Document of The World Bank

Report No: ICR00001642

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-37290)

ONA

CREDIT

IN THE AMOUNT OF SDR17.7 MILLION

(US$23.4 MILLION EQUIVALENT)

TO THE

REPUBLIC OF YEMEN

FOR THE

PORT CITIES DEVELOPMENT PROJECT

IN SUPPORT OF THE FIRST PHASE OF THE PROGRAM

December 30,2010

Sustainable Development Department Middle East and North Africa Region

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

ACT AFZ APL

CAS CDS CIP DA DCA EAP ESW FA FDI FM

FTZ GIA HTB IDA

IS LED LEDD

MOPD

MDG MENA MoFW

CURRENCY EQUIVALENTS

(Exchange Rate Effective - November 15, 20 I 0)

Currency Unit Yemeni Rials (YER) US$I YER 221.61

SDR I US$1.56277

FISCAL YEAR January I December 31

ABBREVIATIONS AND ACRONYMS

Aden Container Terminal Aden Free Zone Adaptable Program Loan

Country Assistance Strategy City Development Strategy

Capital Investment Plan Designated Account Development Credit Agreement Economic Active Passengers Economic Sector Work Fisheries Authority Foreign Direct Investment Financial Management

Free Trade Zone General Investment Authority High Tender Board International Development Association International Shopping Local Economic Development Local Economic Development Departments Ministry of Planning and Development Millennium Development Goals Middle East and North Africa Ministry ofFish Wealth

Vice President: Country Director:

Country Manager:

Sector Manager:

Task Team Leader:

MoF Ministry of Finance MoLA Ministry of Local Administration MoPIC Ministry of Planning and International

Cooperation MRRUP Master Plan Revision and Update Project MTR Mid Term Review

NCO National Coordination Unit NGO Non Governmental Organization NPS National Port Strategy O&M Operations and Maintenance PAD Project Appraisal Document PCDP Port Cities Development Program PCDP-II Second Port Cities Development Project PDO Project Development Objectives PCIC Port Cities Inter-ministerial Committee ROC Regional Operations Committee RPF Resettlement Policy Framework SA Special Account SBD Standard Bidding Document

SDR Special Drawing Rights SIL Specific Investment Loan SMME Small, Medium and Micro Enterprises

TA Technical Assistance

UNDP United Nations Development Program VOT Value of Time

Ms. Shamshad Akhtar

Mr. A. David Craig

Mr. Benson Ateng

Ms. Anna Bjerde

Ms. DeepaJi Tewari

REPUBLIC OF YEMEN PORT CITIES DEVELOPMENT PROJECT

Contents I Project Context, Development Objectives and Design ............................................ 1 2. Key Factors Affecting Implementation and Outcomes ............................................ 7 3. Assessment of Outcomes ........................................................................................ 15 4. Assessment of Risk to Development Outcome ................................................... 20 5. Assessment of Bank and Borrower Performance ............................................... 20 6. Lessons Learned ..................................................................................................... 23 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners ..... 24 Annex 1. Project Costs and Financing ......................................................................... 25 Annex 2. Outputs by Component (against which progress was reported in ISRRs) .... 26 Annex 3. Economic and Financial Analysis ............................................................ 31 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... .45 Annex 5. Beneficiary Survey Results ..................................................................... .47 Annex 6. Stakeholder Workshop Report and Results ............................................ .48 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ................ 49 Annex 8. Comments of Co-financiers and Other Partners/Stakeholders ................ 51 Annex 9. List of Supporting Documents ................................................................. 52

. Annex 10. Map .......................................................................................................... 53

Country: Yemen, Republic of ,Project Name: .Port Cities

........ ~ ..... ~ .... n ... _eve I()ement~~().~~~!ll. ...

P!oje~!I1?: P065111

12/03/2010 . ~ ....................... ~l~~~!~_~um~~~~(~~_._1!.1?A -3 729Q.... .... .

ICR Date: iICRCore ICR ............ ~ ....... . .........................

Lending Instrument: APL iBorrower: !GOVERNMENT OF YEMEN

Original Total Commitment:

XDR 17,7M nisbursed Amount: XDR 17.2M

Revised Amount:

Implementing Agencies: Ministry of Planning and International Cooperation

Cofinanciers and Other External Partners: NI A

Process' Date : Revised 1 Actual

Date(s)

Concept Review:

Appraisal:

Approval:

12/04/2001

1011512002

01/23/2003

[Effectiveness:

Restructuring( s):

Mid-term Review:

Clo~ing:

07114/2003

N/A

09/30/2005

06/30/2007

07/14/2003

N/A

12/08/2005

06/30/2010

C.I Performance Rating by ICR

Outcomes:

Risk to Develoement Outcome:

Bank Performance:

Borrower Performance:

Moderately Satisfact()ry

:~o~()r~~J~li~ible

c.tvl()derately .satisfac~().ry

Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower

Quality at Entry: Moderately Satisfactory Government:

Q I, fS " M dIS '~ Implementing ua Ity 0 upervlSlon:· 0 erate y atISlactory .. A IA ' gency gencles: Overall Bank Performance:

M d t I S t ' ~ t Overall Borrower o era e y a ISlac ory P 4' erlormance:

Ratings Moderately Satisfactory

Satisfactory

Moderately Satisfactory

Implementation Performance

Indicators QAG Assessments

(if any) Rating

Potential Problem Projecty at any time (Yes/No): . es

Problem Project at any

,time (Yes/No): No

DO rating before

Quality at Entry

:(QEA): Satisfactory

Quality of None

Supervision(Q~i\):

Actual

Sector Code (a~ % of total Bank financing)

General transportation sector ........................................

Information technology

Sub-national government administration

Theme CodeJ~~o;o of total Bank financing)

Gender

Infrastructure services forprivate sector devel~p!11ent

Municipal governance and institution building

Small and medium enterprise support

Positions

Vice President:

Country Director:

Sector Manager:

Project Team Leader:

ICR Team Leader:

ICR Primary Author:

AtICR

;Shamshad Akhtar

Xavier Devictor

Anna M. Bjerde

:Deepali Tewari

neepali Tewari

Richard James

F. Results Framework Analysis

10

10

80

20

20

40

20

.. i\ti\I>I>t:~val .lean-Louis Sarbib

!Mahmood A. Ayub

Hedi Larbi

Omar M. Razzaz

Project Development Objectives (from Project Appraisal Document)

10

20

20

40

20

The objectives of Phase I of the Program were to assist the Borrower to: (i) remove critical constraints to economic development; and (ii) improve the environment for investment and economic growth and development, within its port cities.

11

Revised Project Development Objectives (as approved by original approving anthority) N/A

(a) PDO Indicator(s)

Indicator

Indicator 1 :

Original Target Formally Actual Value Values (from Revised Achieved at

appl'oval Target Completion or Baseline Value

documents) Values Target Years Greater satisfaction of Aden's business community and civic groups regarding the capacity of local government to manage, improved efficiency and participatory methods, indicated by business services report cards and public perception surveys.

Value quantitative or 0 Qualitative)

PPP for three public investments established for: (a) IT Center; (b) Al Arish roundabout; (c) Mansoora and Sheikh Othman Green Belt; (d) Management training Center; (e) management of the fishing port granted to Fishermen Association. 06/30/2010

Public investments established for: (a) IT Center; (b) Al Arish roundabout; (c) Mansoora and Sheikh Othman Green belt; (d) Management Training Center; (e) Original contract renewed between Local Council and the Fishing Association.

Date achieved 12/18/2002 Comments (inc!. % achievement)

10/3112010

Reduced transaction costs and greater transparency in delivery of local government services at key points of interface with private sector including

Indicator 2 : decreased. processing time for business registration issuance of regulatory authorizations and clarified/reduced steps required for approvals and issuing permits.

Value quantitative or Qualitative)

Establishment of one stop shop, preventing investors from

. . going to 7 Pnvate sector required to d'ff, t ffi . visit 7 different offices in thl e~tyent 0 Ictes In

d 'f~ I . . h e CI 0 ge a I lerent ocatlOns In t e r city. Icense.

Processing time for business applications reduced to 0.5 hour at the Aden

iii

(a) One stop shop established (b) Investors now go only to one office to get a license (c) Processing time for business applications reduced to half an hour at Aden Investor Service Center.

Date achieved 12/18/2002 Comments (incl. % achievement)

Investor Center. 11/18/2008 10/3112010

Indicator 3 :

Improved business district/cluster performance & productivity in project-affected areas, gauged through performance effects of investments (improved infrastructure & services for SMEs, business linkages reinforced through physical investment, T A, etc.

Value quantitative or 60, 50, I, 15 Qualitative)

Date achieved 12/18/2002 Comments (incl. % ach ievement)

Sirah Fish Market: Increase in number of fishing boats annually; Increase in number of fisherman selling fish by close of project; Increase in fish restaurants in project area. Crater Intersection: Efficiency increase in vehicular movement; reduced traffic accidents. Malia Dakka Port: Efficiency increase in wait time for truck (from 12 hrs); increase in restaurants. 06/30/2010

Sirah Fish Market: Over 200 fishing boats now (233% increase); Over 230 fisherman sell fish now (360% increase); 100% increase in the number of fish restaurants. Crater Intersection: Over 1400% efficiency increased in vehicular movement at peak hour; and no reported accidents Malia Dakka Port: 'Efficiency increased with zero ,wait time; 100% increase in restaurants.

10/3112010

Indicator 4 : Increased private sector investment and real estate values triggered by public investments and improved business environment.

