)existing level of community organization; and (iv) land use and soil management aspects. Local capacity would be used to train communities and assist them to implement their catchment management projects. Funds would flow through the DPC in the 10 project districts, and funds for activities in the Cherangani catchment would flow through the LVNWRMA.

6. Enhancing Accountability in the Project. WKCDDEM Project takes on board relevant key recommendations, including explicitly reflecting in project design, implementation and supervision, sensitivity to fraud and fraud risks. Agreement has been reached with Government for the establishment ofan institutional risk management function comprising the following institutions: (a) an independent audit committee at the PSC level. The mandate ofthis committee will include the development and maintenance ofan institutional risk management policy framework, oversight ofinternal and external audit functions and monitoring implementation ofinternal control recommendations; (b) a finance committee responsible for overseeing the effective use and safe custody ofproject resources; and (c) an internal audit function responsible for oversight ofthe activities ofthe project’s accounting and internal control functions at both national and district levels. There are explicit arrangements for public disclosure and access to information that facilitates managerial accountability. Monitoring at the community, district and national levels will be scaled up. Proposed procedures include reinforcing community monitoring, with possible beneficial spillover effects for devolved funds such as the Government’s CDF; and strengthening disclosure and complaint mechanisms. A side letter from the Government, agreeing to transparency/disclosure arrangements and their monitoring, will be provided to the Bank.

7. Social Accountability. Given the dispersion ofthe project’s activities and the adoption ofsimplified community based fiduciary arrangements to be employed at the micro-proj ect level, proactive and innovative internal control and oversight functions will be in place to address associated risks. Participatory M&E mechanisms will provide for community feedback to the project at community and district level on an annual basis. The following activities to improve public oversight ofthe project are proposed:

85 public disclosure ofinformation covering: (i)periodic resource allocation and fund accountability; (ii)periodic listings of funding allocations to respective beneficiaries including their location, amounts and purpose for which funds are disbursed; (iii)local project operational results and project implementation progress; (iv) disclosure offund accountability defaulting entities, and (v) sharing of experiences of best practice among beneficiary entities. Arrangements will be made for prominent disclosure and timely update ofsuch information in the media and public bulletin boards at both the District and community levels. These efforts would be part of a broader comprehensive communication strategy developed by the project to support partnerships with key stakeholders, including other Government agencies, Members ofParliament, CSOs, the private sector and the media. The key objective for the strategy is to enhance transparency and accountability through greater public access to information and outreach activities, including public education. These partnerships will also help to strengthen the project’s M&E efforts towards better implementation and results; and

public complaints system. The project has established anti corruption boxes in District offices and at headquarters. The Minister and Permanent Secretary’s office have mechanisms for taking immediate action on complaints. The project will enhance these mechanisms so that stakeholders can lodge complaints at divisional and community level, and ensure that a neutral third party is managing the complaints mechanism.

Decentralization in the context of WKCDD/FM Project. There remains no clear policy framework for decentralization in Kenya, and the Government presence at the local level is fragmented. Its main elements are the provincial administration, line ministries, and local authorities. The provincial administration extends centralized executive influence down through districts to locations and sub-locations where chiefs and sub-chiefs constitute the lowest level ofadministration. Line ministries are represented by provincial and district department heads, with the District Development Officers (representing the MOF) being responsible for coordinating development initiatives alongside the District Commissioners. Local authorities operate in parallel with the provincial administration and the line ministries, and feature councilors elected by wards. While the capacity and resources oflocal authorities are limited, they have lately been increased by the introduction ofthe LATF. Significantly, the establishment ofthe CDF in 2003 created substantial resources and structures earmarked for the constituency rather than the local authority.

9. In the project, planning, appraisal and coordination ofall district and community level interventions will be the responsibility ofthe DSG, a sub-committee ofthe District Development Committee, composed of local leaders, district technical staff and partner agencies. Given the complex and multi-sectoral nature ofthe project, and in the absence ofan effective decentralization system in Kenya, the DSG will promote effective intersectoral and interagency collaboration. Through this process, the capacity ofdistrict teams to plan and manage resources effectively will be enhanced, thus serving as a basis for strengthening overall development planning at the district level. Project-supported

86 activities, allied with the social accountability mechanisms which monitor them, will also increase demand for transparent resource allocation from community level upwards.

10. The project’s institutional structures, especially those that are anchored in the Government, will be subject to revision throughout the project implementation phase in view ofpotential institutional or constitutional changes proposed by the Government. Detailed institutional and implementation mechanisms are defined in the project implementation plan.

87 Figure 7-1: Organogram of the WKCDD/FM Project

Office of the President, National Level I Special Programmes 1

Permanent Secretary, Special Programmes

r 1 1 1 1 I 1 Community ‘Natural Resource’ Monitoring & Flood Human Resource\ ______.1 ’ ‘ ’ ‘ ’ Communication Development Management Evaluation Management Coordinator jl i i Coordinator* j Coordinator Coordinator Coordinator Coordinator L JL \ 1 ~.______~

Data Analyst/ (FE WS Procurement Team) HQ Officer

I District Level District Project Coordinators Mgt Data Analyst - 1

Community Driven Development 5 per District Officer J

Mobile Advisory Teams 3 per District

* This position will be financed from consultancy.

88 Annex 8: Financial Management and Disbursement Arrangements KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

I.I. Summary

1. This assessment covers the financial management functions ofthe project’s implementing entities. The assessment is carried out in accordance with Bank financial management operational guidelines”.

2. Financial management risk is rated substantial given that a number of proposed institutional arrangements are not yet in place. The assessment will be revised as soon as ongoing institutional arrangements, particularly the hiring ofstaff, are put in place. Institutional arrangements are expected to comprise: (a) the establishment of acceptable financial management systems; and (b) safeguards that respond to country level fiduciary risks ofweak governance and corruption. Once satisfactorily implemented, financial management risk rating is expected to improve to modest.

3. The design ofthis project is based on an existing IDA funded project, the ALRMP Phase 11, which has been satisfactory operation for a number of years. Similar financial management arrangements will be applied including:

(a) project institutional arrangements and independent oversight by the OP Ministerial Audit and Finance Committees;

(b) employment ofthe Government internal and external audit functions; and

(c) funds flow and accountability mechanisms including financial management operations manuals.

4. Establishment of financial management systems. In order to satisfy minimum conditions for: (a) timely and reliable financial information; (b) effective internal controls; and (c) an effective audit process, the following systems are expected to be put in place:

5. Project planning and budgeting function. Satisfactory arrangements have been made to ensure that the project’s budgeting system is consistent with the Government’s Medium Term Expenditure Framework (MTEF) and integrated in the annual budget cycle ofthe OP Ministry of State for Special Programmes.

6. Accounting and internal control systems. Satisfactory arrangements have been made for the establishment of an accounting and reporting system that is integrated into the Central Government General Ledger system. System standards include (a) monthly balancing ofaccounts and reconciliation with the OP Ministry of State for

15 Financial Management Sector Board (2005). Financial Management Practices in World Bank-Financed Investment Operations. November 2.

89 Special Programmes ministry general ledger; (b) arrangements for safe custody and sequential filing of accounting documents; (c) timely and accurate production ofperiodic reports; (d) reconciliation of subsidiary accounts; and (e) effective internal control arrangements. The system is based on existing Government Financial Management Regulations and documented in the draft PIP.

7. StafJing. The process ofrecruiting project management staff is in progress. Arrangements have included IDA review and approval ofthe organization chart and staff terms ofreference. Project staffing is expected to be completed ahead ofproject effectiveness.

8. Financial management manuals. The preparation ofa detailed financial management procedures manual that comprehensively describes accounting and internal control processes at national, district and community levels is in progress. Expected key contents ofthe manuals are included in the PIP which has been subject to IDA review. The manual will be maintained to guide accounting and reporting practices. Simplified manuals are expected to provide guidelines at the community level.

9. Internal auditfunction. Internal audit is currently in the process of adopting a risk based audit approach that is designed to identify, assess and respond to operational risks on an ongoing basis. The Internal Audit function is expected to be independent, ultimately reporting directly to the Audit Committee and the MOF.

10. Financial reporting arrangements. The project is expected to prepare and present quarterly financial statements16 and annual audited financial statement^'^ within prescribed reporting deadlines. Reporting arrangements will include elaborate information collation arrangements to be set out in financial management manuals. Draft formats of quarterly financial arrangements were presented and agreed during project negotiations.

11. External audit function. Annual financial statements audit arrangements will ensure adequate coverage ofall key activities, adopt a risk-based approach and ensure timely reporting. The function will be carried out by the Kenya National Audit Office (KNAO) which is assessed as sufficiently independent to effectively carry out this function. KNAO is currently responsible for the audit ofall IDA funded projects in Kenya and has consistently been rated satisfactory. Arrangements for coverage of community based accountabilities were agreed during project negotiations and are included in Dated Covenants. These will be under TOR similar to those ofthe ALRMP Phase 11.

12. Additional fiduciary safeguards: As part ofproposed institutional arrangements, the following additional fiduciary safeguards, expected to be in place by project effectiveness, are intended to respond to country level risks:

l6IDA (2002). Financial Monitoring Reports for World Bank Financed Projects: Guidelines for Borrowers. November 30. 17 Audits to be guided by “Guidelines: Annual Financial Reporting and Auditing for World Bank-Financed Activities” dated June 30, 2003.

90 13, Governance and corruption risk mitigation arrangements. The outcome ofa recent Government-commissioned forensic audit and the Bank’s Integrity Department DIR of selected projects in the Kenya portfolio have been considered in developing the following recommendations for enhanced financial management effectiveness.

14. Institutional risk management. Project management is expected to carry out a comprehensive risk assessment and develop a mitigation action plan to be contained in the institutional risk management policy framework. The OP Ministry of State for Special Programmes through the PSC Audit and Finance Committees will be responsible for monitoring implementation ofthe framework and action plan. Development ofthe framework and action plan is a condition ofproject effectiveness.

15. Establishment ofAudit and Finance Committees. The OP Ministry of State for Special Programmes has constituted Audit and Finance Committees.

(a) The Audit Committee will be responsible for: (i)monitoring implementation of the risk management policy framework; (ii)monitoring and ensuring timely implementation ofaudit and operational review recommendations ofvarious fiduciary oversight responsibilities including, internal and external auditors, Government project monitoring agencies and IDA periodic review and supervision missions; (iii)overseeing the continuing efficacy ofaccounting and internal control standards, policies and practices; (iv) ensuring compliance with legal covenants ofthe IDA funding agreement; (v) overseeing the effectiveness of the internal audit function; and (vi) monitoring performance ofkey internal audit staff against approved performance contracts.

(b) The Finance Committee will be responsible for: (i)review and approval of quarterly financial statements; (ii)approval ofperiodic operational budgets and financial performance; (iii)review and approval ofannual financial statements; and (iv) monitoring the performance ofkey financial management staff against approved performance contracts.

16. The mandates, composition and functioning ofrespective financial management sub-committees are expected to be in accordance with Treasury Guidelines18. It is expected that the committees will be sufficiently independent, staffed with appropriately experienced persons and meet regularly, at least once each quarter.

17. Oversight roles of CDCs and DSGs. Project oversight, monitoring and supervisory roles ofCDCs and DSGs, including reporting arrangements should be clearly set out in simplified guidelines and operations manuals. CDCs are not expected to directly handle facility funds as this would constitute a conflict ofinterest. Terms of reference should include: (a) review and approval of periodic budgets; (b) review of quarterly accountability and Performance reports; (c) monitoring the utilization offacility resources; (d) monitoring the quality ofservice delivery; and (e) safeguarding public resources.

Expected to be based on Government Treasury Circular No 1612005 titled “Establishment and Operationalisationof Audit Committees in Public Service” dated October 4, 2005.

91 18. Social accountability. It is recommended that proactive and innovative community oversight activities are put in place to respond to fiduciary risks. The following arrangements expected to be included in the Institutional Risk Management Policy Framework are proposed and are expected to be in place by project effectiveness:

(a) public disclosure ofinformation regarding; (i)periodic resource appropriation and fund accountability; (ii)project implementation progress and operational results; and (iii)sharing ofbest practice experiences amongst beneficiary entities. Arrangements should be made for prominent disclosure ofsuch information in the media and public locations; and for timely update ofinformation; and

(b) anti-corruption hotlines including toll free communication lines should be established with explicit arrangements for collation of information, follow-up action and public reporting. It is proposed that collation and follow-up responsibilities are vested in Internal Audit and overseen by the Audit Committee.

19. Efficient fundsflow and accountability arrangements. Proposed improvements to project funds flow and accountability arrangements include:

(a) simplification ofaccounting processes. Unnecessarily long fund remittance and payment processes are currently being reviewed by MOF through the Internal Auditor General. The review entails assessment ofpayment processing procedures with a view to improving efficiency, effective control and timeliness. Key considerations include: (i)realigning the role oftechnical oversight functions from involvement in routine transaction processing to conducting independent reviews; and (ii)developing benchmark processing timelines to be adopted and monitored; and

(b) fund remittance. Bureaucratic delays in the remittance ofproject hnds from the Special Account through the Central Bank ofKenya, MOF, OP and ultimately to the Project Account are currently being reviewed by MOFwith a view to eliminating unnecessary approval processes. Required actions will be included in the Institutional Risk Management Policy Framework expected to be in place by project effectiveness.

20. Role of External Resources Department. Effective project monitoring by the MOF External Resources Department is being enhanced through ongoing capacity building in project oversight effectiveness.

2 1. Interim financial reporting. Quarterly financial statements have been identified as the preferred basis offunding disbursement. Draft financial statement were presented and accepted by IDA during project negotiations.

22. Financial management action plan. The outcome ofthis review is included in a financial management improvement plan comprising actions to be completed during project appraisal and prior to credit effectiveness and those to be monitored on an ongoing basis. Monitoring arrangements are included in the Implementation Support Plan.

92 11. Summary Project Description

23. The proposed project will support the Government implementation ofthe MDGs by: (a) eradicating extreme poverty, through improvement of incomes for the poor communities in Western Kenya; (b) promoting gender equality and in the empowennent ofwomen through a consciously gender mainstreamed gender approach; (c) supporting a more focused HIV/AIDs strategy for Western Kenya, aimed at addressing social cultural constraints and fostering social debates that will eventually eliminate social cultural constraints to communities abilities to deal with HIV/AIDs comprehensively; and (d) adopting a NRM approach to flood intervention.

24. The project will adopt a CDD approach through: (a) investing in prioritized community projects; (b) building capacity of local level institutions to respond to these needs; and (c) scaling up innovative approaches to poverty reduction which have been proven to make a difference in people’s livelihood.

25. The project will be managed by OP through a PCU including a project coordinator, a financial controller and a procurement officer. The project coordination structure mirrors the successful ALRMP, with a strong emphasis on building capacity at local level through the empowennent of DSGs and CDCs. An internal audit function will also be established at the PCU level. Independent fiduciary oversight will be provided by the PSC Audit and Finance Committees.

111. Country Issues

26. Financial management reforms. Through the PFMReform Strategy, the Government remains committed to strengthening fiduciary safeguards with a view to achieve economy, efficiency and effectiveness in the use ofpublic funds. With the support of a number ofdevelopment partner-assisted initiatives, including the IDA- funded IRCB Project, the Government is seeking to rapidly enhance the financial accountability framework, particularly through strengthening legislation related to public financial accounting and audit. Activities to be funded under the IRCB Project include:

i. adoption ofmodem accountability and reporting standards; .. 11. adoption ofrisk based audit approaches; and ... 111. supporting the establishment ofeffective Ministerial Audit and Finance Committees.

27. Diagnostic reviews. The most recent piece of diagnostic work that provides an up to date critical assessment ofissues that may impact on this operation is an ongoing Country Integrated Fiduciary Assessment. The assessment, together with the current CAS that was effected in May 2004 review the Government’s performance since the last Country Financial Accountability Assessment (in 2001) and CAS (in 1998). A recurring theme is that policy changes agreed under past and ongoing projects have not been implemented consistently. Project implementation has generally been slowed down by constraints in the flow of resources and limited absorptive capacity arising from

93 bureaucratic processes in the Government.

28. Portfolio review. The 2005 Country Portfolio Performance Review follow-up review highlighted the Government’s commitment to improving portfolio performance. Agreement was reached on several key issues, some ofwhich have been applied in the design ofthis operation. These include actions to improve audit compliance, closer monitoring ofproject performance by MOF and improvements in the flow ofproject resources.

29. Forensic audits. The findings offorensic audits ofthe Government commissioned forensic audits ofselected projects in the country portfolio (November 2004 and June 2005) include the following financial management related issues:

(a) projects were generally not controlled using a balancing general ledger system that was fully integrated and regularly reconciled with the rest ofthe Government’s central accounting system;

(b) project designs did not identify fraud risks and fraud risk management was not an integral part ofeach project;

(c) senior Government oversight ofthe projects was weak;

(d) management accounts and project quarterly reports reflect levels ofactivity but do not necessarily identify major issues so that they can be actioned; and

(e) lessons learned and best practices are not shared among similar projects or passed into the wider Government structure.

30. Use of country systems. The project will, as much as possible, rely on existing Government financial management systems for overall project management, audit and oversight. Due consideration will be taken ofthe various fiduciary safeguards enhancement recommendations, including all significant matters raised in various diagnostic and other reviews.

IV. Risk Assessment and Mitigation

3 1. The summary ofthe pre-project assessment ofcountry, implementing entity and project-specific risks and proposed mitigating arrangements is outlined below:

94 32. Inherent Risk. Risks associated with the environment in which the project is situated:

Breliminarq Residual Risk res to be Risk Risk Inco f Design Ratingf9 Ratingza Country level 1. Corruption Government has prepared a Development of an M governance action plan that has institutional risk been considered and is being management policy monitored. framework and Effective independent oversight independent oversight by by PSC. PSC will be effectiveness conditions,

2. Poor Government and sector-specific Development of an M governance anti corruption action plan to be institutional risk considered and monitored. management policy Effective independent oversight framework and by PSC. independent oversight by PSC will be effectiveness conditions.

3. Weak Government and sector-specific Development ofan M judiciary anti-corruption action plan to be institutional risk considered and monitored. management policy framework and independent oversight by PSC will be effectiveness conditions.

19 Risk Rating: H - Highrisk, S - Substantial risk, M - Modest risk, L - Low risk 20 Following successful implementation ofrisk mitigation measures.

95 Residual 'reliminaty ting Measures to be nditionality Risk Zisk Rating rated in Project Desi

Entity level 4. Delayed S The 2005 CPPR action plan is None S flow offunds monitored on a quarterly basis. 5. Weak Assignment ofappropriately Competitive hiring of M management qualified and competent competent and capacity management staff at PSC and key appropriately experienced spending units. staff is an effectiveness condition. 6. Ineffective Project internal audit function Adoption ofa risk based M oversight to enhance independence and internal audit approach functions adopt a risk based audit and independent oversight approach. by PSC will be Institution ofthe PSC Audit and effectiveness conditions. Finance Committees to oversee project risk management.

Project level 7. Lackof There are ongoing initiatives to Deployment ofcompetent M prior project appropriately staff and enhance the and appropriately implementatio technical capacity ofPSC and experienced staff is an n experience Government oversight functions. effectiveness condition. by the implementing entity 8. Lackof There are ongoing initiatives to Competitive hiring of M desired appropriately staff and improve the competent and staffing at the technical capacity ofPSC. appropriately experienced implementing staff is an effectiveness entity condition Overall S M Inherent Risk

95 33. Control Risk. The risk that the project’s financial management system is inadequate to ensure project funds are used economically and efficiently and for the purpose intended.

Risk Mitigating Measures lesidual

Project budgeting included Quarterly financial statement M in Government MTEF reporting arrangements and budget framework. formats have been agreed prior to Budget execution to be project negotiations. monitored through quarterly financial statements.

Accounting Accounting and internal Presentation of acceptable M =failure to account control procedures to be financial management manuals for project funds established and documented is an effectiveness condition in operational manuals. Adoption ofa risk based 0 Institution ofindependent internal audit approach and and effective internal audit independent oversight by PSC and risk management will be effectiveness function. conditions. Quarterly FMRs to be used Quarterly financial statement as the basis ofdisbursement. reporting arrangements and formats have been agreed prior I to project negotiations. 1O.Accountability S Streamlining and PSC Quarterly financial statement and reporting coordination ofquarterly reporting arrangements and difficulties owing financial statement reporting formats have been agreed prior to to the project’s arrangements. project negotiations multiple Project reporting guidelines accounting units and timelines included in the and diverse FM manual. communities’ Implementationto be participation. monitored by PSC.

1 1.Information S PSC will establish an Effective operation of an S ysterns- acceptable accounting and acceptable accounting and delayed rollout reporting systems that will be internal control system is an ofIFMIS. integrated into Government effectiveness condition. accounting and reporting systems.

