the world bankdocuments.worldbank.org/curated/en/... · operations analyst civil society specialist...

Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 74104-CO

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVLOPMENT

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$ 70 MILLION

TO THE

REPUBLIC OF COLOMBIA

FOR A

SUBNATIONAL INSTITUTIONAL STRENGTHENING PROJECT

November 15, 2013

Poverty Reduction and Economic Management Mexico and Colombia Country Management Unit Latin America and the Caribbean Region

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

ii

CURRENCY EQUIVALENTS

Exchange Rate Effective October 28, 2013

Currency Unit = Colombian Pesos US$1.00 = COP 1,881

Weights and Measures

Metric System

COLOMBIA – Government Fiscal Year January 1 – December 31

ABBREVIATIONS AND ACRONYMS

DAF Directorate of Fiscal Support

(Dirección de Apoyo Fiscal) DANE National Statistics Office

(Departamento Administrativo Nacional de Estadística) DDTS Directorate of Subnational Sustainable Development

(Dirección de Desarrollo Territorial Sostenible) DIFP Directorate of Investment and Public Finances

(Dirección de Inversiones y Finanzas Públicas) DNP National Planning Ministry

(Departamento Nacional de Planeación) DR Directorate of Royalties

(Dirección de Regalías) DSEPP Directorate of Monitoring & Evaluation of Public Policies

(Dirección de Seguimiento y Evaluación de Políticas Públicas) FARC Colombian Revolutionary Armed Forces

(Fuerzas Armadas Revolucionarias de Colombia) FINDETER Territorial Development and Fiduciary Agency

(Financiera del Desarrollo Territorial Sociedad Anónima) FM Financial Management FMA Financial Management Assessment GDP Gross domestic product

(Producto Interno Bruto) IMF International Monetary Fund ICT Information and Communications Technology IT Information Technology M&E Monitoring and Evaluation

(Monitoreo y Evaluación) MHCP Ministry of Finance

(Ministerio de Hacienda y Crédito Público) MINTIC Ministry of Information Technology and Communications

(Ministerio de Tecnologías de la Información y las Comunicaciones)

iii

MOU Memorandum of Understanding (Memorando de Entendimiento)

OPRC Operations Procurement Review Committee PDO Project Development Objective PSM Public sector management RAAP Rapid Assessment and Action Plan

(Diagnóstico Rápido y Plan de Acción) SAAS Software-as-service scheme

(Software como servicio) SGP General Participation System

(Sistema General de Participaciones) SIIF Integrated Financial Information System

(Sistema Integrado de Información Financiera) SNG Subnational government

(Gobierno Subnacional) STIP Subdirectorate for Territorial and Public Investment

(Subdirección Territorial y de Inversión Pública) TMIS Territorial Management Information System

(Sistema de Información de Administración Territorial) TMM Territorial Management Model

(Modelo de Administración Territorial)

Regional Vice President: Hasan A. Tuluy Country Director: Gloria M. Grandolini

Sector Director: J. Humberto López Sector Manager: Arturo Herrera

Task Team Leader: Pedro Arizti Co-Task Team Leader: Henry Forero

iv

COLOMBIA Subnational Institutional Strengthening Project

TABLE OF CONTENTS

Page

I. STRATEGIC CONTEXT .................................................................................................1

A. Country Context ............................................................................................................ 1

B. Sectoral and Institutional Context ................................................................................. 2

C. Higher Level Objectives to which the Project Contributes .......................................... 5

II. PROJECT DEVELOPMENT OBJECTIVE(S)..............................................................6

A. PDO............................................................................................................................... 6

III. PROJECT DESCRIPTION ..............................................................................................8

A. Project Components ...................................................................................................... 8

B. Project Financing ........................................................................................................ 11

C. Lessons Learned and Reflected in the Project Design ................................................ 11

IV. IMPLEMENTATION .....................................................................................................12

A. Institutional and Implementation Arrangements ........................................................ 12

B. Results Monitoring and Evaluation ............................................................................ 13

C. Sustainability............................................................................................................... 13

V. KEY RISKS AND MITIGATION MEASURES ..........................................................13

A. Risk Ratings Summary Table ..................................................................................... 13

B. Overall Risk Rating Explanation ................................................................................ 14

VI. APPRAISAL SUMMARY ..............................................................................................15

A. Economic and Financial Analysis ............................................................................... 15

B. Technical ..................................................................................................................... 15

C. Financial Management ................................................................................................ 15

D. Procurement ................................................................................................................ 16

E. Social (including Safeguards) ..................................................................................... 16

F. Environment (including Safeguards) .......................................................................... 16

Annex 1. Results Framework and Monitoring ..........................................................................17

Annex 2. Detailed Project Description .......................................................................................21

v

Annex 3. Implementation Arrangements ..................................................................................37

Annex 4: Operational Risk Assessment Framework (ORAF) .................................................53

Annex 5. Implementation Support Plan ....................................................................................59

Annex 6. Economic and Financial Analysis ...............................................................................61

vi

.

PAD DATA SHEET Colombia

Subnational Institutional Strengthening (P123879) PROJECT APPRAISAL DOCUMENT

.

LATIN AMERICA AND CARIBBEAN Public Sector

Report No.: 74104-CO .

Basic Information Project ID EA Category Team Leader P123879 C - Not Required Pedro Arizti Lending Instrument Fragile and/or Capacity Constraints [ ]

Investment Project Financing Financial Intermediaries [ ]

Series of Projects [ ]

Project Implementation Start Date Project Implementation End Date 01-Feb-2014 31-Jul-2021 Expected Effectiveness Date Expected Closing Date 31-Jan-2014 31-Dec-2021

Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Arturo Herrera Gutierrez J. Humberto Lopez Gloria M. Grandolini Hasan A. Tuluy .

Borrower: Republic of Colombia

Responsible Agency: Departamento Nacional de Planeacion (DNP)

Contact: Paula Acosta Title: Subdirectora de Planeacion Nacional Telephone No.:

571-381-5000 Email: [email protected]

.

Project Financing Data(in USD Million) [ X ] Loan [ ] Grant [ ] Guarantee [ ] Credit [ ] IDA Grant [ ] Other Total Project Cost: 70.00 Total Bank Financing: 70.00

Financing Gap: 0.00

vii

.

Financing Source Amount Borrower 0.00 International Bank for Reconstruction and Development

70.00

Total 70.00 .

Expected Disbursements (in USD Million) Fiscal Year

2014 2015 2016 2017 2018 2019 2020 2021 2022

Annual 0.50 5.25 6.50 11.50 12.75 10.00 8.50 9.50 5.50

Cumulative

0.50 5.75 12.25 23.75 36.50 46.50 55.00 64.50 70.00

.

Proposed Development Objective(s) The objectives of the project are to support the Government to: (i) improve Subnational Governments’(SNG) performance in core public management areas; and (ii) strengthen the Borrower’s central government’s capacity to manage the Decentralization and Territorial Management Framework. .

Components

Component Name Cost (USD Millions) Structuring Regional and Local Projects and Designing Long-Term Territorial Strategic Planning Tools

10.00

Applying Incentives for Territorial Management 11.56

Providing Technical Assistance Support to SNGs 32.53

Strengthening Control and Monitoring of Territorial Management

5.72

Project Management and Administration 10.19 .

Institutional Data Sector Board

Public Sector Governance .

Sectors / Climate Change

Sector (Maximum 5 and total % must equal 100)

Major Sector Sector % Adaptation Co-benefits %

Mitigation Co-benefits %

Public Administration, Law, and Justice

Central government administration

50

Public Administration, Law, and Justice

Sub-national government administration

50

Total 100

viii

I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project. .

Themes

Theme (Maximum 5 and total % must equal 100)

Major theme Theme %

Public sector governance Public expenditure, financial management and procurement

75

Public sector governance Managing for development results 25

Total 100 .

Compliance Policy

Does the project depart from the CAS in content or in other significant respects?

Yes [ ] No [ X ]

.

Does the project require any waivers of Bank policies? Yes [ ] No [ X ]

Have these been approved by Bank management? Yes [ ] No [ X ]

Is approval for any policy waiver sought from the Board? Yes [ ] No [ X ]

Does the project meet the Regional criteria for readiness for implementation? Yes [ X ] No [ ] .

Safeguard Policies Triggered by the Project Yes No

Environmental Assessment OP/BP 4.01 X Natural Habitats OP/BP 4.04 X

Forests OP/BP 4.36 X

Pest Management OP 4.09 X

Physical Cultural Resources OP/BP 4.11 X

Indigenous Peoples OP/BP 4.10 X Involuntary Resettlement OP/BP 4.12 X

Safety of Dams OP/BP 4.37 X

Projects on International Waterways OP/BP 7.50 X

Projects in Disputed Areas OP/BP 7.60 X .

Legal Covenants

Name Recurrent Due Date Frequency

Project Management Team X CONTINUOUS

Description of Covenant Schedule 2 Section I.A.3.: The Borrower shall maintain until completion of the Project a Project management team (the PMT) with functions and responsibilities acceptable to the Bank, including

ix

adequate resources and assisted by professional and administrative staff, all in numbers and with terms of reference and qualifications and experience acceptable to the Bank, including a Project coordinator.


Procurement Specialist in FINDETER 31-Jan-2014 Description of Covenant Schedule 2 Section I.A.4.: The Borrower, through DNP, shall cause FINDETER to hire not later than 30 days after the Effective Date a procurement specialist with terms of reference and qualifications and experience acceptable to the Bank.


Safeguards X CONTINUOUS

Description of Covenant Schedule 2 Section I.D.: The Borrower, through DNP, shall adopt terms of reference for non-consulting services and for consultants’ services under the Project in accordance with the requirements of the Bank Safeguards Policies then in force and as applicable, all in a manner satisfactory to the Bank.


Condition of Effectiveness 01-Jan-2014 Description of Covenant Schedule 2 Section B: The Borrower shall cause FINDETER to: (i) carry out financial management and procurement activities under the Project; and (ii) provide DNP with technical support for the carrying out of selected activities under the Project, pursuant to an agreement (the Subsidiary Agreement) to be entered into between DNP and FINDETER under terms and conditions acceptable to the Bank. .

Conditions

Name Type

Subsidiary Agreement Effectiveness

Description of Condition Article IV-4.01: Subsidiary Agreement between DNP and FINDETER detailing roles and functions of FINDETER as fiduciary agent has been signed.

Team Composition Bank Staff

Name Title Specialization Unit David Rosenblatt Economic Adviser Peer Reviewer DECOS

Henry Forero Ramirez Senior Information Officer

Co-TTL TWICT

Victor Manuel Ordonez Conde

Senior Finance Officer Finance Officer CTRLN

Alberto Leyton Senior Public Sector Specialist

Peer Reviewer ECSP4

Diomedes Berroa Senior Operations Officer

Procurement Specialist LCSPT

x

May Cabilas Olalia Senior Operations Officer

Quality Control LCSPS

Alejandro Medina Giopp Senior Monitoring & Evaluation Specialist

Consultant LCSPP

Anna Gueorguieva Senior Economist Peer Reviewer ECSUW

Edgardo Mosqueira Medina

Lead Public Sector Development Spec.

Decentralization Specialist

LCSPS

Pedro Arizti Senior Public Sector Specialist

Task Team Leader (TTL)

LCSPS

Monica Penuela Jaramillo

Consultant Consultant LCSPS

Manuel Fernando Castro Quiroz

Consultant Consultant LCSPS

Azul Del Villar Baston Consultant Consultant LCSPS

Jeannette Estupinan Sr Financial Management Specialist

FM Specialist LCSFM

Fanny Weiner Public Sector Mgmt. Spec.

Quality Control LCSPS

David Santos Ruano E T Consultant Consultant LCSPS

Elsa Coy Team Assistant Team Assistant LCCCO

Marcela Rozo Rincon Senior Operations Officer

Civil Society Specialist WBIOG

Valerie Hermann Perez Program Assistant Project Management Team

AFTPE

Daniela Veronica Felcman

Operations Analyst Civil Society Specialist LCSPS

Fabiola Altimari Senior Counsel Lawyer LEGLE

Antonio Cristian D'Amelj

Counsel Lawyer LEGLE

Eguiar Lizundia Gonzalez

Junior Professional Associate

Junior Professional Associate

LCSPS

Brianna Victoria Shalimar Rojas-Elton

E T Temporary Temporary LCSPS

.

Locations

Country First Administrative Division

Location Planned Actual Comments

Colombia Bogota D.C. Distrito Capital de Bogota

X

.

1

I. STRATEGIC CONTEXT

A. Country Context

1. Colombia’s economic performance has been strong in recent years—the result of a combination of favorable context and good policy. Thanks to high commodity prices, the economy recovered from the 2008-09 global economic crisis after two quarters, compared to the regional average of close to six quarters.1 Relatively low inclusion in global financial markets contributed to the crisis resilience. A strong macroeconomic framework, combined with a robust financial sector and an appropriate regulatory response, helped the economy cushion the external shock and find a way to economic expansion. Even though growth slowed down from 6.6 percent in 2011 to 4.0 in 2012 it still remains above the regional average of 3.6 percent and close to the 5.5 percent of global emerging markets.2 Growth in 2013 is expected to remain similar to 2012 due to the uncertain external environment and in spite of the Government’s ambitious investment program and counter cyclical policy management. Less favorable external conditions and structural bottlenecks may prevent Colombia from returning to the high growth rates of the boom years (2004-08) in the near future.

2. Colombia exhibited a relatively strong fiscal performance in 2012 thanks to increased tax revenues resulting from recent tax reforms and favorable oil prices. The deficit of the combined public sector was reduced from -2 percent in 2011 to 0.3 percent in 2012, while the primary balance turned positive from 0.8 percent to 2.9 percent of GDP. This, in turn, contributed to a decline in the public debt ratio from 36.0 to 32.7 percent of GDP.3 The key driver was a strong increase in the central government tax-to-GDP ratio, which rose by 0.9 percentage point reaching 14.5 percent.4

3. Economic growth in recent years has been accompanied by poverty reduction and substantial job creation. Between 2002 and 2012, poverty fell from 49.7 to 32.7 percent, and the proportion of the population that could not satisfy basic nutritional needs (the extreme poor) declined from 17.7 to 10.4 percent.5 Also, better economic conditions and demographics increased labor market participation by more than half a million people. In effect, in 2012 unemployment declined by 30,000 people, and the rate of unemployment declined from 10.8 to 10.4 percent. 6 While these are positive accomplishments, Colombia’s progress in reducing poverty, given its economic performance since 2002, is still below the performance of its regional peers. Moreover, inequality levels have been stagnant. The country’s Gini coefficient (0.54 in 2012) is still the seventh-highest worldwide and the second in regional comparisons and among upper-middle-income countries.

4. In December 2010, the Government launched “Prosperity for All,” its National Development Plan 2010-2014. The overarching goals of this plan are to increase employment, reduce poverty, and improve security. The plan has three strategic areas: (a) Sustainable Growth 1 World Bank, 2012d, “Latin America and the Caribbean: Risk and Resilience in Uncertain Times”. 2 Source: DANE, IMF. 3 Source IMF July 2013 FCL Renewal Document. 4 Source: DIAN. 5 DANE figures http://www.dane.gov.co/#twoj_fragment1-4 on NBI (Not Satisfied Basic Needs Index); see also World Bank, Colombia Country Partnership Strategy FY2012-2016, June 12, 2011. 6 Source DANE.

http://www.dane.gov.co/#twoj_fragment1-4

2

and Competitiveness, (b) Equality of Opportunities for Social Prosperity, and (c) Consolidation of Peace. In addition, it highlights four cross-cutting themes: (a) Relevance of International Relations, (b) Environmental and Disaster Risk Management, (c) Good Governance, and (d) Regional Development and Integration. To consolidate the fiscal position and manage windfalls from commodities production, Congress approved a new fiscal rule, a constitutional reform of the royalties system, and a proposal to make fiscal sustainability a constitutional criterion. Tax exemptions have been reduced, loopholes closed, and import tariffs lowered in an effort to enhance revenues and promote competitiveness.

B. Sectoral and Institutional Context

5. Decentralization reforms have aimed to find the right balance between central authority and local autonomy, equity in resource distribution, and higher efficiency in public spending. Colombia is a unitary country divided into 32 regions (departamentos), each of which is headed by an elected governor. Departmental assemblies composed of locally elected representatives are responsible for, among other things, approving the departments’ budgets. In addition, there are 1,102 municipalities with elected mayors and municipal councils.7 According to the International Monetary Fund (IMF), subnational governments (SNGs)8 collectively account for a large share of public spending, reaching 8.1 percent of GDP in 2011. Municipalities and departments raise 3 percent of GDP in tax revenues, with the remainder provided by the General Participation System (Sistema General de Participaciones, or SGP), central Government transfer arrangements, and other funding sources such as non-tax revenues and royalties on natural resources (if available to that entity).9 Small municipalities tend to be more impoverished than larger municipalities: while 29 percent of the population at large has one or more unmet basic need, this number increases to approximately 46 percent in municipalities with less than 50,000 inhabitants.10 Given the extent of resources managed at the local level and their impact on service delivery and national development goals, the country as a whole has a keen interest in SNG efficiency and effectiveness and has been reshaping its decentralization framework. 6. The first adjustments were embodied in the 1986 and 1991 constitutional reforms, which transferred responsibilities and resources to municipalities and departments for the delivery of services. The transfer system that resulted from the 1991 constitutional changes focused on the financing of education, health, and water and sanitation to standardize the provision of these services across regions. These reforms also provided funding to SNGs to finance the new responsibilities. At their peak in 1999, fiscal transfers to SNGs represented more than 45 percent of the central Government’s entire budget. Both reforms required the earmarking of transfers. To enhance SNGs’ capacities to manage their responsibilities and resources, the 1991 reform required the certification of SNG capacities. However, earmarking did not produce the expected improvements in coverage or quality of services, and certification of individual SNGs succumbed to political pressures that led to generalized certifications during the late 1990s. Besides, the rapid

7 Bogotá is the only District that also manages the revenue of its department. 8 For the purpose of this document Subnational Governments (SNGs) refers to regional government entities (Entes Territoriales) below the National Central Government which include regional governments (Departamentos) and municipalities (Municipios). Article 286 of the 1991 Constitution defines Entes Territoriales as departamentos, distritos, municipios and territorios indígenas. 9 According to the previous law, royalty resources were distributed to entities that produce or transport natural resources. The new law (Law no. 1530/12) aims to change the distribution criteria. 10 Source: DANE (2005 Census).

3

increase of transfers11 also stimulated the growth of expenditures and debt, and diminished the incentives for SNGs to raise their own revenue. 7. The increasing expenditure responsibilities of SNGs were not matched by adequate instruments to collect their own resources, and transfers were excessively earmarked without adequately reflecting expenditure needs. Smaller local governments struggled to cover the share of operating expenses that were not funded by transfers, but they had little incentive to manage other expenditures effectively. The situation eventually decreased SNGs’ incentives for fiscal discipline and led to a debt crisis in the late 1990s that even threatened fiscal sustainability at the national level.12 By the mid-1990s, a number of shortcomings in the decentralization framework had become evident.

8. Between 1997 and 2003, the Colombian Government passed a second set of reforms to discourage excess spending and borrowing. In 1999 it passed a bankruptcy law (Law 550) that focused primarily on private corporations but that also included provisions for bankruptcy protection procedures for highly indebted SNGs and public enterprises that could not, or chose not to, work out a voluntary rescheduling with their creditors.13 Beginning in 2000, the Colombian Congress approved reforms geared toward limiting the growth of transfers and imposing strict budget constraints on SNGs through the subnational insolvency framework and spending limits. These rules also allow the central Government to establish “Debt Restructuring Agreements” and “Fiscal and Financial Performance Agreements” with SNGs to improve SNGs’ organizational and operational capacity and correct fiscal deficiencies. In this document, this set of rules is referred to as the Fiscal Insolvency Framework (Esquema de Saneamiento Fiscal).