Value quantitative or 6.20 Qualitative)

Date achieved 12118/2002 Comments (incl. %

AI Durain AI Durain Increase in area devoted to industrial production. 06/30/2010

IV

222% increased in area from 6.3 hectares to 21 hectares. 10/3112010

achievement)

(b) Intermediate Outcome Indicator(s)

Indicator

Original Target Formally

Values (from Revised approval Completion or

Target Valnes . documents) Target Years

Actual Value

Baseline Value Achieved at

Indicator 1 : Rehabilitation of un utilized city assets; upgrading facilities to increase market accesslimprove business linkages.

Value (quantitative or Qualitative)

City properties in disrepair, infrastructure services to private sector weak; limited market access for SME's; weak local revenue base.

Date achieved 0110112003 Comments (incl. % achievement)

LEDD/ISC building renovated; Sira market renovated and generating ;Iocal revenue; 'Crater intersection improved; Sayla market operating; AI-Durayn industrial zone upgraded. 12/3112008

G. Ratings of Project Performance in ISRs

Date ISR No.

Archived DO IP

02/28/2003 Satisfactory Satisfactory 2 08/27/2003 Satisfactory Satisfactory 3 02/12/2004 Satisfactory Satisfactory 4 03/3112004 Satisfactory Satisfactory 5 10114/2004 Satisfactory Satisfactory 6 04/29/2005 Mode~ately Satisfactory Moderate1y~atisfactory

7 12/09/2005 Satisfactory Satisfactory 8 01/09/2006 Satisfactory Satisfactory 9 12/28/2006 Satisfactory Moderately Satisfactory 10 06/27/2007 Satisfactory Moderately Satisfactory 11 12/07/2007 Satisfactory Moderately Satisfactory 12 0611112008 Satisfactory Moderately Satisfactory 13 12/3112008 Satisfactory Satisfactory 14 06/29/2009 Satisfactory Satisfactory 15 1011212009 Satisfactory Satisfactory

v

Improved services and amenities for Aden businesses; revitalization of underutilized city assets; new local revenues generated.

12/3112008

Actual Disbursements (USD millions)

0.00 0.50 0.50 0.56 0.95 2.27 4.73 4.95 9.89

12.46 13.66 15.85 18.15 20.50 21.36

16 06130/2010 Satisfactory

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

Satisfactory

- Original ---- Formally Revised -- Actual

24.46

30-r----------------------------~------------------------------~

25

20 ... c .! 15 ~ ~ 10 :;)

5

,... r::J ,... CI CI N

... r::J <:I' CI CI N

,... r::J <:I' CI CI N

... r::J LI'I CI CI N

,... r::J LI'I CI CI N

... r::J ~ CI CI N

,... r::J ~ CI CI N

... r::J .... CI CI N

vi

,... r::J .... CI CI N

... r::J

• CI CI N

,... r::J

• CI o N

... r::J cr. o o N

,... r::J cr. o CI N

... r::J o ... o N

a o ... o N

~ CI ... o N

... r::J ... ... o N

N r::J ... ... o N

I Project Context, Development Objectives and Design 1.1 Context at Appraisal

1. The overall purpose of the Port Cities Development Program (Project) was to transform Yemen's strategic port cities into regional centers of economic growth by creating environments to support private sector investment and development. Achieving this required working with both public as well as private sectors; developing soft skills and capacities, carrying out reforms at local and national levels, and upgrading quality of infrastructure facilities and services locally. This was an ambitious agenda which could not have been fulfilled within the term of a typical investment project of five years, hence a twelve-year program with three Phases.

2. The Program was expected to start modestly with local capacity building and small infrastructure investments in Aden and evolve into national level reforms and strategic investments in the port cities of Hodeidah and Mukalla. In its early stages, the Program was expected to develop a cohesive strategy for economic development for each participating port city, based on empirical studies, comparative advantage, competitiveness, on shared visions developed by stakeholders in each port city, and on investments and reform plans to realize these visions. The implementation was to be carried out by the newly established Local Economic Development Departments (LEDD) at Governorate level, staffed by qualified civil servants, and supported by private consultants. The LEDDs were expected to evolve into main strategy/coordination bodies for local economic development at the Governorate level.

3. The first Phase of the Program was to make US$14.6 million worth of infrastructure investments in Aden, expanding to Hodeidah and Mukalla in the second Phase and to Mokha, Nishtun and Al Salif in the third Phase. These investments were to take into account the comparative advantages of each of the cities, i.e., trade and vessel servicing in Aden, given its highly strategic location, agro-industry in Hodeidah, fisheries industry in Mukalla, and fishing and simple food processing in other participating port cities.

4. In terms of reform and institutional development, the Program was to start with basic capacity building activities of key public institutions at the local level to have an impact on strategic planning in partnership with private investors. The Governor's Council and the Planning Department along with private investors were to partner with the central level General Investment Authority (GIA), Customs Authority, Public Land Authority (now called General Authority of Land Survey and Urban Planning - GALSUP). The Program was expected to invest in administrative modernization, Information and Communication Technologies (ICT), and automation of business processes tailored to the capacity and skill level of each of these institutions. In parallel, small-scale infrastructure investments specifically targeted to improve economic activity at the local level were planned. These investments were to support existing small and medium enterprises in existing economic clusters, and enable linkages with transport facilities, including Aden Container Terminal and Industrial Free Zone, Ma'alla Port and the airport.

5. Phase II of the Program was to be triggered by two central government measures, namely to develop: (i) a regulatory framework for industrial estates; and (ii) completion of a Resettlement Policy Framework. The triggers at the port city level included, independently for each city, satisfactory progress in prior Phases, including successful implementation of physical investments in Aden, and formal adoption of strategies, master plans, investment plans, resettlement policy framework and reform plans developed in Phase I. Phase II components included translating strategies developed during Phase I, into investments, capacity building, and

-1-

administrative modernization programs, including investments in port city assets of national significance, such as industrial estates or port facilities in Aden, Hodeidah and Mukalla.

6. Phase III of the Program was to be triggered by central government measures to develop: (i) customs reforms and streamlined procedures to reduce processing time to internationally accepted standards; and (ii) a regulatory framework for the Ports Authority which specifies public and private roles in port operations. At the city level, the measures included satisfactory progress in implementing prior Phases to advance to the next Phase. Phase III components included technical assistance, capacity building, and investments in the Customs and Port Authorities, and design of private sector participation in port financing and operations. During Phase III, the Program was to be rolled out to the other participating port cities of Mokha, Nishtun, and AI Salif, with small investments to enhance local economic development.

7. Choice of Instrument: At the time of preparation of the Port Cities Development Program (PCDP), the Adaptable Program Loan (APL), a newly introduced instrument, was gaining favor in the Bank. The instrument was designed to provide a flexible response to the changing needs of development in a country when operating in areas of uncertainty, facilitating an easier exit]. The PCDP was processed two years after the USS Cole bombing in Aden, and a year after the events of September 11, 2001. The economy was vulnerable to oil price volatility, government structures needed strengthening as unification between North and South Yemen had taken place just a decade ago, there was limited ability to carry out necessary reforms, as well as weakness in implementation capacity2. While recognizing well the challenges of the country's context, the Bank considered an APL as an appropriate instrument at that time.

8. The Program was to be implemented in three phases over twelve years and aimed at transforming Yemen's strategic port cities into regional centers of economic growth. This transformation was to be achieved by creating environments to support private sector investment through support for reforms at local and national levels.

9. The above was an ambitious agenda, which ultimately resulted in exiting from the APL in favor of a Specific Investment Loan (SIL) for follow-on support to port cities.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)

Original Project Development Objectives

10. In June 2009, discrepancies between the PDOs as stated in the PAD and between the PAD and the DCA were identified.

In the PAD 3 , the PDOs were stated as: (i) strengthen local government strategic and physical planning and coordination capabilities to better utilize existing assets and resources; (ii) improve the efficiency of and streamline administrative procedures at key local government agencies that interface with the private sector; and (iii) revitalize port city business districts/clusters that are key to growth and employment generation. In another part of the PAD4 , the PDOs were: to establish a viable intuitional and organizational

1 Adaptable Lending: Review of the First Year's Experience, Operational Core Services Network, December 30, 1998.

2 Yemen Economic Monitoring Report, September 2002, World Bank. J Page 4 4 Page 33.

-2-

framework at the local level, coupled with key capacity building and physical investments, enabling private sector led growth in Aden in key business clusters. Preparation work in Hodeidah and Mukallah.

11. In the DCAs, the PDOs were: to: (i) remove critical constraints to economic development; and (ii) improve the environment jor investment and economic growth and development, within its Port Cities.

12. A Corrigendum to the PAD review exercise was sent by the Region on June 28, 2009 to the Board making PAD PDOs consistent with the DCA.

Original Key Indicators (as approved)

13. The PAD presented the following outcome/impact and output indicators:

Outcome/impact indicators:

• Greater satisfaction of Aden's business community and civic groups regarding capacity of local government to manage, improved efficiency and participatory methods, indicated by business services report cards and public perception surveys.

• Reduced transaction costs and improve greater transparency in the delivery of local government services at key points of interface with the private sector, including decreased processing time for business registration and issuance of regulatory authorizations; and reduced number of steps required for approvals and issuing permits.

• Improved business district/cluster performance and productivity in project-affected areas, gauged through performance effects (improved infrastructure and services for small and micro enterprises, business linkages reinforced through physical investments).

• Increased private sector investment and real estate values triggered by public investments and improved business environment.

Output indicators6:

• Successful completion of selected small-scale infrastructure investments and revitalization of business districts/clusters.

• Local Economic Development Department (LED D) established to anchor and better coordinate Program implementation and local economic development at Governorate level.