97 Residual Risk Mitigating Measures Risk Risk Risk Incorporated in Project Design Rating Rating Internal Control 12.Internal Audit The Government Internal Adoption ofa risk based internal M Audit function has adopted a audit approach and independent risk based approach. Its oversight by the PSC will be independence and effectiveness conditions. effectiveness will is enhanced by the establishment ofan Audit Committee ofthe project. 13 .Internal Project specific policies and Effective operation ofan M control policies procedures expected to be acceptable accounting and and procedures consistent with Government internal control system is an Guidelines and to be effectiveness condition. documented in FM manuals.

Funds Flow 14.Delayed S Removal ofunnecessary Effective operation ofan S funds flow bureaucratic approvals in acceptable accounting and Special Account fund internal control system is an remittances. effectiveness condition. Quarterly financial statement reporting arrangements and formats have been agreed prior to project negotiations.

Financial Reporting 15.Accounta- S Streamlining and PSC Quarterly financial statement M bility and coordination ofquarterly reporting arrangements and reporting financial statement formats have been agreed prior difficulties reporting arrangements. to project negotiations. owing to the Project reporting guidelines project’s and timelines included in multiple FM manuals. accounting units Implementation to be and diverse monitored by the PSC. communities ’ participation.

98 Ri

Delayed finalization and reporting regulations and financial management manuals submission of guidelines consistent with IDA is an effectiveness condition. annual financial requirements and consistently The manuals include reporting statements applied. guidelines and formats.

Auditing Weak audit M capacity at the National Audit Office activities have been agreed during negotiations.

Overall Control M Risk

34. Detection risk. The risk that a material misuse ofloan proceeds fails to be detected.

Residual 9reliminav Risk Mitigating Measures Risk Conditionality Risk Fisk Rating Incorporated in Project Design Rating 16.Misuse of S Institution ofindependent and Adoption ofa risk M and failure to effective internal audit and risk based internal audit account for management function. approach and project hnds Quarterly FMRs to be used as independent oversight the basis ofdisbursement. by PSC will be effectiveness conditions. Quarterly financial statement reporting arrangements and formats have been agreed prior to project negotiations. Overall S M Detection Risk

99 35. Financial management risk is rated substantial given that the project’s institutional arrangements, particularly the hiring and deployment ofstaff, are not yet in place. Institutional arrangements are expected to comprise: (a) the establishment of acceptable financial management systems; and (b) safeguards that respond to country level fiduciary risks ofweak governance and corruption. Once satisfactorily implemented, financial management risk rating is expected to improve to modest.

V. Project Financial Management Description

36. Implementing Entity. Financial resources will be included in the Government budget and channeled from MOF to OP for onward remittance to the PCU. Accountability will be monitored through the same channel and ultimately included in the Government financial reporting system. This arrangement is consistent with IDA funded projects in Kenya.

37. Planning and Budgeting. Budgeting for the project has been undertaken centrally by the PCU in consultation and with extensive detailed input by the respective implementing entities. The budgeting process is based on the Government MTEF. Proposed periodic reporting guidelines require quarterly activity, cash flow and procurement projection, analysis and review on an ongoing basis, comprising quarterly financial statements that may form the basis ofrequests for reimbursement of funds.

38. Accounting:

(a) books of account and list ofaccounting codes. The project’s accounting records will be maintained on a computerized accounting system. The codes relating to the project will be integrated in the Chart ofAccounts that match the classification used in financial statements. The PCU’s Financial Management Manuals will include simplified guidelines to implementing entities for required classification designed to facilitate consolidated project reporting.

(b) Accountability. The PCU will coordinate with respective implementing entities the utilization offunds to meet the eligible expenditure based on approved budgets and work plans, following the accounting procedures to be outlined in the Financial Management Manual and guidelines.

(c) Accountability at the community level. Simplified accountability arrangements will be adopted including the following:

1. Community control offinancial resources, including bank accounts;

2. Public sharing ofinformation;

3. Ongoing independent oversight and strengthening offiduciary management capacity; and

4. Disbursement in tranches based on approved subproject, signed financial agreements, and simplified financial and physical reporting.

100 (d) Community supervision arrangements. Community supervision arrangements will integrate fiduciary oversight with M&E. This will be under responsibility of the Internal Audit Unit, the PCU and DSGs. Arrangements will be articulated in the financial management manuals and guidelines.

(e) interim financial reporting: The form and content ofquarterly financial statements have been developed and agreed during project negotiations. Primary contents of quarterly financial statements comprise: (i)financial reports, including a statement ofsources and uses offunds by funding source, a statement ofuses of funds by project activity/component; and fund balance statements supported by bank statements; (ii)physical progress (output monitoring) report; and (iii)a procurement plan and progress report. Financial statements will cover all project activities, including the Government counterpart funding, resources provided by partners and non-cash contributions wherever reasonably quantifiable.

39. Quarterly financial statements will form the basis ofperiodic funding disbursements in which case they will include a detailed report ofprojected cash requirements for each ensuing 6 months period supported by: (a) a procurement progress report and related cash flow projection; (b) a fund balance statement supported by bank balance certificates and reconciliation statements; and (c) additional disclosures in respect ofcontracts paid out ofproject funds.

40. Respective implementing entities will prepare separate quarterly financial statement inputs accounting for funded activities and detailing projected cash requirements for purposes ofperiodic replenishment. Inputs will be collated and consolidated at the DSG and PCU levels for project accountability and reporting purposes. LVNWRMA component expenditures and accountabilities will be consolidated at the PCU level.

41. Quarterly financial statements are due within 45 days following the end of respective calendar quarters. In order to meet this deadline, the PCU will issue internal reporting timelines, to be included in the Financial Management Manual and Guidelines, to be complied by respective implementing entities.

42. Internal Control:

(a) internal controls andfinancial management guidelines. The project’s internal controls will be based on the Government established accounting and internal control systems and documented in a Financial Operations Manual and guidelines.

(b) internal audit. The PSC is expected to establish an Internal Audit function, centrally coordinated by the Government IAG. The internal audit mandate, reporting framework and functioning will be guided by best practice guidelines issued by the international Institute ofInternal Auditors. These will include responsibility for overall project risk management, monitoring compliance with fund accountability and reporting policies, procedures and guidelines and risk

101 based approaches. The effectiveness ofinternal audit will be complemented by the institution ofperiodic audit issues follow-up by the PSC which will also support the demand for internal audit services.

43. The IAG is currently rolling out a risk-based approach in the Government. The proposed approach has been assessed as reasonably compliant with professional best practice.

44. Flow of Funds and Disbursement Arrangements:

(a) Disbursement arrangements: The following options are provided under IDA funding arrangements:

i) Report based disbursement. Requests for disbursement by IDA will be made on the basis ofapproved work plans and cash flow projections for eligible expenditures. IDA will make advance disbursements in agreed proportions from the proceeds ofrespective Credits into project Special Accounts to expedite project implementation. Advances will be used by the borrower to fund eligible project expenditures and evidenced in quarterly financial statements; and

ii) Direct payment. Another acceptable method ofwithdrawing funds under this arrangement is the direct payment method, involving direct payments to suppliers for works, goods and services upon the borrower’s request. Payments may also be made to a commercial bank for expenditures against pre-agreed special commitments. Direct payment amounts will be included in quarterly financial statements. The IDA Disbursement Letter will stipulate the minimum application value for direct payment and special commitment procedures as well as detailed procedures to be complied with under respective funding arrangements.

(b) Flow ofFunds. Funds flow arrangements for the project shall be as follows: (i) IDA will make an initial advance disbursement from the proceeds ofthe Credit by depositing into the Borrower-operated Special Account; (ii)Actual expenditure will be reimbursed through submission ofWithdrawal Applications and against interim financial statements; and (iii)the Government counterpart funds and transfers from the Special Account (for payment oftransactions in local currency) will be deposited in the Project Account in accordance with the Government exchequer control and funding arrangements (Figure 8-1). The following bank accounts will be used to channel project resources:

i) Special Account. The Government will establish a US dollar special account that will receive dollar depositdtransfers from the credit account. This account will be managed by MOF in accordance with the Government procedures for the management ofoffshore bank accounts.

ii) Project Account. A local currency project account in a local bank would be opened to form the primary source offinance for project activities

102 and will be managed directly by the PCU. Remittances from the Special Account will flow through the OP Paymaster General account, again in line with the Government procedures.

Respective bank accounts are expected be operational by credit effectiveness. Initial cash flow forecasts upon which the advance disbursement will be made from the IDA Credit should also be prepared by the same date.

(c) Flow of funds to communities. Communities will be expected to operate bank accounts into which IDA funds will be disbursed in tranches on the basis of physical progress and simplified accountability. Details will be included in the financial management manuals and guidelines.

(d) Counterpart funds. The OP will ensure advance availability ofcounterpart fbnding contribution by depositing amounts equivalent to estimated quarterly cash requirements into the project account. Counterpart funds will be allocated through the normal central Government budgetary process.

(e) Remediesfor non compliance. Ifineligible expenditures are found to have been made from Special Account, the borrower will be obligated to refund the same. If the Special Account remains inactive for more than six months, IDA may reduce the amount advanced.

(0 IDA will have the right, as to be reflected in the terms offunding agreement, to suspend disbursement ofthe funds if significant conditions, including reporting requirements, are not complied with.

45. Financial Reporting. Annual project financial statements shall be prepared in accordance with International Public Sector Accounting Standards (IPSAS) which inter alia includes the application ofthe cash basis ofrecognition oftransactions.

46. The PCU will provide the form and content offinancial statements inputs to be provided by respective implementing entities, including submission timelines in the Financial Management Manual and guidelines.

47. External Audit. Under Kenyan legislation, the responsibility to audit all Government funds and activities is vested in KNAO, which is mandated to subcontract such services in the event ofcapacity or other constraints. KNAO is currently responsible for the audit of all IDA funded projects in Kenya and has consistently been rated satisfactory. There have been significant improvements in the office’s ability to ensure timely auditing and reporting. The office is considered to be sufficiently independent, applied internationally acceptable auditing guidelines and therefore, acceptable to IDA.

48. IDA funding agreements agreed during project negotiations included the dated covenants that require the submission ofaudited financial statements, taking into consideration the 2003 Audit Policy Guidelines ofthe World Bank, within six months

103 after the year-end.

VI. Conditionality

Actions met prior to project negotiations:

establishment ofaccounting and internal control arrangements included in PIP;

documentation of financial management arrangements to be included in the FM manual and guidelines;

evidence ofestablishment ofthe OP Ministerial Audit and Finance Committees;

quarterly interim financial statement reporting arrangements in place and formats agreed; and

confirmation ofproject external audit arrangements.

Actions required prior to credit effectiveness:

the Recipient has developed an Institutional Risk Management Policy Framework satisfactory to the Association which shall comprise the following:

i) establishment ofNational Project Coordinating Unit, PSC Audit Committee and Finance Committees with clear terms ofreference consistent with Government’s financial management guidelines;

ii) updated financial management manuals setting out operational policies, procedures and fiduciary oversight methods;

iii)complaint handling mechanisms; and

iv) an effective system of internal and external audits.

the Recipient has prepared and adopted a PIP, including financial management manuals and guidelines, in form and substance satisfactory to the Association; and

the Recipient has opened a Project Account and deposited therein Kenya Shillings twenty nine million two hundred and fifty thousand (KShs29,250,000).

Actions required following credit effectiveness: Financial management capacity of the PCU developed and monitored on an ongoing basis.

104 VII. Implementation Support Plan

52. Based on the outcome ofthe financial management risk assessment, the following implementation support plan is proposed:

I b) Audit report review I Annually I Audit review report I I I On site visitsz1 c) Review ofcontrols Six monthly22 Clearance ofFM effectiveness conditions.

ion on avai specialized training workshops

Respective reviews will be based on mutually agreed terms ofreference 22 These will include a specific follow-up ofFM effectiveness conditions that comprise the underlying reason for a Substantial FM risk rating. 23 To be based on existing arrangements in conjunction with the Loan and Procurement Departments

105 i Annex 9: Government's Side Letter on Transparency and Accountability KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

REPUBLIC OF KENYA I

MINISTRY OF FINANCE I

Telegrnphlc Addrerr: 22921 THE TREASURY FINANCE - NAIROBI P.O.- - Box______30o(nM)100 ____D I Telephone: 252299 NAIROBI When replying please quote KEWA

Ref: EMA62l335IOliE (40) February 23,2007 I I Mr. Colin Bruce Country Director Comoros, Eritrea, Kenya, Seychelles and Somalia World Bank Offices NAIROBI 7JeM 6h% WESTERN KENYA COMMUNITY DRIVEN DEVELOPMENT AND I nOOD MITIGATION PROJECT (WKCDD/FM): GOVERNANCE, 1 TRANSPARENCY AND ACCOUNTABILITY __ ~-

- i_. -.~..-Ekaase refer to-the.negotiated.FinanceAgreement-of.-16~February-2007-on the Western Kenya Community Driven Development and Flood Mitigation (WKCDDEM), and Project Appraisal Document (PAD).

The Government would like to take this opportunity to confirm to the World Bank that the Government through the Ministry of State for Special Programme is fully committed to the principles of transparency and accountability, the enhancement of good governance and fighting cormption in OUT country. As -- you are aware, Parliwent passed the Public Officer Ethics Act and the Anti- Corruption and Economic Crimes Act, in 2003.

The Government has also enacted key legislations aimed at improving governance and service delivery, including the Government fmancial Management Act (2004), the Public Audit Office Act (2004), the Privatization Act and the Public Procurement Disposal Act. More recently, the Government has developed a Governance Action Plan for the period July 2006 - June 2007, and is committed to its implementation. .- -

107 At me sectoral level, 1 am pleased to report that u1e Mllllsw Of Matt: tor Specid Programmes has developed and strengthened systems focused on enhancing transparency, accountability and good governance in its operations and programmes at the headquarters and the field levels. One area of pdcular concern is the Western Kenya Community Driven Development and Flood Mitigation Management Project financed by the World Bank, the program that has been under implementation since June 2006 through the financing of Project Preparation Facility.

This program will benefit from the experience gained by the Ministry in successfully implementing the Arid Lands Management Resource Project (which has been independently monitored, audited and evaluated) and includes strong transparency and social accountability features. The WKCDDFM Project will initiate a centralized disbursement of funds mechanism under the Project Management Unit (PMU) which is recruiting qualified and experienced financial management and procurement specialists hired through competitive bidding.

The District Steering Groups @SGs) will to submit their annual procurement plans and work plans to the PMU for consolidation. The PMU then will prepare consolidated procurement plans which are sent to the World Bank for review and approval. Once approved the plans are posted on the Ministry of State for Special Programmes website. Apart from increasing overall efficiency and substantially reducing project costs through consolidation of needs and lotting of similar items, the system has proved reliable and sustainable for the implementation ofthe program.

To prepare for the implementation of the Plan, oversight and management structures will be comprehensively sensitized on the programme and its objectives through seminars and workshops. Additional structures will be put in place to oversee the smooth running and management ofthe programme. These include: (i)the National Steering Committee; (ii)the Project Management Unit (PMU); and (iii)the District Steering Group. Modalities are already in place to ensure effective coordination, reporting, exchange and sharing of information between the different committees and stakeholder groups. There will be regular meetings ofthe committees mentioned above. The Ministry of State for Special Programmes and all implementing units will hold regular quarterly meetings.

The project is managed by Ministry ofState for Special Programmes through an established Project Management Unit comprising a project coordinator, a financial controller and a procurement officer. The National Steering

Committee comprising stakeholders to provide overall strategic direction. The procurement and financial management activities are guided by the project implementation manuals approved by the Bank. 2

108 To further enhance governance, the Ministry of State for Special Programmes and other agencies benefiting from the project, with the guidance of the Ministry of Finance, have undertaken the following measures aimed at entrenching accountability and transparency practices. These include:

(i) Adoption ofa risk-based internal audit system;

Establishment ofthe Ministerial Audit Committee;

Carrying out an annual sweys ofuser satisfaction;

(iv) Introduction ofinnovative public dissemination measures, such as the posting of the procurement plans on the Ministry of State for Special Programmes Website

(v) Comprehensive capacity building in financial management and procurement;

Annual auditing of project accounts;

Establishment of Finance and Audit Committees within the Project Management Unit OpMu)

(viii) Issuing clear guidelines and manuals for the management of the programme.

Developing annual work plans for the implementation of the WKCDDFM project and placing them on the Ministry of State for Special hogrammes website; and

(x) Compliance with the Public Officers’ Ethics Act on declaration of wealth.

The WKCDDFM has now entered its first year of implementation, and its rolling-out will continue to be aided by the lessons learnt in the past through effective implementation ofthe Arid Lands Management Project. In as much as we recognize the steps so far made in strengthening governance, we also appreciate that more remains ts be done in order to strengthen governance in the entire sector. In this regard, planned actions for enhancing governance include the following:

(i) Public disclosure of information regarding reports ofthe meetings of the National Steering Committee. Information will be made available

3

109 on the web, and also usmg the media and public notice Doards ln the Ministry Headquarters and at the District Project Offices;

(ii) Strengthened risk management and anti-corruption measures through; enhanced complaints procedures (with anti-cormptiodComplaints boxes established at headquarters and at the district level); continued use of risk-based internal audit; undertaking an annual procurement audit; revision as necessary ofthe fmancial and procurement manuals and their distribution to all agencies participating in the project;

In the process of implementing the WKCDDEM project, technical assistance will be sought where necessary to strengthen governance, transparency and accountability. We are convinced that these measures, together with those already put in place, will ensure effective and transparent use ofpublic resources availed to the sector.

We thank the Bank for the continued assistance towards our development agenda. ,

Director, External Resources DeDartment For: PERMANENT SECREThY

The Permanent Secretary, Ministry of State for Special Programmes Office of the President Harambee House Nairobi.

4

110 Annex 10: Procurement Arrangements KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

I.Procurement Environment

1. Kenya’s first National Procurement Law (The Public Procurement and Disposal Act 2005) was passed by Parliament in October 2005 and enforced in January 2007. The Regulations supporting the Law were also published by the Minister for Finance in January 2007. Prior to the enforcement ofthe Law, procurement under the public sector had been governed by a set ofRegulations (the Public Procurement Regulations 2001) issued by the Minister for Finance in 2001 and amended in 2002.

2. The Public Procurement and Disposal Act (2005) created a central PPOA to replace the Public Procurement Department created under the Regulations (2001) in the MOF. The Act also re-establishes the Public Procurement Complaints Review and Appeals Board (the Appeals Board) which had been in operation since 2001. In addition, all public procuring entities have a Procurement Unit and a Tender Committee which are responsible for the implementation ofprocurement process ofthe procuring entities. The Executive Officers of the procuring entities together with their Tender Committees are accountable for the procurement decisions oftheir entities.

3. Public Procurement in Kenya is recognized as a very important process via which over 70 percent ofpublic funds (excluding staff emoluments, debt servicing and other statutory payments) are spent. A major challenge in Kenya is to ensure sound and efficient public procurement systems that ensure value for money, efficiency in service delivery and transparency, including providing equal opportunity to the bidding community. It also recognized that corruption in public procurement is a major issue in Kenya as it is very erosive ofpublic funds intended for public good and its resultant economic growth.

4. Among the overarching features ofthe Procurement Law is the move towards promoting transparency and accountability ofpublic procurement decisions to include specific provisions for administering security-related procurement which has hitherto been vulnerable to corrupt practices. In addition, the Government has established a number of complimentary anti-corruption legislative and administrative instruments. In 2003, it enacted an Anti-Corruption and ECA which creates the KACC-an independent body corporate with immense powers relating to the fight against corruption, accountable to Parliament, and the Kenya Anti-Corruption Advisory Board (KACAB). The KACAB members were drawn from the civil society, professional bodies, trade unions, and religious sectors, vetted by Parliament and appointed by the President. In the same year, a Public Officer Ethics Act was enacted and enforced. This Act provides for Codes of Conduct and Ethics for all public officers to enhance ethics and integrity in the Public Sector and govern the wealth declaration process. The Government introduced Performance Contracting for public agencies (parastatals in 2004-05 and the Government

111 Ministries and Departments in 2005-06). Chief Executives ofall public agencies are required to sign Performance Contracts on behalf oftheir respective agencies. One aspect ofperformance contracting, which every agency is assessed on, is the initiation of anti-comption measures to curb corruption.

5. Under its Governance Action Plan, the Government has included implementation ofthe following procurement reform actions:

(a) inject sunshine principles in bidding and procurement contracts including: (i) ensuring all Ministries, Departments and agencies publish the inform on contracts required by law on a Government website; and (ii)ensuring the website is working effectively and is accessible to the public;

(b) introduce a Vetting System to pre-qualify companies interested in bidding for the Government contracts to address the issue ofconflict ofinterest;

(c) establish a mechanism for reporting and enforcing the current provision ofthe law on “Blacklisting” companies; and

(d) introduce e-procurement.

