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Implementation Completion Report (ICR) Review - Municipal Development


  
1. Project Data:   
ICR Review Date Posted:
01/27/2006   
PROJ ID:
P035802
Appraisal
Actual
Project Name:
Municipal Development
Project Costs(US $M)
 35.7  28.3
Country:
Lithuania
Loan/Credit (US $M)
 20.1  15.1
Sector, Major Sect.:
District heating and energy efficiency services, Power, General transportation sector, General water sanitation and flood protection sector,
Energy and mining; Energy and mining; Transportation; Water sanitation and flood protection
Cofinancing (US $M)
   
L/C Number:
L4481      
   
Board Approval (FY)
  98
Partners involved
 
Closing Date
06/30/2005 06/30/2005
         
Evaluator: Panel Reviewer: Division Manager: Division:  
Peter Nigel Freeman
George T. K. Pitman Alain A. Barbu IEGSG

2. Project Objectives and Components:

a. Objectives
The objectives as stated in the PAD are given below; they were not revised.

  1. Support the Government of Lithuania's (GOL) reforms of local government administration and finance through institutional capacity building at the municipal level and development of a viable system for financing local government investments. As part of the GOL program to redress regional inequalities, emphasis will be on smaller municipalities outside the capital (Vilnius), which are too small to deal directly with international financial institutions.
  2. Support a number of well-prepared investment projects that will improve the quality and cost effectiveness of municipal services by compensating for the legacy of poor planning, lack of maintenance and underinvestment in infrastructure and environmental investments - based on demand (sub projects from Vilnius and Kaunus, the two largest cities will be eligible).
  3. Strengthen the municipalities' capacity for investment planning, capital budgeting, financial management, and ability to deliver improvements in basic urban services.
  4. Work with the other international finance institutions and the key partner bilateral countries in supporting a more effective system of local government administration and finance, topics that are important to the country's EU-accession goals.

b. Components (or Key Conditions in the case of Adjustment Loans):

  • Technical assistance for institutional capacity building, training and project preparation (Original US$ 9.7 million, 27% of total costs - of which no Bank funding; final US$ 3.2 million, 11.3%).
  • Municipal investments project (Original US$ 24.8 million, 70% of total costs; final US$ 23.5 million, 83%)
  • Institutional development for the Housing and Urban Development Foundation (Original US$ 1.0 million, 2.9% of total costs - of which no Bank funding; final US$ 1.6 million, 5.6%).

  • c. Comments on Project Cost, Financing, Borrower Contribution, and Dates
    The total original project cost was estimated at US$ 35.7 million of which the Bank provided a loan of US$ 20.1 million. At closing date US $ 15.1 million of the loan had been disbursed and the remainder canceled; the closing date was not extended. The total final project cost was US$ 28.3 million.


    3. Relevance of Objectives & Design:

    The objectives, though substantially relevant to the GOL, were over-ambitious especially in terms of institutional development. They were only weakly supported by project activities addressing issues of policy reforms and did not rely on prior analytical work. Quality at entry was clearly unsatisfactory for a number of reasons:
    • The Municipal Development project had insignificant resources for institutional development support and training.
    • A key role was assigned to the Association of Local Authorities of Lithuania (ALAL), an agency which received no regular funding from the project. Had these funds been available ALAL may have satisfactorily developed its activities in line with the project objectives.
    • The lack of a prior agreement on the project approval procedures with the Ministry of the Economy and other government entities involved in state budget management was a major factor in blocking the implementation of most projects in the initial pipeline.
    • Moreover, the project team underrated the risk of competition from the credit lines of the European Investment Bank (EIB) and the Nordic Investment Bank (NIB), both of which provided loans under more advantageous terms than the Bank loan.
    • Appraisal also misjudged the political risks of concentrating the responsibility for financial assistance in the Housing and Urban Development Foundation (HUDF) together with the Central Project Management Agency (CPMA) under the umbrella of the Ministry of Finance, thus sidelining both the Ministries of Economy and the Environment which were traditionally responsible for municipal infrastructure.
    • The PAD stated that a large portfolio of investment projects existed for which the design studies were under preparation and that the state of readiness for prompt execution of subprojects equaled or exceeded current practices of Bank lines of municipal credit. In reality, it took ten months after signing to finalize the first sub-loan agreement and only one of the 15 projects included in the original first year portfolio was ever implemented.