• Strategic, physical and investment planning work updated or completed, including City Development Strategy (CDS), Aden Master Plan, sub-regional land-use and transport studies, water and waste management plans, and prioritized Capital Investment Program.

• Capacity improved and new systems installed and operational at local government offices servicing the business community key points of interface including GIA, Public Land Authority, and the Customs Authority.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

14. The PDOs were not revised beyond making the PAD PDOs consistent with the DCA as explained above. This process, although late in the implementation period when the bulk of the

5 Page 14, Schedule 2, January 29, 2003 6 These were revised for clarity during the supervision mission immediately after the Region sent the Corrigenda to the Board on June 30, 2009.

-3-

funds were disbursed, constituted a correction of inconsistencies between the PDOs in the PAD and the DCA.

15. The Key Indicators in the PAD were not consistent with the indicators in the original DCA. A Supplemental Letter to the DCA had been issued 7 to elaborate detailed monitoring and evaluation indicators as follows:

(i) The number of processing steps, authorizing signature requirements, and/or the time for processing regulatory authorizations for businesses by public sector agencies in Aden under Part C of the Project, shall have reduced; (ii) based on defined baseline indicators set forth in the application forms for each Investment Project under Part A of the Project, and agreed with the Association, infrastructure and services supporting key commercial areas and business clusters shall have improved. This will be measured by, among others: (a) the number of new formal or informal businesses established; (b) the number of new employment opportunities generated; or (c) the amount of additional fixed capital investment by the private sector; (iii) a City Development Strategy shall have been finalized for each participating Port City; (iv) an updated and integrated master plan shall have been developedfor each participating Port City; and (v) a capital investment plan shall have been producedfor each participating Port City.

1.4 Main Beneficiaries

16. The primary beneficiaries of Phase I of the Program were: (i) the Small, Medium, and Micro Enterprises (SMMEs) of the targeted economic clusters in Aden; (ii) National agencies like the Ministry of Transport, the General Investment Authority (GIA), Customs Administration, Ministry of Power, Aden Free Zone (AFZ) Authority, Ministry of Local Administration (MoLG); and (iii) the local administrations of the three PCDP cities.

1.5 Original Components (as approved)

17. PCDP's objectives were expected to be met through three components as stated in the DCA:

Component 1: Support for the Revitalization of Aden's Economy. (1) carrying out a program for the improvement of access to key commercial areas within the Port City of Aden, including establishment of improved traffic management systems, through the provision of goods, equipment and technical advisory services, and the carrying out of civil works; (2) carrying out of works and provision of goods and technical advisory services for the rehabilitation and revitalization of physical assets within the Port City of Aden; (3) carrying out a program for the upgrading of small-scale commercial areas within Aden, including: (i) installation of ICT connectivity; (ii) rehabilitation and construction of roads and drainage systems; (iii) upgrading localized networks; (iv) construction and installation of sidewalks and street lighting; (v) rehabilitation and construction of market facilities; (vi) carrying out of zoning; and (vii) establishment of communication linkages within the city.

Component 2: Strategic and Physical Planning within the Port Cities. (1) preparation of a City Development Strategy (CDS) for each Port City, including: (i) carrying out a city competitiveness assessment; (ii) development of an action plan for the local economic development of each Port City; and (ii) organization of workshops for the public discussion

7 Supplemental letter # 2, January 29, 2003: Performance Monitoring Indicators Re: Paragraph D.l of Schedule 4 to the DCA.

-4-

of proposed action plans; (2) carrying out of physical master planning for the strengthening and better coordination of public investment planning within the Port Cities, including studies in land-use, waste management, water management, transportation management, and traffic management; (3) preparation of a capital investment plan (CIP) for each Port City, including identification and prioritization of investment needs. 4; carrying out of feasibility studies, including evaluation of the economic, social and environmental impacts of large scale public investments to be carried out by the Port Cities under subsequent phases of the Program, and preparing detailed design work.

Component 3: Aden Local Government Capacity Building and Administrative Modernization. Strengthening and improving the institutional and service delivery capacities of key public sector agencies within Aden, including: (i) carrying out comprehensive institutional assessments; (ii) streamlining rules and procedures; (iii) provision of training to Local Government staff; (iv) designing and installation of management information systems; (v) defining organizational roles on reporting, policy decision making and financial management; and (vi) provision of support for the coordination, supervision and monitoring and evaluation of the Project, all through the provision of equipment, technical advisory services and training.

Project Costs:

18. At appraisal, the project cost, including contingencies, was estimated at US$26.5 million, of which the Bank financed US$23.4 million and the Government US$3.1 million.

Project Cost Project Cost Percentage (at Appraisal (at Closing Change

Component US$ Mil.) US$ Mil.) 1 Revitalization of Aden Economy and Business 14.60 16.81 +15% Clusters

• Access Improvements • City Revitalization • Upgrade Small-Scale Commercial Areas

2 Port Cities Strategic and Physical Planning 6.00 7.39 +23% • City Development Strategy • Physical Planning Studies • Capital Investment Plan • Tech. Assistance, Feasibility and Design Studies

3 Aden Local Capacity Building & Administrative 4.90 4.19 - 15% Modernization 4 Unallocated 1.00 0.00 -Total Project Cost (Phase I) 26.50 28.39* +7% * Amount higher due to exchange rate appreciation between SDR and US$.

1.6 Revised Components

N/A

-5-

1.7 Other significant changes

Reallocation of Credit Proceeds and Amendment to Development Credit Agreement

19. First Request: At the Government's request,8 the DCA was amended on April 8, 2004, to expand the geographical scope of Component 39 to include Hodeidah and Mukalla. Initially the geographical scope of component 3 was limited to Aden because of its advanced city development strategy. The CDSs and the local economic development strategies for Hodeidah and Mukalla had progressed satisfactorily and were ready to receive support and prepare engineering studies for financing from Phase II. The revised DCA also incorporated a new category (6) to include training and workshop activities.

20. Second Request: In a letter dated May 15, 2007, the Government requested a reallocation of Credit proceeds among various expenditure categories taking into account higher than expected prices of consultancy services associated with reform measures and strategy formulation. On June 10,2007, the DCA was amended accordingly.

21. Third Request: At the Government's request, dated January 26, 2009, the uncommitted balance was reallocated into various expenditure categories to offset increased prices for consulting services. The DCA was amended on February 17,2009.

22. Fourth Request: Towards the end of the project, savings and deficits were realized in various expenditure categories to which the Government requested, in its letter dated June 21, 2010, to reallocate and adjust amounts among categories. The DCA was consequently amended on June 22, 2010, to reflect actual expenditures.

Extension of Closing Date and Amendment to DCA:

23. First Request: In its letter dated May 15, 2007, the Government requested an extension of the original closing date of June 30, 2007 by eighteen months to enable completion of project activities. On June 10, 2007, the DCA was amended and the closing date was extended to December 31,2008.

24. Second Request: The Government, in its letter dated November 19, 2008, requested for a second extension of eighteen months, to complete essential activities to meet triggers for Phase II. The DCA was accordingly amended and the closing date was extended to June 30, 2010.

Issuance of Corrigendum:

25. A Corrigendum was issued on June 28, 2009 to address inconsistencies between the PDOs, in the DCA and the PAD.

8 Letter dated March 22, 2004 from Mr. Ahmed Sofan, Deputy Prime Minister and Minister of Planning and International Cooperation. 9 Aden Local Capacity Building and Administrative Modernization

-6-

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

26. Link with Government's Interim Poverty Reduction Strategy PaperlO: The Program incorporated findings and recommendations of the Poverty Reduction Strategy Paper (PRSP) which targeted Aden as having th(l necessary prerequisites for becoming the main engine of growth due to its strategic location, deep-water port, and relatively high quality human capital. The Program included Hodeidah and Mukalla as they had similar advantages and offered complementary opportunities for the development of a more diversified economy that could strengthen the existing economic clusters around fisheries, agriculture, manufacturing, and transshipment industries in and around the port cities.

27. Regional Operations Committee (ROC): A ROC Review Meeting was held on March 13, 2002, which essentially endorsed the project as fitting well with the Region's overall Strategy: 'it i) responds to increasing out-migration from highland areas due to water shortages by shifting investment from water scarce to water abundant areas; ii) strengthens public sector efficiency through a reform program; iii) enhances participation and voice (of private sector, women's groups) through the City Development Strategy (CDS) process; and iv) promotes employment generation and private sector participation through a local economic development (LED) approach' . II

28. Quality at Entry Assessment: The Quality at Entry Assessment (QEA)12 did not get initiated until six months into implementation. The Quality Assurance Group (QAG) provided a 'satisfactory' rating of '2' on a 6-point scale. It was the panel's assessment that the Program was suitable for an APL and all its dimensions were satisfactory, including the quality of intervention/activities of Phase I. The panel highlighted strong aspects including a novel approach undertaken by the Program to carryout institutional reform of public administration; initiating reforms from the bottom up; and empowering the local administration to improve the local economic environment by establishing stronger linkages between the recipients of public services and the service providers at the local level.

29. Project Conditions: Two project-specific Effectiveness conditions were: (i) adoption of Project Implementation Plan (PIP) and Project Operations Manual (POM); and (ii) establishment of a functional financial management system at Aden LEDD. Both were met.