9. Since 2000, the central Government has been developing indicators and strengthening capacity to properly monitor the services delivered by SNGs and financed with resources transferred by the central Government. Because the national goals on key services have not been achieved, a third set of reforms has been approved since 2008, authorizing the Executive Branch to monitor, track, and control SNGs’ compliance with the coverage, quality, and continuity goals set out for key services financed by the transfer system.14 10. The drive toward performance-based transfers did not stop with the results-conditioning of general Government transfers. In June 2011, the Congress approved another constitutional reform geared toward introducing results conditions in the royalties system. The royalty transfer system created in 1991 is based on the revenues of commodities such as oil, gas, and minerals. While the annual amount of royalties was previously insignificant, it has increased substantially over the past two decades in line with the rise in commodity prices and production. In 2008, royalties payments amounted to COP6 billion (US$3 billion, or 1.3 percent of GDP), six

11 Together with enhanced political autonomy and the responsibility for local public service delivery, transfer of current revenues to SNGs increased from 13 percent of national Government revenue in 1973 to 49 percent in 2000. Transfers to SNGs as a share of total central Government outlays peaked at 48 percent in 1999 and have declined to 28 percent since then. 12 MHCP, Direccion General de Apoyo Fiscal,10 años de Transformacion Fiscal Territorial en Colombia, 1998-2008. 13 Liu, L. Del Villar, Azul, Mosqueira, Edgardo, Schmid, Juan Pedro, and Webb, Steven, “Colombia: Sub-National Insolvency Framework,” forthcoming. 14 See Decree 28 Framework to Monitor, Track and Control SGP resources. In 2007 the Colombian Congress approved the Acto Legislativo No. 04, which was later regulated by the Executive Branch (in January 2008) through Decree 28. Both rules approve and implement the “Strategy for Integral Monitoring, Tracing and Control of Expenditures Financed by the General Participation System (SGP).”

4

times higher than the levels of the 1990s (less than COP1 billion in 2009 prices). The new law calls for Acuerdos Marco—results agreement—between the national Government and SNGs, with the possibility of suspending the transfer for underperforming SNGs.15 In 2011, Congress approved the Territorial Entities Land Management Law (Ley de Ordenamiento Territorial)16, which complements the royalty reform by seeking to reduce the risk of investment fragmentation and low-quality projects from SNGs. 17 11. While it is expected that these new laws, systems, procedures, and potential sanctions will lead to improvements in SNG performance, additional measures are required to improve SNG service delivery. In particular, Colombia still faces the following challenges: (i) pending adjustments in the decentralization macro-framework18 19, (ii) more attention to broadening local revenue sources, (iii) lack of long-term strategic territorial planning, (iv) failure to build local capacity to manage a more decentralized system, (v) failure to build up central Government capacities to manage decentralization, and (vi) disperse demand-side initiatives. 12. Recognizing the critical importance of improving SNG performance for the provision of basic services to strengthen economic growth, social development, and domestic stability, the Government is adopting a new approach. Following approval of legislation in 2012 reforming the Royalties Law,20 the presumption is that although additional reforms to the decentralization legal framework are needed, the focus must be directed to build SNG capacity, strengthen central Government monitoring and assistance to SNGs, and increase effective demand for SNG performance at the local level. 13. On the supply side, the Government is focusing on strengthening SNG management capacity. The new approach seeks to create a coherent and structured supply of capacity-building tools to SNGs, especially in the following areas: (a) completion of first-generation reforms in management areas required to improve the allocation and the use of public resources for service delivery, such as planning, investment, procurement, and financial management; (b) completion of first-generation reforms in management areas required to improve collection, mainly the local tax administrations; (c) review of the framework regulating SNGs’ civil service, to ensure the technical continuity with low turnover of technical staff needed for the success of larger, multiyear projects; and (d) performance measuring, project monitoring and evaluation, intergovernmental negotiation and outsourcing skills, as well as the formation of public-private partnerships, which will likely be more important for SNGs than specific sector skills.

14. The central Government, international multi-development partners and various public agencies have been implementing different programs to support enhanced

15 This reform is referred to as “Framework to Monitor, Track and Control Royalties Resources”. 16 Law 1454 of June 28, 2011 was approved after 20 years of debate. 17 The law also creates the Comisiones de Ordenamiento Territorial, a technical and advisory body that will suggest, supervise and evaluate the execution of territorial policies. It also introduces the concept of the contratos-plan, an intergovernmental coordinating tool by which the government administrations at different levels could associate to undertake projects that meet national priorities (To date there are 6 contratos-plan in place). 18 See Bird, R. (2011-October), “Fiscal Decentralization in Colombia: A Work (Still) in Progress” (manuscript), World Bank). See also World Bank 2009. Colombia: Decentralization: Options and Incentives for Efficiency. 19 Liu, L., Del Villar, A., et al. The team also took into account the conclusions from studies conducted on the political economy context of decentralization in Colombia: Rojas, F., Bird, R., and Del Villar, A.; and Mosqueira, E., and Webb, S. 20 See Law 1530 of May 17, 2012;“Por la cual se regula la organización y el funcionamiento del Sistema General de Regalías”

5

administrative and managerial capacities in SNGs. The common factor of these efforts has been the creation of capacities aimed at producing the inputs required by the different legal frameworks of the public management areas. While these input-based capacity-building activities should continue, there is an important need to focus capacity-building activities on the solution of problems that prevent the adequate delivery of services and to focus more directly on service outcome. The World Bank’s Rapid Assessment and Action Plans (RAAPs)21 confirm the efficiency of such an approach.

C. Higher Level Objectives to which the Project Contributes

15. The higher-level objective of this operation is to improve public service provision by strengthening SNGs’ performance in core public management areas. These public services include health, education, and infrastructure services that SNGs are required to manage and provide using a mix of resources—funds raised locally, central funds received from the SGP, and royalties. Service provision improvements cannot be achieved unless the SNGs have proper management practices in place, the core objective addressed by this operation. 16. The proposed operation is fully consistent with the priorities of both the Colombian Government and the Bank. The National Development Plan for 2010-2014 identifies eight major pillars, one of which lays out a strategy for regional development and convergence. The regional focus is based on the recognition of local differences to promote the formulation of public policies and programs in accordance with the specific economic, social, and cultural characteristics and capacities of the various territorial entities. In parallel, the World Bank’s Country Partnership Strategy for Colombia FY2012-2016, discussed by the Executive Directors on July 11, 2011, supports “improved public sector management: good governance and decentralization programs,” with a specific focus on the national Government’s management institutions, the decentralization framework, and the governance and public management capacities at the subnational level of government. The Project is based upon and consistent with the National Development Plan 2010-2014 and the document of the National Council for Economic and Social Policy (Consejo Nacional de Política Económica y Social)22 and supports some of their lines of action. In addition, the Project supports the Bank’s twin goals of reducing extreme poverty and promoting shared prosperity agenda through its expected contribution to the improvement of public management at both the central and subnational levels, which are key areas for the alleviation of poverty and regional inequality in Colombia. 17. The proposed operation builds on progress achieved through previous Bank work. The Subnational Institutional Strengthening Project constitutes an example of engagement with Colombia in which, through the years, the Bank has used available instruments to support the analysis and evolution of the Government’s territorial development program in a consistent manner. The focus has been on using the range of Bank instruments in ways that clarify where 21 A RAAP is an exercise the World Bank carries out for subnational governments to identify public management improvements in different functional areas that can affect fiscal performance and service delivery. The methodology is problem-driven, results-oriented, and focused on quick gains. It has been successfully applied in Colombian municipalities such as Barranquilla, Cali, and Cartagena. 22 See Documento CONPES 3765, Departamento Nacional de Planeación (DNP), August 30, 2013. This document was endorsed by Consejo Nacional de Política Económica y Social (CONPES) in order to approve the credit that supports the Programa de Generación y Fortalecimiento de Capacidades Institucionales para el Desarrollo Territorial, contained in article 16 of “Ley 1450 de 2011 – Plan Nacional de Desarrollo “Prosperidad para todos.

6

the needs are and that build collective synergies and deliver knowledge services combined with financial services to match Colombia’s ongoing development agenda. See Table 1 for more details on the stages of subnational institutions strengthening engagement in Colombia.

Table 1. Stages of Subnational Institutions Strengthening Engagement in Colombia23 Early Support

[1999–2007) Strengthening [2007–2011]

Consolidation [2011–)

Kno

wle

dge

Serv

ices

o Decentralization Programmatic (P121235)

o Assessment of capacity building mechanisms for SNG

o Design of the Rapid Assessments and Action Plans (RAAPs) Methodology

o Decentralization Options and Incentives for Efficiency Study (Report #39832-CO)

o Decentralization Programmatic (P121235) o Implementation of RAAPs Cartagena, Barranquilla, Cali,

Santa Marta, Choco, Valle o Support for the design of the System to Monitor, Track and

Control SGP Resources (Decree 028) –Workshop with OECD experiences

o Estudio para la capacitación de los gobiernos para la eficacia de las transferencias fiscales (Presentation, December 2011)

o Advisory work on accounting and financial reporting standards

o Citizen’s Visible Audits to Improve Public Investment, Transparency and Accountability (TF096676)

o Installing Basic Management Capacity in Chocó (TF091688)

o “Until Debt do us Part” Study on Insolvency Frameworks– Colombia Case (forthcoming)

o Coordination of service delivery output among all levels of government: an innovative Colombian strategy based on M&E outputs study (forthcoming)

o Opportunities for Budget Management Reform (forthcoming)

Fina

ncia

l Se

rvic

es

o Public Financial Management Project I

o Public Financial Management Project II (P040109) o Consolidation of National Public Management Information

Systems (P106628) o Strengthening Public Information, Monitoring, Evaluation

for Results Management (P099139 ) o IDF Grant for the Institutional Strengthening of the Legal

Claims Management System Project (TF058311)

o Subnational Institutions Strengthening Project (P123879)

Con

veni

ng a

nd

Coo

rdin

atio

n Se

rvic

es

o Seminar to discuss strategies to improve assessment methodology of subnationals

o Workshop on the accelerated data program (ADP) with counterparts in DANE

o Analytical Advice for Royalty Reform – Workshop

o Equity Day (March 2013)

II. PROJECT DEVELOPMENT OBJECTIVE(S)

A. PDO

18. The objectives of the Project are to: (i) improve Subnational Governments’ (SNG) performance in core public management areas; and (ii) strengthen the capacity of the Borrower’s central Government to manage the Decentralization and Territorial Management Framework.24 Better service delivery to citizens at the local level depends on, among other things, having in place strong public sector management capacities and processes. Public sector management, including back-office functions, at the local level encompasses a number of functions and processes that SNGs need to carry out. Additionally, the role of the Central Government to manage, coordinate and successfully implement this Decentralization and 23 This table considers the Country Portfolio Performance Review (CPPR) revised in November 2012. Note: Knowledge Services are mostly reports and research work as well as support for institution building. 24 The technical content of the municipal-level interventions in this operation, encompassing diagnostics, action plans, and sustained technical assistance as well as the implementation of the territorial management model, rest on a normative conception of municipal public management. The pillars of the conception are the definition of core management areas and the identification of priority indicators that serve as bellwethers for the functionality of the area as a whole. This framework has been developed through a series of engagements between the Bank and the Government of Colombia, including the successful implementation of RAAPs in several major municipalities (see box A2.1), during which the methodology of analysis of SNGs’ public management capacities was piloted and refined.

7

Territorial Management framework is critical. 19. The municipal management system, of which this operation will support the design and roll-out, will include several management modules (to be agreed as part of project implementation) that will cover at least the following six management areas: (a) tax administration, (b) public expenditure (budget planning and execution, accounting, payments), (c) procurement, (d) human resources, (e) monitoring and evaluation, and (f) transparency and social participation. These are “upstream” elements in the public sector results chain (see Box 1). Evidence from the RAAPs in Colombia shows that changes in informal (de facto) upstream processes and procedures yield tangible results for municipalities in service delivery to citizens (see Annex 2, Box A2.1). The Project foresees executing interventions in approximately 30025 of the country’s 1,102 municipalities, and the selection will be guided by two principles: (a) ensuring that the selected small and medium size rural municipalities are representative of the overall universe (e.g., region, socioeconomic indicators, performance, income, royalties received, service coverage); and (b) selecting those municipalities in which the proposed interventions have the greatest probability of success (political leadership or preexisting fiscal adjustments, investment planning service delivery agreements or contratos-plan with the national Government). In a subset of these 300 municipalities (50) an adjusted assessment will be conducted and sustained technical assistance in the identified management areas will be provided. Annex 2, Box A2.4, provides more details.

Box 1. The Logic of the Intervention: Public Sector Management Reforms Public sector management (PSM) reforms are often thought of as changes to the formal (de jure) institutional and managerial arrangements in the center of Government and in sector agencies—for example, new civil service laws or budgetary procedures, or revised funding arrangements for health care. Changes to formal arrangements are often critical, but ultimately PSM reform is about changing the informal (de facto) behaviors of agents in the public sector. Changing these actual behaviors does not necessarily commence with legal or other formal reforms; changes in how downstream agencies and departments function from day to day can provide the springboard for more formal changes in the laws and procedures. The public sector results chain is about ensuring that the formal institutions and the actual behaviors are mutually consistent and targeted toward delivering results. Poor public sector performance can be traced to weak links in the chain. For example, poor education quality may be caused either “downstream”—perhaps by school management arrangements that weaken accountability—or “upstream,” by transfer financing mechanisms that allow funds to dissipate before they reach schools. “Weak links” can be found in the formal laws and procedures—but often the problem is that good formal rules are not followed in practice. PSM reforms are defined by their purpose: they seek to achieve sustainable improvements to the public sector results chain. They are not predefined by assumptions about the right place to start. The key questions for PSM reform are, To improve public sector results, how do we need to change the results chain? How do we assess where in the chain efforts should usefully be placed and how might those changes best be effected? Source: The World Bank’s Approach to Public Sector Management 2011-2020: Better Results from Public Sector Institutions, Public Sector & Governance Board, Poverty Reduction and Economic Management, World Bank, 2012. Project Beneficiaries 20. The main project beneficiaries and key stakeholders are the National Planning Department (Departamento Nacional de Planeación, or DNP) and the Ministry of Finance (Ministerio de Hacienda y Crédito Publico, or MHCP). Other key beneficiaries include other national Government agencies; the SNGs, including departments and municipalities (departamentos and municipalidades); civil society organizations working on social control and participation, and Colombian citizens.

25 300 in accordance with DNP, and based on the amount of the project and the current objectives of the Government.

8

PDO Level Results Indicators 21. The proposed PDO-level results indicators measure selected elements of SNGs’ progress toward improving performance in core public management areas (see Table 2). Though these proxy indicators are only a limited subset of the important measures of subnational public administration, they cover areas of prime importance to the majority of SNGs. Furthermore, they focus on the areas identified as key pending challenges in the Colombian decentralization framework (see paragraph 12), such as the generation of local tax revenue, the strengthening of local administrative capacity and the coordination and fomenting of citizen participation in the public management cycle. The selection of these indicators takes into account whether they are able to capture improvement in the priority service-delivery-oriented core management areas (as observed in the RAAP experiences), and whether the indicators are measurable, relevant, and attributable. To allow for a historical perspective and sustainability of M&E efforts, all PDO-level indicators use information currently collected by Colombian Government agencies on an annual basis.26

Table 2. Key Results and PDO Indicators Core management area PDO Indicator

Tax Administration Indicator: Total local tax collection per capita Source: Fiscal Performance Index (–Índice de Desempeño Fiscal - IDF), DNP

Planning Indicator: Fulfillment of Municipal Development Plan output goals Source: – Overall Performance Index (Índice de Desempeño Integral - IDI), DNP

Budget Execution Indicator: Budget execution (total budget execution as % of revised budget) Source: IDF, DNP, DANE

Administrative and Financial Systems

Indicator: Level of automation of administrative and financial processes Source: IDI/SICEP, DNP

Note: Given that participating municipalities will be selected at several different implementation phases, all indicators measure changes relative to a baseline established as the average 2011 result (or 2012 depending on data availability) for all municipalities that could potentially be selected to participate in the Project. Annex 1 includes component-level indicators.

III. PROJECT DESCRIPTION

A. Project Components

22. The Project consists of the following components: 23. Component 1: Structuring Regional and Local Projects and Designing Long-term Territorial Strategic Planning Tools.

1. Providing support to DNP to strengthen the Borrower’s capacity to: (i) establish territorial strategic planning mechanisms; and (ii) formulate policies that reconcile sectoral and territorial objectives, including, inter alia, the following activities: (A) the identification and analysis of existing trends, challenges and opportunities so as to identify methods for achieving a more balanced and equal regional development; (B) the design of different models of territorial development under a long term perspective; and (C) the definition of alternative regional development strategies for the purpose of, inter alia, improving efficiency and reducing socioeconomic conflicts; and (D) the

26 For more details, see the results framework in Annex 1 and the description of M&E arrangements in Annex 3.

9

establishment, at the national level, of permanent coordination mechanisms for territorial strategic planning so as to ensure harmonization and consistency of the Borrower’s actions over its territory.

2. Providing support to DNP to improve its access to information relevant for regional planning decisions through, inter alia: (i) the compilation of an inventory of basic territorial information, including statistics, administrative registries data and census surveys; (ii) the definition of strategies for making information available in a timely and user-friendly manner at the subnational level; (iii) the design of a territorial statistical systems to incorporate and analyze data at the municipal level; and (iv) the creation of a territorial observatory on regional public management.

3. Providing support to DNP and SNGs to identify potential sources of regional development financing, through, inter alia: (i) the creation of mechanisms (including public-private partnership schemes) to identify and structure regional investment strategic projects; (ii) the assessment of options to prioritize financing resources based on territorial strategic plan’s objectives; (iii) the analysis of the normative framework relating to investment resources so as to identify potential areas of improvement; and (iv) the establishment of a financing mechanism to carry out feasibility studies for strategic regional projects.

24. Component 2: Applying Incentives for Territorial Management

1. Assessing SNGs’ public management capacity development to carry out, inter alia, the following activities: (i) the assessment of the existing inventory of statistical information regarding performance indicators, and the design, implementation and dissemination of appropriate monitoring indicators based on the results of said assessment; (ii) the implementation of information technology tools to survey the performance of SNGs’ public management; and (iii) the improvement and harmonization of existing tools for measuring subnational management performance.

2. Establishing of good practice standards in several areas of subnational public management (including tax administration, strategic planning, public financial management, administrative control, financial reporting and procurement) through, inter alia: (i) the analysis and compilation of successful cases and ‘good practice’ examples (both at the national and international level); (ii) the definition and implementation of methodologies to document said standards and to make them operational at the SNGs level; and (iii) the definition of a horizontal cooperation framework to promote and disseminate said standards.

3. Design and implementation of an incentive framework to reward SNGs’ management performance through, inter alia: (i) adjustments to improve the distribution of the SGP; (ii) identification and structuring of non-financial incentives to good territorial management; and (iii) non-financial incentives comprised of technical assistance packages to reward good performance of SNGs.

25. Component 3: Providing Technical Assistance Support to SNGs

1. Strengthening SNGs’ management capacity through, inter alia: (i) the provision of support in selected aspects of territorial management (including investment action plan

10

formulation and monitoring and evaluation); (ii) the design and development of a standard methodology for carrying out investment action plans and assessments in selected SNGs; (iii) the definition of a large-scale implementation strategy for the standard methodology referred to in (ii) herein; (iv) the implementation of the standard methodology referred to in (ii) herein in selected SNGs; and (v) the carrying out of an impact evaluation of the implementation referred to in (iv) herein.

2. Design and implementation of the TMM through, inter alia: (i) the conceptual design of the TMM, including the design and development of technical tools (including methodologies, procedures and information systems) to be used for its implementation and monitoring; (ii) the definition of a relevant service delivery scheme; (iii) the implementation of the TMM in selected SNGs, based on an on-site support strategy; and (iii) the definition of methodologies for carrying out assessments, management and training activities on the TMM.