    4. Achievement of Objectives (Efficacy) :

  • Support the GOL reforms of local government administration and finance through institutional capacity building at the municipal level and development of a viable system for financing local government investments. Modestly achieved. This part of the project was financed not by the Bank, but by bilateral parallel financing by donors. Satisfactory progress was made with supporting implementation by HUDF/CPMA, preparing suitable investment projects and developing the management capacity of local governments in terms of both output and outcome. This support also assisted the preparation of projects for EIB and NIB.
  • Support a number of well-prepared investment projects that will improve the quality and cost effectiveness of municipal services by compensating for the legacy of poor planning, lack of maintenance and underinvestment in infrastructure and environmental investments - based on demand . Modestly achieved. Contributed modestly to the improvement in conditions of municipal service infrastructure. In terms of output it was satisfactory, but in terms of outcome it was unsatisfactory. The reasons for the mixed performance were i) a conflict with Public Investment Program procedures and hence government priorities (only resolved in 2002) ii) changes in government priorities that impacted on projects in the pipeline and iii) the terms and conditions of the Bank were not competitive.
  • Strengthen the municipalities' capacity for investment planning, capital budgeting, financial management, and ability to deliver improvements in basic urban services. Not achieved. Development of management capacity in municipalities was entrusted to ALAL, which did not have the resources to carry out this task.
  • Work with the other international finance institutions and the key partner bilateral countries in supporting a more effective system of local government administration and finance, topics that are important to the country's EU-accession goals. Negligibly achieved. There is little evidence of success in this area. The project failed to create a mechanism of permanent and effective coordination of funding of municipal investments from external sources.

  • 5. Efficiency:

    No ERRs or FRRs were calculated at appraisal and currently available data are insufficient to make any calculations. The Kaunus street lighting project did reduce energy consumption for street lighting by 40% and the actual project cost yielded a saving of 20% over the originally estimated cost.
    6. M&E Design, Implementation, & Utilization:

    Key performance indicators were confined to the physical subprojects and fell short of expectations; HUDC/CPMA stopped reporting on implementation progress in June, 2003. The focus was in any case on outputs rather than outcomes.
    7. Other (Safeguards, Fiduciary, Unintended Impacts--Positive & Negative):

    The Mid-term review correctly identified some of the major short-comings and obstacles hampering implementation, but failed to propose an action plan to address the issues.
    1. Sustainability of the physical results is likely given the arrangements for the actual projects supported and the ability to prepare suitable project proposals is also likely to endure. The continued donor support and access to EU funding also tips the balance in favor of sustainability.
    2. There were no safeguard issues.

    8. Ratings:
    ICR
    ICR Review
    Reason for Disagreement/Comments
    Outcome: 
    UnsatisfactoryUnsatisfactory
    Institutional Dev.: 
    ModestModest
    Sustainability: 
    LikelyLikely
    Bank Perf.: 
    UnsatisfactoryUnsatisfactory
    Borrower Perf.: 
    SatisfactorySatisfactory
    Quality of ICR: 
    Satisfactory

    NOTES:
    - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
    - ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness.

    9. Lessons:

    1. The actual comparative advantage of the Bank in a competitive financial market environment should be assessed more objectively before making lending decisions.
    2. Institutional development and policy objectives must be supported by corresponding resources if their credibility is to be preserved.

    10. Assessment Recommended?  No

              Why?  

    11. Comments on Quality of ICR:

    Generally satisfactory. It is, however, confusing to the reader to deal with figures expressed in US dollars in the text, while the supporting tables in Annex 2 are in euros only.

    (ES-Rev4B-Dec/05)
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