30. Lessons learned reflected in PCDP's design: A number of key lessons drawn from past projects in Yemen were incorporated in the Program's design as stated in the PAD, including: (i) strategic focus at the city level based on competitiveness assessments rather than attempting to address a wide range of problems; (ii) need for close coordination among line ministries to better cope with complex cross-sectoral issues and establishing local economic development departments in the three port cities; (iii) need to improve inadequate procurement procedures by staffing implementing agencies with professionals, well versed in Bank's procurement guidelines

10 Poverty Reduction Strategy Paper (No. 24504) was presented to the World Bank Board in February 2001 which presented Government's strategy for poverty reduction in Yemen for the period 2003-2005. 11 Summary of ROC Review Meeting Discussion 12 Assessment date: 6/18/2003

-7-

and procedures; (iv) putting in place proper financial record keeping mechanism including appointment of qualified accountant and an independent financial auditor; and (v) adopting demand-driven, participatory approach by the local council members, public officials and other key stakeholders to achieve early buy-in of the Program.

31. Use of donor funds during preparation: The team mobilized three PHRDI3 grants, one of which was not signed (PHRD TF093084) because the selection of subprojects under Phase II departed from what was originally envisagedl4 • The first PHRD TF25918 (US$364,00015) was originally approved for a different project (Aden Urban Development Program), two years before the APL was conceptualized. This Grant financed a review of the institutional capacity of national and local agencies, a review of the existing Master Plan for Aden, and a review of the institutional and regulatory framework for integrating planning efforts, consultancy services for the preparation of various TORs; and an assessment of priority infrastructure needs including feasibility studies. The second PHRD Grant TF 090647 ofUS$550,000 financed three studies: a study for Independent Power Purchase (US$197,000), a feasibility study of a Tourist Village in Mukallah (US$206,815) and Environment and Social Impact Assessments of the subprojects (US$197,000). In addition, the Cities Alliance Program provided a grant of US$150,000 for city development strategies in the three cities.

2.2 Implementation

32. Government's commitment and project readiness: The Government issued several critical Decrees to demonstrate its strong ownership and commitment during Program preparation. For example: (i) a Decreel6 was signed on June 12, 2002 to provide full support including counterpart financing in support of the Program; (ii) a second Decreel7 was issued in September 2002 to establish a high-level inter-ministerial coordinating committee to facilitate project implementation activities and established LEDDs for Aden, Hodeidah and Mukkalla.

33. PCDP Management Arrangements: Implementation was to be undertaken by the LEDD in Aden, with the objective of establishing an institutional foundation in Aden first, before expanding to the other cities. The role of the National Coordination Unit (NCU) was originally envisaged to assume overall coordination, over-sight, and reporting responsibilitiesl8 • However, capacity to manage IDA resources did not get built in the LEDD, affecting implementation. Project management responsibility was thus transferred to the NCU which took about two years to attract appropriately skilled professionals to manage an IDA supported project. Establishing a new agency like the LEDD, with a new and strategic function of enabling economic development, demanded a skill set that is very different from the skill set needed to manage an IDA-supported

13 PHRD TF 25918 for US$364,000 out of which US$354,442 was disbursed with the remainder US$9,558 being cancelled; PHRD TF 090647 for US$550,000 out of which US$537,745 was disbursed with US$12,255 being cancelled; and PHRD TF 093084 of which all US$340,000 was cancelled. 14 Some ofthe investments identified in the CIPs were rejected for one or more of the following reasons: (i) the participatory methodology for the identification of investments as priority investments was questioned and rejected by the LEDDs in Hodeidah and Mukallah; (ii) inclusion of some investments required the NCU to liase with a large number of interlocutors; (iii) clear operational and maintenance arrangements for some investments had not been developed and there would be a risk of non utilization or under utilization of the assets created by PCDP 2 (Supervision Mission Aide Memoire, October 2009). 15 Of which US$354,442 was disbursed for studies and US$9,558 cancelled. 16 No. 198-2002 - to encourage Governorates to launch initiatives in, support of the Program 17 No. 264-2004 18 Minutes of Technical Discussions, September 30 - October 2,2002.

-8-

project. It was too ambitious to expect a newly established agency to perform two very different and new functions.

34. Mid Term Review: The mid-term review (MTR), carried out on November 22, 2005, recorded good results on the ground i.e.: PCDP's success in initiating a culture of consultation and discourse, including the participation of women, and catalyzing a change in the social environment that enabled urban communities to come together in new ways. The MTR team also noted that various institutions worked together harmoniously in response to community needs mobilizing skills both from within the government and the private sector. With respect to the LEDD, the team appropriately highlighted the earlier weak performance and recommended streamlining its administrative structure, and providing adequate incentives to its staff so that it may fulfill its strategic role in the city J9. At this time, about three and a half years into effectiveness, PCDP had disbursed around US$5 million (about 21 %).

35. Project commitments had increased substantially from around US$4 million to around US$12 million and disbursements from US$2.6 million to US$5 million around May 2005, mainly due to the resolution of delays at Yemen's High Tender Board (HTB)2o, for a contract valued over US$5.6 million because of non-compliance with the Bank's Guidelines on the part of the HTB .. Implementation progress, which had been rated 'moderately satisfactory' a year earlier, was therefore upgraded to 'satisfactory'.

36. Country Portfolio Performance Review: The Country Management Unit (CMU) carried out a Country Portfolio Performance Review (CPPR) in 2007 and confirmed the project's strong focus on the country's emerging economic needs. The review recommended extension of the project's closing date from June 30,2007 to December 31,2008 so that on-going studies could be completed.

37. Decentralization of select functions to local government: Under the auspices of the Port Cities Inter-ministerial Committee (PCIC) established as the national level coordinating body of the PCDP, a number of select functions were devolved to the project's port cities, on a pilot basis, giving them greater authority to lead city-level development. The PCIC demonstrated its political will by authorizing the project port cities to undertake preparation oftheir own city Master Plans, and by removing limits on the size of an investment project that could be approved by the GIA branch offices at the city levee J• This, coupled with a reduction of transaction costs for investors through the establishment of a one-stop-shop, a key reform supported by PCDP, significantly reduced the time for investors to register their business.

Increased private sector engagement in Aden

38. Establishment of advisory council for investment: In a move to strengthen investment planning and consultations with the private sector in Aden, the Governor, with the support of PCDP, established an advisory council for investment in Aden, chaired by the Governor. The Director of LEDD was appointed as Secretary to the Council. Membership of the Council included the chairman of the Aden Free Zone (AFZ) Authority, General Investment Authority

19 Following these recommendations, the Director of Aden LEDD was replaced by a new, highly-qualified professional, from General Investment Authority, who significantly improved LEDD's performance by revitalizing specific functions of the LEDD and generating positive results such as finalizing City Development Strategy, City Master Plan, and Capital Investment Plan, thus triggering Phase II. 20 Works contract for upgrading Al Durrain Industial Estate. 21 Initially, both functions were reserved for the line ministries and central government agencies in Sana'a.

-9-

(GIA), and several representatives of the private sector, representative from key business clusters identified in the Aden LED strategy, including industry, tourism, and marine services.

39. Increased private and public investment in Aden: Over 2002-2009, as Yemen's economy grew at an average of 4.6%, and Aden's population at an average of 4.7% per annum, the project team consistently reflected in their supervision reports to Bank management, the agglomeration effects in Aden, although these were not attributable to PCDP. As a result of the growth in Yemen's economy, there were sharp increases in private sector investments, the start-up of new businesses which generated jobs. Over this period, both national and local government budgets for Aden were also on the rise, particularly as the city prepared to host the region's "Soccer 2010" games. Consequently the Government made a number of physical improvements to the infrastructure with its own budget, e.g. improvements to the Khormaksar waterfront; rehabilitation of water mains; improvements to the Jabal Hadeed Road and the corniche promenade; award of private concessions to retail establishments; construction of ring roads to reduce traffic congestion including network improvements around the Tawahi area; upgrading of public beaches; and the construction of two new power stations in Mansoura (72 MW) and AI­Hiswa (60 MW).

40. Opportunities for private provision of infrastructure: The project team also reported interest from the private sector during this time to invest in the development of infrastructure, e.g. a natural gas pipeline, an independent power plant, a build-own-operate arrangement for reconstruction of the Mukalla Port, and development of the AFZ. These however, were yet to materialize at the time of writing the ICR.

41. Aden Public-Private Partnership fund: A public private partnership (PPP) Fund was established under the control of LEDD. The Fund financed nine projects, including the IT training center (US$120,000) on the grounds of the governorate offices. Upon completion, this was leased to a private firm, with the lease income accruing to LEDD. This PPP in Aden was a vehicle for receiving donations from the private sector and applying the funds for public projects, possibly a first in Yemen. Upgrading of AI Arish roundabout (US$40,000) and rehabilitation of the Mansoura and Sheikh Othman Green Belt (US$100,000) are other examples of projects financed by the PPP Fund that have resulted in significant upgrading improvements in their respective districts.

Participatory planning

42. The Program initiated and sustained consultation with various stakeholders throughout its life, leading to greater buy in from local stakeholders and proactive resolution to potential problems. One such example is the turnaround in the attitude of the fisherman to the subproject for the rehabilitation of the Sirah fish market which required the temporary relocation of a mosque during subproject construction. The relocation was successfully done in large measure due to trust and cooperation engendered by the National Coordination Unit (NCU) and the Governor through continuous communication with stakeholders. As a result, it was the community itself that dismantled and relocated their mosque in a temporary, makeshift structure to facilitate contractor's work on site - a big feat in Islamic culture where holy sites are generally not tampered with.