3. Strengthening DNP’s and MHCP’s technical, operational and managerial capacity to ensure full implementation and adequate maintenance of the TMM through, inter alia: (i) the signing and implementation of inter-institutional collaboration agreements with SNGs to ensure proper and efficient operation of the TMM; and (ii) the integration of the TMM (including its information and reporting systems) with DNP’s and MHCP’s current management systems.

4. Improving citizen participation and social control in the public management cycle’s processes through, inter alia: (i) the development of a repository of successful (national and international) methodologies and approaches to achieve greater citizen participation and social control in said processes; and (ii) the development of tools and applications to increase transparency and facilitate citizen participation and control in territorial management.

26. Component 4: Strengthening Control and Monitoring of Territorial Management

1. Strengthening DNP and MHCP’s administrative control over budget spending through, inter alia, the following activities: (i) the review and assessment of DNP’s and MHCP’s current internal control management system; (ii) the formulation and implementation of adjustments to improve, inter alia, the efficiency and scope of said systems; (iii) the development of an information management model for management at the SNGs’ level; (iv) the improvement of DNP’s and MHCP’s internal control processes; and (v) the issuance of recommendations to the Borrower’s Comptroller’s Office (Contraloria General de la Nación), the Borrower’s Audit Office (Auditoria General de la Nación) to enable the adaptation of their processes to the new TMM.

2. Strengthening DNP and MHCP’s public management capacity through, inter alia, the following activities: (i) the definition of risk maps to ensure appropriate use of public resources; (ii) the assessment and improvement of existing public management indexes and control metrics; and (iii) the identification of good practices and quality standards for territorial management.

27. Component 5: Project Management and Administration

Providing support to DNP and FINDETER for the carrying out of project coordination

11

and management activities, including inter alia: administrative, financial management, procurement, monitoring and evaluation, reporting, auditing and other operational activities required for effective project implementation.

B. Project Financing

28. The proposed operation is an Investment Project Financing (IPF) in the amount of US$70 million. The choice of an Investment Project Financing Loan responds to the Government’s request to support this important public sector reform through project financing and technical assistance. This instrument also replicates previous Bank-financed interventions in this same area that proved adequate for this kind of project and where the Bank has global comparative advantage. The GoC has declined the possibility of retroactive financing. Project Cost and Financing 29. Table 3 summarizes the Project cost and financing by component.

Table 3. Project Costs by Component Project components Project cost IBRD % Financing

1. Structuring Regional and Local Projects and Designing Long-term Territorial Strategic Planning Tools

$10,000,000 $10,000,000 100%

2. Applying Incentives for Territorial Management $11,560,000 $11,560,000 100%

3. Providing Technical Assistance Support to SNGs $32,530,000 $32,530,000 100%

4. Strengthening Control and Monitoring of Territorial Management $5,720,000 $5,720,000 100%

5. Project Management and Administration $10,190,000 $10,190,000 100% Total baseline costs $70,000,000 $70,000,000 100%

Front-end fee (0.25%)27 175,000 Total financing required $70,175,000 $70,000,000

C. Lessons Learned and Reflected in the Project Design

30. Building upon the findings of the Country Portfolio Performance Review (CPPR) carried in November 2012, the Project contains features that have proven to be necessary for maximizing correct execution and responding to the client’s needs. The Project will use a carefully crafted execution arrangement for using Financiera de Desarrollo Territorial (FINDETER) as a key partner. Additionally, the Project contains several innovative features and extensive use of evaluation tools to create capacity and monitor progress.

31. On technical side, lessons have been learned from previous Government efforts that most often have been supported by international financial institutions and donors, including the World Bank. The Project builds on reforms of the last two decades, elements of success of which have included:28 (i) political ownership and high level support29, (ii) a dedicated project 27 The front-end fee will be paid from the Borrower’s own proceeds. 28 For more details, see “Descentralización y fortalecimiento institucional en Colombia: Aspectos relevantes de las últimas dos décadas,” María Fernanda Téllez, LCSPS Working Paper Series, March 2013. 29 Abdul Khan and Mario Pessoa (2009). Conceptual Design: A Critical Element of a Successful Government Financial Management Information System Project. International Monetary Fund.

12

implementation unit, (iii) a clear change management strategy, (iv) a well-defined ICT strategy and the presence of ICT expert30, (v) clear definition of roles and coordination among the different actors involved, (vi) sufficient quality and quantity of information on the performance of local authorities, (vii) differentiated policies tailored to the capacity capabilities among local authorities, (viii) recognition of fiscal laziness, insufficient sources of funding, and an overall lack of resources as obstacles, (ix) a clear long-term vision for sustainability and institutionalization of capacity-building programs, (x) civil society participation, and (xi) the creation of efficient incentive mechanisms. Other findings include that the decentralization process and its success go hand in hand with major structural reforms, and that external support must be compatible with the Government’s decentralization strategy and embedded in the country context.

IV. IMPLEMENTATION

A. Institutional and Implementation Arrangements

32. The implementing agency of this Project would be DNP and the project implementation would be led by the Project Management Team located in its Subdirección Territorial y de Inversión Pública (STIP). The implementation model contains three main features: (a) execution arrangements with the fiduciary agent FINDETER, (b) technical leadership and inter-institutional arrangements between DNP (which will act as the Project’s Implementing Entity) and MHCP (which will provide technical support to the Project’s implementation), and (c) coordination mechanisms to provide the reform with high political engagement and technical support (via steering and operational/technical committees).

• Clear execution arrangements via a fiduciary agent: FINDETER. FINDETER, via a subsidiary agreement with DNP, would carry out the procurement and payment processes and their reporting, while DNP would do overall financial management.

• Technical leadership and inter-institutional arrangements. DNP would host the Project Management Team in the STIP, leading all technical efforts via several Direcciones (Directorates), in coordination with other national agencies, and providing administrative support. The relationship between DNP and MHCP will be governed by a Memorandum of Understanding (MOU).

• High political engagement and technical support. Two committees would be created. A high-level Steering Committee involving the key decision-makers in the overall subnational agenda—DNP, MHCP, and the President’s Office (Presidencia)—in steering the Project as part of the reform (see Figure A3.3 in Annex 3). This Steering Committee will meet several times a year to focus on decisions related to policy implementation and inter-institutional coordination. Additionally, the Project supports the creation of a lower-level Technical and Operational Committee led by DNP to support the day to day project implementation. MHCP will also participate for the implementation of selected activities.

33. Annex 3 provides full details on the implementation arrangements. In addition, the Government prepared an operational manual (Manual de Operaciones) that contains full details

30 Cem Dener, Joanna Watkins, William Dorotinsky (2011). Financial Management Information Systems. The World Bank.

13

on project implementation. The operational manual was adopted at the time of loan negotiations (October 31, 2013).

B. Results Monitoring and Evaluation

34. The Project Management Team will be in charge of carrying out all monitoring and evaluation (M&E) activities. The team will compile the data needed to feed the monitoring indicators and will prepare M&E reports and regular progress reports for the Steering Committee and Bank supervision team. Resources under Component 5 have been established to strengthen the team’s capacity to carry out these duties. The Project Management Team will not only be able to monitor and evaluate the Project, but will also serve more broadly as the main progress reporting mechanism for the broader Government reform and lead coordination with other Government M&E initiatives (such as Sinergia Territorial); it will be responsible for compiling and analyzing data and reporting to the Steering Committee (see Annex 3).

C. Sustainability

35. The Bank assesses the sustainability of the reform activities contained in the Project as likely. Evidence from decentralization and subnational reforms in OECD31 countries and Bank-financed projects in Latin America and the Caribbean shows that this is a long-term agenda with uneven results and nonlinear progress. The substantial reform that the Government of Colombia has pursued for some decades goes beyond the current administration and has broad popular support by key stakeholders. To maximize the probability of success and sustainability of the reforms, the Bank has relied on three main pillars throughout the Project’s design: (a) Government ownership, demand, and political support; (b) technically sound and noncontroversial activities and outputs; and (c) broad participation of key actors, including MHCP and DNP, as well as Presidencia 32.

V. KEY RISKS AND MITIGATION MEASURES

36. The Bank has assessed the overall risk for the operation as substantial. This assessment is based on the analysis detailed in the ORAF matrix (see Annex 4) that highlights all possible risks for the operation. Mitigation measures are identified to address the risks.

A. Risk Ratings Summary Table

Table 4. Risk Ratings Summary Table Risk Category Rating

Stakeholder risk Moderate

Implementing agency risk Substantial

- Capacity Substantial

- Governance Substantial

Project risk Substantial

31 The Practice of Policy-Making in the OECD: Ideas for Latin America, World Bank, 2011. 32 See Annex 3 for more details on roles and key actors.

14

- Design Substantial

- Social and environmental Low

- Program and donor Low

- Delivery monitoring and sustainability Moderate

Overall implementation risk Substantial

B. Overall Risk Rating Explanation

37. Stakeholder risks. The main stakeholder risks include (a) fragmented coordination among the central Government agencies, (b) the lack of engagement of SNGs with the central Government strategy, and (c) the lack of citizen participation. Risk mitigation measures will include the establishment of incentives that are attractive to SNGs, improved management systems and eventually better service delivery. Participating SNGs will have direct cost saving incentives in addition to focused technical support and recognition rewards down the road (see Annex 6). In addition, the Project includes two steering committees to steer and coordinate the reform beyond the Project, and a MOU that will be signed between the two major stakeholders DNP and MHCP. Subcomponent 3.4 will also generate citizen demand for better performance from SNGs. 38. Implementing agency risks. A number of implementing agency risks exist: (a) limited fiduciary capacity in the Government, particularly in DNP and FINDETER, (b) the lack of a governance arrangement to lead such an ambitious reform, and (c) potentially weak commitment for taking the decisions necessary to implement the reforms. A number of actions included in the Project will address these issues: a subsidiary agreement between the fiduciary agent FINDETER and DNP clarifying roles and responsibilities; an operational manual with clear coordination mechanisms among all the agencies (including their institutional arrangements, roles, and responsibilities); a training program to guarantee that institutions are able to meet the fiduciary capacity requirements of the Project). Also, DNP and MHCP are considered effective and powerful agencies within the central Government and will be responsible for overall project technical leadership. Both DNP and MHCP will perform activities based on a signed MOU, and it is expected that two steering committees will be formed to provide policy guidance and oversee project implementation with the support from the Alta Consejera para el Buen Gobierno in the President’s Office (Annex 3 provides full details on the implementing arrangements). Additionally, FINDETER will train and hire procurement specialists to carry out the desired functions in an efficient manner. 39. Project risks. Risks related to the Project include mainly the ones related to design (such as the lack of participation and ownership from SNGs and the lack of guidance and data on the success of the pilots), and the ones related to monitoring of implementation and sustainability (such as the recurring costs to support the systems and the infrastructure). The main risk management actions are as follows: (a) the pilot phase and conceptualization of the TMM will include the active participation of some SNGs that voluntarily join in the design; (b) an integral part of the operation is the evaluation mechanism that will be carried out from the beginning of

15

the intervention (see Annex 2, Box A2.3); and (c) new processes and administrative practices and systems will be standardized and will reduce discretionary decision-making.

VI. APPRAISAL SUMMARY

A. Economic and Financial Analysis

40. Annex 6 provides a quantification of project impact under conservative assumptions. In monetary terms, the expected benefits can be estimated by projecting the expected savings and additional revenue municipalities should enjoy as a result of the interventions undertaken. The direct effect of the Project will be on the management of subnational entities. The analysis shows that, under conservative assumptions, the Project will engender monetary benefits greater than its overall costs midway through implementation. The Project is expected to contribute to improving capacities in the following areas: revenue administration, financial management, information systems, budget planning and execution, monitoring and evaluation, human resources management and citizen participation and transparency which would have beneficial effect on fiscal sustainability, inequality and poverty reduction, economic growth, trust in government and service delivery, among others. Integral to the Project’s design is the conduct of evaluations at certain phases of the implementation to assess its impact on the subnational entities. Specifically, the first evaluation of the Territorial Management Model being advanced under the Project will be conducted upon completion of the pilot phase in both the municipalities that received the intervention and those that did not to measure the impact of the intervention. The lessons learned from this evaluation will allow for necessary adjustments to be introduced and thereby improve the Project's beneficial effect.

B. Technical

41. This technical design is partly guided by the successful experience in Colombia with the RAAP tool. It also builds upon critical lessons learned when working with SNGs (see Sections III.C and IV.C). The Project incorporates a number of innovations. The Project would design and gradually implement a new Territorial Management Model (TMM) that contains a normative and standardized conceptualization of subnational management. It would also use a cloud computing platform which aligns the Project with the Government's program Vive Digital. It incorporates a role for civil society organizations that is expected to (a) improve participation without posing more burdens for SNGs, and (b) improve transparency in and accountability for the use of public funds. It would also institutionalize a monitoring and evaluation system for program adaptation throughout implementation.

C. Financial Management

42. An updated Financial Management Assessment (FMA) for DNP was carried out. The most recent financial information on DNP was reviewed and follow up questions were properly addressed with DNP's Financial Directorate. The FMA was carried out in accordance with OP/BP 10.02, Financial Management, and the Financial Management Manual "Financial Management Manual for World Bank Operations" approved by the Financial Management Sector Board and published on March 1, 2010. The FMA concluded that the executing agency (DNP) has adequate

16

capacity to manage the financial management aspects of the Project. The Project funds will flow through the nation’s Integrated Financial Information System (SIIF) from DNP to the Fiduciary Agent FINDETER, with support from the Financial Subdirectorate (areas of Budgeting, Accounting, Treasury), and Internal Control Office at DNP. The DNP will oversee the overall coordination, evaluation, supervision, and implementation of the Project through its functional and directive lines.

D. Procurement

43. DNP has demonstrated sound capacity implementing World Bank procurement procedures. However, procurement functions for this Project will be carried by an external fiduciary agent, FINDETER, and DNP may need to strengthen its capacity to oversee that FINDETER observes Bank procurement guidelines and maintains at all times during the implementation of the Project a skilled team for the overall procurement aspects of the Project. In addition, FINDETER has not yet gained experience applying Bank procurement procedures, but it has organizational structure, the legal framework and the right set of skills to quickly overcome it. Moreover, although the majority of the procurement activities are not complex, with the exception of the production of the software factory project, issues of coordination, planning, and monitoring could negatively impact the implementation of this Project. In particular, given the fact that several activities such as studies, technical assistance, and the implementation of the TMM, among other activities, will not be launched/contracted until prior actions are completed, such as the development of methodologies, model software, and so on, have been advanced. Therefore, the procurement risk for preparation and implementation is moderate after mitigation measures have been adopted (see Annex 3).

E. Social (including Safeguards)

44. The proposed Project will trigger the Indigenous Peoples Safeguards Policy (OP/BP 4.10). This policy is triggered based on the consideration that the Project will potentially cover the entire territory of Colombia, thus including those areas populated by indigenous peoples and Afro descendants. Given that the Project will be limited to providing technical assistance, the preparation of an Indigenous Peoples Planning Framework is not required. However, for those municipalities with a presence of Indigenous Peoples and/or Afro Colombian populations, the activities carried out under sub-component 3.4 will take into account the traditions, language (if necessary) and special jurisdiction of these communities and will include participation mechanisms that allow for the consultation of Afro Colombian and indigenous representative institutions.

F. Environment (including Safeguards)

45. The proposed Project will trigger the Environmental Assessment OP/BP 4.01. Although the activities proposed under Component 1 that are related to the articulation of a territorial policy are not operational in nature, there could be potential downstream implications for natural resource planning or investments affecting natural resources from the territorial planning supported by the Project. To the extent that these activities might affect relevant environmental issues, the GoC will adopt terms of reference for non-consulting services and for consultants’ services under the Project in accordance with the requirements of the Bank Safeguards Policies.

17

Annex 1. Results Framework and Monitoring COLOMBIA: Subnational Institutional Strengthening Project (P123879)

Project Development Objective (PDO): The objectives of the Project are to: (i) improve SNGs’ performance in core public management areas and; (ii) to strengthen the central Government’s capacity to manage the Decentralization and Territorial Management Framework.

PDO-level results indicators* C

ore Unit of

measure Baseline33 Cumulative target values**

Frequency Data source/ methodology

Responsibility for data

collection Description

YR 1 YR 2-3 YR4-5 YR 6 YR7 Indicator One: Local tax collection per capita

Percentage Average for all municipalities with fewer than 50,000 inhabitants: 114,000 pesos per capita (2011)

75% of pilot SNGs have increased local tax collection at least 10%

75% of pilot SNGs + 100 SNGs have increased local tax collection at least 10%

Twice (YR 6 & YR 7)

Índice de Desempeño Fiscal, compiled by DNP

DNP Percentage of participating SNGs that achieve target of improvement vis-a-vis municipal-level baseline 34

Indicator Two: Fulfillment of Municipal Development Plan output goals

Percentage Average for all municipalities with fewer than 50,000 inhabitants: 53.8 percent (2011)

75% of pilot SNGs have increased fulfillment of municipal development plan output goals by at least 10 percentage points

75% of pilot SNGs + 100 SNGs have increased fulfillment of municipal development plan output goals by at least 10 percentage points

Twice (YR 6 & YR 7)

Índice de Desempeño Integral, compiled by DNP

DNP Percentage of participating SNGs that achieve target of improvement vis-a-vis municipal-level baseline

Indicator Three: Budget execution (total budget execution as % of revised budget)

Percentage Average for all municipalities with fewer than 50,000 inhabitants: 80.1% percent (2012)

75% of pilot SNGs that have increased budget execution by at least 10 percentage points

75% of pilot SNGs + 100 SNGs that have increased budget execution by at least 5 percentage points

Twice (YR 6& YR 7)

Índice de Desempeño Fiscal, compiled by DNP and DANE stats


Indicator Four: Level of automation of administrative and financial processes

Percentage Average for all municipalities with fewer than 50,000 inhabitants: 66.6 percent (2011)

75% of pilot SNGs that have increased the level of automation by at least 10 percentage points

75% of pilot SNGs + 100 SNGs that have increased the level of automation by at least 10 percentage points

Twice (YR 6 & YR 7)

Índice de Desempeño Integral, compiled by DNP and


INTERMEDIATE RESULTS

33 This baseline – calculated as an average of all Colombian municipalities with fewer than 50,000 inhabitants – is a proxy baseline. The true baseline will be calculated for each participating municipality upon their selection, and progress will be measured against that baseline. 34 YR 6 evaluation corresponds to pilot SNGs; YR 7 to pilot SNGs plus the 100 additional SNGs that join in YR 4-5.

18



ore Unit of





YR 1 YR 2-3 YR4-5 YR 6 YR7 Intermediate Result (Component One): Structuring Regional and Local Projects and Designing Long-term Territorial Strategic Planning Tools

Intermediate Result indicator1.1: Creation of territorial observatory.

Yes/No DNP’s Territorial Deputy Direction does not have any institutional entity to support communities of practice on the territorial issue.

Structuring and design of the territorial observatory.

Territorial observatory created and in operation.

Publication and dissemination of information produced by the observatory.



Annual DNP 35 DNP Creation of Territorial Observatory.

Intermediate Result indicator 1.2.: Articulation of sources of regional development financing.

Yes/No (year 1) Number (years 2-7)

Lack of alignment between sector and regional funds and priorities identified in regional development strategies.

Initial diagnostic of potential projects conducted. Inventory and proposal for the articulation of sources of regional development financing

Number and value of projects to be projected in the YR 1 diagnostic

Number and value of structured projects

Number and value of structured projects.

Number and value of structured projects.

Annual DNP 36 DNP High-impact regional investment strategic projects structured.

Intermediate Result (Component Two): Applying Incentives for Territorial Management

Intermediate Result indicator 2.1.: Definition of performance indicators.

Yes/No Absence of performance indicators and information tools to measure SNGs’ public management capacity development.

Assessment of available statistical indicators, selection of best indicators to be used.

Design, implementation, and dissemination of objective indicators to measure public sector performance.

Implementation of informational tools that allow the central Government to monitor the progress of subnational public management capacity.

Three times (YR 1, 3 & 5)

DNP 37 DNP Stages of development and implementation of public sector performance information measurement systems.

Intermediate Result indicator 2.2 Definition of standards and good practice in subnational public management.