11. Procurement Risk Assessment and Mitigation

6. An in-depth procurement capacity assessment was carried out during Project Appraisal, which rates the procurement risk “high” due to the following reasons: (a) nonexistence ofinstitutions at the national, district or community level to implement the project; (b) no National Standard Bidding Documents (SBDs) for National Competitive Bidding (NCB) contracts, or community procurement, that have been reviewed by and cleared with the Bank; and (c) weak institutional arrangement for procurement oversight.

7. The proposed mitigation measures are presented in the Table 10- 1.

111. Procurement Arrangements

8. Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement Under International Bank for Reconstruction and Development (IBRD) Loans and IDA Credits” dat,ed May 2004; and “Guidelines: Selection and Employment ofConsultants by World Bank Borrowers’’ dated May 2004, and the provisions stipulated in the Legal Agreement, and a Project Implementation Manual to be developed to guide the institutions implementing the project. The various items under different expenditure categories are described below. For each contract to be financed by the Loadcredit, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required by the Bank to reflect the actual project implementation needs and improvements in institutional capacity.

IV. Procurement of Works, Goods and Services under PCU, DCUs

112 9. Procurement of Works. Works procured under this project would include: Minor rehabilitation works including rehabilitation ofdykes at an estimated aggregate cost ofUS$12.2 million. The works contracts, excluding rehabilitation ofdykes, costing the equivalent ofUS$500,000 will be carried out through International Competitive Bidding (ICB) procedures using the Bank’s SBDs. Contracts for rehabilitation of dykes and all other contracts that are valued below the equivalent ofUS$500,000 and above US$70,000 per contract will be awarded through NCB procedures. Procurement of NCB works contracts will be carried out using National SBDs that are acceptable to the Bank. Until such time that the Government has produced National SBDs acceptable to the Bank, the Bank’s Standard Bidding Documents for Works may be adapted for NCB contracts. Works contracts whose value is below the NCB threshold will be awarded on the basis comparison ofquotations received from contractors. With the prior agreement ofthe Bank, qualified contractors may be hired through Direct Contracting.

10. Procurement of Goods. Goods to be procured under this project would include: vehicles, motor cycles, office equipment and furniture, gauges and other measurement equipment, and communication equipment with a total estimated cost ofUS$9.7 million. Contracts costing the equivalent ofUS$250,000 will be awarded on the basis of ICB procedures. The Bank’s current SBDs for Goods will be used for ICB contracts. National SBDs that are acceptable to the Bank will be used for NCB contracts whose value range between the equivalent US$70,000 and US$250,000 per contract. Goods which are estimated to cost less than the equivalent ofUS$70,000 will be procured through Shopping. On exceptional basis and upon prior agreement ofthe Bank, goods may be procured through Direct Contracting. Limited International Bidding (LIB) may be used when there are only a limited number ofknown suppliers in the world.

11. Selection of Consultants. The Credit will finance costs ofrecruitment of Technical Advisors, consultants to carry out studies, training and other consultancy services, with a total estimated cost ofUS$12.3 million. Contracts for which short lists may consist exclusively oflocal consultants will be determined in the procurement plan on the basis ofits nature and an availability offirms. NGOs and community-based organizations (CBOs) may be hired to provide services related to the implementation of community micro-projects in the project districts. The following procurement methods will be used for the procurement of consulting services.

(a) QCBS will be used under such circumstances when: (i)the type ofservice required is common and not too complex; (ii)the scope ofwork ofthe assignment can be precisely defined and the TOR are clear and well specified; and (iii)the staff time, the assignment duration, and other inputs and cost required ofthe consultants can be estimated with precision. Contracts for which short lists may consist exclusively oflocal consultants will be determined in the procurement plan on the basis ofits nature and an availability offirms. NGOs and CBOs may be hired to provide services related to the implementation ofcommunity micro- projects in the project districts.

113 (b) Least Cost Selection (LCS) may be used for assignments of a standard and routine nature such as financial audits and other repetitive services that are estimated to cost less than US$200,000 equivalent.

(c) Selection based on Consultants Qualifications (CQ) may be used for assignments costing less than US$ 100,000 equivalent and for which hll-fledged preparation and evaluation ofproposals would not be justified.

(d) Single-Source Selection will be applied only in exceptional cases when of consultants through competitive process is not practicable and upon Bank’s concurrence ofthe decision on the Single-Source Selection method.

(e) Selection of Individual Consultants. Consultants for services meeting the requirement of Section V ofthe Consultants’ Guidelines will be selected under the provisions for the Selection of Individual Consultants method. Individual Consultants will be selected through comparison ofjob description requirements against the qualifications ofthose expressing interest in the assignment or those approached directly.

12. Procurement of Non-Consulting Services. This will include the refurbishment ofoffices, maintenance ofoffice equipments and vehicles.

13. Operating Costs. The costs ofoperations and maintenance ofoffice, transport and equipment and recurrent staff costs will be financed from the Operating Cost budget of the Credit. Procurement ofgoods and services financed under the Operating Cost will be procured in accordance with the Government administrative procedures satisfactory to the Bank.

14. Bank’s Review Thresholds. Works and Goods valued at the equivalent of US$150,000 per contract will are subject to prior review ofthe Bank. Consultancy contracts for services to be provided by consulting firms costing the equivalent of US$lOO,OOO or more, and for individual consultants contracts estimated to cost the equivalent ofUS$50,000 or more will subject to Bank’s prior review. All single-source contracts, regardless oftheir value, shall be cleared with the Bank. (See Table 11-2).

V. Procurement of Works, Goods and Services under the Community Grant

16. US$37.5 million ofthe Credit amount will be used to finance community and catchment micro-projects. Procurement will be carried out in accordance with the applicable provisions ofthe Bank’ current Guidelines for Goods and Works and Consultancy Services. The procedures will be elaborated in the PIP. The procedures will include the following:

(a) Shopping for Goods. By this procedure, quotations would be solicited from at least three qualified suppliers on basis of simplified documents. In order to enhance efficiency and remove the inherent ofrisk of compromise, communities would be advised to ensure that request for and submission of quotations should be in writing. Quotations should be opened at the same time and to the extent

114 possible in the presence of community members. As a general rule, the supplier who offers the lowest price should be awarded the contract.

(b) Shopping for Works. Just like in the case of shopping for Goods, quotations would be obtained through invitation ofseveral contractors, at least three, to submit quotations on basis ofsimplified quotation forms. The forms would describe the scope of the works, detail specifications and where possible include drawings. Quotations should be opened at the same time and to extent possible in the presence ofcommunity members. As a general rule, the contractor who offers the lowest price should be awarded the contract.

(c) Open Tendering. Open tendering procedures would be limited to local advertising using such media as local newspaper or radio, posting notices at strategic places, circulating such notices or reading them out in community meeting or other public gatherings. Target suppliers and contractors are often those within the vicinity ofthe beneficiary community. The request for bids should spell out the work or goods needed, the criteria for selection, and the deadline for submission ofbids. Bids would be opened in a public ceremony, and subsequently evaluated by the CDC. Bids would be examined to determine whether they meet the minimum specifications mentioned in the bidding documents. Bids that meet the minimum requirement specified in the bid invitation would be retained for further evaluation and the bidder who meets the minimum requirements and offers the lowest bid would be selected. The award and amount ofthe contract should be announced to all bidders. A contract should be signed within a period to be specified in the PIP.

(d) Direct Contracting/Off the Shelf Purchases. By this method a supplier or a contractor would be chosen without using any ofthe competitive methods described above. This method would be used where there is only one source. Other reasons for direct contracting could be urgency, the need to adopt certain technology or a repeat order. To the extent possible the contract price agreed upon should be within local market rates or established estimates as shown in Unit Cost Database maintained by the DCUs. Direct contracting should be approved by the CDC.

VI. Procurement Plan

17. The Procurement Plan for the first 12 months ofproject implementation was prepared and agreed between the Borrower and the Project Team by the date ofproject negotiations. It will be posted in the project’s database and in the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

115 vi m

a a 0

e, s E

a a a

a: 2 F4

0El .3Y Y

08 e, Table 10-2: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value Procurement Contracts Subject Category Threshold (US!$) Method* to Prior Review

1. Works 1500,000 ICB All Contracts

170,000 < 500,000 NCB 2150,000

70,000 Shopping None

2. Goods 1250,000 ICB All contracts

No limit LIB 1150,000

270,000 250,000 NCB 2150,000

< 70,000 Shopping None

3. Services, Consultant Services, Training

:a) Firms No Limit QCBS 1100,000

-< 200,000 LCS 1100,000

~100,000 CQ None

:b) Individual Consultants 150,000 Individual All contracts consultants

< 50,000 Individual None consultants

*Contracts for which short ;ts may consist exclu; vely of local consultants will be determined in the procurement plan on the basis ofits nature and an availability of firms.

118 Annex 11: Economic and Financial Analysis KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

1. The economic and financial analysis ofthe WKCDDFM Project is structured as follows: (a) an overview ofthe economic importance ofnatural resource and agricultural production in Kenya; (b) a brief summary ofgeneral issues for economic analysis of NRM-related projects; (c) estimation ofthe potential IRR and NPV for the proposed project investment; and (d) conclusions and recommendations.

1. Economic Importance of Natural resource and Agriculture in Kenya

2. Sound management of natural resources is an important element of Kenya’s development process. The major focus ofthe WKCDD/FM Project will be on the sustainable management ofnatural resource based either on a CDD approach or on implementation through local authorities in close consultation with the communities. However, some micro-projects will go beyond the mere focus on sustainable NRM. Another major focus ofthe project is flood mitigation. Natural resource play two basic roles in development: The first, most applicable to developing countries, is the role of local natural resource as the basis ofsubsistence. The second is a source ofdevelopment finance. Commercial natural resource can be an important source ofprofit and foreign exchange. Rents on exhaustible, renewable and potentially sustainable resources can be used to finance investments in other forms ofwealth. Natural resource makes up a very significant share ofthe total wealth in low-income countries. In Kenya, natural capital accounts for 2 1 percent oftotal wealth, whereas produced capital, defined as the sum of machinery, equipment, and structures (including urban land), account for only 13 percent (World Bank, 2006).27 It is estimated that land resources, including cropland and pastureland, account for 65 percent, timber and non-timber forest resources for 27 percent, and protected areas for 8 percent ofthe total natural capital (World Bank, 2006). Hence, sound management ofthese natural resource can support and sustain the welfare ofcountries, such as Kenya, as they move up the development ladder. This also suggests that managing natural resource must be a key part ofdevelopment strategies.

3. The condition of Kenya’s natural resources, such as land, water and forests, are reported to have deteriorated over the last decades and thereby negatively affecting sustainable economic growth. However, the condition ofKenya’s natural resource, such as land, water and forests have deteriorated over the last decades and thereby negatively affecting sustainable economic growth. Available estimates indicate that the rate ofsoil fertility depletion is very high in Ken a as is the case in most Sub- Saharan Africa countries (Sheldrick and Lingard, 2004).’ soil fertility depletion thus represents a substantial loss in Kenya’s natural capital, and contributes to reduction of agricultural productivity and income. Forests cover only about 1.7 percent ofKenya’s

21 World Bank (2006). Where is the Wealth ofNations? Measuring Capital for the 21StCentury. Washington D.C. 28 Sheldrick, W.F., J. Lingard (2004). The Use ofNutrient Audits to Determine Nutrient Balances in Africa. In: Food Policy 29: 61-98.

119 land area and annual deforestation between 1976 and 2000 amount 15,000 ha or 2 percent. The frequency of floods and droughts has been increased in the last decades and water quality is reported to have deteriorated, partly due to inappropriate application of agro-chemicals (Emerton, 1998).29 The agricultural sector directly affects the condition ofnatural resource. In addition, the agricultural sector is ofparticular importance for poverty reduction and economic growth. It contributes 24 percent to the GDP, provides 60 percent oftotal employment and 75 percent ofmerchandise exports. 80 percent of the poor live in rural areas. Agriculture is dominated by resource-poor smallholders, with 3.5 million farm families, ofwhom 80 percent have an average farm size of 1.2 ha. The average growth rates in the sector have been only 1.9 percent during 2000-04. In 2005, however, the agricultural sector grew by 6.9 percent. A rapidly rising population and subdivision offarms is resulting in declining farm sizes and pressure on natural resource. There are clearly limits to growth through area expansion. Future growth will clearly have to come from intensified sustainable agriculture with a focus on smallholders for poverty impact. the Government’s vision for the development ofthe sector, as articulated in the Strategy for Revitalizing Agriculture, is to transform agriculture into a profitable, commercially oriented and internationally competitive activity while conserving the natural environment.

2. Economic and Financial Analysis of WKCDD/FM Project

4. Cost-benefit analyses of WKCDD/FM Project pose special challenges for rigorous economic analysis. Natural resource generates a substantial number ofgoods and services that benefit humankind, but the value ofa number ofthese goods and services is not determined through market mechanisms. In general, values ofnatural resource may be classified as follows: (a) direct use values: values arising of consumptive and non-consumptive uses ofthe natural resource (e.g., forests for timber production and extraction ofgenetic material); and (b) indirect use values: values arising from various environmental services (e.g., protection of forests ofwatersheds and carbon storage). Theoretically, all direct and indirect use values ofnatural resource are capable ofbeing measured in monetary terms. In practice, however, there is limited evidence of some ofthese values (Pearce, 2001).30 Another challenge related to WKCDD/FM Project is the quantification ofoff-site effects. SLM practices, for example, are not only likely to generate positive on-site effects, such as increased yields through reduced soil erosion, but can also be expected to reduce sedimentation ofreservoirs and other facilities downstream. These externalities may also contribute to reduced frequency and severity of flooding and reduce the costs for water-supply companies for silt removal. However, the precise quantification ofthe complex relation between watershed management activities (e.g., adoption of SLM practices) and their physical effects (e.g., stabilization of top soil, improved water quality, reduced flooding) and their translation into value measures require substantial amount of long-term data and biophysical modeling by hydrologists and watershed management specialists. This analysis makes an attempt to quantify some ofthese benefits based on previous studies in the intervention area,

29 Emerton, L. (1998). The Costs of Environmental Degradation to the Kenyan Economy. A Literature Review. Policy Research and Development Services. Nairobi, Kenya. 30 Pearce, D.W. (2001): The Economic Value of Forest Ecosystems. In: Ecosystem Health, Vol. 7, No. 4.

120 quantitative modeling, estimates from project consultants and team members, and literature review.

5. Review of watershed management projects in different regions (including Africa) have shown that even distribution of upstream and downstream benefits is key to the success of project implementation (World Bank, 2006). Farmers will only adopt SLM practices upstream, and thereby contribute to reduced sedimentation downstream, if they can realize financial benefits not only in the long-term but already in the short-term. Therefore, the economic analysis ofthe WKCDDPM Project places particular emphasis on conducting a financial analysis from the perspective ofthe land users. In addition, the economic analysis determines whether the proposed investments are economically viable from the perspective ofthe society as a whole.

3. Calculation of IRR and NPV

6. Ex-ante quantification of economic benefits of certain components, such as the component focusing on policy analysis, advocacy, and local development is difficult, if not impossible. This is mainly due to the long-run nature ofthese interventions, and difficulties in linking cause and effect. Hence, estimation of single summary measures, such as IRR or NPV, for the whole project is not very useful and may not be warranted. The calculation ofeconomic measures for individual components within the project may be more appropriate. With regard to quantification ofeconomic values, the analysis focuses on the profitability ofinvestments in the Nzoia Catchments, such as SLM and flood mitigation measures (e.g., rehabilitation of levees), and CDD micro-projects. The analysis captures both on-site and off-site effects. In the following, the approach and results ofthe economic and financial analysis will be described for some major interventions.

3.1. SLM

7. To determine the returns to SLM interventions, both the on-farm and off-site costs and benefits are taken into account. The adoption ofSLM practices will be promoted in the upper Nzoia Catchment mainly to: (a) reduce soil erosion and thereby increase yields and farmers’ income; and (b) reduce sedimentation and thereby reduce siltation ofreservoirs and regulate water flows and water quality. To determine the returns to SLM interventions, both the on-farm and off-site costs and benefits are taken into account. Private costs and benefits might differ from the social costs and benefits for natural resource/land conservation, because: (a) market failures or policy-induced distortions might distort price signals perceived by agricultural producers; and (b) externalities caused by land degradation (off-site effects) might impose costs or benefits on the society in addition to the decline in productivity on the fields where degradation occurs.

8. As part of the private CBA, financial returns of SLM practices from farmers’ perspective are assessed over a time horizon of 50 years. Using a discount rate of 10 percent (Pagiola, 1996), NPV and IRR are computed with and without SLM practices recommended by the KARI. KARI has identified integrated soil fertility

121 management, agroforestry and soil and water conservation structures as interventions suitable for operational areas with similar ago-ecological conditions as the WKCDDFM Project areas.31 Benefits ofadopting SLMpractices are expected to occur through reduced soil erosion and reduced soil fertility mining which ultimately result in improved crop yields. This study uses mainly data from long-term experiments conducted at KARI Kabete and Embu Research Stations. Both stations are located in the high potential areas that reflect the biophysical environment ofthe operational areas. Since the experiments do not measure soil loss over time, the Revised Universal Soil Loss Equation is used to quantify the erosion-crop yield relation. The Feasible Generalized Least Squares Model was used to compute yields with and without SLM practices. Technology diffusion is estimated based on the classical difhsion model with a logistic distribution.

9. To estimate these off-site effects, the social CBA includes the impacts of SLM on sedimentation and carbon sequestration. The private CBA from the farmers’ perspective does not take into account the off-site costs and benefits that result from adoption or non-adoption of SLMpractices. The quantification ofbenefits due to reduced sedimentation is based on research conducted by the University of Stellenbosch (2005) commenced as part ofthe LVEMP.32The research report estimates the impact of land use change on sedimentation in the Nzoia Catchment based on the agro-hydrological model ACRU. Model scenarios for selected sub-catchments reveal significant potential to reduce sediment yields through land use change, such as rehabilitation with grass. According to model results, sedimentation in three “sedimentation hotspots” would be reduced by 50-65 percent. Other studies, such as Nkonya et al., (2005) estimate even higher reduction ofsedimentation through selected SLMpractices.33 In addition, the WKCDDFM Project supports the construction of off-farm erosion control measures which also would contribute to reduced sedimentation. Hence, it was assumed that project interventions, such as on-farm and off-farm erosion control measures, could at least achieve similar reductions as through rehabilitation with grass. Reduced sedimentation would lead to lower treatment costs for water companies in the intervention area. In addition, lower sediment yields would increase the carrying capacity ofthe river in the flood plain and thereby contribute to reduced frequency and severity of flooding. The economic impacts ofsedimentation on the potential dam are considered to be negligible. The consultants working on the selection ofdam sites, estimated that based on current sediment yields, the dam would siltate after 7,034 years.

10. Less sedimentation is expected to lead to reduced water treatment costs and reduced flood damages. Data on the amount ofwater production in the sub-catchments were collected from the Kakamega Water Service Board. These data were used in combination with data on sediment yields, total suspended solids and run-off to estimate

31 Pagiola, S. (1996): Price Policy and Returns to Soil Conservation in Semi-Arid Kenya. In: Environmental and Resource Economics 8: 255-271. 32 University of Stellenbosch (2005): Pilot Study on Sedimentation and Sedimentation Characteristics on Nyando and Nzoia River mouths and Winam Gulf of Lake Victoria. Lake Victoria Environmental Management Project. South Africa. 33 Nkonya, E., P. Gicheru, J. Woelcke, B. Okoba, D. Kilambya, L.N. Gachimbi (2006): Economic and Financial Analysis of the Agricultural Productivity and Sustainable Land Management Project. Washington D.C.