43. Flexible financing for ad hoc consultant support as the needs arose. PCDP was able to finance small strategic consultancies as per the Government's needs, a manifestation of the flexibility of response to changing needs that an APL enabled. For example with the assistance from a Competitiveness Specialist financed under the Project, the Government prepared an

-10-

advocacy note for Yemen's membership in the GCC (although Yemen is yet to become a member). After the floods in Hadramout and Al Mahara governorates in November 2008, PCDP financed engineering studies for reconstruction. To leverage donor funds, it financed engineering studies for the Aden Causeway, which led to the donation of US$44million by the Arab Fund for construction. To facilitate investments in the natural gas sector, PCDP financed a gas utilization study. It also financed consultancy services to develop terms of reference for a variety of additional studies for example, a feasibility study for street signage and addressing (Aden); waste water study in Aden; urban design concept for Gold Mohur water front area; flood mitigation for Crater District in Aden; concept notes for the development of a sea canal link to the salt works (Abiyan Road to Malahat in Aden); the development of a cross harbor link connecting Maala Dikka with the Aden Free Zone peninsula. Many of these studies, however, have yet to yield results.

44. Government's intervention to restructure Aden Free Zone: During implementation, significant efforts by the task team and the Government stakeholders were devoted to policy dialogue on enabling the land of the AFZ to become available for investors. A draft legal and regulatory framework for the AFZ was developed in March 2008. An international firm, recruited to assess private sector demand for the development of a part of the AFZ, delivered its final report in July 2009. Subsequently, the Deputy Prime Minister approached the International Finance Corporation (IFC) to help Yemen develop a comprehensive legal and regulatory framework for Special Economic Zones (SEZ), of which the AFZ would be a part. IFC delivered the draft SEZ Law to the Government in September 2010. It is presently being reviewed internally before submission to the cabinet for approval.

Implementation Performance of Local Economic Development Departments:

45. Aden LEDD: Right from Project effectiveness, the role, function and performance of Aden LEDD became the focus of attention, making it apparent that without adequately incentivized staff, the LEDD would not be in a position to fulfill its strategic role in the city, quite apart from delivering on its original mandate to implement PCDP. Several different types of restructuring measures were contemplated, but no decision was made until the time of the Project Mid-Term Review in 2005. In late 2005, the Director of Aden LEDD was replaced with a new, highly­qualified professional, transferred from the GIA, who significantly improved LEDD's performance. Aden's CDS, Master Plan, and Capital Investment Plan22 were completed, thus achieving the trigger for Phase II of the Program at the city level. More importantly, LEDD was able to collect and make available city level data on economic activity, a practice that is rare in most developing country cities.

46. Mukalla LEDD: The Mukalla LEDD department was established by a Governor's Decree in January 2005. The Governor appointed the former Director and Deputy Director of the Master Plan Revision and Update Project (MPRUP) as LEDD Director and Deputy Director, as well as two MPRUP staff. The Hadramout Governorate paid the first year's rent for the LEDD's premises in a centrally located building. Office equipment and furniture was financed by PCDP. The Mukalla LEDD plays an important coordinating and facilitating role in enabling and sustaining discourse on various infrastructure and investment projects, as well as in seeking donor support for select projects. Other activities include the master planning process, including stakeholder discourse of a variety of investment projects that affect the city's development. The

22 Final Aden master plan and capital investment plan were approved by Cabinet Decree No. 404 of2005 during the Cabinet's session of December 17,2005.

-11-

LEDD collected extensive data and undertook surveys on the role of women in Mukalla's economy. It prepared action plans for the privatization of solid waste management and to manage city's municipal assets particularly waterfront areas, including management/concession contracts. Every year the LEDD provides advisory services to the Governor and the local council, in organizing the May 22nd national day festivities23 which is generally attended by the Yemeni President and attracts thousands of visitors. To date the LEDD team has worked on detailed designs for several urban design improvements in the city overseeing implementation of activities including events targeted at regional investors attending future festivities. The LEDD also oversees organization of a two-week traditional summer festival in Mukalla that attracts thousands of visitors. This has earned Mukalla LEDD the trust of the Governor and of local council who fully rely on the department to implement its mandate. The challenge facing Mukalla LEDD is to ensure sustainability of its operations, including proper incentives for the staff and its operational cost.

47. Hodeidah LEDD: The Hodeidah LEDD, somewhat weaker than other two LEDDs, was established by the Governor's Decree in January 2005. A Director and two staff were seconded from the Governor's secretariat and the Tihama Development Authority that paid their salaries. The LEDD now occupies its own premises made available in the new Governorate building and is fully equipped with computers, printers and air conditioners that were financed under PCDP. In 2005, the NCU moved its activities to Hodeidah for one month to help jumpstart the new LEDD team build capacity in task planning, reporting, monitoring and evaluation of city program, financial management and other functions. PCDP activities occasionally suffered while LEDD Director was involved with the Governor in day-to-day administrative activities.

48. Status of Triggers for Advancement to Phase n

National Level Triggers:

(a) Improved Zones Regulatory Framework (b) Resettlement Policy Framework

City Level Triggers:

Aden

(a) LEDD created (b) City Economic Development Strategy (c) Master Plan completed (d) Prioritized Capital Investment Plans (e) Resettlement Policy Framework (t) Investor Advisory Council (g) Investor Services Center (h) Citizen Services Center (i) Information Technology Center

Hodeidah

(a) LEDD created

23 National Unification Day.

Completed by Cabinet (Mar. '08) Completed and endorsed by MOPIC (Jan. '08) Endorsed by Aden local Council (Apr. '08) Endorsed by Mukalla local Council (May '08) Endorsed by Hodeidah local Councils (Oct. '08)

Created by Governor Decree (Sept. '02) Completed (Jun. '05) Completed (Dec. '07) Completed (Dec. '07) Prepared/submitted to World Bank (Feb. '08) Established and operational (Jui. '06) Established, equipped and operational (Dec. '07) Established, equipped and operational (May '07) Established, equipped and operational (May '07)

Created by Governor Decree (Jan. '05)

-12-

(b) City Economic Development Strategy (c) Master Plan completed (d) Prioritized Capital Investment Plans (e) Resettlement Policy Framework

Mukalla

(a) LEDD created (b) City Economic Development Strategy (c) Master Plan completed (d) Prioritized Capital Investment Plans (e) Resettlement Policy Framework

Completed (Jan. '08) Completed (Dec. '07) Completed (Feb. '08) Prepared and submitted to World Bank (Feb.'08)

Created by Governor Decree (Jan. 2005) Completed (Jan. 2008) Completed (Dec. '07) Completed (Feb. '08) Prepared and submitted to World Bank (Feb.'08)

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

49. In partnership with the United Nations Habitat Indicators Program and the Arab Urban Development Institute (AUDI), a set of baseline indicators for city performance was established during project preparation for a performance-based monitoring system (PBMS) to cover a diverse array of economic and social city level indicators. This was designed to monitor changes in the city's economy, including those changes as a result of PCDP investments. Each LEDD was responsible for preparing its periodic PBMS report and submitting it to the Port Cities Inter­Ministerial Committee on a semi-annual basis. The M&E Handbook was prepared providing procedures to ensure consistency in collection of performance indicator data and serves as a guide for LEDD staff. During the MTR in November 2005, these indicators were further refined, including the data attributable to PCDP's investments. However, these were never reflected in the ISRs until late 2009.

2.4 Safeguard and Fiduciary Compliance

50. Environmental Safeguard: The Program design took into account Bank's safeguards policies and included procedures to ensure full consideration of environmental safeguards in accordance with OP 4.01. The Program (Phase I) was categorized as 'B' as it did not expect to include any sub-projects with significant environmental impacts. The work was expected to be limited in scope and focusing mainly on existing small-scale infrastructure in commercial areas. Nevertheless, an Environmental Management Plan (EMP) was prepared in compliance with the World Bank guidelines.

51. Social Safeguards: Because of the complexity of land tenure issues in Yemen, a Resettlement Policy Framework (RPF) was prepared, and was one of the triggers for advancing to Phase II. Training on resettlement issues was organized for a team of key stakeholders in 2004 through a knowledge exchange program in Lebanon, based on the extensive resettlement experience that resides with Lebanon's Council for Reconstruction and Development.

52. No significant safeguard problems were experienced other than the issue with the contract for access improvements to the Sirah Castle. The World Bank received a complaint from the alleged owner of the land parcel where PCDP, the funds had financed paving of a parking lot at the base of the historical Sirah castle in Aden. The Bank's management visited the project site in May 2009 and a letter to the RoY requesting compliance with the Bank's land acquisition policy as well as Yemeni Law particularly articles 7( c) and 20 of the constitution was sent. As a result, a contract was signed for the removal of the paving parking lot, and the paving removed.

-13- .

53. Financial Management: The financial management system (FMS) was setup in accordance with the project's design and legal agreement, and was based on the principles defined by the Government's accounting framework to meet project's financial management needs. The LEDD in Aden was originally responsible for managing project's financial management and reporting aspects however this responsibility was transferred to NCU because of limited capacity at LEDD. As a condition of effectiveness, the FMS was established, equipped, made functional, and a qualified Financial Specialist, acceptable to IDA was appointed. An accrual based computerized accounting system was installed in April 2003 following international accounting standards. A Chart of Accounts structured along the PCDP components with capacity to classify accounting data was adequately established. .

54. Overall the FM arrangements were adequate, capable of generating required quarterly FM reports. The accounting unit continued to be headed by a financial manager reporting to the Project Management Unit (NCU) manager, who reconciled Project's Special Account on a monthly basis; posted project data into customized accounting system; and generated quarterly progress reports that were verified and approved by Bank's FMS. There was clear segregation of duties between the functions of initiation, authorization, disbursement, and recording. Withdrawal Applications were issued in a timely manner. The PCDP's financial statements were audited annually by a qualified independent auditor acceptable to IDA. The project also maintained an accounting procedures manual as well as a fixed assets registry manual.