Yes/No Absence of standards and good practice in SNGs public management performance.

Identification and definition of subnational management good practice standards to be incentivized.

Analysis and compilation of good practice examples from both national and international experience.

Dissemination of cooperation framework for all levels of government for the promotion of SNG public management standards.


Reports on each stage of development of SNG public management standards.

DNP Stages of development of standards and good practice guidelines for SNG public management.

Intermediate Result indicator 2.3.: Definition of an incentive framework and pilot implementation.

Yes/No Absence of an incentive framework to reward SNGs’ management performance.

Analysis of potential adjustments to the SGP to make distribution criteria more results-oriented.

Design of incentive framework to link resource allocation to subnational public management performance.

New incentive framework is piloted in select municipalities.


DNP 38 DNP Stages of development of an incentive framework to support good subnational public

35 DNP report describing the organizational structure and work plan of the observatory, and official proof of administrative creation. 36 DNP report describing the technical and financial details of the Project and its relation to the relevant regional strategy. 37 Presentation of reports describing indicators, implementation plans thereof; proof of functionality of informational tools for the central Government. 38 Report on potential adjustments to the SGP; report describing the potential new incentive framework.

19



ore Unit of





YR 1 YR 2-3 YR4-5 YR 6 YR7 management practices.

Intermediate Result (Component Three): Providing Technical Assistance Support to SNGs

Intermediate Result indicator 3.1: Territorial Management Model (TMM) design.

Yes/No There is not a standard TMM—only individual management practices.

TMM general framework designed and approved. Detailed functional and operational specifications designed and approved. Standard operations manual defined.

Once (YR 1)

Review of documents related to the TMM.

DNP Stages of development of the TMM.

Intermediate Result indicator 3.2: Territorial Information System (TIS) implementation.

Yes/No (years 1-3) Percentage (years 4-7)

Centralized SNGs management IT system has not been designed.

Software development/ procurement strategy defined (year 2). Software firm contracted and developing (year 3).

At least 30% of functionalities implemented in participating SNGs.

At least 70% of functionalities implemented in participating SNGs.

100% of functionalities implemented in participating SNGs.

Annual DNP 39 DNP Stages of implementation of the TIS.

Intermediate Result indicator 3.3: SNGs technical assistance delivery.

Yes/No Subnational technical assistance model has not been designed.

Delivery strategy for technical assistance (including citizen participation elements) in SNG defined.

Technical assistance on TMM in pilot SNGs delivered (year 2). Technical assistance on TMM in additional 50 SNGs delivered (year 3).

Technical assistance on TMM in additional 50 SNGs delivered (year 4). Technical assistance on TMM in additional 50 SNGs delivered (year 5).

Technical assistance on TMM in additional 50 SNGs delivered.

Technical assistance on TMM in additional 50 SNGs delivered. Technical assistance on new functionalities of TMM delivered in the implemented SNGs.

Annual DNP 40 DNP Stages of delivery of the technical assistance.

Intermediate Result indicator 3.4: Impact evaluation of subnational technical assistance model.

Yes/No No rigorous evaluation of SNGs’ performance has been carried out.

Impact assessment of implementation in pilot municipalities conducted (year 3).

Adjustments to technical assistance model arising from impact evaluation incorporated.

Impact evaluation of implementation in of technical assistance model in all municipalities conducted.

Annual DNP 41 DNP, World Bank

Stages of execution of the impact assessment.

Intermediate Result indicator 3.5: Technical assistance to implement the

Yes/No Citizens’ participation and social control is limited and not articulated with the public management

Delivery strategy for citizen participation and social control in SNG defined.

Implementation of action plans in pilot SNGs (together with technical assistance).

Implementation of action plans in 100 additional SNGs (together with

Implementation of action plans in all remaining additional SNGs (together with

Annual DNP reports. Third party assessment

DNP Stages of implementation of action plans to strengthen

39 Documents pertaining to the procurement of the TIS; documented demonstrations of the implemented functionalities. 40 Reports from DNP on the technical assistance implementation; third-party verification of quality of implementation according to guidelines to be agreed between the Bank and DNP. 41 Final reports of impact assessments, reports summarizing recommended adjustments to technical assistance model.

20



ore Unit of





YR 1 YR 2-3 YR4-5 YR 6 YR7 action plans for strengthening citizens’ participation along the entire public management cycle.

cycle. No technological tools or applications to support participation and social control are available.

Preparation of “kit” of potential municipal citizen participation tools, including technological tools/ applications to support participation and social control.

technical assistance). Technological tools/applications to support participation and social control tested in pilot municipalities.

technical assistance). of implementation of action plans.

citizen participation and social/political control.

Intermediate Result (Component Four): Strengthening Control and Monitoring of Territorial Management

Intermediate Result indicator 4.1.: Definition of the integrated SNGs financial control model.

Yes/No Lack of a SNGs integrated financial control model.

The SNGs integrated financial control model has been designed and approved by MHCP & DNP (year 2). An implementation plan for the SNGs integrated financial control model has been completed and adopted by the different control institutions.

The SNGs integrated financial control model applied to pilot municipalities.

The SNGs integrated financial control model applied to 100 additional municipalities.

The SNGs integrated financial control model applied to remaining participating municipalities.

Annual MHCP 42 MHCP Stages of development and application of the integrated financial control model.

Intermediate Result indicator 4.2 Design of instruments for territorial management control.

Yes/No Lack of strong instruments for territorial management control. Little performance information at the SNG level.

Inventory of basic statistical territorial information sources (year 2). Evaluation of existing public management indexes and control metrics, and formulation of recommendations for improvement completed (year 3).

Report identifying good practices in territorial management control, including a definition of minimum standards for management control, completed (year 4). SNGs performance information strategy and metrics to measure SNG management completed (year 4). Priority risk maps (defined by DNP) updated.

Three times (YR, 2, 3 & 4)

DNP 43 DNP Stages of development of information generation strategy.

42 Reports showing evidence of the design, implementation plan, and implementation of the integrated financial control model. 43 Presentation of evaluation of public management indexes, report on good practices in territorial management, updated risk maps.

21

Annex 2. Detailed Project Description COLOMBIA: Subnational Institutional Strengthening Project

1. The purpose of the Project is to improve SNGs’ performance in core public management areas which include strengthening regional development and public service delivery management capacity in Colombia. The Project’s components are (a) structuring regional and local projects and designing long-term territorial strategic planning tools; (b) applying incentives for territorial management (c) providing technical assistance support to SNGs; and (d) strengthening control and monitoring of territorial management. A fifth component supports project implementation through creation and support of project management capacities and the implementation support from a fiduciary agent. These components address many, but not all, of the key Government priorities of the decentralization agenda, and are complementary to parallel Government efforts that address other key issues such as adjustments to the decentralization framework and local capacity to manage the decentralized system. Figure A2.0.a summarizes how all the main project components related to each other in the general intervention framework.

Figure A2.0.a. Overall Project Components

2. The sequence of implementation for Project activities and outputs is pre-designed, but will be adapted based on gradual experimentation and evaluation findings. Given the innovative nature of some of the components of the intervention and the heterogeneity of SNGs, learning will occur throughout implementation and adaptations will be required. However, the basic sequence of activities and products will follow this pattern: Firstly, (i) the design and conceptualization of the TMM, (ii) the definition and approach to pilot SNGs, (iii) the design of information systems, metrics and evaluation, and (iv) the redesign of control systems and incentives. These activities and outputs are expected to be completed over the first 12-18 months of the Project. Secondly, the Project will support the implementation of the TMIS in selected municipalities, the training on the use of new tools in SNGs, and the provision of sustained technical assistance in selected SNGs. Thirdly, the Project will carry out the evaluation of the

22

pilot phase, the documentation of what has been learned, the adaptation and the preparation of the second pilot phase. These cycles of activities (implementation, evaluation, and adaption) are expected to be carried out over periods of 12-18 months until Project completion (and beyond). Figure A2.0.b shows the Project’s main products and the general sequence of main activities.

Figure A2.0.b. Project Sequence and Products

3. The Project contains the following five components: Component 1: Structuring Regional and Local Projects and Designing Long-term Territorial Strategic Planning Tools (US$10.000 million) 4. This component provides support to the National Planning Department (DNP), including consultant services, training, and technical assistance for the improvement of territorial strategic planning with a national perspective toward better sector coordination, taking regional priorities into account. The DNP is carrying out some of these activities within an OECD Territorial Review which will focus on identifying options for development strategies of the regions, good institutional practices and recommendations for better vertical and horizontal coordination among regional actors. This Project will finance related consulting activities which will be selected observing World Bank procurement policies and procedures. 5. The following activities will be carried out: strengthening and institutionalizing DNP’s Territorial Deputy Direction; elaborating territorial strategic analysis, assessments, and alternative scenarios for development, policies, and strategies (national Government); and articulating the sources of regional development financing (national and regional). These activities are intended to define a portfolio of products of this Deputy Direction, such as political maps (poverty, housing, etc.) and land use, in order to establish regional priorities and guide policies and resources more effectively to improve regional convergence.

23

6. Component 1 comprises three subcomponents. Subcomponent 1.1: Technical assistance to the national Government (DNP) for strategic territorial planning, for the design and implementation of territorial policies, programs and strategies 7. This subcomponent will focus on providing technical support to the DNP’s Territorial Deputy Direction, which will conduct territorial planning studies with medium- and long-term perspectives, influence territorial priorities in other national entities, coordinate with existing sectoral regional planning, and strategically organize the national Government’s offer of services to the regions. The subcomponent would support the following activities:

a. Identify and analyze areas of opportunity, trends, and bottlenecks or challenge areas toward a more equal/balanced regional development.

b. Design potential scenarios of territorial development under a long-term perspective. c. Identify and design alternative regional development strategies that recognize the

regional particularities and allow more contribution from the national policies to take advantage of synergies, reduce socioeconomic conflicts, and move toward convergence in regional development conditions. Put together and institutionalize, at the national level, permanent coordination mechanisms for territorial strategic planning and for harmonization and consistency of government actions in the territory.

8. This subcomponent will be led by the Territorial and Public Investment Deputy Direction of DNP in coordination with the national entities that deal directly with issues related to territorial development. Subcomponent 1.2: Availability of information for regional planning decisions 9. This subcomponent will identify, collect and make available to SNGs and to the national Government (DNP) information produced at the national level, which will be processed by DNP. The main purpose is to create a portfolio of products of the Territorial Deputy Direction, such as political maps (poverty, housing, etc.) and land use, to establish regional priorities and guide policies and resources more effectively to improve regional convergence. This subcomponent will support the following activities:

a. Compile an inventory of sources of basic statistical information and other types of information at the national level that present or allow territorial disaggregation—surveys, administrative registries, and census—and note linkages with the indicators requirement of the planning system at national and territorial levels.

b. Define strategies to make information available in a timely and user-friendly way to policymakers at subnational levels to improve the management of SNGs.

c. Define strategies to generate information identified as priority, specifically for the strategic regional planning exercise at the DNP.

d. Organize territorial statistics systems based on municipal results and impacts. Involves training activities, improving Department and Municipal organizational and

24

management models, use of new information technology applications; and better coordination among subnational levels of the public administration.

e. Support the creation of a territorial observatory—boosting institutional networks and/or communities of practice around the territorial issue.

Subcomponent 1.3: Technical assistance to the national (DNP) and subnational governments (SNGs) to articulate the sources of regional development financing 10. This subcomponent will focus on providing sustained technical assistance to national and subnational entities on the use of funds for public investment. The aim will be to identify strategies that contribute to merge sector and regional funds and match them to priorities identified in the regional development strategies. The subcomponent would support the following activities:

a. Identify the potential investment resources available according to different regional groups’ possibilities to promote topics related to territorial development.

b. Define mechanisms to identify and structure high-impact regional investment strategic projects, including the use of public-private partnership schemes.

c. Explore options to link financing sources to projects prioritized by their territorial strategic plans objectives and goals.

d. Analyze the adjustment of the normative framework required to articulate investment resources.

e. Establishment of a financing mechanism to carry out feasibility studies for high impact strategic regional projects in accordance with the Central Government guidance.

11. This subcomponent will be led by DNP’s Subdirectorate for Territorial and Public Investment. Component 2: Applying Incentives for Territorial Management (US$11.560 million) 12. Strong management systems require an explicit and clear incentives framework. Successful subnational management requires the identification of an array of possible positive incentives, instruments and metrics to be able to capture subnational performance, standards of good performance, and the documentation and dissemination of good practices. 13. This component contains the provision of support to DNP, including goods (IT equipment), operating costs, training, and technical assistance to carry out activities aimed at defining performance indicators and information tools to measure SNGs’ public management capacity development, defining standards and good practices in subnational public management performance, and designing and implementing an incentive framework to reward subnational management performance. 14. This component has three subcomponents.

25

Subcomponent 2.1. Definition of performance indicators and information tools to measure SNGs’ public management capacity development 15. The subcomponent will support the following activities:

a. Designing, implementing, and disseminating objective indicators to measure the public sector capacities and institutional strengthening performance of subnational entities.

b. Assessing the inventory of statistical information regarding indicators and goals defined, and selecting the best indicators to be used.

c. Implementing information tools that allow the central Government (DNP) to monitor the progress and evolution of subnational public management capacities.

d. Strengthening and harmonizing existing tools for measuring subnational management performance.

Subcomponent 2.2. Definition of standards and good practice in subnational public management performance

16. This subcomponent will identify and define the standards for good practice in subnational management performance for each dimension of management: tax administration, strategic planning, public financial management, administrative control, financial reporting, and procurement, among others. This would set the basis and benchmark for the central Government’s (DNP) subsequent reward of good government practices. The subcomponent will support the following activities:

a. Identification and definition of subnational management standards of “good practice” to be incentivized at different government dimensions (e.g., tax administration, public expenditure management).

b. Analysis and compilation of successful SNG cases and “good practices” coming from both national and international experience.

c. Definition and launch of methodologies to document standards and good practice (knowledge routes) to make them operational for most of the subnational entities.

d. Definition and dissemination of a horizontal cooperation framework by all levels of Government for the dissemination and promotion of identified standards and good practices.

Subcomponent 2.3. Design and implementation of an incentive framework to reward subnational management performance

17. This subcomponent will design and implement an incentive framework to reward effective and efficient service delivery to citizens through strong public management in subnational entities (the Project will finance the design of the award framework, but exclude the financing of the awards.). The subcomponent will support the following activities:

a. Identification, viability analysis, and design of adjustments in the distribution of the SGP (particularly under Propósito General) to make the distribution criteria more dynamic and results-oriented.

b. Identification, viability analysis, and design of incentives for the allocation of other sources of funding from the national government (royalties, national programs, etc.).

26

c. Design of incentives to reward subnational administrations’ reduction of operational and administrative processes and provide social and institutional recognition of subnational public management.44

Component 3: Providing Technical Assistance Support to SNGs (US$32.530 million) 18. This component provides support to DNP and MHCP, including goods (e.g. IT equipment for subcomponent 3.2), operating costs, training, and technical assistance for the design, development and implementation of a management model for SNGs and support for the generation of performance information about municipal management. It supports activities aimed at strengthening the management capacities of SNGs, supporting the design of the Territorial Management Model (TMM) cycle, strengthening the governing entities of the TMM (DNP and MHCP), generating results information, and strengthening citizen participation and social control. It has four subcomponents. 19. The municipal management system design that this operation will support will include several management modules (to be defined) that will cover at least the following six management areas: (a) tax administration, (b) public expenditure (budget planning and execution, accounting, payments), (c) procurement, (d) human resources, (e) monitoring and evaluation, and (f) transparency and social participation. These are “upstream” elements in the public sector results chain (see Box 1). Evidence from the RAAPs in Colombia shows that changes in informal (de facto) upstream processes and procedures yield tangible results for municipalities in service delivery to citizens (see Box A2.1).

Box A2.1. Experience with Rapid Assessments and Action Plans (RAAPs) in Colombia The RAAP, developed by the World Bank in 2008, is a problem-driven, results-oriented methodology aimed at addressing the necessity of strengthening local capacity in a political economy context and focused on quick gains. The RAAP conceives of public management as a production chain, and focuses attention on enhancing the effectiveness of the processes that will affect the quality of the provision of public services in the short term. Because achieving quick gains is the ultimate goal of any RAAP exercise, all the recommendations meet the following characteristics: (a) can be decided by subnational authorities without any kind of intervention from the central Government; (b) do not require changes to the legal framework; (c) consist of managerial reforms aimed at improving operations such as debt management, revenue collection, or quality of spending; (d) create benefits that outweigh the operational cost of their implementation; and (e) can be implemented in the short and medium term. In practice, a standard RAAP exercise consists of a series of quantitative and qualitative assessments undertaken by international experts. The core group of assessments reviews the following key management areas: 1) Fiscal Sustainability, 2) Tax Administration, 3) Public Financial Management, 4) Information Systems, 5) Human Resources, and 6) Public Investment and Planning. Other areas of assessment can also be incorporated to address the specific needs of each subnational government—for example, Public Procurement, Assets Management, Quality Control, Legal Defense, or Institutional Governance. The first RAAP pilot was conducted in 2009 in the Municipality of Barranquilla, where the Action Plan gave special attention to the areas of revenue collection, information systems, and pensions reform. By 2011, the collection of property taxes had doubled and the collection of arrears had increased fivefold. The Government used the new fiscal space to allocate three times more funds to public investment, which allowed establishing universal health care, increasing the number of health centers, and improving the quality of customer service. As one example of increased levels of service, between 2008 and 2011 the number of surgical interventions doubled. Following the success of the Barranquilla experience, other SNGs asked the World Bank to perform similar exercises, including the City of Cartagena and the Municipality of Santiago de Cali.

44 Loan proceeds will not be used per se as incentives, rather to finance consulting activities for the definition and piloting of the framework.

27

20. Component 3 comprises four subcomponents. Subcomponent 3.1: Technical assistance and support to SNGs 21. This subcomponent will support SNGs in strengthening their management capacities. It will involve carrying out assessments/diagnosis for each participating entity, and developing specific action plans to improve service delivery and sustainable investment plans. The assessment and action plan work will be conducted in a very short period under a standard methodology applicable to selected SNGs. 22. Going forward, to apply the assessments and action plans methodology on a larger scale, it will be important to define a body to serve as the lead, give guidance on the methodology to certify entities (universities, NGOs, consultancy firms, etc.) that have the capacity to apply the standard methodology, and ensure quality control of the results. In this way, over the medium term, there will be a number of certified entities with specific coverage among the different regions of the country that will be able to apply the methodology on a large scale. This will contribute to create a market where the certified experts are the supply side and the SNGs are the demand, and providing sustainability to the overall model. However, until the certification process is designed and implemented, this Project will finance technical assistance provided by local and/or international firms selected by the DNP through its fiduciary agent. 23. Once the action plans are ready, each SNG will receive support and individualized follow-up to comply with the expected objectives. Later in the process, an impact evaluation of the implementation in selected pilots will be conducted. The subcomponent will support the following activities:

a. Support the technical assistance provided in priority areas of territorial management capacities such as public investment plan formulation, and monitoring and evaluation, among others (the Project will only finance the technical assistance contracted by DNP through FINDETER, the fiduciary agent.)

b. Design and develop a standard methodology for assessments and action plans in the SNGs. The methodology will take into account all public management areas, sectoral service delivery, citizen participation and social control, and results-based management where local competencies apply.

c. Define the larger-scale implementation strategy for the standard methodology of the assessments and action plans.

d. Apply the methodology, technical assistance, and support in the selected pilot SNGs. e. Conduct an impact evaluation of the methodology implementation.

24. Box A2.2 describes this approach in greater detail.

28

Box A2.2. An innovative approach for improving SNG management The Colombian Government’s decentralization reform agenda has dedicated many efforts and funds in the past to enhancing SNG capacity and improving service delivery. However, in recent times, there has been a lot of debate about the effectiveness of the previous efforts. Using preliminary findings and assessment of the experience, the Government has decided to apply a fresh look at the framework and introduce some innovations to address past shortcomings. This operation, supported by the World Bank, will support a broader Government reform to improve SNG management performance; it contains some new features to tackle key bottlenecks. • Conceptualization of strong SNG management. The Project will design and gradually implement a new

Territorial Management Model (TMM) that contains a normative and standardized conceptualization of what solid and robust subnational management should look like. This design will be partly guided by the successful experience in Colombia with the RAAP tool. The focus for this TMM will be small municipalities and management modules that SNGs can gradually implement.