122 the amount ofsediments affecting the water companies. Water treatment costs have been collected from the Sasumua Water Treatment Plant ofNairobi City Water and Sewerage Company Ltd. and adapted to water treatment facilities in the Nzoia catchment. Increased water treatment costs occur through greater use of chemicals, such as alum and chlorine, to purify and disinfect water and backwashing. Backwashing is a process to remove sludge buildup for which a large amount ofwater is needed. It is estimated that annual treatment costs for water companies affected by the intervention area would be reduced through less sedimentation by US$72,986. Another benefit expected from reduced sedimentation downstream is its impact on water flows and flooding. Based on simulated sedimentation yields throughout the catchment and in the hotspots, sedimentation experts estimated that the river is expected to deepen by 500 mm per year until a stable equilibrium of 1 m is reached after 25 years. The deepening ofthe river would increase the discharge capacity ofthe river in the flood plain. The increased capacity is calculated based on the Manning Equation. The current capacity ofthe river downstream is about 560 m3per second. Ifthis capacity increased by 500 mm annually gradually over a period of25 years, the discharge capacity would increase to 742 m3per second. A 25 year flood is associated with a water flow of 1,000 m3 per second. Assuming the discharge capacity has increased to 742 m3per second only 258 m3per second are left above the river bed between the levees instead of 500 m3second before. It can be expected that the same area (in ha) will be flooded in the flood plain as before increased discharge capacity has been achieved, but less deep and for a shorter period of time. Therefore, resettlement costs could be reduced by some 50 percent ofthe current level and the damage to structures and buildings might be also less (the assumption has been made that damages would be reduced by 50 percent as well). According to the Government average annual flood damage in the Budalangi Plain amount to US$1.49 million. A 50 percent reduction of damages would be equivalent to savings of about US$745,000 per year.

11. Improved land management can lead to increased carbon sequestration. However, as Pagiola (1999) notes, the links between land degradation and carbon dioxide emission are numerous and complex and hence difficult to quantify.34 Due to these difficulties, coefficients generated through previous studies are used and adapted to the Kenyan conditions (Vagen et al., 200535; Gachene, 199736). For this study the more conservative figure of 0.5 tons C per year ofcarbon sequestration per ha SLM is used. The value ofthese emission reductions is based on the price the BioCarbon Fund ofthe World Bank pays per ton ofC02 which is about US$4 in average.

34 Pagiola, S. (1999): Global Environmental Benefits ofLand Degradation Control on Agricultural Land. World Bank Environment Paper No. 16. Washington D.C.: The World Bank. 35 Vagen, T.-G., Lal, R. and B.R. Singh (2005): Soil Carbon Sequestration in Sub-Saharan Africa: A Review. In; Land Degradation and Development 16, 53-7 1. Gachene, C.K., N. Jarvis, H. Linner, and J. Mbuvi (1997): Soil erosion effects on soil properties in a highland area of central Kenya. In: Soil Science Society ofAmerica Journal, 61(2):559-564. 36 Gachene, C.K., N. Jarvis, H. Linner, and J. Mbuvi (1997): Soil erosion effects on soil properties in a highland area ofcentral Kenya. In: Soil Science Society ofAmerica Journal, 61(2):559-564.

123 12. The IRR of selected SLM interventions can be expected to be between 25 percent and 45 percent. With a 10 percent adoption rate the private IRR would be 43 percent (NPV ofUS$310 per ha). Including off-site benefits from reduced sedimentation and carbon sequestration would increase the IRR to 46 percent (NPV ofUS$337 per ha). If all costs for promotion ofon-farm activities and overhead costs of the respective component are added the IRR would be 26 percent (NPV ofUS$279 per ha). As the Table 11 - 1 indicates private and social IRRs are very stable with different adoption rate scenarios. These figures indicate that the selected management practices would meet the necessary condition offinancial profitability from the farmers’ perspective. It is important to note that the adoption ofthese management practices would imply high initial investment costs which could constitute a barrier for adoption.

Table 11-1: SLM - Summary Private and Social IRR 1 Adoption rate I Private IRR I Social IRR I Social IRR (NPV) (incl. off-site benefits) (incl. off-site benefits (NW plus overhead costs) (WV) 5% 42.3% 45.3% 24.9% (US$3 13ha) (US$342ha) (US$268ha) 10% 42.5% 45.5% 25.9% (US3 1Oha) (US$337ha) (US $2 79ha) 20% 42.7% 45.8% 27.3% (US$376ha) (US$3 84ha) (US$330ha)

3.2. Flood mitigation:

13. Floods cause significant economic damages in the Bundalangi Flood Plain. Another major objective of the project is reducing the frequency and severity offlooding in the project area, in particular in the Budalangi Flood Plain. Flooding in the project areas has become more frequent and more severe in the last decades. According to estimates ofthe Government reports and WRMA, flooding in Nzoia occurred once every two years 20 years ago and now twice a year. The average annual flood damage is estimated to be about US$1.5 million (US$900,000 for resettlement, US$570,000 for property damage, and US$30,000 for loss of agricultural production).

14. The rehabilitation of levees in the Budalangi Flood Plain would constitute an economically viable investment. During project preparation different options have been discussed for flood control. As mentioned above, the promotion of SLM is already expected to reduce the frequency and severity offlooding. Decisions have been made to support the implementation ofa flood early warning system, rehabilitate the levees in the flood plain and conduct consultancies for detailed feasibility studies of the envisaged dam in the middle catchment. The quantitative analysis ofthe flood mitigation component focuses on the levee rehabilitation. The potential dam has not been evaluated as part of the economic analysis, since its construction will not be part ofproject implementation and the detailed feasibility studies will look in detail at the economics ofdam design and construction. The project would finance the rehabilitation ofthe levees in the flood plain with a length ofabout 16.5 km on both sides ofthe river. The cost ofrehabilitating the

124 levee with its current height of2.5 m is estimated to be US$137,143 per km. Multiplied by the total length of 33 km the total costs would amount to US$3.9 million plus about US$400,000 for vegetation removal within the levee. Annual Operation and Maintenance (O&M) costs are estimated to be 2 percent ofthe investment costs. Based on the Manning Equation, the given discharge capacity ofthe river and associated water flows offlooding events, the levee would be able to prevent 25 year floods. Consequently, the economic benefits oflevee rehabilitation occur through minimizing the risk of flooding (and the associated damage) to a probability of 2 percent annually. Over a period of 25 years, the economic IRR and NPV would be 21 percent and US$4.9 million respectively.

Table 11-2: Costs and IRR for Levee Rehabilitation Flood mitigation measure Investment costs IRR (O&M costs) Rehabilitation of levees in Budalangi Flood Plain US$4.3 million 21% (length: 33 km; height: 2.5 m) (USS86,OOO)

3.3. CDD Micro-Projects:

15. Potential CDD micro-projects have been selected and evaluated as part of the economic analysis. The WKCDD/FM Project would also support the preparation and implementation of CDD Micro-Proj ects focusing on livelihood-enhancing interventions which simultaneously improve the condition ofthe natural resource base (see Annex 13). A particular challenge related to the ex-ante economic analysis ofCDD projects is the selection ofinterventions and activities to be evaluated, since-by definition-the communities can select from a wide range ofpotential activities. The analysis is not able to capture all these diverse activities due to time and resource constraints. Based on discussions with communities in the targeted areas, the Government officials and team members the following activities have been identified as likely CDD interventions and have been evaluated: (a) woodlots; (b) medicinal plants (including processing); (c) indigenous vegetables; (d) SLMpractices; and (e) beekeeping. Primary data for the analysis have been collected from NGOs, the Government institutions, and secondary data from literature review. For the NRM-related micro-projects the communities are expected to cover about 10 percent ofthe total costs, for livelihood-focused projects the communities are expected to cover 30 percent. Each micro-project is assumed to have a budget ofUS$15,000, of which 50 percent are used for non-production purposes, such as technical advice, access to information, farmer exchange and overheads.

16. Woodlots on private, community, or public land are one potential type of micro-projects with attractive IRR. Woodlots could be established for example with pine for sawtimber. Data for the CBA analysis are taken from Sedjo (2004) and a case study ofthe Hombe Forest Station conducted as part ofthe Strategic Environmental Assessment. For the pine sawtimber woodlot a rotation of 26 years was assumed.37 The wood volume would be expected to be 285 m3and the price Ksh 1,400 per m3.Based on

37 Sedjo, R.A. (2004): Kenya Forestry - Economic and Financial Viability. A Discussion Paper Prepared for the World Bank. Washington D.C.

125 the budget available for each micro-project, the area under woodlot would be expected to be about 14 ha. The opportunity costs of land are based on the forgone benefit for grazing and maize. Two scenarios were considered: the first one would include the benefit from fuelwood collection, and the second would not include other benefits than timber. For the scenario with fuelwood benefits, the IRR was estimated to be 19 percent (NPV of US$818 per ha). Without fuelwood benefits, the IRR was estimated to be 10 percent (NPV ofUS$13 per ha). Assuming benefits from maize production as the forgone benefit changed the IRR and NPV only slightly. It is important to note that the economic NPV which does not include the benefits from fuelwood collection, but accounts for overhead cost from the respective component, is negative.

17. Production and processing of medicinal plants would constitute another economically viable option for communities. An example for medicinal plants would be intercropping of Ocimum (medicinal plant), with Mundia (medicinal plant) and agroforestry (Sasbania). One potential partner for implementation ofmicro-projects-the NGO Kakamega Environmental Education Program (KEEP) -is conducting this activity on a pilot basis. The micro-project funds would allow for a production ofthis intercropping system on about 8 ha. A time period of20 years was considered for this analysis. Data to calculate the crop budgets were collected from KEEP. The analysis reveals that based on the data collected, mono-cropping ofOcimum would not be financially viable if the without-proj ect scenario assumes maize production. The production ofMundia must be linked to agroforestry due to the need ofthe medicinal plant to climb a tree. Intercropping of Ocimum, Mundia and Sasbania is expected to result in an IRR of 101 percent from the perspective ofthe participating community, i.e., when costs for non-production purposes and overheads are not included. Ifboth costs are taken into account, the IRR would be 37 percent. Processing ofOcimum is another potential CDD micro-project. Data for the CBA have been collected at a small processing facility in Kagamega. Currently, the processing facility collects the Ocimum from surrounding farmers and has a capacity to produce 15 kg oil per month. The oil is transported to the ICIPE in Nairobi. ICIPE does the purification ofthe oil, packaging and selling ofthe final product. The processing facility sells the oil to ICIPE at a price ofKsh 4650 per kg. Based on the data collected, the micro-project would not be financially viable if the investment costs would include the construction ofall required buildings for storage and processing, and the purchase of all required machines and equipments. However, if the costs for construction and major machinery is covered, as is the case for the visited facility, and the micro-project would invest in some additional equipment and cover O&M costs, the project is likely to be financially viable. For the second scenario a private IRR of63 percent (NPV ofUS$4,733) was calculated. If overhead costs and non- production expenses would be included, the IRR would be 51 percent (NPV US$4,399).

18. Indigenous vegetables would be another potential micro-project as part of the WKCDD/FM Project. The CBA is based on crop budgets collected from the World Vegetable Center. The vegetables evaluated include: amaranthus, cowpea, and nightshade. Due to the direct financial support to the communities the adoption of vegetables is expected to the reach the total area relatively quickly after 2 years. The opportunity costs for land are reflected by the cost and benefits ofmaize production in the intervention area. The time period under consideration is 10 years and a discount rate

126 of 10 percent is used for the calculation ofthe NPV. Ifmaize production is taken as the without project scenario, amaranthus and nightshade can be expected to be highly profitable. The financial IRR for amaranthus production would be 15 1 percent (NPV of US$66 per ha). The economic IRR, which is including overhead costs ofthe community capacity building component, would be 24 percent (NPV ofUS$26 per ha). Nightshade would achieve a financial IRR of 106 percent and an economic IRR of 13 percent. The CBA analysis for cowpea revealed that maize production could be more profitable in the project area and therefore the respective micro-project would not be financially and economically viable.

Table 11-3: CDD Microwoiects - Summarv Private and Social IRR Financial IRR Economic IRR (NPV) Woodlots - Pine Sawtimber with fuelwoo 19.4% 19.2% (US$8 181ha) (US$793/ha) without fuelwood 10.1% 10% (US$13/ha) (US$13/ha) Ocimum - mono Not viable Not viable Ocimum-Mundia-Agroforestry(Sasbania) 101% 37% intercropping (US$3,104/ha) (US$2,391/ha) Ocimum processing Including construction of new buildings Not viable Not viable and purchase of major machinery

Without construction of new buildings and 63% 5 1% purchase of major machinery Indigenous vegetables Amaranthus 151% 24% (US$66) (US$26)

Nightshade 106% 13% (US$78 1) (US$91)

Cowpea Not viable Not viable Beekeeping (indigenous woodlots) - opportunity costs land: maize production 6 beehiveslha 9% 4% (US$103/ha) (US$579/ha)

10 beehiveslha 34% 14% (US$1764/ha) (US$476/ha) SLM practices (agroforestry, integrated soil 30% 23% fertility management, soil and water (US$443/ha) (US$376/ha) conservation [SWC])

19. The financial viability of beekeeping on forest land or woodlots is significantly determined by the number of beehives per ha. As mentioned for the reforestation intervention above, with 6 beehives per ha a benefit ofUS$246 could be realized. In addition, the benefit offuelwood collection is estimated to be about US$39 per ha. The benefits ofwax-a by-product ofhoney production-have not been included

127 in the analysis. Micro-project funds could be used to establish a woodlot for beekeeping on about 12 ha. In this case, if the forgone benefit ofgrazing constitutes the opportunity cost for land, the private IRR from the community’s perspective would be 19 percent (NPV US$64 per ha). If expenses for other non-production expenses are taken into account the IRR would be reduced to 9 percent and a negative NPV ofUS$72 per ha. For the scenario with maize production determining the opportunity costs for land, the private IRR would be 9 percent (with a negative NPV ofUS$ 103 per ha) and taking the other expenses into account the IRR would be reduced to 4 percent (with a negative NPV ofUS$579 per ha). These figures illustrate that establishment ofwoodlots with low beekeeping intensity is unlikely to be economically viable. However, the profitability can be realistically improved through more intensive beekeeping, i.e. through increasing the number ofbeehives per ha. If a woodlot with 10 beehives per ha can be established, the IRR including the overhead costs and assuming maize production determines the opportunity costs for land, would increase to 14 percent and the NPV to US$476 per ha. Hence, it would be important to determine upfront how many beehives could be realistically implemented and whether the market demand is sufficient for increased honey production.

4. Conclusions and Recommendations:

20. The ex-ante financial and economic evaluation of the different WKCDDDM Project interventions, such as SLM, flood mitigation, and CDD micro-projects, has indicated that most activities planned are likely to be profitable from the participants and project perspective. In many cases, the off-site effects add significantly to economic viability from the society’s perspective. The results ofthe analysis have some important implications for the design and implementation ofthe WKCDDPM Project:

(a) Financial viability of interventions from the farmers’ or community’s perspective is a necessary condition of sustainable watershed management. Potential technologies that meet this requirement could be identified in collaboration with research institutes, such as KARI. A similar rigorous screening for financial viability, as conducted for this analysis, could be systematically mainstreamed into project implementation. For potential CDD micro-project this could imply that the submission ofproposals should require a sound financial and economic analysis. The results suggest the need to promote SLMpractices that complement each other and other farm enterprises. This also implies that promoting a package ofcomplementary technologies is likely to make them more profitable and less risky. In the quest to promote a package of technologies, the project could anticipate and plan for the expected stepwise adoption ofcomponents ofthe technologies. Ifpromotion ofa mix of complementary enterprises is not feasible, high value crops are likely to make SLM practices more profitable.

(b) High initial investment costs constitute a potential barrier for adoption of SLM practices. Improved access to credit would potentially enable farmers to overcome this constraint. However, credit in the form of cash may not work due to its fungible nature. In kind credit, such as by providing agroforestry planting

128 materials on longer term credit basis could help farmers to obtain these inputs easily. The project could facilitate establishment ofagroforestry nurseries in the operational areas. The agroforestry nurseries would need to be established on a commercial basis to ensure their sustainability. For the case of SWC structures that involve high labor inputs, there is need to encourage creation oflabor groups.

(c) Enforcement of existing NRM-related rules and regulations constitutes a critical challenge. Non-farm activities are likely to give farmers alternatives to their land degrading agricultural activities. Research has shown that farmers who, for example, pursue non-farm activities are more likely to fallow than those without. Project design and implementation could be informed by an analytical study identifying feasible alternative livelihoods. In addition, local institutions could be strengthened to enact and enforce SLM regulations. NRM regulations enacted locally have higher compliance than those imposed on the community by higher authorities. Community awareness ofexistence ofNRM regulations usually increases the level of compliance with such regulations. In addition, the project could help to strengthen local government and customary institutions, which would enact and enforce these regulations.

(d) An enabling economic and policy environment facilitates the adoption of SLMpractices. Profitability from the farmers’ perspective is only a necessary, but not sufficient condition for sustainable NRM at the catchment level. In order to address the problem ofresource degradation in a holistic and effective manner, policy makers and planners need to better understand all the factors that underlie the proximate cause ofnatural resource degradation, such as population pressure, poverty, high purchased input costs, lack of access to rural finance, markets and public services, weak decentralization and basic rural service delivery, and land tenure relationships. Policy and socio-economic analyses could inform policy reforms which enable the widespread adoption ofsustainable NRM practices. A baseline study would help to better understand factors affecting SLM and alternative livelihoods and their impacts on conditions ofnatural resource.

(e) Market analysis is an important step to assess the viability of alternative livelihoods and high-value crops. Alternative livelihoods and high-value crops are mentioned as viable option to address natural resource degradation. However, risk and access to market are likely to be of concern for these alternatives. Efforts by the project to connect farmers and farmer groups to markets are likely to form a foundation for addressing the risk and market access concerns. Regarding activities which are expected to significantly contribute to increasing outputs, a market analysis should be considered as an important input for implementation.

(f) Payment for Environmental Services (PES) is an innovative instrument to foster adoption of SLMpractices. For PES to be sustainable it needs to be a win-win situation, Le., it increases returns to SLM practices and also helps downstream communities and/or companies to avoid or minimize the off-site effects ofland degradation. The project would need to explore the possibility of PES since such service payments are not necessarily feasible or economic

129 wherever there are off-site costs, considering the costs of establishing and monitoring such a payment system. Skepticism from potential downstream beneficiaries to engage in a PES could be addressed through accurate measurements and data collection during project implementation.

130 Annex 12: Safeguard Policy Issues KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

1. Safeguards Triggered. Safeguards Policy triggered by the WKCDD/FM Project and the related NRM Project include those on Environmental Assessment (OP/BP 4.01) Involuntary Resettlement (OP/BP 4.12), and IP (OP/BP 4.10). In order to address these safeguard policy issues, and to ensure that implementation ofproject activities will be carried out in an environmentally and socially sustainable manner, the Government prepared a joint ESMF, a RPF and an IPPF. The three documents were reviewed, commented on and approved by both the Government and the World Bank and disclosed to the public in-country and at the Bank’s Information Centre in Washington D. C. on January 10,2007. Regarding the Projects on International Waterway (OP/BP 7.50), a notification ofthe commencement ofthe project sent out by the MOF on January 11 , 2007 to the parties ofthe Nile Basin Agreement. The following sections ofthis Annex present the rationale for these three documents, and include their executive summaries.

I.ESMF

2. Background and Rationale. The unified ESMF prepared for the WKCDD/FM Project and the complimentary NRM Project will allow the implementing agencies to identify, assess and mitigate potential negative environmental and social impacts of sub projects, and to ensure that proper mitigation and possibly the preparation of appropriately costed environmental impact assessments (EIA) and mitigation and management plans as well as RAPSwhere necessary. The ESMF presents guidelines and procedures consistent with the Environmental Management and Coordination Act of Kenya and the World Bank’s safeguard Policy on Environmental Assessment OP/BP 4.01.

3. The ESMF Process. The ESMF outlines an environmental and social screening process for sub-projects which will enable the water service agencies, the forest services, and local communities to simultaneously identify potential environmental and social impacts ofsub projects and to address them through the incorporation ofthe relevant mitigation and management measures. To effectively ensure the minimization or elimination of such negative impacts, the ESMF encourages the inclusion ofmitigation impacts at the design ofsub-projects prior to implementation. The screening process has been developed as the locations and types ofsub-projects are not yet defined and therefore potential impacts cannot be precisely identified. Both the WKCDD/FM and the NRM Projects directly address environmental and NRM issues and poverty reduction, and are likely to deliver significant positive environmental and social benefits. Both projects,will address ongoing problems ofenvironmental destruction and associated deepening poverty. Specifically, the two projects will address: (a) forest destruction due to encroachment and the resulting loss of water, non-timber forest products, timber; and cultural values; and (b) mitigation through watershed and catchment management and flood plain management. While the proposed interventions are anticipated to have

131 significant positive impacts on the environment and on the livelihood ofthe affected communities, some ofthe individual projects that the WKCDD/FM and the NRM Projects will be funding may involve some environmental and social risk. The ESMF lays out measures to screen and mitigate impacts that may arise during project implementation, including the following:

i) guidance on preparation ofcomprehensive checklists ofpotential environmental and social impacts and their sources;

ii) systematic procedures for participatory screening ofsub project sites and activities and the environmental and social considerations;

iii) a step by step approach for forecasting the main potential environmental and social impacts ofthe planned project activities;

iv) a typical environmental management planning process for addressing negative externalities in the course ofproj ect implementation;

4 a monitoring system for implementation ofmitigation measures; and

vi) an outline ofrecommended capacity building measures for environmental planning and monitoring ofproject activities.