55. Procurement: The procurement task was managed by the NCU. The procurement staff received necessary World Bank procurement training to manage civil works contracts. The Arabic bidding documents used were a translation of the Bank's standard bidding document and were used for all sub-projects regardless of their size. The bid evaluation reports prepared by the NCU followed a standard format that consisted of bid opening details, recorded minutes and a checklist of submitted documents. The evaluation process and results were subject to the approval of the HTB.

2.5 Post-completion OperationlNext Phase

56. The 'overall purpose' of the APL was to transform Yemen's port cities into regional centers of economic growth. Notwithstanding that all the investments and studies undertaken under PCDP have been completed, the prospects of reforms essential for economic growth remain elusive. The expectation of progress with decentralization which would in tum be a major enabler of city empowerment also remains unrealized, as this would have required sufficient economic and political stability in the country. At the close of Phase 1, fiscal deficits are high and likely to worsen with a decline in revenues largely derived from oil, and the security situation and fragility has worsened. Overall economic prospects for Yemen remain uncertain. Consequently, an enabling environment for economic diversification that would require concurrent reforms in multiple sectors (power, ports, free zones) remains doubtful, as does bringing about and sustaining changes in institutions, organizations, and behavior of public sector agencies24 •

57. The Bank therefore deemed it necessary and appropriate to exit the APL in favor of SIL to sustain the engagement in the three port cities through the Second Port Cities Development Project (PCDP II), approved by the Board on May 25, 2010. Reform initiatives that affect the

24 A case in point is the inability of the LEDDs to develop the necessary capacity as discussed earlier, in large measure because appropriate institutional arrangements for city management in Yemen do not as yet exist as full implementation ofthe decentralization law has not as yet taken place.

-14-

sustainability of investments critical for the local economy, are going to be supported by PCDP II. One example is the ring-fenced management arrangements for infrastructure sub-projects to be supported by PCDP II. Another example is an initiative that has already gained local political support under PCDP, the Asset Management Study begun under the first phase. PCDP II will support the development of data bases of existing public sector assets, and appropriate contractual instruments for the private sector for select assets.

3. Assessment of Outcomes

Overall rating: Moderately Satisfactory

-15-

3.1 Relevance of Objectives, Design and Implementation

58. PCDP was the first Bank supported intervention in twenty years of urban engagement in Yemen that committed the Bank to focus on port cities with high potential to contribute to macro economic growth. Five cities in Yemen account for. roughly half of Yemen's current urban population, and three of these five cities are port cities, growing rapidly. The relevance of PDOs therefore remains high. The PDOs rightly focused on increasing public/private engagements and improving operations for registration of new businesses in Aden. In Aden it supported small strategic infrastructure improvements for existing economic clusters that have not just enhanced economic activity, but also created an amenity for the city, for example the revitalization around Sirah Fish market. Improvements to historic sites, for example, access to Sirah castle, has also been positive - by the time of writing this ICR, the local council was aware of the potential for tourism, has put in place incentives for school children to visit the historic site, and it has started to charge entrance fees from local tourists, which is expected to contribute towards sustainability of the investment. The re-engineering for business registration has been remarkably successful as it has effectively eliminated the need for an investor to seek approval from Sana'a in addition to dramatically reducing transactions costs for investors from several days to a few hours. This success has enabled the GIA to secure support from other donors to replicate this in Hodeidah and Mukalla. PCDP also initiated consultative mechanisms which are sustained to date, either around new investments, or asset management. These will be supported to strengthen them going forward under PCDP II. The creation of the LEDDs in the three cities set the stage for future government programs.

59. In terms of design, the project set an ambitious agenda as it raised significant expectations, both in Yemen and in the Bank. For example, LEDD Aden was expected to be created and take responsibility both for strategic local economic development as well as for . project implementation. In hind sight, this was an unrealistic expectation as adequate skills for project management never materialized. This ultimately led to a transfer of project management responsibilities to the NCV, and the project was implemented in seven instead of four years.

60. While the Aden LEDD was still in its infancy with no track record on which the new institutional arrangement could be assessed, in less than a year the DCA was revised to include the establishment of LEDDs in Hodeidah and Mttkalla for local economic development in their respective cities. In hind sight, this too proved ambitious as the LEDDsare not fully functional, and unable to receive the support for preparation of engineering studies for the subsequent phases.

61. In addition, progress with enabling access to land in the AFZ and the Hodeidah Industrial Estate through the development of an appropriate regulatory regime did not occur.

62. Link with Country Assistance Strategy (CAS) and Yemen's development agenda: The design of the APL Program, and the PDOs at appraisal, was aligned with the two key objectives of the CAS: (i) creating an attractive investment environment to generate job opportunities through lighter and more predictable regulation and taxation, enforceable contracts, predictable application of laws, and adequate infrastructure support; and (ii) achieving an improved governance through better budgeting, expenditure, fiduciary controls, policy formulation, and capacity building for effective decentralization, and more generally for improved service delivery to the public and business community25 .. The Program focused on strategic location, coastal aquifers, trading culture, and decentralized government agenda, the four attributes that were

25 CAS document No.IDAlM2002-0248, CAS discussion date: 09/05/2002

-16-

identified as being important in the CAS for economic growth and job creation. By focusing on the port cities, the Program targeted localities in Yemen with favorable economic and geographic endowments and responded to the demographical shifts resulting from water scarcity in the highlands. The Program also supported decentralization of select functions, to improve the business environment in the port cities.

3.2 Achievement of Project Development Objectives

63. The PDOs in the PAD26 were: "to assist the Borrower to: (i) remove critical constraints to economic development; and (ii) improve the environment for investment and economic growth and development, within its Port Cities."

64. PCDP reduced congestion in the economic infrastructure it targeted. For example, investments in improvements to the fishing port and market at Sirah, led to an over 200% increase in the number of fishing boats that dock at the port as well as an appreciable increase in the number of restaurants in the vicinity as the investment created an amenity for the city. There has been a 1400% increase in the efficiency of vehicular movement during peak hours at the traffic intersections improved by the project, and over a 200% increase in the area devoted to industrial production in the industrial estate upgraded by the project.

65. By successfully establishing a one-stop-shop for investors in Aden, the PCDP significantly reduced transaction costs for businesses seeking registration in Aden .. By initiating dialogue on industrial estates and the AFZ it catalyzed inter-ministerial discourse at very high levels. While an adequate regulatory framework for these zones could not be developed under PCDP, the team's efforts nevertheless contributed to the government requesting IFC to support the development of a SEZ law for Yemen. IFC's involvement ultimately led to a greater emphasis on a broader policy environment needed to give a push for investors - this goes well beyond the industrial estate in Hodeidah and the AFZ in Aden, and given the capacity limitations in Yemen, harmonizes regulations and implementation across the country.

66. The project thus contributed substantially towards achieving the PDOs.

3.3. Efficiency

67. US$ 16.81 million, or about 60 percent of the total project cost of US$28.39 million, was invested in works. For these, a cost-benefit methodology was used to assess the economic viability of a sample of the works27 the sample being about 32 percent of the total works under the project. For the project's expenditures on studies (about US$7.81 million, or 27.5 percent of the total project cost), benefit streams were not quantifiable, and a least-cost methodology for analysis was adopted.

68. The ERR for the sample of works is about 80 percent. This robust outcome is based on a representative sample of PCDP's infrastructure investments, which constitutes about 32 percent ~f PCDP's total cost of works, and close to 55% of the investment made by PCDP in works. Considering that the analysis includes a broad range of economic rates or return for different

26 PAD after issuance of the Corrigendum. 27 Tawahi Dirtrict market (US$I.18 million), Crater Intersection (US$I.12 million), Sirah fish market (US$I.12 million), and the AI Durain Industrial Area (US$5.61 million).

-17-

kinds of works, it may be argued that the ERRs for all the works subprojects are likely to range between 10 and 83 percent, making them economically acceptable.

69. It has been determined that the project has contributed to the improvement of the quality of life for some 700 to 900 low-income fishermen and their families at the Sirah fish port and market. Also, PCDP has directly and indirectly improved employment opportunities; for instance, in Al Durain industrial zone about 17,250 new jobs have been created, after rehabilitation. In addition, urban productivity has been enhanced through the improvements to the Malia Dakka Old Port, the interconnection of Aden's urban transport network, and better traffic management. Furthermore, the rehabilitation of the Tawahi market has significantly upgraded the quality of the physical environment for sellers and buyers, along with food safety and through greater sanitation standards.

70. On the institutional side, the project's benefits may be observed in the enhanced ability of Aden's LEDD to take the leadership in the gradual implementation of Aden's urban strategy.

3.4 Justification of Overall Outcome Rating

Rating: Moderately Satisfactory

71. The overall outcome of the project is rated moderately satisfactory. The project's PDOs were and continue to be highly relevant for Yemen. The infrastructure investments have a high rate of economic return. The streamlining of procedures to reduce processing time for business registration has been highly satisfactory. In terms of design, as discussed earlier (paragraph 59) the project set an ambitious agenda. Regarding studies which absorbed roughly one-third the project's costs (US$7.39million), the impact is yet to manifest itself .. For example, it is unclear whether the reforms identified in the ports sector will occur. Similarly it is unclear whether the Government will utilize the bidding documents delivered for private participation in the power sector. With respect to the Master Plans, it is unclear whether they will be implemented, given the experience with implementation of these in developing countries. With respect to the study for development of a Tourist Village in Mukalla, it is unclear whether private sector investment in tourism will be forthcoming in the near future, given the security environment. The City Development Strategies supported by Cities Alliance led to the articulation of Capital Improvement Plans for the three cities, however, many of the investments proposed in these Plans28 were rejected by the LEDDs for support under PCDP II for one or more of the following reasons: (i) the participatory methodology for the identification of investments as priority investments was questioned and rejected by the LEDDs in Hodeidah and Mukallah; (ii) inclusion of some investments would require the NCU to liase with a large number of interlocutors; (iii) clear operational and maintenance arrangements for some investments had not been developed and there would be a risk of non utilization or under utilization of the assets created by PCDP 229.