• Key is sustained handholding technical assistance. As recent work in SNGs has shown, it is critical to apply the model gradually and in a customized fashion. Even more important than providing support for diagnosis and recommendation is the constant handholding during implementation. Sustained presence to provide on-the-job support is one of the pillars. The Project will also promote the creation of a market of experts (consultants, academics) that will be able to interact with additional SNGs to provide technical assistance. SNGs can then directly contract experts while the Government (DNP/MHCP) will regulate quality and standards via a Secretariat (similar to the Public Expenditure and Financial Accountability assessments).

• New technological tool. Technically the TMM will also be innovative since it will use cloud computing, allowing much easier access for users (both SNGs and central Government), reducing the need for ad hoc local IT solutions, reducing or eliminating the burden of regular reporting, improving the quality of fiscal and financial data, and facilitating SNGs’ own management and citizens services. This Project is also aligned to the Government’s program Vive Digital, which, among other targets, aims at reaching 700 municipalities with optic fiber by 2014. The country has 1,102 municipalities. Vive Digital had 200 municipalities as its baseline, and it is estimated that the coverage is now around 325 municipalities.

• Citizens’ participation, control, and accountability. The TMM incorporates a strong role for civil society organizations that is expected to (a) improve participation without posing more burdens for SNGs, and (b) improve transparency in and accountability for the use of public funds.

• Institutionalizing evaluation. Being able to identify and track SNG performance is critical. For that purpose, this operation aims at designing and carrying out a rigorous impact evaluation in selected SNGs over the next years that allows creating a solid baseline and metrics to measure success. However, this process is conceived of not as a one-shot evaluation but as an evaluation continuum that allows regular feedback loops to (a) correct the course of the rollout of pilot SNGs, and (b) institutionalize in the central Government the function of tracking the progress of the reform in the rest of the SNGs going forward.

Subcomponent 3.2: Design, development, and implementation of the Territorial Management Model (TMM) and its tools 25. This subcomponent will support the design of the TMM, which will integrate planning, administrative management, financial management, and monitoring and evaluation concepts, relying on methodologies and technological tools that will guarantee the easy adoption and institutionalization of the model, which includes the design, development and implementation of a Territorial Management Information System (TMIS). 26. The TMM will integrate the concepts of the cycle: planning, with the establishment of strategic objectives, goals, and outputs, and confirmation of the resources needed to produce those outputs; articulating those concepts in the budget; and using other financial management tools, designed with a well-structured classification, to facilitate the monitoring and evaluation (M&E) process. The result of M&E will be the most important feedback in deciding to continue executing the original plans or to reorient them.

29

27. To effectively identify and promote good practices, it is necessary to consider management in an integrated way—that is, including all management areas that aim to improve citizens’ quality of life. In this respect, this Project should improve the following areas: SNGs’ own incomes, strategic expenditure, financial management standards, good use of information, procurement processes, delivery services, human resources management, results evaluation, accountability, administrative control, and transparency and citizen participation (see Figure A2.1).

Figure A2.1. Territorial Management Model (TMM)

28. The first step will be to diagnose the starting point of the different SNGs and inventory their existing tools. This should guarantee the construction of a differential model with different phases and routes, according to the wide differences among the SNGs that will be part of this Project. It will also be necessary to match the concepts, regulations, and procedures that are produced by different government institutions at the national level and will be integrated into the TMM. To support application of the model and institutionalization (of concepts, regulations, and procedures) efficiently, integrated information systems will be developed according to the specific characteristics of SNGs. 29. Information collection modules will be developed to monitor national policies in the territories. The governing institutions DNP and MHCP, as well as other entities like DANE, are expected to define the management standards to be proposed in the Model (see Figure A2.2).

Figure A2.2. TMM governing entities

Administrative control

PlanningAdministrative

managementFinancial

managementMonitoring &

evaluation

• Policies• Strategic objectives• Goals and outputs• Performance indicators

• Human resources• Procurement & contracting• Tax collection• Service delivery• User support

• Public expenditure• Budgeting• Accounting• Cash management• Public debt

• Revenue management

• Performance analysis• Goals and outputs analysis• Impact evaluation• Accountability reporting

Administrative control

PlanningAdministrative

managementFinancial

managementMonitoring &

evaluation

Coordinated by National Department of Planning (DNP)

Ministry of Finance(MHCP)

National Department of Planning (DNP)

National Department of Planning (DNP)

30

30. The strategy to manage and operate the information systems consists of making these systems available to the SNGs in “software-as-service” schemes (SAAS), which provide access through the Internet without incurring high infrastructure costs or specialized human capital requirements for administration at the territorial level (see Figure A2.3).

Figure A2.3. TMM under SAAS scheme

31. For the implementation of the management model, which includes restructuring areas, tasks, procedures, internal guidelines, and so on, as well as using the information system, the Project will provide support and technical assistance to the SNGs. The subcomponent will support the following activities:

a. Conceptual design of the TMM. b. Design and develop the tools—technical assistance methodologies, processes,

procedures, manuals, and information systems—to implement the TMM, including interfaces with territorial geo-referred system to facilitate the monitoring and evaluation of planning.

c. Implement the management tools under a service delivery scheme. d. Provide technical assistance and support to implement the model in the SNGs, based

on an on-site support strategy, with the participation of departmental administrations, especially the Secretarias de Planeación y Hacienda.

e. Define implementation methodologies for assessments, management, and training of the TMM.

32. Box A2.3 provides greater detail on measuring the progress and success of the reform.

Box A2.3. Institutionalizing evaluation and assessment of the TMM

The interventions under this Project will include a diagnosis, an action plan, and follow up with regular technical assistance over a medium-term period (12-18 months) in each SNG. The Government needs to be able to assess the rollout of the reform and institutionalize evaluation capacity, at both the central and local levels, to allow future monitoring of SNG performance. For that purpose the Project will include a number of evaluation and assessment activities. As the model of municipal institutional strengthening being piloted by the Project contains innovative elements and interventions not previously executed in similar contexts, it is necessary to both refine the model over the course of project implementation and evaluate the success of the model upon project completion. Therefore, the evaluation activities of the Project include a variety of methods to be used at different stages of the Project.

The first evaluation of the model will be conducted upon completion of the pilot phase in both the municipalities that received the intervention (treatment group) and those that did not (control group, selected using statistical techniques to ensure comparability with the treatment group) to measure the impact of the intervention (see Box A2.4 for greater detail on the

31

selection process). It will use several evaluation methods to overcome statistical challenges posed by the relatively small sample size (some 50 municipalities), including a statistical comparison between the two groups as well as process and productivity assessments as necessary. While a full-scale impact evaluation will not be conducted until the completion of interventions in all participating municipalities, the Project will take advantage of the data being produced by the information systems installed in the municipalities as well as other lessons learned to make additional minor adjustments to the model. These minor adjustments will indeed alter the “treatment” being applied—and thus reduce the explanatory power of the ex-post impact evaluation—but this cost is deemed acceptable in light of the potential benefits of continuous upgrading of the model throughout the Project.

Upon completion of the interventions, a statistical evaluation of the impact of the Project in the remaining SNGs will be conducted. This evaluation will require the collection of data from a control group of comparable municipalities to establish a credible counterfactual. Though the evaluation will focus on changes in aspects of public management, measurable shortly after the finalization of the intervention, it will also contemplate a longer-term analysis of the Project’s impact on key service delivery indicators to account for the time required for upstream changes to have impacts downstream (see Box 1). In sum, the approach is to be able to have balance between rigorous evaluation techniques and pragmatic assessment tools that allow shorter feedback loops to assess the different waves of interventions in SNG. The evaluation will take advantage of the abundance of data collected and published annually by Colombian government agencies, such as the Overall Performance Index, Financial Performance Index, Open Government Index and others collected by the National Statistics Department (DANE) and sector ministries.

The evaluation process is expected to provide valuable information for the rollout of the TMM, the definition of baseline and metrics for assessing and monitoring key management areas, and the beginning of an institutionalization of evaluation for the national Government that allows for a holistic measurement of the success of the reforms and regular monitoring of SNG performance. Subcomponent 3.3: Support to and strengthening of the governing entities of the TMM 33. This subcomponent will support the governing entities of the TMM, DNP and MHCP, strengthening their technical, operational, and managerial capacities to enable them to implement and maintain the model over the long term. Given the conceptual integration of the TMM, for each component of the model it is important to define the governing entities and their tasks and responsibilities. During the design, implementation, and operation of the model. These definitions will result in institutional and functional agreements for operation. The subcomponent will support the following activities:

a. Provide technical support to governing entities including socialization and change management and training activities.

b. Define institutional and functional agreements for the operation of the TMM. c. Articulate the TMM and its information and reporting systems with the instruments

that are already in place and used by the Government.45 d. Define the institutional arrangements among governing entities that will provide

sustainability to the TMM.

Box A2.4. Selection of the municipalities to participate in the Project Given that the Project foresees executing interventions in approximately 300 of Colombia’s 1,102 municipalities, the Project must be strategic in its selection of participating entities. In a subset of these 300 municipalities (approximately 50) a tailored assessment will be conducted and sustained technical assistance in the identified management areas will be provided, in addition to the implementation of the TMM. The participating municipalities will be selected in parallel to the planning of the assessment of the municipal intervention model (see Box A2.2) to maximize the dual goals of bringing the greatest possible improvement in public management to the participating municipalities and laying the foundation for a statistically robust impact evaluation. While focusing on small and medium size rural municipalities (see Figure A7.1), the selection will be guided by two overarching principles: (a) ensuring that the selected municipalities are representative of the overall universe of Colombian municipalities; and (b) selecting those municipalities in which the proposed interventions have the greatest probability of success.

• Representativeness will be achieved by dividing the universe of municipalities into several strata potentially defined by

45 In accordance with some of the lessons learned from the 2012 draft World Bank document by Victor A. Dumas and K. Kaiser, “Subnational Performance Monitoring Systems: Issues and Options for Higher Levels of Government”

32

such characteristics as region, socioeconomic indicators, performance, income, royalties received, service coverage, and receipt of technical assistance from other programs, and then selecting groups of municipalities from within each stratum for both treatment and control groups.

• The probability of success will be maximized by prioritizing municipalities whose leadership has expressed an interest in the intervention, or those with a preexisting fiscal adjustment, investment planning service delivery agreement, or contrato-plan with an entity of the national Government (such as those under Decree 028 or Law 550).

As the Project is designed in multiple phases to permit midstream assessments and thus multiple upgrades of the municipal intervention model over the duration of the Project, municipalities will also be selected in phases. It is expected that the number of municipalities whose authorities are interested in the intervention will grow throughout the Project as municipal leaders observe the progress made by participating neighboring municipalities. The pilot phase of the Project will include some 50 municipalities and the general intervention phase will include an additional 250 municipalities. Both phases will split the municipalities into two broad groups: (i) those that receive the assessments, action plans and TMM (approximately 10 in the pilot phase, 40 in the general intervention phase); and (ii) those that receive only the TMM (approximately 40 in the pilot phase and 210 in the general intervention phase). Subcomponent 3.4: Strengthen citizen participation and social control 34. This subcomponent would strengthen the capacities of SNGs, citizens, and other local stakeholders, as well as mechanisms and incentives for citizens’ participation and social/political control, integrated along the entire cycle of territorial public management. The subcomponent has two categories of support. 35. First, this subcomponent will provide technical assistance to support SNGs, citizens, and other local stakeholders in strengthening capacities for improving citizens’ participation and social/political control. As part of the assessments and action plans that will be conducted in the exercise (described in subcomponent 3.1), a module on citizens’ participation and social/political control will be included in the standard methodology. The assessment will help SNGs identify (a) the processes of the public management cycle that would benefit from citizens’ participation and social/political control (i.e. planning, budgeting, investment prioritization, procurement, and provision of service delivery); and (b) the methodologies or approaches for citizens’ participation and social/political control most appropriate for each of the identified processes.

36. The technical assistance will support SNGs in implementing the action plans to ensure a two-way dialogue that promotes effective participation in decision-making and it would be limited to technical support. Second, this component will support the development of a set of tools and mechanisms—some of which will be based on information and communications technology (ICT)—that will help SNGs increase the efficiency and effectiveness of participatory processes by improving the quantity and quality of information available to citizens and reducing the costs of participation and social control. The subcomponent will also explore and systematize successful national and international experiences of citizen participation and social/political control in all the stages of the territorial management process, as well as incentives for participation. The tools, mechanisms, and incentives identified and developed under this subcomponent may serve as inputs for the definition of the action plans carried out in Subcomponent 3.1. 37. The ICT tools and applications developed under this subcomponent will be built initially with basic functionalities to allow producing information on territorial management and making it available to citizens from the beginning of the Project. At the same time, the information system to implement the TMM will be developed (Subcomponent 3.2). The TMM will also

33

facilitate the implementation of a territorial open government initiative to give citizens and other stakeholders’ access to information on SNGs, enabling effective participation and social control. 38. The following activities will be supported:

a. Development of a repository of successful participatory methodologies and approaches (national and international) for citizen participation and social/political control in all the processes of the public management cycle.

b. Identification and testing of successful experiences in using effective incentives for citizens’ participation and social/political control for the public sector and social actors.

c. Development of a standard application “kit” that facilitates citizen participation (i.e., convey preferences and priorities) and territorial management feedback (i.e., communicate approval/satisfaction with the service), as well as other ICT tools/applications to increase territorial public management transparency and promote citizen participation and social control using territorial management information (territorial open government).

39. For those municipalities with a presence of Afro Colombian or indigenous populations represented respectively by community councils (Consejos Comunitarios de las Comunidades Negras) and indigenous self-governing institutions (Resguardos Índigenas), this kit, as well as the rest of ICT tools/applications planned, will be developed following a “differential approach”. Thus, the activities will take into account the traditions, language (if necessary), and special jurisdiction of these communities and will include participation mechanisms that allow for the consultation of Afro Colombian and indigenous representative institutions. The kit will also incorporate a communications strategy that addresses the organizational, territorial, normative and cultural characteristics of Afro Colombian and indigenous groups. 40. Finally, throughout the life of the Project DNP will design and carry out a strategy that addresses the medium and long term sustainability for the TMM. The Project per se will contribute with resources and technical assistance in the design and partial implementation in some SNGs, but it is critical that beyond the life of the Project, the SNGs and the Government have the resources, know-how and processes in place to continue the work, expanding the TMM to the rest of the SNGs and consolidating and institutionalizing the reform in subsequent years. Component 4: Strengthening Control and Monitoring of Territorial Management (US$5.720 million)

41. The provision of support to DNP, including goods (e.g. IT equipment), operating costs, training, and technical assistance to carry out activities aimed at strengthening Government (DNP) control capacity over spending carried out by SNGs and improving instruments for territorial management control. Current, control and monitoring instruments are inefficient, fragmented, conceptually inconsistent, and focused on ex post review and sanctions. They are also not aligned with the new TMM. The objective of the component is to improve the instruments of control and M&E of the directly involved agencies like DNP and MHCP but also to propose recommendations for control agencies like Contraloría.

34

42. This component has two subcomponents. Subcomponent 4.1. Stronger administrative control capacity over spending carried out by SNGs 43. In order to improve efficiency and effectiveness of decision making and expenditure execution at the subnational level, a set of activities are needed including the development of new methodologies, instruments, tools, indicators and information for the central Government (DNP, MHCP). A number of criteria, measurements and variables need to be standardized and unified, and monitoring of the quality of public services. Finally, internal control management needs to be supported as a cross cutting process of the TMM. 44. The subcomponent will be carried out by the Executive led by DNP and in close collaboration with the Contraloria. It would support the following activities:

a. Review and assessment of management and internal control aspects of the current territorial management system. This includes mapping of management processes and functions to enable internal administrative control as shown in Figure A2.1. Territorial Management Model (TMM).

b. Formulate and implement harmonization and adjustment proposals. This includes proposed changes to the scope and approach of the territorial management control function and strengthening of preventive functions.

c. Definition and development of the information management model of the territorial management control function (integrating production, access, and use).

d. Developing the technical and administrative competence of the government authorities responsible for managing control processes.

e. Recommendations to the control entities (organismos de control) to enable the adaption of their processes to the new TMM.

Subcomponent 4.2. Better instruments for territorial management control

45. Efficient public management and subnational service provision need to be based on clear definition of competencies prior to the definition of processes and procedures and the subsequent flow for achieving products and results. Additionally, risks and risks maps for these flows are needed. This is currently not available for the subnational management and service provision. 46. The subcomponent will support the following activities:

a. Defining and updating risk maps by sector, subsector, and activities related to management and use of public spending at the subnational level.

b. Evaluating and improving the existing public management indices and control metrics and strengthening the preventive focus based on standards and benchmarks.

c. Identifying “good practices” and defining minimum quality standards for management control.

35

Component 5: Project Management and Administration (US$10.190 million)

47. The provision of support to DNP and the fiduciary agent FINDETER—principally goods, training, and technical assistance—to carrying out adequate management, monitoring, reporting, auditing, and evaluation of project implementation activities, as well as the Borrower’s reform agenda. This includes recurrent costs (goods, consultant services, non-consultant services, operating costs) incurred by FINDETER, as the fiduciary agent. 48. The counterpart of this Project would be DNP and the project implementation will be led by the Project Management Team located in the Subdirectorate for Territorial and Public Investment (STIP). Most of the execution arrangements will be carried out by the Project Management Team with support from the administrative team in DNP and with support for specific functions from the fiduciary agent FINDETER, specifically payment and procurement and its reporting. FINDETER via a subsidiary agreement with DNP will carry out all major fiduciary functions (e.g., procurement and payment processes and their reporting, while DNP will do overall financial management). Project Disbursements and Costs 49. Table A2.1 shows the planned disbursements as detailed in the Loan Agreement, and Table A2.2 summarizes the main proposed activities per component and subcomponent and their cost.

Table A2.1. Disbursements as detailed in the Loan Agreement

Category Amount of the loan

allocated (expressed in USD)

Percentage of expenditures to be

financed (inclusive of taxes)

(1) Goods, non-consultant services, Training and Operating Costs for Component 1 of the Project.