4. Executive Summary. The ESMF is prepared for the NRM Project and the WKCDD/FM Project which the Government intends to implement. This ESMF has been prepared by the Borrower consultant and reviewed and approved by the World Bank and the Government and disclosed in-country and at the World Bank’s Infoshop. The purpose ofthis ESMF is to provide a strategic guide for the integration of environmental and social considerations in the planning and implementation ofboth project activities.

5. The development objectives ofthe NRM Project are to enhance the institutional capacity to manage water and forest resources; reduce the incidence and severity ofwater shocks in river catchments; and improve the livelihoods and improve the livelihoods of communities participating in the co- management ofwater and forests. Achievements under the project will be measured by indicators tracking changes in organizations and their performance, in the health ofthe natural resource base, and in welfare of participating communities.

6. The NRM Project and the WKCDD/FM Project embodies effective institutionalized linkages between key sector actors, including central government, local government, Regional WRMA, KFS, External Support Agencies, the private sector, NGOs, CBOs, and the communities themselves. Under the two projects , the Government will continues to provide the necessary technical and financial support, as well as coordination and regulation ofWRM flood and catchment management as well as ensuring the improved livelihoods for the communities. The private sector provides support to the communities in planning, design, construction and supply ofmaterials, equipment, spare parts, and in some cases operations.

132 7. According to the National Environmental Management and Coordination Act of 1999, the World Bank's safeguard policy OP/BP 4.01 and Kenya's EIA Guidelines, the NRM Project and the WKCDDFM Project would fall under the list ofprojects for which environmental impact assessment is mandatory, prior to implementation. The basis is that the proposed projects constitute several components of activities, which would generate changes and impacts to both the physical and social environment.

8. The proposed NRM and WKCDDFM activities have been categorized as By according to the Environmental Assessment Operational Policy; and therefore, the appropriate environmental work has been carried out for Category B projects while the scope of EIA for Category B may vary from one sub-project to another. Since the locations ofthe infrastructure investments and their potential negative localized impacts could not be determined prior to appraisal, the ESMF has been prepared to ensure appropriate mitigation ofpotential negative environmental and social impacts.

9. Although the program activities will vary in size, location, scope and the approach in implementation, most ofthese activities will involve civil engineering and construction works which might have generic environmental impacts.

10. As sub-project proposals are finalized, the complete proposal shall include the environmental category ofthe sub-project. For category B and A sub-projects requiring an EIA, the proposal shall include the EIA report and proof of its approval by National Environment Management Council and the World Bank and any interested Development Partner or Financing Agency. For less contentious category B projects that do not require the preparation of a separate EIA, the completed environmental and social checklist will be attached to the sub-project proposal.

11. The ESMF has been prepared as a guide for the initial screening of the proposed project sites, and for negative environmental and social impacts, which would require attention prior to project implementation. The ESMF outlines a number ofstrategies in undertaking the exercise. These include:

(a) an outline ofa comprehensive checklist for the potential environmental and social impacts and their sources;

(b) systematic procedures for participatory screening processes for project sites and project activities for environmental and social considerations;

(c) a step-by-step procedure for forecasting the main potential environmental and social impacts ofthe planned project activities;

(d) a typical EMP for addressing negative externalities in the course ofproject implementation and operations within the environment;

(e) a monitoring system for implementation of mitigation measures; and

(f) an outline ofrecommended capacity-building measures for environmental planning management and monitoring of the project activities.

133 12. The framework recommends that in order for the implementation ofthe ESMF to be successful, there is need to ensure that other sub projects being implemented in the same areas as the WKCDD/FM and the NRM Projects have their own comprehensive environmental and social management plans. It also recommends that the National Environment Management Council and sector ministries and agencies should ensure that human activities that lead to environmental and social problems are properly managed and monitored.

13. The framework also suggests that for successful implementation ofthis ESMF, involvement and participation oflocal communities is paramount. Specifically the framework recommends:

(a) using the screening process ofboth the ESMF and RPF prior to any project activity ofthe two projects;

(b) environmental and social awareness and education for the key stakeholders and affected communities;

(c) training the local community structures to implement the ESMF and the screening process;

(d) regularly updating this ESMF to respond to changing local conditions;

(e) building capacities for developing appropriate information management systems to support the environmental and social management process;

(f) providing the necessary resources and equipment for the KFS, WRMA and other players to be able to produce the necessary documentation and forms for the implementation ofthe ESMF; and

(g) empowering the relevant environmental officers to adequately administer the ESMF.

14. As a reference material, the framework will be useful to several stakeholders who will be involved in planning, implementation and monitoring ofthe proposed project. Some ofthe key users ofthis framework are:

(a) funding agencies/donors for the proposed NRM Project and the WKCDDFM Project;

(b) District Environmental Management Officers and Committees;

(c) Sector Environmental Management Coordinators;

(d) participating sectors in the implementation ofthe two projects;

(e) politicians and local traditional leaders;

134 (0 senior central government officials responsible for policymaking and project planning;

(g) central government officials responsible for environmental planning and management;

(h) NGOs and the private sector involved in the selected districts;

(i) planners and engineers for preparation ofplans and designs ofthe project activities; and

('j) engineers and contractors to be involved in implementation ofthe project activities.

15. Annual reviews should be undertaken after implementation ofthe recommended action ESMF report has been prepared, at the closing ofeach year ofthe Project. It is expected that each review would require three to four weeks of field work (interviews, examination ofsubprojects), and that the review report would be completed within two weeks ofcompleting the fieldwork. The reviews will have a total cost ofabout US$753,000 for the whole program period.

11. RPF

16. Background and Rationale. In accordance with World Bank social safeguard policy on Involuntary Resettlement OP/BP 4.12, which has been triggered by both the NRM Project and the WKCDD/FM Project, the Government is required to prepare a social safeguards instrument. Since the sub projects are not determined in advance, the appropriate instrument is the RPF, which will be employed in conjunction with the ESMF to ensure that social impacts due to sub-project activities are appropriately addressed. The RPF document outlines the principles and procedures to be followed in the event that a sub-project leads to land acquisition and/or the loss oflivelihoods.

17. Should the environmental and social screening results indicate that any ofthe planned sub-projects will lead to land acquisition or loss in economic activity or livelihood, the local authorities will apply the principles and procedures for compensation as outlined in the RPF.

18. The RPF establishes the Resettlement and Compensation principles, organizational arrangements and design criteria to be applied to meet the needs ofthe people and communities who may be affected by the project activities. As Kenya does not have a national resettlement policy, the RPF and eventual RAPSare prepared based on the World Bank policy OP/BP 4.12. It is, however, noted that, while no policy directly equivalent to the Bank's social safeguard policies or expressly devoted to safeguarding social issues may exist, the rights ofcitizens and residents of Kenya are nevertheless laid out in the country's constitution and further elaborated in various laws and statutes all ofwhich seek to ensure fair play in administration ofpublic affairs and conflict whether over land or other natural resources. When specific planning information becomes available and the land areas are identified, subproject

135 resettlement/compensation plans will be subsequently prepared consistent with the RPF and will be submitted to the Bank for approval before any land acquisition, resettlement or any other negative impact on livelihood occurs.

19. Consistent with the World Bank Operational Policy on Involuntary Resettlement OP/BP 4.12, the RPF prepared for the NRM Project and the WKCDD/FM Project covers: (a) principles and objectives governing resettlement and compensation; (b) a description ofthe process for preparing and approving Resettlement and Compensation Action Plans; (c) land acquisition and likely categories ofimpact; (d) eligibility criteria for defining various categories ofproject affected persons; (e) a legal framework reviewing the fit between the laws ofKenya and regulations and policy requirements of the World Bank and measures to bridge any gaps between them; (f) methods ofvaluing affected assets; (g) organizational procedures for the delivery ofentitlements, including the responsibilities ofthe Government and the private developer; (h) a description ofthe implementation process, linking resettlement and compensation implementation to civil works; (i)a description ofgrievance redress mechanism; (i) a description ofthe arrangements for funding resettlement and compensation, including the preparation and review ofcost estimates, the flow offunds, and contingency arrangements; (k) a description ofmechanisms for consultation with and participation ofdisplaced persons in planning, implementation, and monitoring; and (1) arrangements for monitoring by the implementation agency and if required by the independent monitors.

20. Apart from the earlier evictions which took place before the two projects were identified and for which data is scarce, it is important to note that the number ofPAPS that will require resettlement and/or compensation is not yet known. For this reason, it is not possible to prepare RAPSat this stage. The NRM Project has however taken it upon itself to assist the Government to address the resettlement issues in the project’s area of influence. To achieve this important objective, the project will have to first carry out a comprehensive and participatory survey to map out the issues before any RAP is drawn up and implemented. The indicative budget provided by the project includes a provision to ensure that resettlement is integrated into the participatory forest management to be developed in these areas.

21. Executive Summary. The Government with assistance from World Bank and other development partners is implementing the NRM Project and the WKCDD/FM Project. These projects will focus on prioritized water resources and flood management and service delivery and wealth creating activities in the communities.

22. The development objectives ofthe NRM Project are to enhance the institutional capacity to manage water and forest resources; reduce the incidence and severity ofwater shocks in river catchments; and improve the livelihoods and improve the livelihoods of communities participating in the co- management ofwater and forests. Achievements under the project will be measured by indicators tracking changes in organizations and their performance, in the health ofthe natural resource base, and in welfare of participating communities. The development objective ofthe WKCDDDM Project is to empower local communities ofmen and women to engage in wealth creating activities, lower the incidence ofpoverty and reduce the vulnerability ofthe poor to adverse

136 outcomes associated with recurrent flooding. Similar indicators as the NRM Project will be used to measure success.

23. In cases where new land has to be acquired for there will be need for the preparation ofprocedures and principles for land acquisition, resettlement and compensation. This entails providing sufficient investment resources to meet the needs ofthe Project Affected Persons (PAPs) who may be displaced from their habitat and resources. It also requires adequate collaborative consultation and agreement with the PAPs to ensure that they maintain or improve their livelihoods and standards of living in the new environment. This RPF which has been prepared by the Borrower consultant and reviewed by the World Bank and Borrower has been approved, by both parties and disclosed in-country and at the World Bank's Infoshop, is to ensure effective preparation and implementation ofthe land acquisition, resettlement and compensation processes for both parties should the need to do so arise.

24. The legal instruments have been noted to contain relevant legislation that defines the different classifications/categories of land, and specific issues that relate to land acquisition and land transfer including the management ofthe land acquisition and transfer processes itself. The legal basis has been found very useful in the preparation of this RPF.

25. The RPF has been prepared in anticipation that the two projects' activities will require additional land. The RPF therefore, provides safeguards against adverse impacts ofdevelopment activities ofboth the NRM and WKCDDBM Projects, through minimizing the number ofPAPS in the first place. It provides procedures and means for adequately compensating for the losses the PAPs may incur, in the case that resettlement cannot be avoided.

26. This RPF includes guidelines for compensation for land contributed voluntarily for the Projects without seeking compensation; as well as land acquired involuntarily. The guiding principle for land acquisition shall be that where land is required for implementation of the sub- project activities, the recommended safeguards shall be observed to reduce the suffering ofthe affected community members.

27. The RPF is intended to assist all funded projects ofcategory (A-C) on NRM and WKCDDBM. The overall responsibility for implementation ofthis Framework shall reside with the implementing agencies.

28. The projects will ensure that the Framework is publicly disseminated and that the program implementers have the requisite skills and knowledge and, where necessary, they have received appropriate training to implement the RPF as indicated in the ESMF.

29. The District Councils/authorities shall take responsibility for implementation of the RPF at respective local authorities, with assistance from other line local offices ofthe above mentioned Government ministries. Implementation ofthe RPF shall require a number of steps including:

137 a full understanding ofthe project components, particularly those requiring land acquisition;

determination ofland ownership;

screening ofthe project sites and activities;

property and asset valuation;

preparation and approval ofresettlement plans;

implementation and monitoring ofthe resettlement plans;

effective redress of complaints and grievances; and

public consultation and participation.

These steps will ensure that WSDP projects are satisfactorily and efficiently implemented to effectively address any adverse social, economic and environmental impacts so that PAPSare fairly treated on land acquisition and resettlement.

111. IPPF

3 1. Background and Rationale. The NRM Project will address key issues regarding IP and other forest dependent communities in the project’s area ofinfluence. It will attempt to harmonize the forest Policy with the draft Lands Policy, implement a participatory forest management, support the elaboration ofa comprehensive resettlement policy and improve in the operational areas the livelihoods ofthe populations which have been evicted. The Project will ensure that:

(a) present and past settlements, land use areas and cultural sites ofIp are comprehensively documented;

(b) the IP are well represented in all forest and resettlement related decision making bodies and processes;

(c) a comprehensive strategy to improve the livelihoods ofevicted IP is elaborated in an open-minded and fully participatory options assessment;

(d) this strategy is implemented in a comprehensive and timely manner; and

(e) the IP are enabled to benefit from participatory forest management and reforestation.

32. The Government is fully aware that, given their close association with land, forests, water, wild life and other natural resources, the physical relocation ofIP or other measures which reduce their access to livelihoods-related activities has complex implications and may entail significant adverse impacts. For these important reasons, the recommended options analysis will explore all possible options in the most participatory

138 manner possible. In addition to carrying out an Options Assessment, the NRM and the WKCDDRM Projects will, among other actions:

(a) promote the effective management of natural resources which offer benefits to the entire population and ensure environmental sustainability and biodiversity;

(b) foster the fdl respect for the dignity, rights and culture ofthe IP;

(c) assure that the IP receive culturally appropriate benefits equal to any other ethnic groups;

(d) protect the IF’ from suffering adverse effects; and

(e) reduce poverty for all ethnic groups and lower the dependence on and degradation ofthe natural resources.

33. Executive Summary. The WKCDD/FM and the NRM Projects in Kenya seek to improve social welfare, enhance living standards and promote the sustainable use of water, land, forests and other natural resources through a support ofsmall-scale initiatives (community-driven development as well as subprojects related to natural resources, forests and water management), construction of small- to medium-scale infrastructure (dams, irrigation schemes etc), policy advice, and institutional development. The WKCDDRM and NRM Projects will be complementary and add value to one other.

34. During preparation, it became clear that the projects might impact on IP rights, lands, livelihoods, and culture. To comply with international standards, including the World Bank’s Operational Policy on IP (OP/BP 4.10), the Government has commissioned the elaboration ofthis IPPF. The purpose ofthe IPPF is to ensure that the development process fully respects the dignity, human rights, economies, and culture of IP, and that the projects are able to gain the broad community support ofaffected indigenous populations through free, prior, and informed consultations. To that end, the IPPF presents guidelines which will avert any potentially adverse effects on the IP communities; or if avoidance proves not to feasible, minimize, mitigate, or compensate for such negative impacts. An additional goal ofthe IPPF is to ensure that the IP receive social and economic benefits that are culturally appropriate, and inclusive in both gender intergeneration terms. Under OP/BP 4.10, an IPPF is for community-driven development projects, social funds, sector investments, financial intermediary loans and other projects which involve the preparation and implementation ofannual investment programs. The IPPF is thus essential to the compliance ofWKCDD/FM and NRM with World Bank safeguard policies. The present IPPF draws upon from the IPP developed for the KAPSLM, which was adopted by the Government in January 2006. Further work was carried out in December 2006, including stakeholder consultations and workshops with all stakeholders (IP communities and organizations, other populations, Governmental services, donors, NGOs, etc.). The report was adopted by the Government in January 2007.

35. IP in the Operational Areas. The African Commission’s Working Group of Experts on Indigenous Populations and Communities affirms that “almost all African

139 states host a rich variety of different ethnic groups (...). All of these groups are indigenous to Africa. However, some are in a structural subordinate position to the dominating groups and the state, leading to marginalization and discrimination. It is this situation that the indigenous concept, in its modern analytical form, and the international legal framework attached to it, addresses.”

36. The two projects will work in 24 districts in Western and Central Kenya. As regards the groups which the IPPF is required to address, the report documents that members ofthe Sengwer ethnic group are found in a structurally subordinate position in four ofthe project districts, and Ogiek in a further four. In some districts, it is not clear whether any populations fall within this category. To address this lack of information, the projects provide for comprehensive screening mechanisms to identify, inform, and consult the Sengwer, Ogiek, and other IP in all operational areas ofthe two projects well in advance ofany investment or subproject implementation.

37. IPPF for WKCDD/FM and NRM. The aspirations ofthe IP in the project area are simple: to live in peace with theory neighbors, to have access to sufficient land to practice agriculture and graze a their livestock, to have access to forests to gather honey for consumption and sale, to practice their culture, to have equitable access to social infrastructure and technical services, and to be fairly represented in the institutions which make decisions affecting their lives at local, regional and national levels. They are not looking for special treatment, only, rather for the rights and opportunities enjoyed by other citizens of Kenya.

38. This report proposes a specific framework to address the needs and rights ofIP in the WKCDDEM and NRM Projects. This is shown to be necessary to mitigate the risks that the challenges facing IP are not exacerbated, and in particular that they do not:

face further physical and economic displacements from land and forests traditionally utilized by them as a source of livelihood and basis for their cultural and social survival;

loose all legal access to natural resources, which are an important source of livelihood and basis for their cultural and social system;

continue to be harassed by land grabbers and cattle rustlers;

become even more marginalized in the society and become alienated from nation life;

receive less support from Governmental services;

have less capacities to defend their legal rights;

become or remain dependent on other ethnic groups; and

lose their cultural and social identity.

140 39. The WKCDD/FM Project will fund a two-level screening process to identify possible adverse effects on IP. In primary screening, all groups which are in a “structural subordinate position to the dominating groups and the state” (and thus indigenous according to the definition quoted above), will be identified in all operational areas (the 10 districts ofthe CDD component and the three micro-catchments likely to be located within 6 additional districts). The secondary screening will consist ofa detailed social assessment undertaken for each of these indigenous communities and fulfill the operational requirements of OPBP 4.10. To implement this strategy, the project will: (a) assist the IP to create an elected Indigenous Peoples’ Screening Structure (IPSS) in all districts where IP use or claim land and/or resources; and (b) empower these IPSS to document, in free, prior and informed consultations, the position ofthe IP on all funding requests, which might impinge upon their land or resources (as will have been identified in the social assessment stage of screening). As the WKCDD/FM will not work in gazetted and protected forests, its sister-project (NRM) will address forest related issues ofthe IP in the WKCDD/FM operational areas. For subprojects which do not in the first instance gain broad support from the affected IP, the DSG (which decides on the funding ofsubprojects) and the IPSS will search for mutually acceptable solutions. IPPs can be prepared to assist and reflect transparent decision-making in the case ofcontroversial subprojects, and will also be elaborated for large scale infrastructures (dams etc.), if the screening suggests that rights, livelihoods, and culture ofthe IP might be affected. Taken together, the measures described above would ensure that negative impacts are avoided.

40. The project will apply four mechanisms to ensure that IP receive cultural appropriate benefits: (a) support and capacity building will be provided to communities ofthe IP through the IPSS to assist community planning and applications for resources for priority sub-projects; (b) communities of the IP will be given priority for subproject identification and funding; (c) communities ofthe IP will be allowed the option of making the required community sub-project contribution in kind (Le. through labor or the supply oflocal materials); and (d) representatives ofthe IP will be invited to sit in relevant decision-making bodies at district and catchment level (e.g., DSG).

41. The NRM Project will address key issues regarding IP and other forest- dependent communities in Kenya: It will harmonize the forest policy with the draft land policy, implement a participatory forest management, support the elaboration of a comprehensive resettlement policy and rehabilitate in the operational areas (Aberdares, Upper Tana, Kakamega, Mt Elgon as well as the Nandi and Cherengani hills) the livelihoods ofpopulations, which have been evicted from forests after the new Government was sworn in December 30,2002. The project will ensure: (a) that present and past settlements, land use areas and cultural sites ofIP are comprehensively documented; (b) that the IP are well represented in all forest and resettlement related decision-making bodies and processes; (c) that a comprehensive strategy to rehabilitate the livelihoods ofevicted IP is elaborated in an open-minded and fully participatory option assessment; and (d) that this strategy is implemented in a comprehensive and timely manner and that the IP are enabled to benefit from participatory forest management and reforestation.

141 42. The Government, recognizes that, given, their close association with land, forests, water, wildlife, and other natural resources, the physical relocation ofIP, or other measures which reduce their access to livelihood-related resources, has complex implications, and may entail significant adverse impacts on their identity, culture, and customary livelihoods. For these reasons, the option assessment will explore all avenues ofaddressing the issues.

