DOCUMENT OF THE WORLD BANK Public Disclosure Authorized FOR OFFICIAL USE ONLY Report no: PAD123029-ET PROGRAM APPRAISAL DOCUMENT ON PROPOSED IDA CREDIT IN THE AMOUNT OF SDR89.2 MILLION (US$127 MILLION EQUIVALENT), IDA GRANT IN THE AMOUNT OF SDR 191.7 MILLION Public Disclosure Authorized (US$273 MILLION EQUIVALENT), AND SCALE UP FACILITY CREDIT IN THE AMOUNT OF US$200 MILLION TO THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA Public Disclosure Authorized FOR AN URBAN INSTITUTIONAL AND INFRASTRUCTURE DEVELOPMENT PROGRAM February 21, 2018 Social, Urban, Rural, and Resilience Global Practice Africa This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized CURRENCY EQUIVALENTS (Exchange Rate Effective December 31, 2017) Currency Unit = Ethiopian Birr (ETB) ETB 27.40 = US$1 US$1.42413 = SDR 1 Currency US$1 FISCAL YEAR July 8 – July 7 ABBREVIATIONS AND ACRONYMS AFD French Development Agency (Agence Française de Développement) AMP Asset Management Plan APA Annual Performance Assessment APACRC Annual Performance Assessment Complaints Resolution Committee APAG Annual Performance Assessment Guidelines BoFED Bureau of Finance and Economic Development (Regional) BUD Bureau of Urban Development (part of regional governments) CIP Capital Investment Plan CPA Country Procurement Assessment CPF Country Partnership Framework CPS Country Partnership Strategy CSA Central Statistics Agency DLI Disbursement Linked indicator DRM Disaster Risk Management DRS Developing Regional States ECSPG Ethiopian Cities Sustainable Prosperity Goal ECSU Ethiopian Civil Service University EFY Ethiopian Financial Year EMP Environmental Management Plan ERCA Ethiopian Revenues and Customs Authority ESMP Environment and Social Management Plan ESMSG Environmental and Social Management System Guideline ESSA Environment and Social Systems Assessment FEACC Federal Ethics and Anti-Corruption Commission FM Financial Management FMT Federal Mobile Team FPPPAA Federal Public Procurement and Property Administration Agency FUJCFSA Federal Urban Job Creation and Food Security Agency GoE Government of Ethiopia GRS Grievance Redress Service ii GTP Growth and Transformation Program IBEX Integrated Budget and Expenditure IFMIS Integrated Financial Management Information System IMF International Monetary Fund INT Integrity Vice Presidency IPF Investment Project Financing IRR Internal Rate of Return LED Local Economic Development M&E Monitoring and Evaluation MEFCC Ministry of Environment, Forest, and Climate Change MFI Microfinance Institution MoFEC Ministry of Finance and Economic Cooperation MSEs Micro and Small Enterprises MTR Midterm Review MUDHo Ministry of Urban Development and Housing NBE National Bank of Ethiopia NDRMC National Disaster Risk Management Commission NPV Net Present Value O&M Operation and Maintenance OFAG Office of the Federal Auditor General OFED Office of Finance and Economic Development (at ULGs) ORAG Office of the Regional Auditor General OSR Own Source Revenue PAP Program Action Plan PDO Program Development Objective PEFA Public Expenditure Financial Accountability PforR Program-for-Results POM Program Operational Manual RAP Resettlement Action Plan REACC Regional Ethics and Anti-Corruption Commission REFA Regional Environment Protection, Forest, and Climate Change Authority REP Revenue Enhancement Plan RMT Regional Mobile Team RPPPAA Regional Public Procurement and Property Administration Agency RRB Regional Revenue Bureau RSG Resettlement System Guideline SC Steering Committee SMP Safety Management Plan SNNPR Southern Nations, Nationalities, and People’s Region SORT Systematic Operations Risk Rating SUF Scale-up Facility TAC Tender Awarding Committee TC Technical Committee ToR Terms of Reference ToT Training of trainer UIIDP Urban Institutional and Infrastructure Development Program ULG Urban Local Government ULGDP Urban Local Government Development Project ULGDP II Second Urban Local Government Development Program UREFMFB Urban Revenue Enhancement, Fund Mobilization and Finance Bureau VfM Value for Money WCO Women and Children Affairs Office WMP Waste Management Plan WB World Bank ZOFED Zonal Office of Finance and Economic Development Regional Vice President: Makhtar Diop Global Practice Vice President: Laura Tuck Global Practice Senior Director: Ede Jorge Ijjisz-Vasquez Country Director: Carolyn Turk Practice Manager: Bernice Van Bronkhorst Task Team Leader: Abebaw Alemayehu Co-Task Team Leader: Chyi-Yun Huang ETHIOPIA Urban Institutional and Infrastructure Development Program Table of Contents I. STRATEGIC CONTEXT ............................................................................................................................. 1 A. Country Context .................................................................................................................................... 1 B. Sector and Institutional Context ........................................................................................................... 3 C. Relationship to the CAS/CPF and Rationale for Use of Instrument ..................................................... 5 II. PROGRAM DESCRIPTION ....................................................................................................................... 7 A. Government Program ........................................................................................................................... 7 B. Program Development Objective (PDO) and Key Results ................................................................. 10 C. Program Scope ................................................................................................................................... 11 D. Disbursement Linked Indicators and Verification Protocols ............................................................. 15 E. Capacity Building and Institutional Strengthening ............................................................................ 18 III. PROGRAM IMPLEMENTATION ........................................................................................................... 21 A. Institutional and Implementation Arrangements ................................................................................ 21 B. Results Monitoring and Evaluation .................................................................................................... 24 C. Disbursement Arrangements and Fund Flow ..................................................................................... 25 IV. ASSESSMENT SUMMARY ...................................................................................................................... 26 A. Technical (including program economic evaluation) ......................................................................... 26 B. Fiduciary ............................................................................................................................................ 28 C. Environmental and Social System Assessment ................................................................................... 33 D. World Bank Grievance Redress .......................................................................................................... 35 E. Risk Assessment .................................................................................................................................. 35 F. Program Action Plan (Summary) ....................................................................................................... 36 Annex 1: Detailed Program (PforR) Description .................................................................................................... 39 Annex 2: Detailed Project (IPF) Description ........................................................................................................... 77 Annex 3: Results Framework and Monitoring ....................................................................................................... 83 Annex 4: Disbursement Linked Indicators, Disbursement Arrangements, and Verification Protocols ............ 87 Annex 5: Technical Assessment Summary ............................................................................................................ 108 Annex 6: Fiduciary Systems Assessment Summary for the Operation............................................................... 123 Annex 7: Environmental and Social Systems Assessment Summary .................................................................. 143 Annex 8: Systematic Operations Risk Rating (SORT) ......................................................................................... 148 Annex 9: PAP ........................................................................................................................................................... 149 Annex 10: Implementation Support Plan .............................................................................................................. 153 Annex 11: Program Minimum Conditions and Performance Measures ............................................................ 155 Annex 12: Map of Ethiopia ..................................................................................................................................... 195 PAD DATA SHEET . ETHIOPIA Urban Institutional and Infrastructure Development Program . PROGRAM APPRAISAL DOCUMENT AFRICA Social, Urban, Rural, Resilience Global Practice Report No.: PAD123029-ET