10,000,000 100%

(2) Goods, non-consultant services, consultants’ services, Training and Operating Costs for Component 2 of the Project

11,560,000 100%


32,530,000 100%


5,720,000 100%


10,190,000 100%

36

TOTAL AMOUNT 70,000,000

Table A2.2. Project costs by component and subcomponent

Component/subcomponent Counterpart

financing (US $)

IBRD financing

(US $)

Total (US $)

Component 1. Structuring Regional and Local Projects and Designing Long-Term Territorial Strategic Planning Tools 10,000,000 10,000,000

Subcomponent 1.1. Technical assistance to the national Government for strategic territorial planning, for the design and implementation of territorial policies, programs and strategies

780,000 780,000

Subcomponent 1.2. Generation of results information 1,570,000 1,570,000 Subcomponent 1.3. Technical assistance to the national and subnational governments to articulate the sources of regional development financing

7,650,000 7,650,000

Component 2. Applying Incentives for Territorial Management 11,560,000 11,560,000 Subcomponent 2.1. Definition of performance indicators and information tools to measure SNGs’ public management capacity development

600,000 600,000

Subcomponent 2.2. Definition of standards and good practice in subnational public management performance 460,000 460,000


10,500,000 10,500,000

Component 3. Providing Technical Assistance Support to SNGs 32,530,000 32,530,000 Subcomponent 3.1. Technical assistance and support to SNGs 4,270,000 4,270,000

Subcomponent 3.2. Design, development, and implementation of the TMM and its tools 23,859,000 23,859,000

Subcomponent 3.3. Support to and strengthening of the governing entities of the TMM 3,301,000 3,301,000

Subcomponent 3.4. Strengthen citizen participation and social control - 1,100,000 1,100,000

Component 4. Strengthening Control and Monitoring of Territorial Management - 5,720,000 5,720,000

Subcomponent 4.1. Stronger Government control capacity over spending carried out by SNGs - 3,300,000 3,300,000

Subcomponent 4.2. Better instruments for territorial management control - 2,420,000 2,420,000

Component 5: Project Management and Administration 10,190,000 10,190,000 Total 70,000,000 70,000,000 Total baseline cost Physical contingencies Price contingencies Total project costs 70,000,000 70,000,000 Interest during construction Front-end fee (0.25%) 175,000 Total financing required 70,000,000

37

Annex 3. Implementation Arrangements COLOMBIA: Subnational Institutional Strengthening Project

Project Institutional and Implementation Arrangements 1. The counterpart of this Project would be DNP and the project implementation will be led by the Project Management Team located in the Subdirectorate for Territorial and Public Investment (STIP). The implementation arrangements have been designed to provide clear execution arrangements, solid technical leadership and maximize political support. This implies the technical collaboration between DNP and MHCP, execution arrangements via the fiduciary agent FINDETER and political support at the highest levels of key stakeholders. The implementation arrangements model contains three main features: (a) execution arrangements with the fiduciary agent FINDETER, (b) technical leadership and inter-institutional arrangements between DNP and MHCP and (c) coordination mechanisms to provide the reform with high political engagement and technical support (via steering and operational/technical committees). 2. Feature 1: Clear and well defined execution arrangements via a fiduciary agent: FINDETER. FINDETER via a subsidiary agreement with DNP would carry out procurement and payment processes and their reporting, while DNP would do overall financial management. FINDETER is a mixed-capital corporation at a national level, established as a credit company, linked 46 to the Ministry of Finance and Public Credit, regulated by the Financial Superintendence of Colombia, and audited by the Comptroller’s Office. FINDETER was created in 1989 as a decentralized services entity with total autonomy (budget, financial, administrative). Figure A3.1 shows the basic functioning of the designed execution arrangement and the roles of the actors.

Figure A3.1. Project execution via fiduciary agent FINDETER

3. FINDETER has been chosen by the Government to make project execution as effective and efficient as possible. Besides having core activities related to regional

46 The link with the Ministry of Finance is for public policy coordination in topics related to territorial development. See Law 57 of 1989.

Flow of funds

Functions• Project execution• Fiduciary functions (e.g.

payments, procurement, reporting)

Functions:• Technical leadership • Inter-Gov. coordination• Requests of Reimbursement

to WB

DNPWorld Bank

FINDETER

LoanSubsidiary Agreement

38

development in line with the Project’s higher-level objective, it has developed fiduciary and administrative capacities as part of their core mission values that will be strengthened with this Project. In fact, the nature of the Project requires inputs from the local level entities, with strong coordination from the central level, where FINDETER has a strong expertise. FINDETER has a broad network of services in Colombia. It has presence in all the regions through 17 offices (regional, zonal and satellite) to access even remote municipalities. While DNP has competencies, among others, that promote regional development, fully aligned with the Project objective, its teams are not geared sufficiently to execute a project of this magnitude since the fiduciary role (processing, accounting, contracting) will translate into a critical workload which deviates from DNP’s strategic mandate and for which DNP is not designed. 4. Feature 2: Technical leadership and inter-institutional arrangements. DNP would host the Project Management Team in the STIP, leading all technical efforts via several Direcciones (Directorates) and providing administrative support. DNP would lead project implementation, act as the main World Bank counterpart, and undertake the general coordination functions to provide project cohesion. All Project activities would be technically led by DNP through the Project Management Team, which would be located in the STIP, which is part of DNP. MHCP would participate in project implementation by providing technical inputs to several activities. The relationship between DNP and MHCP would be governed by a Memorandum of Understanding (MOU). The roles, responsibilities, and functions of each agency will be reflected in the operational manual (Manual de Operaciones). Figure A3.2 visualizes how the Project Management Team would interact on technical issues with several Direcciones in DNP and MHCP.

Figure A3.2. Project Management Team modus operandi

DAF

DNP

FUNCTIONS:• Strategic guidance and technical coordination with focal points (Direcciones)• General coordination of project execution through fiduciary agent FINDETER• Project manager coordinates all functions, works with operations and technical committee, reports on progress to Vice Minister (DNP), to the Results Steering Committee and the World Bank

Technical focal point

Desarrollo Territorial


Regalías


Inversiones y Finanzas Publicas


Subdirección Territorial y de

Inversión Publica

Project Management

Team MHCP

Seguimiento y Evaluación de Políticas Públicas


FUNCTION: Clarifies roles and responsibilities between DNP & MHCP

Memorandum of Understanding

39

5. Project Management Team modus operandi. Given that more than one unit in DNP is critical for project execution, and several Direcciones (Directorates) are key actors in the reform, the Project Management Team would be located above them in the STIP, serving all DNP units and interacting through technical focal points with them.47 This unit would also serve as the liaison with and service provider to the Dirección General de Apoyo Fiscal (DAF) in MHCP, and other agencies that are involved such as MINTIC, the Ministry of Information Technology and Communication, or DANE, the Statistics Office. 6. Feature 3: High political engagement and technical support. The Project would support a long-term Government agenda and decentralization reform that aims at creating much more efficient, effective, transparent, and accountable public management in subnational entities. Thus, the Project should be understood as a critical part of a bigger Government reform program. Therefore, the Government proposes the creation of two committees to support the reform and implementation. On the one side a lean Steering Committee involving the key decision-makers in the overall subnational agenda—DNP, MHCP, and the President’s Office (Presidencia),—in steering the Project as part of the reform (see Figure A3.3). The creation of this committee would take into consideration previous experience with the Project Coordination Committee in the Public Financial Management II Project (P040109). That committee was well designed and was conceived in terms similar to this Steering Committee, but it did not have the required political clout. This Steering Committee would meet less often, deal less with operational issues, focus on decisions related to policy implementation and inter-institutional coordination, and be represented by a broader set of actors and with a higher profile. It will be a decision-making body, but not involved in project implementation per se. Additionally, the Project supports the creation of a lower level Technical and Operational Committee led by DNP to support the day to day project implementation. This committee would meet more frequently, have a lower profile and discuss day-to-day issues dealing with technical and operations issues. Only when problems remain unresolved would these be elevated to the Steering Committee.

Figure A3.3. Reform Steering Committee

47 DNP will coordinate with MHCP regarding reporting, supervision, and audits in line with World Bank requirements.

Steering Committee

MHCPDNP

FUNCTIONS:• Guidance and political support for the reform• Coordination and strategic direction• Promotes harmonization and complementarity of actions• Represented by high level officials of each key institution

Presidencia

40

7. Figure A3.4 provides details on all the teams organized in DNP to support project implementation. As mentioned, the Project Management Team will be located in the STIP and will have an overall Project Manager that will serve as the main responsible person for project implementation, accountable to the different coordination committees. The Project Manager will be supported by a technical team and administrative team. The technical team will have regional advisor and focal points for each Directorate already in place in DNP. The administrative team will be composed of the Secretaría General and a new team of external experts. This team will be composed of procurement and financial management experts and funded via component 5 of the loan. More details are provided in Annex 5.

Figure A3.4. Details of the implementation support teams and committees

8. Table A3.1 summarizes the key actors and the units that would be responsible for project implementation.

Table A3.1. Responsible units by component

Component/subcomponent Key technical actorsa Support actorsb

Component 1. Structuring Regional and Local Projects and Designing Long-Term Territorial Strategic Planning Tools

Subcomponent 1.1. Technical assistance to the national Government (DNP) for strategic territorial planning, for the design and implementation of territorial policies, programs and strategies

• DDTS

• DIFP • DR

Subcomponent 1.2. Availability of information for regional planning decisions

• DDTS

• Dirección General de Apoyo Fiscal (DAF) • Dirección de Seguimiento y Evaluación de

Políticas Públicas (DSEPP) • Departamento Administrativo Nacional de

Estadística (DANE) • DIFP

Subcomponent 1.3 Technical assistance to the national (DNP) and subnational governments (SNGs) to articulate the sources of regional development financing

• DDTS

• DIFP • DR

Steering Committee (DNP, MHCP, Presidencia)

Project Management Team (Located in STIP, DNP)

Administrative Team (financial management & procurement)

Project Manager

Technical focal points for each Directorate

Secretaría General

Technical Team

Financial advisor

Technical and territorial advisors and IT

Technical & Operations Committee FINDETER

(Financial Management and

Procurement)

41

Component 2. Applying Incentives for Territorial Management Subcomponent 2.1. Definition of performance indicators and information tools to measure SNGs’ public management capacity development

• DDTS

• DAF • DR • DSEPP • DIFP

Subcomponent 2.2. Definition of standards and good practice in subnational public management performance

• DDTS

• DAF • DR • DSEPP • DIFP


• DDTS

• DAF • DSEPP • DIFP

Component 3. Providing Technical Assistance Support to SNGs Subcomponent 3.1. Technical assistance and support to SNGs

• DDTS


Subcomponent 3.2. Design, development and implementation of the Territorial Management Model (TMM) and its tools

• DDTS


Subcomponent 3.3. Support to and strengthening of the governing entities of the TMM

• DDTS •


Subcomponent 3.4. Strengthen citizen participation and social control

• DDTS

• DSEPP • DIFP

Component 4. Strengthening Control and Monitoring of Territorial Management Subcomponent 4.1. Stronger administrative control capacity over spending carried out by SNGS

• DR

• DAF • DDTS • DSEPP • DIFP

Subcomponent 4.2. Better instruments for territorial management control

• DR

• DAF • DDTS • DSEPP • DIFP

Component 5: : Project Management and Administration

• Subdirección Territorial e Inversión Pública (STIP)

• FINDETER

a Technical duties include preparing terms of reference and bidding documents, reviewing the inputs from consultants, and other technical work. b Supporting actors participate in the design of the activities and in implementation. They should have a say in the preparation of terms of reference and bidding documents, reviewing the inputs from consultants, and other technical work.

Financial Management, Disbursements and Procurement 9. The Financial Management Assessment (FMA) concluded that the executing agency (DNP) has adequate capacity to manage the financial management aspects of the Project. As indicated in paragraph 2 and Figure A3.1., FINDETER via a subsidiary agreement with DNP will carry out all major fiduciary functions; the Project funds will flow through the nation’s Integrated Financial Information System (SIIF) to the Fiduciary Agent FINDETER, with support from the Financial Subdirectorate (areas of Budgeting, Accounting, Treasury), and Internal Control Office at DNP. The DNP will oversee the overall coordination, evaluation, supervision, and implementation of the Project through its functional and directive lines.

42

10. The inherent financial management (FM) risk for the Project is considered substantial because of the complexity of dealing with multiple levels of Government. The control FM risk is rated as moderate. The overall financial management project risk is substantial. The control factors are based on the regular use of FM country systems for ongoing Bank projects (Loans 7831, 7620) including budgeting, accounting, disbursements, and reporting with the support of a Fiduciary Agent for payments to final beneficiaries, as follows:

Financial Management

a. The Project is subject to DNP’s internal and quality procedures, reporting to the Departamento Administrativo de la Función Pública (Administrative Department of the Public Function) and the Contaduria General de la Nacion (CGN)).

b. On the basis of the Project’s annual operational plans, DNP will update and prepare the annual budgets during project implementation, and monitor their execution on a monthly basis. This task will be an integral part of the entity’s own budget cycle management and processed through its budgetary system integrated in to SIIF.

c. DNP will generate Project Interim Financial Reports (IFRs) from SIIF following Bank’s instruction letter to project executing entities at the national level, (dated February 1, 2012), and submit to the Bank semiannual IFRs based on project financial information generated by FINDETER.

d. IFRs and Statements of Expenditures will be subject to annual external audits performed by auditors acceptable to the Bank; the audit report will be submitted to the Bank six months after the end of the audit period and published on the web pages of DNP and the Bank, in accordance with the World Bank’s Access to Information Policy.

e. The Bank will carry out at least one full FM supervision mission per year. At the end of each mission an FM implementation status rating will be made and the FM-related risk will be updated as needed.

Disbursements

f. Bank’s disbursement methods will be advance, reimbursement, and direct payment. g. The Bank will disburse the proceeds of the loan in US dollars into a designated account

in the Banco de la República or Central Bank opened by MHCP in the name of DNP. Following the criteria stated in the MOU for funds administrators48, and described in the FM section of the Project’s operational manual, DNP will request to the National Treasury to convert the deposits into COPs and transfer the funds to a commercial Bank account open in the name of the Project by the Fiduciary Agent, for Project beneficiaries’ payments.

11. The Project’s FM and Disbursement arrangements described above are consistent with Bank policy. 48 MOU signed among DNP, MHCP and WB in August 2007.

43

Procurement 12. General Provisions. Procurement for the Project was carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits,” dated January 2011, and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers,” dated January 2011, and the provisions stipulated in the Loan Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the loan, the different procurement methods or consultant selection methods, 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 to reflect the actual project implementation needs and improvements in institutional capacity. 13. Procurement Summary. DNP will be the only implementing agency. No other entities will carry out procurement activities and manage Project funds. DNP will carry out its procurement functions through a fiduciary agency arrangement with FINDETER. This fiduciary arrangement, which is not subject to procurement, will be formalized through a subsidiary agreement satisfactory to the Bank. In sum, DNP will be responsible before the Bank for the procurement activities, and, to that end, will ensure that FINDETER will observe Bank procurement procedures and guidelines agreed for this Project. Procurement Methods 14. Procurement of Works. No civil works will be financed under this Project. 15. Procurement of Goods and Non-consulting Services. Goods to be procured under this Project include the acquisition of equipment datacenter. In addition, the Project will finance non-consulting services, such as information system services (territorial cloud services), training, communication, and outreach. The procurement of good and non-consulting services will be carried out using Harmonized Bidding Documents agreed between the Government of Colombia and the Bank. For those activities equivalent to or more than US$1,000,000, the Project will use International Competitive Bidding (ICB) documents. National Competitive Bidding (NCB) will be used for activities costing less than US$1,000,000. Contracts for small purchases of goods and non-consulting services for individual contracts costing less than US$100,000 could be procured through shopping procedures. Direct contracting could be used on an exceptional basis, under the circumstances explained in paragraph 3.7 of the Procurement Guidelines. 16. Selection of Consultants. The Project will require the services of consultants to carry out a variety of consultant services under all the components, including those related to policy design, institutional strengthening, policy innovation, and cross-sectoral harmonization. These activities will be selected by the DNP, through its fiduciary agent, in some specific cases, with the support of other relevant national, regional and local agencies, under institutional agreements satisfactory to the World Bank. 17. Firms. Most contracts are expected to be selected using the Quality- and Cost-Based Selection method (QCBS). Consultant assignments of specific types, as agreed previously with

44

the Bank in the Procurement Plan, may be selected through the use of the following selection methods: (i) Quality-Based Selection (QBS); (ii) Least-Cost Selection (LCS); (iii) Selection Based on Consultants’ Qualifications (CQS) for contracts estimated to cost less than US$300,000 equivalent; and, exceptionally, (iv) Single-Source Selection (SSS), under the circumstances explained in paragraph 3.9 of the Consultant Guidelines. 18. The Project will finance the design and implementation of methodologies for the assessment of action plans in the territorial entities under Subcomponent 3.1, which will be contracted at the central level by the DNP through the fiduciary agent. In addition, because of the demand-driven and decentralized nature of this technical assistance, the Project will also finance the design of certification processes by which the technical assistance will be then provided through a range of firms or individuals certified on the basis of their merits. 19. The Project will finance the design, development and implementation of a Territorial Management Information System (TMIS or TMM) under Sub-component 3.2. TMIS will be developed as software comprising several independent but interrelated concepts: planning, administrative management (procurement, human resources, etc.), financial management, and monitoring and evaluation. TMIS has been conceptualized to be built under a software factory model, with an organizational structure that specializes in producing computer software applications or software components according to specific, externally defined end-user requirements through an assembly process. According to technical specialists consulted during appraisal, developing applications using a suitable software factory can provide many benefits, such as improved productivity, quality, and evolution capability. The procurement process for the selection of this innovative software will be defined during implementation. 20. Shortlists of consultants for services estimated to cost less than US$250,000 equivalent per contract may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. Universities, government research institutions, public training institutions, and nongovernmental organizations in some specialized fields of expertise could participate in the provision of consulting services in accordance with Bank procurement guidelines and polices. 21. Individuals. Individual consultants will be hired to provide technical advisory and project support services and will be selected in accordance with Section V of the Consultant Guidelines. All sole-source selections of consultants will be subject to prior review. Other specific procedures for the selection of these consultants will be described in the Operational Manual. Assessment of the implementing entities’ procurement readiness for the implementation of this Project, and overall risk assessment. 22. DNP, the executing agency for this Project, has demonstrated sound capacity implementing World Bank procurement procedures. In addition, DNP has a suitable management team, with different departments charged with technical responsibilities for implementation of specific components. However, procurement functions for this Project will be carried by an external fiduciary agent, FINDETER, and therefore DNP needs to strengthen its

45

capacity to cause and oversee that FINDETER observes Bank procurement guidelines and maintain at all time during the implementation of the Project a skilled team for the procurement aspects of the Project. 23. FINDETER has not yet gained experience implementing Bank procurement procedures. However, a Bank assessment of FINDETER showed that FINDETER has an organizational structure, legal framework and the appropriate set of technical skills to quickly overcome its lack of experience. In addition, FINDETER will strengthen its fiduciary team by retaining the services of skilled procurement consultants, and enhancing its own knowledge on WB procurement, among other measures. A detailed mitigation plan has been developed for this purpose. 24. The majority of the procurement activities are not complex, with the exception of the production of the software factory (TMM) as a Hardware as a Service (HaaS). However, the procurement risk for this operation is moderate (after mitigation) for preparation and execution, taking into consideration the following risks:

a. Lack of experience of FINDETER implementing Bank procurement procedures. b. Needs that DNP strengthens its capacity to cause and oversee that FINDETER observes

Bank procurement guidelines and maintain at all time during the implementation of the Project a skilled team for the procurement aspects of the Project.

c. Project readiness will demand a close technical, operational, and logistic coordination among several actors, in particular DNP, FINDETER and MHCP, as well as inputs from other relevant national, regional, and local agencies.

d. Studies, technical assistance, and the implementation of the territorial software model, among other activities, could not be launched/contracted until prior actions, such as the development of methodologies, model-software, and so, have been advanced.

e. Finally, the procurement process for the TMM has yet to be defined.

25. These challenges could also generate delays if close coordination, planning, and monitoring are not achieved. To overcome the above referenced issues, the following actions have been agreed.

Areas for improvements

Mitigation actions Responsible When

Lack of experience of FINDETER implementing Bank procurement procedures.

FINDETER shall be staffed with skilled procurement specialists whose terms of references and selection process are acceptable by the Bank. It will also establish flexible arrangement allowing strengthening the fiduciary team as needed, taking into consideration annual investment plans. Bank supervision should assess FINDETER’s fiduciary team responsible for the implementation of

DNP/ FINDETER/ World Bank

FINDETER/ DNP

World Bank

Preferably before the Project is declared effective and it shall continue during the life of the Project. During project implementation. During project implementation.

46

this program. Use of harmonized procurement documents and procurement formats, manuals and guidelines produced by the Bank in Colombia. Training procurement programs provided by the Bank.

FINDETER

World Bank

During project implementation. During project implementation.

DNP may need to strengthen its operational capacity to cause and supervise FINDETER to observe Bank procurement guidelines and maintain at all time during the implementation of the Project a skilled team for the procurement activities of the Project.

Close support to this Project from the DNP unit responsible for implementing other WB projects at DNP. Bank supervision should assess the operational arrangements in place in DNP to cause FINDETER observes the procurement provisions applicable to this Project.

DNP

World Bank

During project implementation.

Multiple entities and coordination among them may generate delays and quality issues in the implementation of key procurement activities.