43. Discussions with a broad range ofstakeholders indicate a willingness ofall parties to work together with the projects and the IP to implement the measures outlined above. The main parties responsible for the implementation ofthe IPPF for the WKCDD/FM and NRM Projects are the OP, the MoWI, MENR, Ministry of Lands and Housing, the Kenya National Commission for Human Rights, the IP organizations and the IP themselves.

44. The measures elaborated here will ensure that the WKCDD/FM and NRM Projects :

reduce poverty for all ethnic groups and lower the dependence on and degradation ofnatural resources;

promote the effective management ofnatural resources, which offers benefits to the entire population and as well as environmental sustainability and biodiversity;

foster the full respect for the dignity, rights and culture ofthe IP;

assure that the IP receive culturally appropriate benefits equal to any other ethnic groups;

protect the IP from suffering adverse effects; and thus

comply with international standards (OPBP 4.10).

142 Annex 13: Alternative Livelihood Options and Strategies Linked to Micro- Catchment Management

KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

1. Support to livelihood based catchment management. Support for livelihood improvement for communities in the priority sites would be considered in the context of numerous socio-economic factors and implemented through a diversified strategy that takes into consideration minimal enforcement ofthe state’s laws on land use, increasing poverty, high unemployment, and the lack oftenure security in some areas. The objective is to improve the livelihood oftarget communities living within the micro- catchments in order to reduce inappropriate pressure and exploitation ofnatural resources. A main target oflivelihoods activities will be on the number ofthe absolute poor and landless directly dependent on natural resource utilization. The natural environment is especially important for these poorer segments ofthe communities (landless, self-employed families, primarily engaged in insufficient small-scale agriculture or employed as part-time temporary laborers). These households are at the same time very dependent on natural resources for example as a source ofsubsistence, food security, wood fuel and housing materials, and the resources often provide the cash earnings for products that are sold to the outside. Thus, poor households are more vulnerable and likely to be most affected by catchment degradation while at the same time the poverty situation forces them to continuously contribute to the degradation.

2. Livelihood interventions in the proposed interventions areas that largely are legally protected forest and wetlands must to a large extent focus on creation of alternative livelihoods in nearby buffer zones and production zones. However, economic impacts and increase in income derived out ofsmall alternative livelihood enterprises will normally only be felt over medium to longer time period (three to seven years). In general, communities will have to primarily continue with farm based livelihoods (or fishing in the wetlands areas) as their main source oflivelihoods even as they identify and participate in alternative livelihoods. This implies the need to use complementary strategies such as:

(a) increasing the income from a given unit of source: activities would include the promotion ofsoil conservation, development ofagro-forestry initiatives, establishment oflocal processing enterprises, provision of small-scale financing, and improvement in linkages between the markets and the producer farmers and fishers.

(b) reducing pressure on the resources: measures include generating alternative non-resource-based livelihoods with corresponding funds for reforestation and rehabilitation jobs in exchange for participation in reduced resource use, building awareness ofhuman patterns of resource depletion, and in many cases lowland job-creation (so as to reduce population pressure in the upper catchments).

143 creating incentives for management and conservation of resources: linking participatory conservation management and monitoring tools with fbture benefits. Similarly important are plough-back mechanisms for payment of environmental services, creating job opportunities as community guards and incentive packages to communities, women groups, youth groups, and volunteer groups participating in monitoring schemes.

Elements of the approach :

the design oflivelihood improvement activities would be based on a strong participatory process with a thorough understanding ofthe many social and economic factors at play;

all livelihood improvement activities would involve a community organization (WRUAs, community forest association, youth groups, women’s groups, etc.) and an important element would be capacity building and organizational strengthening;

good quality technical assistance will underpin the identification, creation and financing ofeconomically viable enterprises at a micro-level. The technical assistance will be attuned to and familiar with the capabilities ofthe recipients

support would include some kind ofa credit element since productive enterprises in agriculture and ago-forestry normally entail relatively high production costs. Poor producer organizations often lack the collateral needed for taking out a credit, so different types ofoptions would be assessed including savings-and- credit and revolving funds;

proactive efforts to demonstrate the link between income-generating options and catchment management would be promoted. The sustainability ofparticipation in catchment management initiatives will largely be influenced by the economic benefits derived out ofthe efforts to protect and conserve the natural resources therein. Community stewardship offorests, catchments, riverbanks, wetlands, and rivers can thus be associated with livelihood opportunities such as agro-forestry, fruit processing, honey production, ornamental plants, and in some cases ecotourism. However, it should also be emphasized that the economic viability of such projects is contingent on the healthy state ofhabitats that serve as infrastructure for these economic activities; and

a need for public sector investments in support facilities such as good access roads, tree nurseries, etc.

Therefore, WKCDD/FM project-supported activities would not be limited to the development ofthe traditional small-scale “alternative livelihoods” but would attempt to broaden proven livelihood projects into micro-enterprises that are capable ofexpanding the profit margins and employment potentials into medium-scale economic levels.

144 4. This is typified in the development ofentrepreneurial businesses with better technical systems that aim for more stable and bigger returns. Noteworthy examples of enterprise development are mushroom farming, beekeeping, dairy goats, medicinal plant and herbal products, silkworm rearing, fruit farming and vanilla (see Table 13-1 below). The key success factors of such micro-enterprises are the availability ofa lucrative and firm market and the assistance of experienced and competent institutions and project implementers brokering with the private sector (e.g., ICIPE). From these tie-ups, post harvest and product distribution networks are emerging, moving production to a higher level; and competitive market standards.

5. The objectives, therefore, ofpotential livelihoodmicro-enterprise activities would be the following:

(a) to provide opportunities for more stable incomes and broader stretch ofbenefits amongst members ofthe recipient organizatiodWRUAs and other members of the community who will eventually be benefited by the spread ofthe enterprise;

(b) intensify people participation in catchment management by showing that significant economic benefits can be derived when natural resources and habitats are sustainably used; and,

(c) develop a broad base ofsupport for catchment management anchored in the principles of sustainable use and management.

7. Thus, by using a micro-enterprise development approach the project would focus on the following essential ingredients in preparation and implementation ofmicro- enterprise projects:

(a) Economic viability and potentials for business expansion:

i) product marketability and demand;

ii) project site suitability and access to cash economy;

iii) production costs and profit margin;

iv) potentials for production expansion;

v) income stability; and

vi) potential for tie-ups with other funding windows and private business.

(b) Credit assessment:

i) capability to manage business;

ii) group’s/Organization’s collective will and confidence; and

iii)over-all track record.

145 (c) Counterpart funds from other sources:

i) micro-enterprise acceptability to other funding institutions tapped by the Project; and

ii) “buy-in” by other institutional servicesldonorslprivate investors.

(d) Communities, WRUAs, groups, individuals, etc., as micro-enterprise development cooperator and recipient: communities, youth groups, WRUAs, individuals, faith groups, etc., that are actively and consistently participating in NRM and protection shall be the focus oflivelihood development assistance.

(e) A business plan: the management ofthe activities shall be based on a sound business plan developed from proactive and thorough planning sessions with the communitylWRUAs.

8. Table 13-1 below explores some ofthe livelihood options which would be supported as part ofan approach that combines integrated ecosystems with land use management in the MCs ofNzoia and Yala Rivers. The final decisions on activities and approaches will be developed through the use ofparticipatory tools with communities.

Table 13-1: Livelihood based catchment investment options that increase incomes, reduce pressure on resources, and provides incentives for communities to pursue sustainable NRM in the Nzoia River and Yala River catchments

Introduction, promotion and in- scale replication ofsoil conservation measures and ecological sloped agricultural Incomes. practices. Development and Shifts focus away from small-scale mono-cropping Medium-term implementation ofagro-forestry systems to diversified income over longer seasons. (2-5 years) initiatives. Maximizes interagency collaboration on the ground by more effective use oftechnical assistance from forestry, agriculture, and other ministries and minimizes stand alone line ministry assistance. Establishing oflocal post- Processed products yields higher prizes and Medium-term harvest processing enterprises. provide added job opportunities. (2-5 years)

It requires incentives for more involvement of the private sector. Providing small-scale financing Could provide the essential startup capital in cash- Short-term (savings and micro-credits strapped communities and households. The options (1-2 years) to programs etc.) have to be explored. (e.g., joint venture with Medium-term potential Youth Fund investments, existing micro- (3-5 years) credit scheme).

146 Direct linkage through Establishing ofproduction cooperatives linking Medium-term cooperatives between the market directly with private companies or demand- (2-5 years) and producers (farmers, fishers, markets. This could increase net profit margin for etc). the producers.

Incomes. Alternative non-resource-based Jobs, incomes. The listed examples can Medium-term livelihoods - Specialized high- substantially increase annual incomes for (3-5 years) to value products/activities and communities and contribute to decrease in poverty Long-term micro-enterprises including: incidents. They are generally labor-intensive, but (6-10 years) 0 Cut-flowers and ornamental the investments needed are normally beyond what plants; communities can afford. 0 Fruits (e.g., avocado, vanilla, strawberry, passion, citrus, mango, banana (tissue culture) etc.); 0 Bee keeping and honey production; Fish-farming; Commercialized establishment ofon-farm nurseries with demand-driven products (e.g ., for sale to plantations in Government forests); Wild silk rearing; Mushroom production; Bamboo plantings and utilization; and 0 Butterfly farming around forest farmslareas Alternative non-resource-based Jobs, incomes. Listed examples are preferred Short-term livelihoods - small-scale popular activities in many low income communities. In (1-2 years) to livelihoods improvement particular livestock and poultry investments. Medium-term activities including: Basket and mat weaving can only be seen as (3-5 years) Pig farming; secondary alternatives because they are limited Diary Goat keeping; market demands and very low profit margins 0 Poultry farming; Medical plant home garden production; Oil palm growing (near wetlands); Collection offish seed to stock ponds (in wetlands); Basket and mat weaving; Indigenous vegetables; and Oil crops cultivation (such as Soy, sunflower, etc).

147 Ecosystem and soil There are different schemes ranging from least Long-term rehabilitation: preferred short-term contractual [6-lo+ years) Support for payment for arrangements/employment ofcommunity labor reforestation and rehabilitation (typical project lifetimes) to legal instruments activities; where rehabilitated areas are turned over to On-farm rainwater harvesting affected communities for their management under schemes; WRUAS. Establishment ofnatural vegetation strips along river banks and eroded areas (e.g., riverbank protection using bamboo); Fallow trees for soil fertility improvement; and, Reforestation ofwater sources areas and spring. Awareness and education: Awareness on benefits from increased watershed Short-term IEC campaigns building protection and maintenance are normally low and (1-2 years) awareness ofhuman patterns needs to be increased as part ofthe paradigm shift but repeated ofresource depletion, its from unsustainable uses to diversified alternatives in the impacts on decreased welfare that improve livelihood. Medium-term and livelihoods and (3-5 years) opportunities for In this context improvements ofenvironmental improvements. school curriculum and school materials are essential (e.g., KEEP, etc.).

Co-management/Community Provisions such as tenure and livelihoods have to Short-term empowerment: WRUAs bring the poorest segments ofthe communities into (1-2 years) to Participation ofdirectly affected focus and with these taken a more active part in co- Medium-term and poorest segments of management activities. (3-5 years) communities in co-management schemes and implementation In many areas it has been the more vocal and better arrangements including: educated segments ofthe communities that Micro-watershed WRUAs; benefited from interventions, while poor and Community-based resource marginal households gained little or nothing. management Instruments; and @Naturalresource, water and Sustainable NRM. environment monitoring systems. Livelihood generation through: Incomes, jobs, linking with private sector for Short-term NRM; private-public partnerships for value- (1-2 years) to (a) ecotourism (e.g., TIRIKI addition (e.g., KEEP, KFS, KWSand Mumias Medium-term cultural sites, Kakamega forest, Sugar Company could link up in a joint venture to (3-5 years) etc.); (b) water bottling using produce bottled water using fresh water from branded ‘Kakamega Rainforest Kakamega Forest); and sustainable NRM. Fresh Water’ to productize critical ecosystem goodslservices so as to enhance value ofsuch habitats to communities.

148 I PES: (also in upper Tana Catchment for the parallel NRM Project) Establishment ofplow-back mechanisms for payment of However, where PES is difficult in the needed environmental services that in scale, increased assistance from the private sector part hdsinvolvement of and companies in public-private sector partnership communities in resource and arrangements will have to be explored. land protection monitoring and enforcement as well as maintenance ofrehabilitated areas.

149 Annex 14: Malaria Interventions under the WKCDD/FM Project Kenya: Western Kenya Community Driven Development and Flood Mitigation Project

1. Background. Numerous malaria epidemics have occurred in western Kenya, with increasing frequency over the past twenty years. Malaria remains a major cause of mortality, morbidity and poverty in the region. Nine ofWestern Kenya’s twelve districts have stable and high malaria transmission and the other three unstable (i.e. epidemic- prone). The disease burden is concentrated in young children and pregnant women (DOMC, MOH).

2. Malaria Interventions in the WKCDDRM Project: A strong community response is the first line defense against malaria and constitutes a crucial component ofa successful national malaria control program. With the CDD approach and flood management activities, the project provides excellent entry points for malaria control at the community level in Western Kenya. Malaria interventions to be introduced into this project are based on: (a) the 2005-10 National Malaria Strategy and its corresponding business plan; (b) Kenya’s new Community Health Strategy; and (c) the new Malaria Treatment Policy. Malaria control will be incorporated in all four components ofthe project.

3. Component 1 - Community Driven Development. Communities will be mobilized to plan and implement appropriate malaria control activities as part oftheir micro-proj ects under this component. Community-level malaria interventions would include:

IEC for malaria control. IEC activities aim to improve people’s malaria-related knowledge, attitude and behaviors. An IEC guideline for community will be developed based on the National Malaria IEC strategy and implemented in the context ofthe micro-project through the use of (i)multi-purpose CDCs; and (ii) CORPS.

scaling up ofLLINs coverage and re-treatment program for regular ITNs. Communities will be mobilized to promote the correct and effective use ofLLINs and distribute subsidized nets. There are several possible mechanisms for communities to do this, including the establishment ofa community revolving fund and community extension ofsocial marketing with seed funding from the project. The seed funding also allows for: (i)provision offree ITNs to the poorest ofthe poor (e.g., 10 percent ofhouseholds) which will be determined in a participatory approach by the community; and (ii)free re-treatment campaigns for all regular, non-long-lasting ITNs in the community.

piloting the use ofCORPS for community-based management offever with Artemisinin Combination Therapy (ACT). Kenya has adopted ACT which is the new, more effective anti-malarial therapy to replace old ones which have significantly lost their efficacies. In the MOHstrategy for transition to ACT,

150 these anti-malarials will not be available at the community level for the first three years (e.g., not until 2009). However, under this project, as a pilot, CORPS will be trained and given a supply ofACT to manage fever cases in the communities. ACT will be provided free in the community. Cost, effectiveness, compliance of ACT therapy at the community level; as well as the efficacy ofACT will be monitored closely. The ACT experience under WKCDDPM will be used to scale up home and community-based management offever nation-wide. This pilot will be funded separately from the US$5,000 community grants for malaria.

indoors-Residual Spraying. Communities will be mobilized to facilitate IRS where appropriate (e.g., in epidemic-prone, low and moderate-transmission areas). The project will support IRS activities which may include: (i)promoting acceptance ofIRS in the community; (ii)training ofspray agents with the technical support by the MOH; (iii)the purchase of equipment for spraying (spraying equipment could be managed by the dispensaries for people living in their catchment areas); and (iv) incentives-to be managed by communities-for such agents to carry out IRS activities.

antilarval measures. Communities will be mobilized to carry out larva control activities such as: (i)intermittent irrigation ofrice field; (ii)draining ofbreeding sites; and (iii)application of larvicidedlarva growth regulator. Such antilaval measures will be applied only where appropriate (e.g., in rice fields, brick- making, mining areas, where breeding sites are few, etc.)

Communities will be encouraged to implement a combination ofthe above interventions, (or at least the first three) as part oftheir micro-projects in an integrated approach. The Integrated Vector Management Plan and a district risk mapping exercise ofmalaria breeding sites under the technical guidance ofthe will provide guidance to communities regarding where IRS and source reduction should be conducted. Possible vector control activities under the project will be conducted in close coordination with the IRS program supported by the Government and other development partners.

5. Component 2 - Multi-purpose flood management investment. Water storage facilities for flood control and irrigation will be created under this component. These can potentially become mosquito breeding sites. The catchment offices ofthe WRMA, the DSGs, the district health teams (under the technical guidance ofthe DOMC ofthe MOH) will work together to identify and implement appropriate anti-larval interventions for newly created water bodies under this component wherever possible.

6. Component 3 - Support to policy analysis, advocacy and local development. Selected relevant malaria policy research, assessments, and advocacy work, especially in the area ofintersectoral malaria control (e.g., linkages between housing improvement, agricultural modification, WRM and malaria control) would be eligible for support under this component.

7. Component 4 - Management, monitoring, and evaluation. M&E for malaria interventions will be integrated into the M&E framework ofthe WKCDD/FM Project.

151 They should also link to the Community Based Management Information System (CBMIS) envisioned by the MOHto monitor the implementation ofthe Kenya Essential Health Package at the community level. Key Roll Back Malaria indicators at the community level will be used. The focus ofM&E will be on results, especially the coverage rate ofkey interventions for malaria prevention and management; but some essential input/output-type indicators will also be needed. The Table 13- 1 summarizes the malaria interventions in the project, their key impact indicators and the data sources.

8. Coordination for implementation of malaria interventions under the project, The MOH is the lead agency in the fight against malaria in Kenya. It will provide the overall technical guidance for community malaria interventions to be implemented under the project. While there are three MOH Divisions relevant to the project-Malaria Control, Vector Borne Diseases and Environmental Health, the DOMC will act as the MOHfocal point for the project at the national level and coordinate the technical inputs from the other two divisions. DOMC also serves as the secretariat for the MICC which coordinates malaria control activities in Kenya. Through DOMC and MICC, the project will coordinate closely with other malaria stakeholders such as the WHO, the Global Fund for HIV/AIDS, Tuberculosis and Malaria, USAID, DflD and various NGOs active in malaria control in the region. The project will also link with future IDA-supported health operations in Kenya.

9. At the district level, the MOHis represented by the District Health Management Teams. Representatives of the District Health Management Teams will be represented in the project’s DSGs. At the local level, implementation ofmalaria interventions will be closely coordinated with the local health system structure such as the Village Health Committees.

152 Table 14-1: Summary of Key Malaria Interventions, Indicators and Data Sources

Collection/Data Interventions Indicators I Frequency Note Source I Scaling up the coverage of with at least one indicator insecticide- ITN Both mechanisms treated nets needed I survey project If self reporting: Kenya Demographic 2008 built into CBMIS, and Health Survey or routine reporting (KDHS) for communities. Sentinel site surveys Semi-annually (b) % ofunder-five Household survey 3 times during Core RBM

13 I '""O I I Sentinel site surveys I Semi-annually I (c) % ofpregnant Household survey 3 times during Core RBM

women sleep under project.~ indicator a INT the previous KDHS 2008 night- I Sentinel site surveys I Semi-annually I Indoors (d)% of House units in CBMIS and program At the end ofeach Part ofroutine Residual areas eligible for evaluation IRS campaign (at reporting by Spraying IRS were sprayed present once a year communities and for epidemic prone routing program areas) evaluation Larval control (e)% oftargeted CBMIS At the end ofeach Part ofroutine breeding sites with larval control reporting by continuous larval campaign communities control activities Community- (0 % ofunder 5 Core RBM based children with fever project indicator management in last 2 weeks offever (with received ACT ACT drugs) within 24 hours I

(g)Under-five District Health Annual District Core RBM mortality Management HMIS report indicator Information Systems (HMIS) Household survey 3 times during project (h)Malaria mortality District HMIS Annual District Core RBM and morbidity HMIS report indicator Household survey 3 times during project

153 Notes: 1. Malaria questionnaires corresponding to indicators (a), (b), (c) and (f) will be included in the household survey. This is the impact evaluation survey expected to be carried out at baseline, mid- term and end-of-project as per the impact evaluation. 2. Indicators (d) and (e) are not core RJ3M indicators but important in the project context to monitor ITN, IRS and larval control activities. 3. Impact indicators, such as overall under-five mortality, malaria-attributable mortality and morbidity are generally more difficult to obtain at the community level (especially mortality). It is important to design the project household survey in way that it could capture malaria mortality and morbidity in the community, taking into account the recommendations ofthe Global Malaria Monitoring and Evaluation Reference Group. For malaria morbidity, other proxies such as anemia prevalence or the percentage ofconsultations for malaria in health facilities can also be used.