28 The CIPs reviewed by IDA included infrastructure in Aden's free zones and Hodeidah's industrial estates with the possible inclusion of incubation facility for technology transfer and adaptation, market research, support to small agro­industries, laboratories; logistic center for the Hodeidah port; small scale power generation for Aden, power transmission, transformation and/or distribution infrastructure power generation for Aden; a tourism village in Mukalla, improvements to the existing port to accommodate passenger cruise ships, improvements to the city's water and sewage system, urban design improvements in Mukalla city and so on. 29 IDA Supervision Mission Aide Memoire, August 2009.

-18-

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

72. Poverty Impact: Reducing poverty in the port cities was not an implicit or explicit area of focus of the project. As such, no poverty assessment was done. Its investments in the fishing port, however, impacted a significant number of fisherman, largely poor - in Yemen, almost 90% of the fishing boats are small artisanal fishing boats.

73. Gender Aspects: Although gender inequalities in accessing economic resources and participation in decision-making process still persists that has put women at a disadvantage, the Project nevertheless attempted to improve women's participation in a decision-making process by ensuring that they become key members of the city development strategy team. A Decree was signed by the Governor of Aden which explicitly included provision to include a representative of the Women's National Committee in the CDS team. The Head of the CDS team and the Head of the local council expanded CDS team further to include a woman expert in economic development and women member of the local council as permanent members of the CDS team. In total three positions were created for women stakeholder groups and several more systematically integrated into the advisory groups of CDS where they play active role in devising economic strategies for Aden's development. By doing so, women have earned the right to receive benefits from the economic growth mobilized under this Project.

74. Social Development: PCDP's social development outcomes were: improved economic opportunities for low skilled workers, including women; improved women's role in decision making; and building social capital and increased public participation in development. The Project helped build council members' capacity in involving communities in planning and implementing local development initiatives. The decentralization process raised public expectations about its impact on development, however local governments still face capacity and resource limitations and have relatively limited institutional mechanisms in place for public consultations or participation.

(b) Institutional Change/Strengthening

75. The institutional objectives vis-Ii-vis implementation of the one-stop-shop for investors in Aden, was fully achieved. PCDP enhanced the effectiveness of key public agencies related to business registration in Aden, and has facilitated direct interface of the private sector with the General Investment Authority, Customs Authority and Public Land Authority. PCDP provided capacity building to core local government departments with regard to land use planning.

76. An institutional framework has been put in place for supporting strategic interventions aligned with local economic development needs in the three cities - one of the most noteworthy achievements of PCDP. This has been done through the establishment of the LEDDs, and through instituting a culture of participation of a broad spectrum of stakeholders from private sector and the civil society, although not inclusive of the poor.

(c) Other Unintended Outcomes and Impacts (positive or negative)

N/A

-19-

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

77. No beneficiary assessment (surveyor workshop) was carried out upon closure of the project as it was judged to be unnecessary. As per the monitoring reports prepared by the Aden LEDD, the sub-projects had a significant impact on local economic activity. For example, there was a 233 percent increase in the number of boats at the docking facility; a 360 percent increase in the number of fish sellers; and a 100 percent increase in the number of fish restaurants. At the Crater intersection, there was a 1400 percent increase in the efficiency of vehicular traffic movement during peak hours and no accidents reported since completion of works. At the Malla Dhakka Port, waiting time for trucks to load and unload their consignment was reduced to zero. The number of establishments in the Al Durain industrial estate has increased almost 57 percent, from 106 to 165; there has been an over 700 percent in the number of jobs, from 2,500 in 2003 to 19, 750 in 201030 . These impacts were re-validated during the ICR mission and are recorded in Annex 3.

4. Assessment of Risk to Development Outcome

Rating: Low

78. The likelihood of changes detrimental to the ultimate achievement of the Project's outcome is considered low, in large measure because a culture of consultation and partnership with the city's business community and the government has been established. This is expected to broaden to become more inclusive, as PCDP II is supporting consultations with the poor around the subprojects it is supporting. Presently, in each of the three participating cities, for example, the chamber of commerce along with the local council is approaching additional donors to seek funding for future improvements to cities' infrastructure as prescribed in their Capital Investment Plans.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry

Rating: Moderately Satisfactory

79. The Regional Operations Committee (ROC) commended the program for being well aligned with the overall MNA Strategy3l, advised that indicators for triggers could be qualitative - these ultimately proved to be ineffective. The ROC recommended the first phase be three years instead of two. In reality, however, the first phase took seven years, largely because the initial implementation arrangements had to be revisited and transferred to the NCV. ~uality at Entry was formally assessed through QAE6 process by the Quality Assurance Group 2, although not during preparation, in which the panel rated overall QAE operation as 'satisfactory' and suitable

30 Aden LEDD Economic Monitoring Report (refer to Annex 9) 31 Summary of ROC Review March 13,2002: (i) responded to increasing out migration from highland areas due to water shortages by shifting investment from water scarce to water abundant areas; (ii) strengthened public sector efficiency through the design of a reform program; (iii) enhanced participation and voice (private sector and women's groups) through the city development strategies; (iv) employment generation and private sector participation through local economic development approach. 32 Assessment date: 6/18/2003

-20-

fQr an APL. All Qther dimensiQns Qf the PrO' gram were cQnsidered satisfactQry, including quality Qf interventiQn/activities in Phase-I, with SQme areas Qf best practice.

80. A number Qf alternatives were cQnsidered and lessQns were drawn frQm past projects in Yemen, and frQm appropriate sectQr wQrk (CQuntry Assistance Strategy, August 2002; Urban SectQr Strategy, March 2001) incQrpQrated in the design.33 HQwever, the PrQject team did nQt adequately take intO' aCCQunt Qther relevant aspects, particularly with respect to' implementatiQn arrangements that relied Qn newly created entities, and had to' be changed.

81. PreparatiQn was carried Qut with adequate number Qf specialists whO' provided technical skill mix necessary to' address sectQr CQncerns with adequate reSQurces in terms Qf staff weeks and dQllar amQunt to' ensure quality preparatiQn wQrk (see Annex 4). The Bank alsO' mQbilized PHRD grants to' facilitate preparatiQn fQr the client. Participative wQrkshQPs were cQnducted during preparatiQn to' launch a cQnsultative prQcess amQng stakehQlders and to' infQrm them abQut Program's gQals, apprQach and implementatiQn steps. WQmen, in particular, were active participants in this prQcess and shaped the city's develQpment visiQn and Qbjectives to' include gender cQnsideratiQns.

82. All applicable Bank PQlicies were cQmplied with and nO' exceptiQns were recQmmended.

83. NQtable effQrts nQtwithstanding, an enabling environment fQr private sectQr led grQwth has been difficult in Yemen, particularly after the USS CQle34 bQmbing fQllQwed by the events Qf September 11, 2001. There alsO' appears to' have been little meaningful prQgress Qn decentralizatiQn since the passage Qf the Local AuthQrities law Qf 2000, as the transfer Qf Qwnership Qf land and real estate assets frQm central to' IQcal authQrities has nQt yet Qccurred.

(b) Quality of Supervision

Rating: Moderately Satisfactory

84. The Bank's perfQrmance Qn supervisiQn was mQderately satisfactQry. PCDP was regularly supervised frQm the headquarters and frQm the field. Adequate reSQurces were made available by the Bank to' ensure mQnitQring and supervisiQn. The Bank's procurement and financial management staff wQrked with the NCU staff to' explain rules and procedures to' be applied during project implementatiQn. Sixteen supervisiQn missiQns including a Mid-Term Review were carried Qut Qver the life Qf PCDP. In accQrdance with the legal cQvenants, the NCU carried Qut the necessary envirQnmental assessments and adQpted apprQpriate mitigatiQn plans priQr to' implementing sub-projects.

85. The team hQwever did nQt provide necessary Qversight to' ensure cQnsistency Qf the PDOs as described in the PAD and in the DCA until later during implementatiQn. AdditiQnally, even thQugh the QutcQme/intermediate indicatQrs Qnly gQt defined during implementatiQn by way Qf a Supplemental Letter to' the DCA35, these indicatQrs did nQt get reflected in the ISRs, and remained challenging to' repQrt against even after the CQrrigendum was issued in June 2009. FurthermQre

33 Including strategic focus at the city level based on competitiveness rather than addressing a wide range of problems. 34 The USS Cole Bombing was a suicide attack against the United States Navy destroyer on October J 2, 2000, while it was harbored and refueling in the Yemeni port of Aden. 35 Issued in January 2003

-21-

at that time as some sub-projects were under implementation, it was difficult to report quantifiable results.

86. Furthermore, given that IFC ultimately assumed the ownership of supporting development of the Free Zone Law towards the end of the project, had IFC staff been core members of the supervision team when the dialogue began, the progress on the draft Free Zone law (which is currently being reviewed before being sent to parliament), an important aspect of the project, could have been achieved much earlier.

(c) Justification of Rating for Overall Bank Performance

Rating: Moderately Satisfactory

87. Based on Bank's performance during the lending and supervision Phases, as discussed above, overall Bank performance is rated Moderately Satisfactory.