Roles and responsibilities should be clearly defined in the Operational Manual. Procurement plan should be closely monitored, addressing possible delays.

DNP and the World Bank

DNP, Project Technical Committee and the World

Bank

Before the Project is declared effective (Operational Manual was adopted on October 31, 2013) During project implementation

Project readiness. Activities such as studies, technical assistance, and the implementation of the territorial software model, among others, could not be launched/contracted until previous activities, such as the development of methodologies, model-software, and so, have been advanced.

Procurement plan should be closely monitored, addressing possible delays.

DNP, Project Technical Committee and the World

Bank

During project implementation

Highly specialized activities may require a close review of the technical specifications, terms of reference and contract conditions to avoid issues that may affect competition and lead to cost overruns.

The procurement plan will flag contracts of goods and services with complex designs/ technical specifications or terms of reference.

DNP and the World Bank

During project implementation

The overall Project risk for procurement is moderate after mitigation. This rating wills be reviewed during the first year of Project implementation.

47

26. The Procurement Plan for the proposed loan, dated October 31, 2013, will be available in the Project’s database, on the Bank’s external website, and in the procurement plans management system SEPA (Sistema de Ejecución de Planes de Adquisiciones). It will be updated in agreement with the Bank annually or as required to reflect actual project implementation needs and improvements in institutional capacity. Details of Procurement Arrangements Involving International Competition and direct contracting

a. Goods and Non-consultant Services

List of contract packages to be procured following ICB and direct contracting procedures:

Components PAD

Description Procurement

method Estimated Cost

(USD)

P-Q

Domestic

Preference (yes/no)

Pre Review

by Bank (YES, NO)

3.2 Hardware as a Service (HaaS) ICB 2,640,00 NO NO YES

b. Consulting Services List of consulting assignments with short list of international firms and sole source awards:

Components PAD

Description Procurement method

Number of activities

Estimated Cost (USD)

Pre Review

by Bank (YES, NO)

1.3 Diagnostic studies for the structuring of strategic projects SBCC 7 7,250,000 YES 2.2 Identification, analysis and systematization of results-

oriented management experiences from national and international territorial entities as the basis for establishing standards to define "good practices" in territorial management.

SBMC 1 300,000 YES

3.1 Review and propose change of the methodology of technical assistance for the territorial entities

SBMC 1 250,000 NO

3.2 Design TORs and produce procurement documents for the selection of the software for the Territorial Management Information System

SBMC 1 300,000 NO

3.2 Development of the software for the Territorial Management Information System

SBCC 1 13,000,000 YES

3.2 Supervision (interventoria) of the software for the Territorial Management Model

SBCC 1 1,300,000 YES

3.2 Evaluation of the implementation of the Territorial Management Model

SBCC 1 300,000 NO

3.3 Design of strategy to develop institutional capacities in the territorial entities

SBCC 1 250,000 NO

3.3 Design and operation of private supply certification program

SBCC 1 250,000 NO

3.4 Technical assistance and support to territorial entities for the strengthening of citizen participation and social and political control processes throughout the public management cycle

SBCC 1 300,000 NO

3.4 Consultancy for the development of social participation and control tools

SBCC 1 800,000 YES

48

4.1 Consultancy for the realization of an inventory of information and the definition of procedures and mechanisms to evaluate monitoring and evaluation activities

SBCC 1 300,000 NO

4.1 Definition and implementation of an institutional framework that clearly establishes the scope and role of information for monitoring and evaluation activities

SBCC 1 300,000 NO

4.1 Conceptual design, development and implementation of the software tool for control entities

SBCC 1 400,000 YES

4.1 Establishment of the mechanisms and rules for public access to information at all control levels

SBCC 1 300,000 NO

4.2 Improvement and evaluation of the existing public management control indexes and control metrics and strengthening of the preventive approach based on standards and benchmarks

SBCC 1 300,000 NO

4.2 Identification, promotion and recognition of best practices in public management control implemented by territorial entities' governments, representative bodies and civil society organizations

SBCC 1 300,000 NO

Others 27. Operating Costs. The Project will finance the Implementation Team’s operating costs: the incremental expenses incurred in connection with the execution of the Project any costs incurred, including by the financial agency, FINDETER, including consultants, and utilities; supplies, operation and maintenance, communication and insurance costs, office administration costs, leasing of real estate, utilities, travel, per diems, and supervision costs. These are typically small-value expenditures for goods and services that are periodically incurred and consumed in a short period of time, are necessary for the Project’s operation and maintenance, and usually continue beyond the life of the Project. The term “operating costs” is defined to include only items that are typically non-procurable (e.g., utilities, per diems for field supervision) but also includes items such as equipment, office supplies, and other goods/non-consulting services, they may need to be treated as “procurable” like any other small-value goods and non-consulting services. Furthermore, these procurable activities should be listed in the Procurement Plan and procured in accordance with the procurement procedures described in this section. 28. Project Operational Manual. The Project Operational Manual covers the relevant procurement processes, including detailed institutional procedures, accountabilities, composition of technical and administrative evaluation committees, and time frames for approvals. The Operational Manual also covers topics related to conflicts of interest and fraud and corruption. 29. Notification of Business Opportunities. A General Procurement Notice will be published in the United Nations Development Business (UNDB), informing prospective bidders about the upcoming ICBs under the Project. The World Bank will arrange for its publication in the UNDB online and on the Bank’s website. All procurement notices published in UNDB online will be also published in at least one newspaper of national circulation in the Borrower’s country. The Borrower is encouraged to develop instruments for public access to all procurement activities to be financed under the loan, as described above.

49

30. Bank supervision. Bank procurement staff will undertake at least two missions in the first two years after the Project has been declared effective to monitor and review compliance with procurement policies. The Bank’s supervision of the territorial entities may consist of reviewing reports on procurement post-reviews carried out by FINDETER according to procedures acceptable to the Bank and should be done in addition to technical and financial reviews and audits.

Environmental and Social (including safeguards)

31. The activities proposed under this Project are not expected to have any environmental or social impacts. However, the Environment Assessment Safeguard Policy (OP/BP 4.01) is triggered as a precaution, since the analytical studies envisaged under Component 1 might affect relevant environmental issues, such as the definition of alternative regional development strategies. Under this scenario, the terms of reference for non-consulting services and for consultants’ services will take into account the principles and standards of the Bank’s safeguards policy and provide advice in ways consistent with such.

32. The Indigenous Peoples Safeguard Policy (BP/OP 4.10) is also triggered preventively. During implementation, those activities carried out in municipalities with established representative bodies for indigenous populations and/or Afro Colombian communities will adopt a “differential approach” as defined in Annex 2, paragraph 39, which will guarantee the participation of these groups, as well as the appropriate communication of the activities proposed. Monitoring and Evaluation 33. To assess the longer-term impact of the Project on the coverage and distribution of service delivery—the ultimate goal of public management reforms—the DNP could also explore the possibility of implementing a measurement framework similar to that used by the Bank’s Human Opportunity Index, which is a measure of inequality and opportunity in basic services, focusing on children in Latin America. The “opportunities” measured include access to education, safe drinking water, and vaccinations. The incorporation of this (or a similar) measurement into the Project would imply several phases of activity: (a) definition of the measurement methodology, including the indicators to be measured; (b) collection of baseline data in all participating municipalities before project implementation, drawing on available sources of data and collecting additional data as necessary; (c) data collection at periodic intervals following project implementation; and (d) data analysis to determine the Project’s impact on the selected indicators of service delivery and distribution. The methodology used will take due precautions to remedy attribution challenges and potential exogenous changes affecting municipalities during the period of observation. 34. The monitoring and evaluation (M&E) activities are grouped into several categories: (a) pilot phase; (b) impact evaluation of the Project; (c) M&E by the project implementation unit; (d) M&E of SNGs at the central level; and (e) M&E at the territorial level.

a. Pilot phase

50

35. A pilot phase is needed to evaluate and adjust the new management model for SNGs before expanding the model to all municipalities considered in the Project.

i. Around 50 municipalities, a subset of the municipalities that are to receive the

interventions in the full rollout of the Project, will be selected as a pilot group. ii. The selection of the pilot municipalities will be intentional (as opposed to random) to

ensure that a sufficient variety of municipal typologies are included. An important criterion for pilot municipalities will be a strong expression of interest in the interventions on the part of the local authorities. Appropriate statistical tools will be used to counter any potential bias introduced by the consideration of political will into the selection of municipalities.

iii. The pilot phase will probe both types of interventions: assessments, action plans and TMM (approximately 10 municipalities), and TMM only (approximately 40 municipalities).

iv. Equivalent groups of control municipalities will be selected using adequate statistical tools to assured their comparability.49

v. An evaluation of the pilot phase of the Project will triangulate results using multiple methods, including an analysis of performance data on municipal management (including comparison with control group), a process evaluation, and a qualitative evaluation. The pilot evaluation will take into account differences resulting from the two types of interventions.

vi. A key output of the pilot phase will be a set of modifications and considerations for rolling out both variations of the Project to the remainder of the participating municipalities.

b. Project impact evaluation

36. An impact evaluation will be used to estimate the magnitude of the changes as a result of the Project’s interventions. The impact evaluation will track indicators in three dimensions, conceived as the three stages in the results chain of the Project: (i) public management, including a set of indicators directly affected by the Project activities, (ii) service delivery and public sector production, including indicators such as infrastructure construction, school enrollment, access to medical care, among others, and (iii) citizen well-being, encompassing indicators such as educational attainment and incidence of diseases, among others. Through the use of appropriate statistical tools, it will attempt to measure the extent to which, and the time period in which, subnational public management reforms (dimension (i)) affect changes in service delivery and public sector production (dimension (ii)) and citizen wellbeing (dimension (iii)), thus testing the theory of change behind the intervention providing empirical evidence of the Public Sector Management Approach (see Box 1).

i. A semi-experimental design is proposed for the Project’s impact evaluation. This design implies selecting “treatment” municipalities (municipalities that receive the

49 Propensity score matching is one such option. See, among others, Dehejia, Rajeev H. and Sadek Wahba (2002), “Propensity Score Matching Methods for Nonexperimental Causal Studies,” The Review of Economics and Statistics, Vol. 84, No. 1.

51

interventions) and “control” municipalities (a comparison group that does not receive the interventions). The design also includes carrying out a baseline measurement, and at least two others—medium-term and final assessments.

ii. The universe of Colombian municipalities (1,102 in total) will be organized into several categories defined on the basis of such criteria as poverty level, region, type of municipality, and preexisting municipal classifications.

iii. The optimal type and size of the sample will then be determined (tentatively, there will approximately 50 pilot municipalities and around 250 municipalities in the second phase, divided into groups that receive the assessment, action plan and TMM and those that only receive the TMM as described above). The control group of municipalities will be defined using adequate statistical tools to ensure their comparability.

iv. The Project will also consider the selection of a sub-set of treatment and control municipalities via random selection (possibly stratified by income or region) in order to embed a more pure randomized control trial within the overall evaluation framework. Tentatively, this group will be a sub-set of the 250 municipalities in the general intervention phase that receive only the TMM.

v. To develop a baseline related to the performance of SNGs, a set of public sector performance indicators have been identified using the current information derived from oversight and monitoring tools and mechanisms in use by governmental agencies as well as new data to be collected as necessary. The existing tools, all of which are updated annually, include (as noted in the results matrix in Annex 1): the Overall Performance Index (Índice de Desempeño Integral), managed by DNP; the Fiscal Performance Index (Índice de Desempeño Fiscal), also managed by DNP; the Open Government Index (Índice de Gobierno Abierto), managed by the Procuraduría General de la Nación; and data collection instruments such as the Budget Information Capture System (SICEP), managed by DNP.

c. M&E by the Project Management Team

37. The Project Management Team will monitor the progress of the Project by supervising the implementation process of the new management model in municipalities, collecting data related to activities, outputs, and outcomes in reference to the Project’s timetable and contained in the results framework detailed in Annex 1. The metrics proposed will attempt to capture Project progress (activities, outputs) as well as how much the pilot SNGs have improved their management (outcomes), measured primarily by the PDO-level indicators.

d. M&E at the central level 38. M&E activities at the central level will be strengthened through the Project. Goals and indicators of the National Development Plan will be disaggregated to the departmental and municipal levels as far as possible, depending on the source of information and type of statistics. Some surveys, such as one on citizen perception, currently representative only at the national, rural, and urban levels, will be disaggregated for departments and for the largest cities.

e. M&E at the territorial level

52

39. Municipalities and departments will strengthen their M&E capacity through the technical assistance, which will assist to (a) improve the definition of goals and indicators in the entity’s plans and establish links with the National Development Plan; (b) improve the production and management of statistics; and (c) improve administrative records. This capacity building coupled with the automatization of administrative and financial processes will allow SNGs to produce informative and reliable M&E reports. The strengthening of local M&E systems will allow the Project to take advantage of the data being produced through the municipal management model to continue making adjustments to the mode of intervention. As these data will be produced automatically and in real time, they will permit short feedback loops that inform both the ongoing efforts in a particular municipality and the overall mode of intervention being undertaken in the full cohort of participating municipalities. These activities will be coordinated with ongoing municipal planning and M&E strengthening initiatives coordinated by DNP, such as Sinergia Territorial.

53

Annex 4 Operational Risk Assessment Framework (ORAF)

Colombia: Subnational Institutional Strengthening (P123879)

Risks Project Stakeholder Risks Stakeholder Risk Rating Moderate

Risk Description: Risk Management: Description • Coordination among the central Government agencies. Traditionally coordination among key agencies has been a challenge. Current status quo has improved, but lacks full coordination, and there is always a potential risk that this gap could increase and affect the Project. • Lack of engagement of SNGs with the central Government strategy. It is uncertain whether and how many SNGs will fully embrace the reform even if they are forced. • Lack of citizen participation. Potential lack of citizen engagement in the monitoring system planned under the Project. • Civil service reform. Civil service plays an important role for SNG management and lack of progress in this area might prevent sustainability of the reforms.

Risk management • The Project includes a high level Steering Committee (and an additional operational committee) to coordinate the reform beyond the Project and also a MOU that will be signed between key agencies DNP and MHCP. • The Project establishes incentives that are attractive to SNGs, improved systems and eventually better service delivery. It might start on a voluntary basis with direct cost saving incentives in addition to focused technical support and recognition rewards down the road. • Subcomponent 3.4 will help generate citizen demand for better performance from SNGs. • The Project will use the technical assistance to provide inputs on civil service reform and its link to the regional reform agenda to inform the Government and provide all needed assistance on that front.

Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Both CONTINUOUS

Implementing Agency (IA) Risks (including Fiduciary Risks) Capacity Rating Substantial

Risk Description: Risk Management: • Fiduciary capacity in the Government. Even though other projects have been and are under

• This risk is relevant at Project start-up but it is expected to decrease over time. The counterpart for the Project will be DNP that will be supported by the fiduciary agent

54

implementation with a similar scheme of multiple implementing agencies, there might not be enough familiarity with World Bank fiduciary procedures. The complexity of dealing with multiple levels of Government as well as counterparts could impose an additional burden on the implementing agencies and could affect project implementation. • Fiduciary risk at the local level. Strengthening SNGs’ managerial and administrative capacities may pose substantial fiduciary risk, requiring definition of selected SNGs for which Financial Management Assessments may need to be carried out. Training of the trainers may not be sufficient. • Procurement: • DNP has demonstrated sound capacity implementing World Bank procurement procedures. However, procurement functions for this Project will be carried by an external fiduciary agent, FINDETER, and DNP may need to strengthen its capacity to cause and oversee that FINDETER observes Bank procurement guidelines and maintain at all time during the implementation of the Project a team responsible for the overall procurement aspects of the Project. In addition, FINDETER has not yet gained experience applying Bank procurement procedures.

FINDETER. Overall financial management duties will be carried out by a team of experts in DNP while procurement, payments (funds execution) and its reporting will be carried out by FINDETER. An operational and technical committee will support the day to day implementation of these functions. • SNGs will not manage resources from this operation. • An Operational Manual has been adopted and defines, among other things, clear coordination mechanisms among all the agencies, their institutional arrangements, and their roles and responsibilities. • Training programs to guarantee institutions are able to train trainers in methodologies and provide regular follow-up technical assistance according to quality standards. There will be a centralized mechanism to ensure quality in the institutional strengthening training programs. Methodologies will have indicators to measure the quality of the training and impact of improvement measures that are to be implemented. • DNP will strengthen its capacity to oversee FINDETER procurement functions • FINDETER has organizational structure, the legal framework and the right set of skills to quickly overcome its lack of experience on World Bank procurement. In addition, FINDETER has expressed interest to strengthen its fiduciary team by retaining the services of skilled procurement consultants, and enhancing its own knowledge on WB procurement, among other measures. A detailed mitigation plan has been developed in this regard. • Detailed subsidiary agreements and collaborations will be signed. • Several activities, including studies, technical assistance, and the implementation of the territorial software model, would not be launched/contracted until prior actions, such as the development of methodologies, model-software, and so on, have been advanced. The procurement plan will be closely monitored to identify and mitigate possible delays in implementing project activities.

Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both CONTINUOUS

Governance Rating Substantial

Risk Description: Risk Management: • Lack of governance arrangement to lead such an ambitious reform. A strong project administration and coordination structure will be necessary, given the extent of the operation.

• The project coordination unit will be located in the DNP (STIP), and a fiduciary agent will support implementation. • The relationship between MHCP and DNP will be ruled by a signed MOU and the support from the Alta Consejera para el Buen Gobierno in the President’s Office.

55

• Weak commitment to taking the decisions necessary to implement. Some SNGs may feel threatened by implementing the discussed measures or systems ; however the National Planning Department (DNP) is clear on strengthening the SNGs diverse capacities across the country.

• It is expected that a Steering and a Technical and Operational Committees will be formed to provide policy guidance and oversee project implementation. • The DNP and MHCP have clearly committed to the strengthening of the SNGs’ diverse capacities across the country via the mentioned frameworks (Decree 028, Regalias Law, Contratos-Plan, and Fiscal Insolvency). Agreement on the Project demonstrates the Government’s commitment to implement. • The project coordination unit will be located in the DNP (STIP), and a fiduciary agent will support implementation.

Resp: Status: Stage: Recurrent: Due Date: Frequency: Client Not Yet Due Implementation CONTINUOUS

Risk Management:

The Operational Manual also covers topics related to conflicts of interest and fraud and corruption.

Resp: Status: Stage: Recurrent: Due Date: Frequency: Client In Progress Implementation CONTINUOUS

Project Risks Design Rating Substantial

Risk Description: Risk Management: • Lack of participation and ownership from SNGs. Municipalities may not be interested or feel that this is useful for them. • Lack of guidance and data on the success of the pilots. Currently there is not enough data and metrics to understand in detail the management progress of SNGs or a system to track performance and guide the pilot and the rollout. • Increased workload of the procurement teams could undermine the capacity of the fiduciary teams to provide timely and professional procurement services. Additional, the procurement process for the selection of the TMM/software has yet to be defined.

• Conceptualization of the TMM will include active participation by SNG. These SNGs will likely be candidates for the pilot phase as well. • An integral part of the operation is the evaluation mechanism that will be carried out from the beginning of the intervention (see Box A2.3). • Procurement action plan has been developed, addressing these and other possible fiduciary risks. • The fiduciary agent FINDETER will train and hire procurement specialist so as to be able to carry out the desired functions in an effective and efficient manner.

Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Both 03-Mar-2014

56

• Readiness for implementation: Several activities demand close technical, operational, and logistic coordination, as well as inputs from other relevant national, regional, and local agencies. In addition, launch/contracting of studies, technical assistances, and the implementation of the territorial software model, among other activities, will need to wait until other activities, including development of methodologies; model-software, etc., have been advanced and /or completed. This could create delays in the implementation of the Project.

Social and Environmental Rating Low

Risk Description: Risk Management: The Project activities, which are primarily aimed at strengthening capacities and providing systems and tools to national and subnational governments, are not expected to have any significant social and environmental impacts. However, the Environmental Assessment and Indigenous Populations safeguard policies have been triggered as a precaution.