154 Annex 15: Government's Letter of Sectoral Policy KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

REPUBLIC OF KENYA MINISTRY OF FINANCE

Telegraphic Address: 22921 THE TREASURY FINANCE - NAIROBI P.O. BOX 30007-00100 Telephone: 252299 NAIROBI When replying pleaae quote I(ENYA

Ref. No. EMA63/330/01/E/ (31 6* February, 2007 Dr. Paul Wolfowitz, President The Word Bank 18 18H Street Washington DC.20433 USA

KENYA: WESTERN KENYA COMMLTNITY DRIVEN DEVELOPMENT AND FLOOD MITIGATION AND NATURAL, RESOURCE MANAGEMENT PROJECTS- LETTER OF SECTORAL POLICY

1 As you may be aware, Kenya's economic performance during the 1980s and 1990s fell to levels far below its potential. The result of this protracted poor economic performance was increased poverty and serious deterioration of the standard of living for the majority of Kenyans. On assuming political leadership of Kenya in 2002, the Government prioritized its development agenda as contained in the Economic Recovery Strategy for Wealth Employment and Creation document. The Government instituted major reforms aimed at turning around the economy to a growth path. We are happy to inform that the reforms have started yielding results, with GDP growth rising fiom 3% in 2003 to 4.9% in 2004, 5.8% in 2005 and currently estimated at 6.0% (2006). The growth is underpinned by improved performance in key sectors of Tourism, Transport and Communication building and construction, Agriculture and Trade.

2. Provision of good infrastructure is key to our economic growth The Government is committed, within limited financial resources to provide an

155 21.Further the NDh4P emphasizes establishment of multi-sectoral structures for coordination and management of flood related disasters in Kenya in order to minimize losses and resultant disruptions on the population, economy and environment. The structure will cover local communities among other stakeholders 22.The NDMP also emphasizes that flood vulnerability analysis be linked directly to mitigation activities and provide the context for understanding the effect of flood hazard on the population, property and the environment. Floods risk mapping will be undertaken and integrated flood management projects implemented in flood prone areas in order to minimize the occurrence and negative effects of floods, 23.We realize the extent of the role the Early Waming System (EWS) can play in disaster management. The Government has set up a multi-disciplinary team of professionals fiom the Meteorological Department, Ministry of Water with support and guidance fiom United States Geological Survey (USGS) to formulate/initiate a flood warning system for the country. Our experience in Arid Lands Management Project has shown that effective EWS and subsequent information dissemination goes a long way in reduction of impacts of disaster, whereby proper mitigation measures are put in place. The National Disaster Operation Centre has played a key role in response to disaster, with the enactment of the NDMP. The centre will be strengthened to continue to participate in disaster management more effectively.

The Policy on Management of Forest Resources

24.Sustainable management of the environment and natural resources is linked to the improvement in the economic and social conditions of Kenyans, hence the objective of achieving equity, ecological sustainability and economic growth. The Government’s commitment to poverty reduction is clearly stated in the Economic Recovery Strategy for Wealth and Employment Creation (2003- 2007) (ERS). The ERS recognizes the need to achieve broad macro and sectoral objectives without compromising the environment. The ERS also recognises the corntry’s serious environmental challenge that is compounded by rampant poverty, resulting in the increased use of wood fuel especially by the rural population and the urban poor.

25.The current, 9” National Development Plan (2002-2008) highlights that increased socio-economic activities have compounded environmental problems such as deforestation, depletion of land resources, harmful land use practices, pollution, water catchment degradation and poor conservation of flora and fauna. The Plan recognises the need to fully integrate environmental concerns

6

156 in development planning at all levels of decision making as well as valuing the contribution of the environment to the national economy. Similarly, it recognises the need for adopting measures towards sustainable management of the environment and natural resources.

26.Sustainable development is considered to be a key concern to economic growth, equity and ecological concerns. The Government is therefore expected to play a major role in meeting this global and national objective. Towards meeting the sustainable development objective, the Government has to address various challenges that include de-forestation and environmental degradation. 27.Environmental and natural resource management issues are multi-sectoral in nature and require positive interactions with both national and international partners. The Govqmment will seek to develop appropriate and effective linkages and collaborative mechanisms with all the other sectors of the economy. Similarly, appropriate reforms mainly targeting institutional, policy and legal frameworks will be developed and implemented towards environmental conservation and management of natural resources.

28.While it has been recognized that environment and natural resources contribute significantly to the economic and social development, the benefits have not been fully realised mainly due to weak policy, legal and institutional fiameworks in the forestry sector. The Government will institute appropriate reforms with the objective of enhancing the management of environment and natural resources for sustainable development. 29.To address the sector challenges, the Government is committed to, among other things, the full implementation of the Environmental Management Co- ordination Act (1999) and the Forests Act 2005. In addition, the Government will articulate and implement the country's commitment to global and regional environmental conventions including Agenda 2 1 on sustainable development, the Millennium Development Goals and the NEPAD initiative.

30,Development of a robust forestry sector has been recognized as key to the country's socio-economic and cultural development. This recognition stems fiom the multiplicity of fhnctions that forests play in provision of goods and services including regulation of water flow, biodiversity conservation, mitigation of climate change and provision of other economic and cultural benefits.

3 1.Full realization of the above benefits within the forestry sector has been faced with a myriad of challenges. These challenges include increasing demand for forest products and services, competition with other land use systems, poor

157 governance in natural resource management and administration, low resource provision and weak institutional arrangements for sound forest management. Under-valuation of forest resources and low level of industrial investment in modern technology have further impacted on the ability of the sector to substantially contribute to economic growth. 32.The Forests Act, 2005 addresses the above concerns by providing a fiamework through which the forest sector can effectively contribute in addressing the challenges of population growth, high poverty levels, un-employment, inefficiency in resources utilization and environmentally adverse effects of development. The Act provides for the establishment, development, sustainable management, utilization as well as conservation of forest resources for the socio-economic development of the Country. In addressing national concerns, the Act takes into account the obligations to international conventions and agreements, to which Kenya is a signatory.

33 .Under the new legislation, a semi- autonomous Kenya Forest service has been established to spearhead forestry development in the country. The Service shall collaborate with other agencies on matters of promoting sustainable forest management and enforce forest related laws, rules and regulations in the country. Forest conservation and management has been opened up to wider participation of stakeholders. These new arrangements require active participation of communities and the private sector in management of state forests.

34.The Forests Act recognizes Community Forest Associations (CFAs) as major stakeholders in the management of forests and provides for their formation to participate in forest management and conservation through joint management agreements, as well as representation in Forest Conservation Committees. Joint management arrangements will be developed to ensure communities benefit while protecting the forest estates for purposes of water, soil and bio-diversity conservation, carbon sequestration and sustainable production of wood and non-wood forest products. The Land Policy 35.Kenya has not had a clearly defined or codified National Land Policy since independence. This, together with the existence of many land laws, some of which are incompatible, has resulted in a complex land management and administration system. From the advent of colonialism, Kenya has been grappling with the land issues, which subsequent government regimes were unable or unwilling to resolve. The land question has manifested itself in many ways including fragmentation, breakdown in land administration, disparities in land ownership and poverty. This has resulted in environmental, social, 8

158 economic and political problems including deterioration in land quality, squatting and landlessness, disinheritance of some groups and individuals, urban squalor, under-utilization and abandonment of agricultural land, tenure insecurity and conflict. 36.To address these problems, the Government embarked on the formulation of a National Land Policy through a widely consultative process with the aim of producing a policy whose vision is to “guide the country towards a sustainable and equitable use of land”. This Land Policy has thus been formulated to address the critical issues of land administration, access to land, land use planrhg, restitution of historical injustices, environmental degradation, conflicts, unplanned proliferation of informal uban settlements, outdated legal lkmework, institutional framework and information management. It also addresses constitutional issues, such as tenure. It recognizes the need for security of tenure for all Kenyans (all socio-economic groups, women, pastoral communities, informal settlement residents and other marginalized groups). 37.The Policy designates all land in Kenya as Public, Community or Private. Most significantly, it recognizes and protects customary rights to land. It also recognizes and protects private land rights and provides for derivative rights from all categories of land rights holding. Through the policy, the government will ensure that all land is put into productive use on a sustainable basis by facilitating the implementation of key principles on land use, productivity targets and guidelines as well as conservation. It will encourage a multi-sectoral approach to land use, provide social, economic and other incentives and put in place an enabling environment for agriculture and livestock development. 38.Land management and administration problems (such as systematic breakdown in management, over-centralization, lack of participation by communities, high costs, unnecessary delays) will be addressed through streamlining and strengthening surveying and mapping systems, adjudication procedures and processes, land registration and allocation systems and land markets. To ensure access to justice in land related matters, land dispute institutions and mechanisms will be streamlined through the establishment of independent, accountable and democratic systems and mechanisms including Alternative Dispute Management regimes. 39.Land issues requiring special intervention, such as historical injustices, land rights of minority communities (such as hunter-gatherers, forest-dwellers and pastoralists) and vulnerable groups will be addressed. The rights ofthese groups will be recognized and protected. Measures will be initiated to identify such groups and ensure their access to land and participation in decision making over land and land based resources.

9

159 40.M. President, in conclusion, let me reiterate Kenya Government’s appreciation of the financial assistance the Bank has continued to provide in support to our development programmes. We are committed to continue working closely with the Bank and other Development Partners in order to realize our vision of making “Kenya a Better Home for All”. We assure you the support we are seeking to finance the Natural Resources Management and Western Kenya Community Driven Development and Flood Mitigation Projects will be used prudently. We are confident that the successful implementation of these two projects will contribute greatly to the realization of our national vision.

Amos Kimunya, EGH, MP, MINISTER FOR FINANCE

C.C. Mr. Hartwig Schafer Acting Vice President for Africa Region World Bank Washington D. C, U.S.A

Ms. Mulu Ketsela Executive Director . World Bank Group Washington D. C. U.S.A.

Mr. Colin Bruce ’ Country Director Comoros, Eritrea, Kenya, World Bank Country Ofice NAIROBI

10

160 Annex 16: Project Preparation and Supervision

KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

Planned Actual PCNreview 05/11/2005 05/11/2005 Initial PID to PIC 07/3 1/2005 01/27/2006 Initial ISDS to PIC 07/3 1/2005 01/18/2006 Appr ais a1 11/26/2006 01/11/2007 Negotiations 02/09/2007 Board/RVP approval 03/27/2007 Planned date ofeffectiveness 06/3 0/2 00 7 Planned date ofMTR 09/15/2010 Planned closing; date 06/30/2015

Key institutions responsible for preparation ofthe project:

OP, Ministry of State for Special Programmes. MENR, Forestry Department. MoWI, WRMA, Irrigation Department, NIB.

Bank staff and consultants who worked on the project included:

Name Title Unit Nyambura Githagui Sr. Social Development Specialist AFTS2 Christine Cornelius Lead Operations Officer AFTS2 Enos E. Esikuri Sr. Environmental Specialist ENV Leonard John Abrams Sr. Water Resources Management Specialist AFTU1 Alessandro Palmieri Lead Dam Specialist ESDQC Christian Albert Peter Sr. Forestry Specialist AFTS2 Son NamNguyen Sr. Health Specialist AFTH1 Johannes Woelcke Economist AFTS2 Dahir Warsame Sr. Procurement Specialist AFTPC Moses Wasike Sr. Financial Management Specialist AFTFM Serigne Omar Fye Sr. Environmental Specialist AFTS 1 Paul Francis Sr. Social Development Specialist AFTS2 Johan A. Mistiaen Economist/Statistician DECDG Wendy Wiltshire Operations Analyst AFTS2 Sandra Jo Bulls Program Assistant AFTS2 Lucie Muchekehu Program Assistant AFCE2 Tom Mboya Owiyo E T Consultant AFTS2 Diji Chandrasekharan Behr E T Consultant ARD Yuko Kurauchi Consultant AFTS2 George Annandale Consultant AFTS2

161 Nightingale Rukuba-Ngaiza Sr. Counsel LEGAF Christine Onvango ET Consultant LEGAF

Bank funds expended to date on project preparation: 1. Bank resources: US$500,000 2. Trust funds: US$751,800 (including PHRD grant) 3. Total: US$1,25 1,800

Estimated Approval and Supervision costs: 1. Remaining costs to approval: US$lOO,OOO 2. Estimated annual supervision cost: US$lOO,OOO

162 Annex 17: Documents in the Project File

KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

A. Bank Document 1. Project Concept Note. 2. Project Information Document (Concept Stage and Appraisal Stage). 3. Integrated Safeguard Data Sheet (Concept Stage and Appraisal Stage). 4. Project Appraisal Document. 5. Mission Aide-Memoire Package. 6. QER Minutes. 7. PPF Agreement. 8. PHRD Grant Agreement for Economic Recovery Support Credit, Poverty Reduction Support Credit and Western Kenya Flood Mitigation and Community Development Project.

B. Project Studies and Reports 1. Kenya Country Social Analysis Study. Prepared by Appropriate Development Consultants Limited (2006). 2. Environmental and Social Management Framework Report. 3. Resettlement Policy Framework Report. 4. Indigenous Peoples Planning Framework Report. 5. Riparian Notification. 6. Stakeholder Workshop Report on the results framework and monitoring and evaluation on August 10-11. 7. WKCDD Financial Management Assessment Report. 8. WKCDD Procurement Capacity Assessment Report. 9. Study Report for Preparation of the Upper Nzoia Upper Catchment Management Component. 10. Study Report for Preparation of the Nzoia Multi-purpose Flood Protection Component. 1 1. Terms ofReference for Social Assessment ofMalaria. 12. Pre-feasibility Study Report and Terms of Reference for Early Warning and Response System for the Nzoia River Basins. 13. Terms of Reference for a Community Enterprises Feasibility Study. 14. Requirements for the Establishment of the Nzoia River Basin Flood Early Warning System. 15. Report on Water Resources Elements: Flood and Catchment Management..

C. Technical Reports 1. Abira, M. A,, Oleko, C., Okungu, J. O., Abuodha, J. 0.Z., andHeckey, R. E. (2006). Industrial and Municipal Effluent Loadings into the Lake Victoria Catchment, Kenya. . In Lake Victoria Environment Report. Chapter 6. pll2-137. 2. Basson, G. (2005). KARI: Lake Victoria Environmental Management Project - Sedimentation Pilot Study. Powerpoint Slides Presented at the Seminar on August 12, 2005. 3. Butula Bamboo Self Help Group. Proposal for the Establishment and Promotion of Giant Bamboo, Dendrocalamus Giganteus at Bumwaya Dam. 4. DMCN and UNEP (2004). Coping with Floods in Kenya: Vulnerability, Impacts and Adaptation Options for the Flood Prone Areas ofWestern Kenya. Government of Kenya. 5. Higgins, P. (2005). Bathymetric Survey. Powerpoint Slides Presented at the Seminar on May 27, 2005. 6. IUCN and Mt. Elgon District Administration (2006). Programme Activity Implementation Agreement between IUCN and Mt. Elgon District Administration regarding the Implementation of Mt. Elgon District 2005/6 Work Plan ofthe Mount Elgon Regional Ecosystem Conservation Programme. Version January 2006.

163 7. Japan International Cooperation Agency, Ministry ofWater and Irrigation and Water Resources Management Authority (2006). The Study on Integrated Flood Management for Nyando River Basin in the Republic of Kenya. Progress Report (No. 1). 8. Kawashima, S., Johndrow, T. B., Annandale, G. W., and Shah, F. (2003). Reservoir Conservation. Volume 11. RESCON Model and User Manual. Washington, D. C.: The World Bank. 9. Lake Basin Development Authority (1987). The Study of Integrated Regional Development Master Plan for the Lake Basin Development Area. Nairobi: JICA. a. Final Report Volume 1. Executive Summary Report. b. Final Report Volume 2. Master Plan Report. c. Final Report Volume 5. Sector Report 3. Water Resources / Transportation / Energy. d. Final Report Volume 7. Report on Preparatory Study. 10. Lake Basin Development Authority (2000). Proposal on Integrated Development ofYala Swamp and Its Environs. Kisumu: Lake Basin Development Authority. 11. Lake Basin Development Authority and the Dominion Group of Companies (2003). Environmental Impact Assessment Study Report ofthe Proposed Rice Irrigation Project at Yala Swamp in Siaya and Bondo Districts, Nyanza Province. Kisumu. 12. Lake Victoria Environnemental Management Project (LVEMP) (2005). Pilot Study on Sedimentation and Sediment Characteristics on Nyando and Nzoia River Mouths and Winam Gulf of Lake Victoria. Matieland: Institute for Water and Environmental Engineering, University of Stellenbosch. a. Inception Report. May 2005. b. Progress Report No. 1: Flood Season Fieldwork. July 2005. c. Progress Report No. 2: Dry Season Fieldwork. September 2005. d. Final Report. December 2005. 13. LVEMP (2006). Knowledge and Experience Gained from Managing the Lake Victoria Ecosystem. Dar es Salaam: Lake Victoria Environmental Management. 14. Maturwe, B., Kuto, R., Okungu, J. O., Abuodha, J. 0. Z., and Hecky, R. E. (2006). Pesticides and Heavy Metals Contamination in the Lake Victoria Basin, Kenya. In Lake Victoria Environment Report. Chapter 11. p. 252-282. 15. Ministry ofAgriculture (1982). Yala Integrated Development Plan. Annex 4: Infrastructure, Hydrology, Soils, Topography and Climate. Amsterdam: HVA - International. 16. Ministry ofWater and Irrigation (2006). BOQ for Nzoia dikes (Excel Spreadsheet). 17. Ministry ofWater Development (1983). Pre-investment Study for Water Management and Development ofNyando and Nzoia River Basin. Rome: Italconsult. a. Main Report. b. Appendix A - Catchment Basin Aerial Survey - Photo Interpretation Report. Rome: Italconsult. c. Appendix C - Survey and Monitoring ofWater Table in Kano Plain. Rome: Italconsult. 18. Ministry ofWater Resources (1998). The Aftercare Study on the National Water Master Plan in the Republic ofKenya. Draft final Report. Main Report. Nairobi: Nippon Koei Co., Ltd. And Kokusai Kogyo Co., Ltd. 19. Ministry of Water Resources Management and Development (2004). Flood Control on Lower Reaches ofNyando River. Pre-Investment Study. Final Report. 20. Ministry ofWater Resources Management and Development (2003). Flood Control on Lower Reaches ofNzoia River. Pre-Investment Study. Final Report. 21. Ministry of Water Resources Management and Development (2003). Flood Control on Nzoia River. Pre-Investment Study. Draft Report. 22. Ministry ofWater Resources Management and Development (2003). Nzoia Flood Control Dikes: Technical report. Nairobi: Ministry of Water Resources Management and Development. 23. Moi, R. K. (2005). Forestry Based KakarnegaiVehiga Biodiversity Conservation Programme Project Proposal. Kakamega: Kakamega District Forest Office. 24. National Environmental Management Authority (2004). State of Environment Report 2004 Mt. Elgon District. Theme: Land Use and Environment. Kapsokwony: National Environment Management Agency (NEMA) Mount Elgon District. 25. National Irrigation Board. Lower Nzoia Irrigation Project Proposal.