• To the extent that the analytical studies that will be carried out by the Project might affect relevant environmental issues, the terms of reference for non-consulting services and for consultants’ services will take into account the principles and standards of the Bank’s safeguards policy and provide advice in ways consistent with such. • Since the Project will potentially cover the entire territory of Colombia, thus including those areas populated by indigenous peoples and Afro descendants, under subcomponent 3.4., a "differential approach" for engagement with indigenous peoples and Afro descendants will be adopted in those municipalities with a presence of these populations, through their representative bodies.

Resp: Status: Stage: Recurrent: Due Date: Frequency: Client Not Yet Due Implementation 03-Mar-2014

Program and Donor Rating Low

Risk Description: Risk Management: No risk has been identified in this area.

Resp: Status: Stage: Recurrent: Due Date: Frequency:

Delivery Monitoring and Sustainability Rating Moderate

Risk Description: Risk Management:

57

• Costs. Recurring costs to support the systems and the infrastructure that supports it. • Turnover. High turnover of government officials at the local level.

• New processes and administrative practices and systems will be standardized and will reduce discretionary decision-making. • A robust selection process of pilots will maximize sustainability of efforts at the local level.

Resp: Status: Stage: Recurrent: Due Date: Frequency: Both Not Yet Due Implementation CONTINUOUS

Other (Optional) Rating

Risk Description: Risk Management:


Other (Optional) Rating Risk Description: Risk Management:


Overall Risk Overall Implementation Risk: Rating Substantial Risk Description: A number of implementing agency risks exist:(a) limited fiduciary capacity in the Government, particularly in DNP and FINDETER, (b) the lack of a governance arrangement to lead such an ambitious reform, and (c) potentially weak commitment for taking the decisions necessary to implement the reforms. A number of actions included in the Project will address these issues: a subsidiary agreement between the fiduciary agent FINDETER and DNP clarifying roles and responsibilities; an operational manual with clear coordination mechanisms among all the agencies (including their institutional arrangements, roles, and responsibilities); a training program to guarantee that institutions are able to meet the fiduciary capacity requirements of the Project). Also, DNP and MHCP are considered effective and powerful agencies within the central Government and will be responsible for overall Project technical leadership. Both MHCP and DNP will perform activities based on a signed MOU, and it is expected that two steering committees will be formed to provide policy guidance and oversee project implementation with the support from the Alta Consejera para el Buen Gobierno in the President’s Office (Annex 3 provides full details on the implementing arrangements). Additionally, FINDETER will

58

train and hire procurement specialists to carry out the desired functions in an efficient manner.

59

Annex 5. Implementation Support Plan COLOMBIA: Subnational Institutional Strengthening Project

1. The implementation support plan (ISP) has been developed based on the nature of the Project and its risk profile. It will aim at making implementation support to the client more flexible and efficient, and will focus on addressing the principal risks identified and the agreed risk mitigation measures described in the ORAF (see Annex 4). They are described as follows and complemented by the tables below that include the timeline and resources needed to ensure due diligence and technical support. Strategy and Approach for Implementation Support 2. The critical aspects for implementation have to do with (i) fiduciary capacity of key actors, DNP, MHCP and fiduciary agent, and (ii) proper coordination among actors to carry out the sequence of activities explained in Annex 2 and specifically in Figure A2.0. b. The main areas for implementation support are as follows: 3. Procurement. Implementation support will include (i) training programs to guarantee DNP and FINDETER are able to train trainers in methodologies and provide regular follow-up technical assistance according to quality standards, (ii) activities to strengthen DNP’s capacity to oversee FINDETER procurement functions, (iii) strengthening FINDETER’s fiduciary team by retaining the services of skilled procurement consultants, and enhancing its own knowledge on World Bank procurement, and (iv) monitoring of the procurement plan to identify and mitigate possible delays in implementing Project activities. Procurement supervision would consist of regular bi-annual missions to review packages, procurement plan and training needs. 4. Financial Management. Implementation support will include (i) ensuring compliance with World Bank policies and with provisions in the Project’s financing agreement that are based on the design of the Project and the identified risks to the Project, (ii) support for carrying out financial management requirements including annual financial audits, semiannual Interim Financial Reports (IFRs), financial management training, and supervision, and (iii) support to the fiduciary agent FINDETER to carry out project payments to beneficiaries, which would be reviewed during the annual supervision missions. Financial management supervision would consist of a possible mission at the time of effectiveness (to ensure successful implementation of financial management arrangements), review of annual audit reports (to provide assurance regarding the proper execution of funds), review of semiannual Interim Unaudited Financial Reports (IFR) to monitor the financial execution of the Project, and at least one financial management supervision meeting to review the continuing acceptability of financial management arrangements. 5. Technical support and project management support and coordination. Implementation support will include (i) working with the Project Management Team to make sure it is fully functioning, (ii) working with coordination committees to make sure they are operational, (iii) and accompanying technical teams in the development and implementation of new tools and the interaction with pilot SNGs.

60

6. Project team members, including TTL and co-TTL will be based both in DC and in the Bogotá country office to ensure timely, efficient and effective implementation support to the client. Formal supervision and field visits will be carried out semi-annually; however, given the presence of the TTL in the Bogotá country office, supervision will be ongoing as per the demands of the Project. Detailed inputs from the Bank team are outlined in the Implementation Support Plan.

Implementation Support Plan 7. The main focus of implementation support is summarized in Table A5.1 below:

Table A5.1. Areas of Supervision Focus Time Focus Skills needed Resource estimate Partner

role First twelve months

FM training and support FM specialist

4 staff weeks

PR training and support PR specialist 4 staff weeks Pre testing of TMM IT specialists 6 consultant weeks Task leadership TTL and co TTL 14 staff weeks + 6

consultants weeks

12-84 months

Financial management, disbursement, and reporting

FM specialist

4 staff weeks

PR review and support PR specialist 4 staff weeks Governance, Political Economy and Impact Evaluation support

Evaluation and PS specialist

6 consultant weeks

Support the implementation and roll out of the TMM

IT specialist 6 consultant weeks

Support on data, metrics for SNG performance measurement

Data and M&E expert 6 consultant weeks

Task leadership TTL and co TTL 14 staff weeks + 6 consultant weeks

8. Staff skill mix required is summarized in Table A5.2 below:

Table A5.2. Skills Mix Required Skills needed Number of staff weeks Number of trips Comments

Task team leader 8 staff weeks per year Country office based Co-task team leader 6 staff weeks per year 6 missions per year Project management support

6 consultants weeks Country office based

PR specialist 4 staff weeks per year Country office based FM specialist 4 staff weeks per year Country office based IT specialist 6 consultant weeks Country based Evaluation and Public Sector specialist

6 consultant weeks Country based

Data and M&E expert 6 consultant weeks 4 missions per year

61

Annex 6. Economic and Financial Analysis COLOMBIA: Subnational Institutional Strengthening Project

1. This Project is intended to strengthen institutions to promote more efficient and effective subnational management, which will eventually be reflected in the quality of public services that the population receives at the subnational level. Given that the ultimate beneficiaries of the Project are subnational governments and the residents they serve, provision of Project-related activities through the public sector is natural. However, the Project will take advantage of locally available resources in the private and academic sectors to assist with implementation. For example, the municipal management model will be designed by a private sector firm with expertise in IT, overseen by the national authorities to ensure that the software and implementation plan meet the needs of the target municipalities. Additionally, the technical assistance envisioned by the Project will likely be undertaken by a variety of service providers encompassing institutions from Colombia’s robust university system as well as local consulting firms with expertise in public sector management issues.

2. The World Bank’s value-added in this operation is evident in several areas. The design of a normative model of subnational public management—the nucleus of the interventions to be undertaken—builds on years of Bank experience encompassing (a) prior public sector operations in Colombia, encompassing a full range of topics from information systems management to citizen participation to budget reform; (b) prior operations in subnational institutional strengthening in the Region, and (c) prior operations in subnational institutional strengthening in Colombia, including the pilot and development of the Rapid Assessments and Action Plans (see Box A2.1). The Bank has been a trusted partner of the Colombian Government in the issue of decentralization for over 20 years, providing a combination of financial, technical, and convening services. The present operation furthers this collaboration and marks the beginning of a new agenda for joint endeavors in subnational public management between the Bank and the Government of Colombia for years to come.

3. Because of the breadth of the aspects that need to be modified or improved, this Project encompasses a huge number of actions that must be implemented at different scales. Those actions are expected to have development impacts in both the short and the long term. However, given the nature of the interventions, it is difficult to measure the impacts quantitatively or disaggregate them to establish their direct financing source. Despite these methodological difficulties, the end of this section presents rough projections of the expected monetary benefits of the Project to the participating Colombian municipalities under conservative assumptions. However, in this case, the most important consideration is the positive effects that the group of complementary actions, implemented at the right time with technical rigor and due consideration of local context, can generate for the social and economic development of the country.

4. The decentralization process was the mechanism the country selected more than 30 years ago to develop a model of public institutions able to deliver public services efficiently and respond in the best way to civil society requirements. However, the model still has many shortcomings that cannot be completely solved with the bundle of policies, programs, projects, and independent actions that the Government has already implemented. Complementary actions,

62

permanent support and training, and sustainability of the implementations are key aspects to achieve the objectives of the decentralization strategy. This Project is an ambitious effort, which, as part of a national policy to strengthen subnational capacity, is expected to cover the main gaps. Hence, all the activities of the Project are expected to have relevant economic, fiscal, and social repercussions in the short and the long run, which can be magnified with a proper set of complementary actions from the national and local governments.

5. This Project will contribute to improve the transparency, coordination, confidence, accountability, organization, and quality of subnational public administration in Colombia. It will contribute to better public sector management at the subnational level, which will eventually result in better public service delivery. Strong public management can promote efficiency in the use of resources and improved provision of goods and services to the population, which in turn lead to a better standard of living. These changes will positively affect the level of poverty and inequality among and within Colombia’s regions and will improve the performance of the country’s macroeconomic variables. Additionally, this intervention will reduce information asymmetries, contributing to more transparent management of public resources, facilitating social oversight, and thus increasing the confidence of private sector and civil society in government. This will be reflected in increases in private investment and consumption, two fundamental variables for GDP growth.

6. The direct effect of the Project will be on the management of subnational entities. Management encompasses a number of functions, processes, and thematic areas, including planning, financial management, budgeting, human resources, procurement, control and auditing, revenue and expenditure, and monitoring and evaluation. Table A6.1 shows the main economic, social, and financial effects of the Project in the major public sector management areas.

Table A6.1. Subnational Management Areas: Outputs and Outcomes Subnational management

area Outputs Outcomes

Revenue administration Revenue generation, equity in collection, transparency in tax requirements and procedures

Fiscal sustainability, inequality and poverty reduction, economic growth

Financial management (including audit and control)

Fiscal transparency, efficient resource allocation, reliable and timely financial information

Fiscal sustainability, economic growth

Information systems and data (including public disclosure)

Accessible and reliable data, maintenance of data systems

Trust in government, reduced transaction costs for businesses and citizens, efficient leadership decision-making

Budget planning and execution (including procurement)

Allocation of resources to planned activities and investments

Efficient service delivery, higher quality of services, economies of scale improved, transparency, less corruption, trust in government

Monitoring and evaluation Collection and assessment of information on public programs and investments and the public’s perception of them

Transparency, improvement of quality of public policies and investments, trust in government

Human resources management

Appropriate staffing of municipal posts, human capital improvement, employee performance

Increased productivity, efficiency in service delivery and human capital retention

Citizen participation and transparency

Provision and maintenance of forums for citizen participation in government and oversight of government activities

Transparency of public institutions, trust in government, government programs more closely aligned to the needs of citizens

63

7. The Project also focuses on strengthening the mechanisms for social control and citizen participation. Municipal management that involves citizens in decision-making and monitoring promotes accountability, improves the quality of services, increases the political costs of misusing the public resources and delivering incomplete or low-quality services, and works as a permanent oversight that promotes transparency. In addition, those mechanisms improve the democratic process, generate a sense of belonging on public issues, and build the legitimacy of governments and public institutions. To maximize these kinds of benefits, the Project also aims to strengthen the model and capabilities to control, monitor, and evaluate subnational public management. Estimation of Monetary Benefits of the Project

8. The monetary benefits of the Project can be estimated by projecting the expected savings and additional revenue municipalities should enjoy as a result of the interventions undertaken. These monetary benefits can arise through many avenues; however, for the sake of simplicity this analysis focuses on four core areas of influence in the Project: (a) procurement; (b) “back-office” administrative processes; (c) IT management tools; and (d) revenue administration. Table A6.2 provides a summary of the projected savings in these four areas over the life of the Project. Given a conservative set of assumptions centered on savings for an “average” participating municipality, the total monetary benefit to Colombian municipalities over the course of the Project is estimated at US$366.03 million. Table A6.3 displays the characteristics of the “average” municipality used in the calculations. It is important to take into account that there are other factors that are difficult to measure but that have high qualitative benefits as well, as mentioned in the first section of this annex.

Table A6.2. Projection of Monetary Benefits

Intervention area (Source of savings)

Savings in one municipality in one

year (COP million)

Savings in 300 municipalities in one year

(COP million)

Expected savings for the Project e

(COP million)

1. Procurement (e.g., more competitive bidding) a 380 114,000 399,000

2. "Back office” administrative processes [e.g., more efficient processes] b 94 28,275 98,700

3. IT management tools [elimination of several cost areas through use of the integrated model] c

113 33,930 118,650

4. Revenue administration [increase in own revenue collection] d 75 22,500 78,750

Total 662 198,705 695,100

Total (USD million) 0.348 104.58 366.03 Savings assumptions: a 5% of investment expenditure; b 5% of current expenditure; c 6% of current expenditure; d 5% increase in tax collection. e Expected savings for the Project includes reaching 50 additional municipalities every year, for six years (50 in year 2, 100 in year 3, 150 in year 4, 200 in year 5, 250 in year 6 and 300 in year 7).

9. Savings in procurement will be achieved through three key avenues. First, more competitive bidding processes—brought about by the Project through both technical assistance to strengthen competitive bidding procedures and increased citizen oversight of major

64

investment projects—will lead to Pareto cost reductions. Second, the expected reduction in the length of the bidding and payment processes to be brought about by the Project will likely reduce the overall cost of projects, given that providers often charge governments more to compensate for the financing costs of delayed payments. Third, the improved investment and procurement planning brought about by the Project will allow municipalities to make more consolidated purchases and thus enjoy cost savings.

Table A6.3. Characteristics of an “Average” Municipality Population 20,000

Budget snapshot Millions of pesos USD Investment expenditure 7,600 4,000,000 Current expenditure 1,885 992,105 Own revenue collection 1,500 789,473

10. Savings will also be achieved by making administrative processes more efficient and less prone to error. This will be brought about by the installation of the computer-based municipal management model, which will streamline procedures and reduce the scope for human error, as well as by specific improvements to be made through technical assistance. It is expected that, for example, errors in municipal salary payments—currently a common problem in many small and medium-sized municipalities—will be significantly reduced through the Project. Additionally, the model will reduce the need for printing receipts and other documents that would be managed electronically. Lastly, costs associated with municipal accounting will be greatly reduced as the accounting will be done largely automatically through the model. 11. Savings in IT tools for municipal management will be achieved through the implementation of an integrated cloud computing-based model that will allow the elimination of several cost items: (a) the purchase and maintenance of back-office information systems, (b) a server to install and operate the information systems, (c) licensing fees for a database, operating system, and antivirus program, and (d) personnel to manage these systems. Initial research indicates that the Project could save a municipality of 20,000 inhabitants an average of US$67,000 per year, equivalent to 7% of the current expenditure of the “average” municipality. However, to keep the estimate conservative, a savings of 6% was used in the projections in Table A6.2.

12. Additional revenue collection will be achieved through several avenues: (a) by updating and improving tax administration records, such as those of the municipal cadaster; (b) by increasing the ease of doing business in the municipality through the clear presentation and collection periods of relevant fees and taxes; and (c) through clearer and more transparent tax and fee requirements, such as for licensing fees and property taxes. The assumption of additional collection included herein, of 5% of the current total collection of own revenues, is deemed conservative based on prior experiences in RAAPs conducted in Colombia, where improvements in tax collection have reached up to 20%.50

50 See Box A2.1 on the RAAP experience.

65

13. The projection rests on two key concepts: (i) the “average” municipality, and (ii) the “municipality-year.” The “average” municipality is here taken as a representative municipality that could potentially participate in the Project—not the arithmetic average of the different characteristics of all Colombian municipalities. Thus the traits described in Table A6.3 are typical for a municipality in the middle of the population range to be targeted by the Project.51 Figure A6.1 presents the distribution of municipalities by population and highlights the group of municipalities that could potentially benefit from the Project—those with populations of up to around 50,000 inhabitants.52 As the figure shows, the population range of 10,001-20,000 inhabitants is the most common category for the target municipalities, constituting approximately one-third of all municipalities under 50,000 inhabitants.53

Figure A6.1. Population Distribution of Colombian Municipalities

14. The second key concept in the projections is that of “municipality-year.” In Table A6.2, projected monetary benefits are first calculated for each of the three select areas of intervention for one municipality for one year—a benefit of one “municipality-year.” The projection takes into account that (a) the project duration is seven years, (b) the interventions will be implemented in 300 municipalities, (c) the preparatory phase of the Project may take up to two years, and (d) implementation will be gradual. Therefore, the final column of Table A6.2 shows the projected benefits of the Project upon completion. It assumes that starting in year 2 of the Project, 50 municipalities (the pilot phase) will receive the interventions and will continue to benefit throughout year 7 of the Project—thus constituting 350 “municipality-years.”54 It assumes that each year of the Project an additional 50 municipalities will receive the 51 The specific budget execution data are drawn from the Departamento Nacional de Planeación (2010): http://www.dnp.gov.co/Programas/DesarrolloTerritorial/FinanzasP%C3%BAblicasTerritoriales/EjecucionesPresupuestales.aspx 52 Of all Colombian municipalities, 89% have a population of 50,000 or less. 53 The average population for all Colombian municipalities is approximately 38,600. The average population for the approximately 1,000 municipalities under 50,000 inhabitants is approximately 14,500. Data are from the 2005 census: http://www.dane.gov.co/index.php?option=com_content&view=article&id=307&Itemid=124 54 Though it is probable that the benefits of the Project will grow over time in reference to the baseline as municipal authorities fully integrate the recommendations of the technical assistance and become familiar with the municipal management model, the monetary benefits in the model are held constant for the sake of simplicity.

0

5

10

15

20

25

30

35

0

50

100

150

200

250

300

350

% of

nat

iona

l pop

ulati

on

# of m

unici

palit

ies

municipal population

# of municipalities % of national population

http://www.dnp.gov.co/Programas/DesarrolloTerritorial/FinanzasP%C3%BAblicasTerritoriales/EjecucionesPresupuestales.aspx

http://www.dnp.gov.co/Programas/DesarrolloTerritorial/FinanzasP%C3%BAblicasTerritoriales/EjecucionesPresupuestales.aspx

http://www.dane.gov.co/index.php?option=com_content&view=article&id=307&Itemid=124

66

interventions and continue to benefit from them in year 7—thus constituting 700 “municipality-years.” In total, the Project includes 1,050 “municipality-years.” This is represented in Table A6.1, as the third column is 1,050 times the quantity in the first column. 15. Under these assumptions, the Project’s projected benefits would equal the total value of the operation midway through implementation (see Table A6.4). Similarly, the Project recovers its investment after reaching approximately 300 municipality-years. These projections do not include several factors that could considerably increase the estimated benefit, including continuous learning by municipalities, and demonstration effects on nonparticipating municipalities.

Table A6.4. Projected Monetary Benefits by Implementation Year Year # participating

municipalities Monetary benefit

(annual) Monetary benefit

(cumulative) 1 0 0 0 2 50 $17,430,263 $17,430,263 3 100 $34,860,526 $52,290,789 4 150 $52,290,789 $104,581,578 5 200 $69,721,052 $174,302,630 6 250 $87,151,315 $261,453,945 7 300 $104,581,578 $366,035,523