164 26. National Irrigation Board (2004). A Proposal for Feasibility Study for the Rehabilitation and Development of Ahero and Western Kano Irrigation Schemes. Ministry ofWater and Irrigation. 27. Nippon Koei Co., Ltd. and Idea Consultants Inc. (2006). The Study on Integrated Flood Management for Nayndo River Basin in the Republic ofKenya: Inception Report. Japan International Cooperation Agency and Ministry of Water and Irrigation. 28. Njurumba, P (2006). Criteria for the Selection ofFlood Control Dams. 29. Office ofthe Vice President and Ministry ofRegional Development (2003). Flood Control Proposal for the Nzoia River Basin. Kisumu: Lake Basin Development Authority. 30. Palmieri, A,, Shah, F., Annandale, G. W., and Hinar, A. (2003). Reservoir Conservation Volume I The RESCON Approach. Washington D. C.: The World Bank. 31. Place, F., Adato, M., Hebinck, P., and Omosa, M. (2005). The Impact of Agroforestry-Based Soil fertility Replenishment Practices on the Poor in Western Kenya. Research Report 142. Washington, D. C.: IFPRI and ICRAF. 32. Summary Project Reports Involved in Mashariki Innovations in Local Governance Awards Programme (MILGAP) Kenya National awards. 33. Road Department, Ministry of Transport and Communications (1987). Feasibility Study for Causeways in Yala Swamp. Part One Report. 34. Rossouw, N. (2005). An Introduction to Sediment-Nutrient Interrelationships and Modelling. LVEMP Pirot Study on Sedimentation and Sediment Characteristics on Nyando and Nzoia River Mouths and Winam Gulf of Lake Victoria. Powerpoint Slides Presented at the Seminar on May 27, 2005. 35. Rossouw, N. (2005). Sediment-Nutrient Investigation: Results of the lstFielf Work (May/June 2005). LVEMP Pirot Study on Sedimentation and Sediment Characteristics on Nyando and Nzoia River Mouths and Winam Gulf of Lake Victoria. Powerpoint Slides Presented at the Seminar on August 11,2005. 36. Shaddon K. (2005). Lake Victoria Sedimentation Pilot Study: Benthic Invertebrates. Powerpoint Slides Presented at the Seminar on August 12,2005. 37. Strategic Country Gender Assessment 38. UNESCO (1971). Ecological Survey of the Middle and Lower Nzoia River in Western Kenya. Nairobi: Unesco Field Science Office for Africa. 39. University of Stellenbosch, Lake Victoria Environmental Management Project: Pilot Study on Sedimentation and Sediment Characteristics on Nyando and Nzoia River Mouths and Winum Gulf of Lake Victoria, Private Bag X1, Matieland, 7602, South Africa. 40. Wahla, J. W. (2006a). Environmental Education Programme to Support Conservation and Sustainable Natural Resource Management in the Mt. Elgon Ecosystem. A Draft Project Concept. Mt. Elgon: NEMA 41. Wafula J. W. (2006b). Environmental Information System to Support Planning, Conservation, Management and Sustainable Natural Resource Use in the Mt. Elgon Ecosystem: A Spatial Approach. A Draft Project Concept. Mt. Elgon: NEMA 42. Were, E., Swallow, B., and Roy, J. (2006). Water, Women and Local Social Organization in he Western Kenya Highlands. Nairobi: ICRAF. 43. WMO, MWRMD and APFM (2004). Strategy for Flood Management for Lake Victoria Basin, Kenya. Prepared under APFM. September. 44. World Bank (2005). Youth Development in Kenya. Report on Economic and Sector Work. 45. World Bank (2006). Draft CAS Report. 46. Young , A. (1987). Lake Basin Catchment Development: Catchment Conservation and Rehabilitation Programme. Report on Phase I1 Supplement. The Potential ofAgroforestry for Soil conservation Erosion Control. Nairobi: International Council for Research in Agroforestry. 47. Government ofKenya. Draft National Land Policy, Ministry of Lands October 2006.

165 Annex 18: Statement of Loans and Credits KENYA: Western Kenya Community Driven Development and Flood Mitigation Project

Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d PO87479 2007 KE-Edu Sec Sup Project (FY07) 0.00 80.00 0.00 0.00 0.00 81.42 0.00 0.00 PO90567 2006 KE-Inst Reform & CB TA (FY06) 0.00 25.00 0.00 0.00 0.00 21.96 6.46 0.00 PO72981 2005 KE-GEF W KE Int Ecosys Mgmt SIL 0.00 0.00 0.00 4.10 0.00 3.22 0.83 0.00 (FY05) PO83131 2005 KE-Energy Sec Recovery Prj (FYOS) 0.00 80.00 0.00 0.00 0.00 77.57 33.13 0.20 PO83250 2005 KE-Financial & Legal Sec TA (FYOS) 0.00 18.00 0.00 0.00 0.00 16.33 3.01 1.60 PO85007 2005 MSME Competitiveness 0.00 22.00 0.00 0.00 0.00 19.68 9.04 0.00 PO49618 2004 KE-Nairobi Wtr & Swg Inst Rst SIL 0.00 15.00 0.00 0.00 0.00 7.89 5.90 0.00 (FY04) PO82615 2004 KE-Northern Corridor Tmsprt SIL (FY04) 0.00 207.00 0.00 0.00 0.00 191.36 79.49 0.00 PO82396 2004 KE-Agricultural Productivity Prj (FY04) 0.00 27.00 0.00 0.00 0.00 15.45 6.95 0.00 PO78209 2004 KE-Dev Learning Centre LIL (FY04) 0.00 2.70 0.00 0.00 0.00 2.09 1.02 0.00 PO82378 2003 KE-Free Primary Edu Supt (FY03) 0.00 50.00 0.00 0.00 0.00 0.19 -2.28 0.00 PO78058 2003 KE-Arid Lands 2 SIL (FY03) 0.00 120.00 0.00 0.00 0.00 81.62 -10.04 0.00 PO70718 2001 Regional Trade Fac. Proj. - Kenya 0.00 25.00 0.00 0.00 0.00 14.79 12.39 0.00 PO66486 2001 KE-Decentr Reprod Hlth & HIViAIDS 0.00 50.00 0.00 0.00 0.00 27.66 22.02 23.98 (FYO1) Total: 0.00 721.70 0.00 4.10 0.00 561.23 167.92 25.78

KENYA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars

____ Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2000 AEF AAA Growers 0.18 0.00 0.00 0.00 0.18 0.00 0.00 0.00 1997 AEF Ceres 0.93 0.00 0.00 0.00 0.93 0.00 0.00 0.00 1997 AEF Deras Ltd. 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 0.00 2000 AEF Lesiolo 2.50 0.00 0.00 0.00 2.50 0.00 0.00 0.00 1998 AEF Locland 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.00 2000 AEF Magana 0.60 0.00 0.00 0.00 0.60 0.00 0.00 0.00 1997 AEF Redhill Flrs 0.28 0.00 0.00 0.00 0.28 0.00 0.00 0.00 2005 BARCLAYS BK KEN 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1982 Diamond Trust 0.00 0.80 0.00 0.00 0.00 0.80 0.00 0.00 GTFP Barclays Ke 14.31 0.00 0.00 0.00 14.31 0.00 0.00 0.00 GTFP I& M BANK 2.71 0.00 0.00 0.00 2.71 0.00 0.00 0.00 2001 Gapco Kenya 12.78 0.00 0.00 0.00 7.78 0.00 0.00 0.00

166 2005 IM Bank 3 .oo 0.00 0.00 0.00 3.00 0.00 0.00 0.00 IPS(K)-Allpack 0.00 0.36 0.00 0.00 0.00 0.36 0.00 0.00 IPS(K)-Frigoken 0.00 0.06 0.00 0.00 0.00 0.06 0.00 0.00 IPS(K)-Prem Food 0.00 0.1 1 0.00 0.00 0.00 0.1 1 0.00 0.00 1994 Intl Hotels-Ken 0.86 0.00 0.00 0.00 0.86 0.00 0.00 0.00 1996 K-Rep Bank 0.00 1.oo 0.00 0.00 0.00 1.oo 0.00 0.00 1999 K-Rep Bank 0.00 0.43 0.00 0.00 0.00 0.12 0.00 0.00 2006 Kingdom Hotel 20.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2005 Kongoni 1.96 0.00 0.00 0.00 1.96 0.00 0.00 0.00 2000 Mabati 2.50 0.00 4.50 0.00 2.50 0.00 4.50 0.00 2004 Magadi Soda Co. 22.00 0.00 4.00 0.00 18.90 0.00 4.00 0.00 2005 Magadi Soda Co. 2.50 0.00 0.00 0.00 0.57 0.00 0.00 0.00 1994 Panafrican 10.28 0.00 0.00 0.00 10.28 0.00 0.00 0.00 1996 Panafrican 15.55 0.00 0.00 0.00 15.55 0.00 0.00 0.00 2006 Panari Center 6.30 0.00 1 .oo 0.00 0.00 0.00 0.00 0.00 1972 TPS EA Ltd. 0.00 0.04 2.20 0.00 0.00 0.04 2.20 0.00 2000 Tsavo Power 9.91 0.83 0.85 13.91 9.91 0.83 0.85 13.91 Total portfolio: 140.23 3.63 12.55 13.91 93.90 3.32 11.55 13.91

Approvals Pending Commitment

FY Approval Company Loan EWty Quasi Partic. 2006 Greenlands 0.00 0.00 0.00 0.00 2005 Barclays-Ken ya 0.01 0.00 0.00 0.00 2006 Adv Bio-Extracts 0.01 0.00 0.00 0.00 Total pending commitment: 0.02 0.00 0.00 0.00

167 Annex 19: Country at a Glance KENYA: Western Kenya Community Driven Development and Flood Mitigation Project Sub- Key Development lndlcators Saharan LO w Age dlstrlbutlon, 2005 Kenya Africa income (2005)

Population, mid-year (millions) 34.3 741 2,353 Surface area (thousand sq. km) 580 24,265 29,265 Population growth (Oh) 2.3 2.1 1.8 Urban population (%of total population) 42 37 31

GNI (Atlas method, US$ billions) 8.0 552 1364 GNI per capita (Atlas method, US$) 530 745 580 GNIpercapita (PPP, international $) 170 1981 2.486

GDP growth (%) 2.8 5.3 7.5 GDP per capita growth (%) 0.4 3.1 5.6

(most recent esilmate. 2000-2005)

Povertyheadcount ratio at $laday(PPP,%) 23 a 44 Under4 mortallty rate (per 1,000) Povertyheadcountratioat$2aday(PPP.%) 56 a 75 Life expectancyat birth (years) 48 46 59 Infant mortaiity(per 1000 live births) 79 00 80 Child malnutrition (%of children under 5) 20 29 '39

Adult literacy, male (Yoofages 15andolder) 78 73 Adult literacy, female (%of ages 15 and older) 70 50 Gross primaryenroiiment. male (%of age group) in 99 10 Gross primaryenroliment,female (%of age group) 08 87 99

Access to an improved water source (%of population) 62 58 75 Access to improved sanitation facilities (%of population) 46 36 35 I ~ 1880 1885 2000 2004 1 0 Kmya 0 Sub-Saharan Africa

Net Aid Flows 1980 1990 2000 2005 ''

(US$ rniiiions) Net ODA and official aid 397 186 5P 635 Growth of GDP and GDP per Top Jdonors (in 2004): capita (YO) United States 39 95 46 141 I Japan 27 93 67 71 United Kingdom 39 67 73 46

Aid (% of GN i) 5.6 14.4 4.1 4.0 Aid per capita (US$) 24 51 n 8

Long-Term Economlc Trends

85 00 Consumer prices (annual %change) 13.9 7.8 0 .O 0.3 implicit GDP deflator (annual %change) 9.6 1D.6 6.1 3.7 I +GDP - Exchange rate (annual average. local per US$) 7.4 22.9 76.2 75.6 Terms of trade index($. 2000 = 00) 77 84 00 92 1980-90 1990-2000 2000-05 (average annualgrowh %) Population, mid-year (millions) 8.3 23.4 30.7 34.3 3.6 2.7 2.2 GDP (US$ millions) 7,265 8,591 Q,705 7.977 4.2 2.2 2.8 (%ofGOP) Agriculture 32.8 29.5 32.4 27.4 3.3 1.9 16 Industry 20.8 8.O 13.9 7.8 3.9 1.2 3.3 Manufacturing P.8 11.7 11.6 P.4 4.9 1.3 2.5 Services 46.6 51.4 50.7 54.9 4.9 3.2 3 .O

Household final consumption expenditure 82.1 62.8 75.5 69.8 4.5 3.6 3 .O General gov't final consumption expenditure 8.8 8.6 15.1 11.0 2.6 6.9 1.9 Gross capital formation 24.5 24.2 7 .4 25.4 0.4 6.1 3.0

Exports of goods and services 29.5 25.7 21.6 24.7 4.4 1.0 5.6 Imports of goods and services 35.9 31.3 29.6 30.9 1.9 9.4 5.1 Gross savings 15.4 8.6 15.2 23.6 6.4 5.2 -3.2

Note: Figures in italics are for years other than those specified. 2005 data are preiiminaryestimates. ..indicates data are not available a.COuntryp0vertyeStimateisfor 897 b.Aiddataarefor2004.

Development Economics. Development Data Group (DECDG)

168 Kenya

Balance of Payments and Trade 2000 2005 overnance Indicators, 2000 and 2004 (US$ millions) Total merchandise exports (fob) 1773 2,820 Total merchandise imports (cif) 3.033 5.085 Voice and accountability Net trade in goods and Services -1015 -1729 Political stability Workers' remittances and Rqulatory quality compensation of employees (receipts) 538 494 Rulaof law Current account balance -284 -1073 as a %of GDP -2.2 -6.0 Control of corruptlo"

Reserves. including gold 897 2.043 0 25 50 75 100 2004 Central Government Finance Country's pstcentils rank (0-100) 0 2000 higher ~siuesimplybellerrslings (%Of GDP) Revenue 22.8 73.6 3wce KBYfmBnn-KrsBy-M~*rYIIIWorldaank Taxrevenue 8.8 ff.2 Expense 8.5 20.6 Technology and Infrastructure 2000 2004 Cash surplusldeficit 2.1 -2.4 Paved roads (%of total) P.1 Highest marginal tax rate (%) Fixed lineand mobile phone Individual 30 30 subscribers (per 1000 people) x 85 Corporate 30 30 High technologyexports (%of manufactured exports) 3.9 3.1 External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 6.145 6,626 Agricultural land (%of land area) 46 44 Total debt service 591 364 Forest area(%of landarea.2000and2005) 6.3 8.2 HlPCand MDRldebt relief (expected;flow) - - Nationally protected areas (%of land area) .. 8.0

Total debt (%of GDP) 48.4 42.4 Freshwater resources per capita (cu. meters) 646 6s Total debt service (%of exports) 212 6.5 Freshwaternithdrawai (%of Internal resources) 7.6

Foreign direct investment (net inflows) 111 46 C02 emissions per capita (mt) 0.31 0.22 Portfolio equity(net inflows) -8 3 GDP per unit of energyuse (2000 PPP $ per kg of oil equivalent) 2.0 2.7 Compositlon of total external debt, 2004 Energy use per capita (kg of oil equivalent) 507 494 Short-term, IBRD.1 735 7 I

(US$ millions)

IBRD Total debt Outstanding and disbursed 47 1 Disbursements 0 0 Principal repayments 40 5 Interest payments 7 0 hher multl- lat.rs1.544 USOmlllons IDA Total debt outstanding and disbursed 2282 2.882 Disbursements 770 79 Private Sector Development 2000 2005 Total debt service 45 73

Time required to start a business (days) - 54 IFC (fiscalyear) Cost to start a business (%of GNIpercapita) - 48.2 Total disbursed and outstanding portfolio 99 05 Time required to register propedy(days) - 73 ofwhich IFC ownaccount 99 87 Disbursements for IFC own account 40 11 Ranked as a major constraint to business Portfolio sales,prepayments and (%of managers surveyed who agreed) repayments for iFC own account +i a Corruption - 73.6 Cost of financing - 73.3 M IGA Gross exposure 42 49 Stock market capitalization (%of GDP) 0.1 24.2 New guarantees 37 0 Bank branches (per 00,000 people) 14

Note Figures in italics arefor years other than thosespeclfied 2005dataare preliminaryestimates Draft 77 - 8/9/06 indicates data are not available -indicates observation is not applcable

Development Economics. Development Data Group (DECDG)

169 Millennium Development Goals Kenya

With selected targets to achieve between 1990 and 2015 (estimate closest to date shorn, % 2y3ars)

Goal 1: halve the rates for SIa day poverty and malnutrltion I990 1995 2000 2004 Poverty headcount ratio at $la day(P P PI %of po pulatio n) 33 5 22 8 Povertyheadcount ratio at national povertyline (%of population) 52 0 Share of income orconsumption to the poorest qunitile (%) 60 Prevalence of malnutrition (%of children under 5) 23 21 20

Goal 2: ensure that children are able to complete primary schooling Primaryschool enrollment (net,%) 67 76 Primarycompletion rate (%of relevant agegroup) 92 Secondaryschool enrollment (gross, %) 28 39 48 Youth literacyrate (%of peopleages 15-24) 80

Goal 3: ellmlnate gender disparity In education and empower women Ratio of girls to boys in primaryand secondaryeducation (Yo) 94 98 94 Women employed in the nonagricultural sector(%of nonagricultural employment) 21 27 34 39 Proportion of seats held bywomen in national parliament (%) 1 3 4 7

Goal 4: reduce under-5 mortality by two-thlrds Under-5 mortalityrate (per 1,000) 97 111 17 a0 Infant mortalityrate (per 1000 live births) 64 72 77 79 Measles immunization (proportion of one-yearolds immunized,%) 78 a3 75 73

Goal 5: reduce maternal mortality by three-fourths Maternal mortalityratio (modeled estimate, per 00,000 live births) 1,000 Births attended byskilled health staff (%of total) 50 45 44 42

Goal 6: halt and begln to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (%of population ages 15-49) 61 Contraceptive prevalence (%of wmen ages 15-49) 27 33 39 39 Incidence of tuberculosis (per 00,000 people) 08 69 Tuberculosis cases detected under DOTS (%) 56 46 46

Goal 7: halve the proportion of people without sustalnable access to basic needs Access to an improved water source (%of population) 45 62 Access to improved sanitation facilities (%of population) 42 48 Forest area (%of total land area) 65 63 62 Nationallyprotected areas (%of total land area) 80 C02emissions (metric tons per capita) 02 03 03 02 GDP per unit of energyuse (constant 2000 PPP $ per kg of oil equivalent) 22 22 20 21

Goal 8: develop a global partnershlp for development Fixed line and mobile phone subscribers (per 1,000 people) 7 0 14 85 Internet users (per 1000 people) 0 0 3 45 Personal computers (per 1000 people) 0 1 5 13 Youth unemployment (%of total labor force ages 15-24)

iducatlon Indicators (%) Measles lmmunlzatlon (% of 1- CT Indicators (per 1,000 people) year olds) 100 , loo1

50

25

1888 2000 2002 2004 0 1880 1885 2000 2004 2000 2002 2004 Primry net enrollrent ratio - 0 Fixed +nubilesubscribers --Q- Ratio of girls to boys in primry & 0 Kenya 0 Sub-SaharanAfrica internet seconjary education a users

Note Figures in italics are for years other than those specified indicates data are not available Draft l7 - 8/9/06

Development Economics. Develo pment Data Group (DECDG)

170 IBRD 35276

34º E Mt.Mt. ElgonElgon 35º E (4,321(4,321 m)m)

MT. ELGON KENYA FOREST WESTERN KENYA COMMUNITY DRIVEN DEVELOPMENT 0 10 20 Kilometers 1º N KitaleKitale 1º N & FLOOD MITIGATION PROJECT

MMTT EELGONLGON

% POPULATION BELOW PROJECT AREA MAIN TOWNS POVERTY LINE: KapsokwonyKapsokwony FORESTS DISTRICT CAPITALS > 70 FLOODING AREA PROVINCE CAPITALS 60 - 70 UGANDA 50 - 60 DRAINAGE NETWORK/RIVERS DIVISION BOUNDARIES 40 - 50 ROADS DISTRICT BOUNDARIES LLUGARIUGARIRI 30 - 40 PROVINCE BOUNDARIES MalabaMalaba BBUNGOMAUNGOMA LugariLugari 20 - 30 INTERNATIONAL BOUNDARIES AmagoroAmagoro < 20 NO DATA TTESOESO BungomaBungoma EldoretEldoret WESTERNWESTERN Source: Rural Focus Ltd., 2005.

BusiaBusia RIFTRIFT PROJECT AREA CATCHMENT BOUNDARY VALLEYVALLEY WEST POKOT BBUSIAUSIA KAKAMEGA CATCHMENT DEGRADATION KKAKAMEGAAKAMEGA FOREST BUTERE/MUMIASBUTERERE/MUMIAS FLOODING AREA KakamegaKakamega This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information MARAKWETMARAKWET ButereButere shown on this map do not imply, on the part of The World Bank TRANSTRANS NNZOIAZOIA ia Group, any judgment on the legal status of any territory, or any NZo KapsabetKapsabet endorsement or acceptance of such boundaries. MTMT ELGONELGON KapsokwonyKapsokwony SSIAYAIAYA SUDAN 35° 40° ETHIOPIA BUNGOMABUNGOMA Malaba LUGARILUGARI SiayaSiaya VIHIGAVIHIGA Lugari 5° Lake VihigaVihiga TESOTESO Bungoma Yala Turkana UASIN 0º 0º GISHU KEIYOKEIYO Busia Area UsengeUsenge BUSIABUSIA KAKAMEGAKAKAMEGA of Map BUTERE/BUTERE/ KisumuKisumu Kakamega UGANDA MUMIASMUMIAS BondoBondo NANDI Kakamega SOMALIA Butere BBONDOONDO 0° 0° SIAYASIAYA KENYA Siaya VIHIGAVIHIGA VihigaVihiga NYANZANYANZA NAIROBI LAKE VICTORIA Lake Victoria INDIAN OCEAN KerichoKericho TANZANIA 0 20 40 Kilometers 5° 5° 34º E 35º E 35° 40°

FEBRUARY 2007