5.2 Borrower Performance

(a) Government Performance

Rating: Moderately Satisfactory

88. The government's performance is rated moderately satisfactory. To help prepare and launch the PCDP's first phase, a Program Coordinator from the Ministry of Planning and Development (MOPD, now Ministry of Planning and International Cooperation - MOPIC) was assigned to work with the Bank team in preparing the Project. The counterpart coordinated essential meetings, facilitated collection of needed data and information, and assisted in Project preparatory activities. Given the cross-sectoral nature of the Project, an inter-ministerial coordinating committee, the PCIC was established which was headed by the Prime Minister, to facilitate project implementation activities - the committee's meetings never became a regular feature of government oversight.

(b) Implementing Agency or Agencies Performance

Rating: Satisfactory

89. The performance rating of the National Coordination Unit remained satisfactory throughout Project implementation period once appropriate staff skills were available in the NCU. All covenants were complied with and good use was made of targeted technical assistance. Progress reports were submitted on a timely basis. The PCDP's DCA required submission of audit reports on a quarterly basis and the annual audit report within six months of year end. This covenant was satisfactorily adhered to. All audit reports were unqualified and the private auditor always expressed satisfaction on the competency of the accounting staff and financial, accounting and management information systems in place. The efficient computerized accounting system was later used for the follow-on Project (PCDP-II) to adapt Project Monitoring Reports-based disbursement system.

(c) Justification of Rating for Overall Borrower Performance

Rating: Moderately Satisfactory

-22-

90. Borrower's overall performance is rated Moderately Satisfactory as justified above. The rating takes into consideration both, the Government and Implementing Agency's performance during preparation and implementation under difficult country environment and all covenants and agreements that the Borrower complied with towards achieving Project's development outcomes.

6. Lessons Learned

91. Generally during project preparation, when an APL is being debated as the choice instrument, particularly in fragile and conflict countries, it is advisable that perspectives of experts external to the Bank be made available to the teams to improve quality of Bank's operations36 • In such countries, a sound analysis of the political economy is critical in assessing the readiness of a project - failing to take cognizance of this may lead to an underestimation of the challenges of reform.

92. The integration of national level reforms with local level reforms in one project, particularly in low capacity environments, is best avoided. National reforms that affect urban development and are within the mandate of national entities require sustained engagement over the long term. This is best supported through single sector instruments, so that results are achievable within a defined time frame.

93. City Development Strategies (CDSs) that focus on an "output document" that defines investments (for example a capital investment plan), risk becoming a one-time donor supported activity. The process of undertaking a CDS needs to ensure in-depth, and locally specific analysis that first informs the development of a segmented participation and consultation plan. When participation is underpinned with local level information which drives the consultative process, the potential for creating a network of an inclusive stakeholder group is high, and can be an important legacy of the CDS process.

94. Capital Investment Plans developed from 'visioning' processes under CDSs, need to be treated with extreme caution. In the absence of analytic rigor along several dimensions of a CDS (livability, competitiveness, bankable, and well governed) consultations occur in the abstract and are not informed. Furthermore, such informed consultations need to be appropriately designed, segmented, and inclusive. In the absence of this, the CIPs may put forth projects for financing that may be neither realistic nor affordable, both with respect to capital and recurrent expenditures.

95. Genuine consultation with direct beneficiaries of infrastructure sub-projects is essential so that social and sustainability issues normally associated with infrastructure investments are addressed in a timely way, including sector-wide or ring-fenced reforms for a subproject. Such consultation can avoid the development of inappropriate design solutions.

96. Special purpose agencies are often essential to ensure there is an entity exclusively focused and dedicated to local economic development, as there is often limited capacity to implement a local economic development vision within existing government agencies. Such entities need to be independent from the traditional bureaucracy of government, so that they can leverage public and private resources for complex projects that have high local economic and social impact. .. It

36 PCDP went through a rigorous process of review, including at the ROC level during preparation which recommended an APL.

-23-

is however, a mistake to burden them with additional responsibilities such as project management to enable them to focus strategically and exclusively on local economic development.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies N/A

(b) Co-financiers N/A

(c) Other partners and stakeholders N/A

-24-

Annex 1. PrQject Costs and Financing

(a) Project Cost by Component (in usn Million equivalent)

Components

1. Revitalizing Aden Economy and Business Clusters 1.1 Access Improvements 1.2 City Revitalization 1.3 Upgrade Small-Scale Commercial

Areas 2. Port Cities Strategic and Physical Planning

2.1 City Development Strategy 2.2 City Physical Studies 2.3 Capital Investment Plan

T A, Feasibility & Design Studies

3. Aden Local Capacity Building Administrative Modernization

4. Unallocated

Total Project Costs

(b) Financing

Source of Funds Type of Co-

financing

Borrower

IDA

Appraisal Actual/Latest Estimate Estimate Percentage of

Appraisal (USn millions) (USn millions)

14.60 16.81 115%

6.00 7.39 123%

4.90 4.19 86%

1.00 0.00

26.50 28.3937

Appraisal ActuallLatest Estimate Estimate Percentage of

(USn millions) (USn millions) Appraisal

3.10 3.10 100%

23.40 26.12 112%

37 Amount higher due to exchange rate appreciation SDRlUS$.

-25-

Annex 2. Outputs by Component (against which progress was reported in ISRRs)

Component 1: Revitalizing Aden Economy & Bnsiness Clusters (US$16.81 million)

97. The component financed' engineering designs, preparation of bidding documents, construction supervision and priority small works investment projects identified through a participatory process approved by the Governor of Aden and Aden Local Council:

Main Outputs

(1) Upgraded Sirah fish market (2) Renovated Investor Services Center building (3) Upgraded AI-Durain industrial area (4) Upgraded Crater Strategic Intersection (5) Upgraded Infrastructure (with electrical material) for Maala-Dakka area (6) Equipment procured for traffic management and road safety/signage in Aden (7) Renovated access to Sira castle (8) Rehabilitated Legislative Council building (9) Rehabilitated Tawahi District market

Component 2: Strategic and Physical Planning within Port Cities (US$7.39 million)

98. The component financed City Development Strategies, Local Economic Development Departments, Master Plans and Capital Investment Plans (triggers for Phase II):

Main Outputs

(1) Urban Plan (study) (2) Study on Housing and Urban Development (3) Study Resettlement Policy Framework (4) Master Plans for Aden, Hodeida, and Mukalla including translations (5) City Development Strategy & Translation (6) Competitiveness Assessment Study (7) Study on Gas Utilization feasibility (8) Architectural Studies (9) Study Branding and Marketing (10) Study Aden Causeway (11) Study Emerging Markets (12) Study Yemen Port Cities Future Vision (13) FeasibilitylDesign Study for Hodeidah and Aden industrial estates (14) Gold Mohur Beach Design Study (15) National Port Strategy Study

Component 3: Aden Local Capacity Building & Admin. Modernization (US$4.19 million):

99. The component financed establishment of Investor's Center for General Investment Authority (GIA) and Asset Management Strategy for Aden. Remainder of the component financed technical staff, NCU operating expense, workshops, training and office supplies for LEDD:

-26-

Main Outputs (two main studies)

(1) Aden Administrative Modernization Study & Investor Center (I-Stop Shop for GIA) (2) Asset Management Study for Aden

-27-

Sirah Fish Market (before and after} Date Start: 27/0912004; Date End: 20/05/2006; Estimated Cost: US$1,200,071

Crater Intersection (before and after) Date Start: 23/06/2005; Date End: 15/08/2006; Estimated Cost: US$1,120,230

AI~Durain Industrial Area (before and after) Date Start: 29/09/2005; Date End: 15/1112007; Estimated Cost: US$ 5,613,091

-28-

Mualla Dakah Area (before and after) Date Start: 16/06/2008; Date End: 07/09/2009; Estimated Cost: US$ 1,159,600

Legislative Council (before and after) Date Start: 12/02/2008; Date End: 10/0812010; Estimated Cost: US$ 793,219

Sira Fortress (before and after) Date Start: 18/1112007; Date End: 28/04/2009; Estimated Cost: US$ 598,675

-29-

Investor Center (before and after) Date Start: 18/12/2004; Date End: 10/0112006; Estimated Cost: US$ 385,802

Tawahi Market Date Start: 16/06/2009; Date End: 30/06/2010; Estimated Cost: US$ 1,200,000

-30-

Annex 3. Economic and Financial Analysis

100. The Economic Rate of Return (ERR) and the Net Present Value (NPV) offered in this report are estimates of economic viability of investments made under urban infrastructure component (component 1). During appraisal ERR and the NPV were not calculated, hence no comparison can be made between an expected and the actual value of these two indicators (ERR and NPV). The risk and difficulty of the Program of not having an estimate of the expected ERR, beforehand, was among others, the impossibility to tell at appraisal, whether the estimated cost of any of these investment was too high (or even unacceptable) vis-a-vis the expected economic benefits, or whether the investment allocation was too small, given the magnitude of the anticipated economic benefits.

101. The ERRs and NPV s computed for this analysis refer to a representative sample of different types of investments carried out under the Program. The sample used is representative of investments in urban infrastructure for which ERR economic rates of return are expected to be substantially different. For instance, rehabilitation of existing district market, improvement to urban transport infrastructure, development of industrial zone, and construction of market area for small-scale fishing port.

102. Additionally, the analysis has focused on investments for which the direct benefits were quantifiable and for which relevant information was available. This limitation therefore excluded Program's investments in consultancies, studies, master plans, and goods and equipment - the benefits of these types of investments are typically unquantifiable.

103. For investments whose benefits are quantifiable, it has been determined that the Program has contributed to the improvement of quality of life for some 700 to 900 low-income fishermen and their families in the urban cluster of Sirah. Also, the Program has directly and substantially improved the employment opportunities for Aden's residents. For instance, in AI Durain industrial zone about 17,250 new jobs have been created after the rehabilitation of this cluster. Urban productivity has been enhanced through significant improvements to the MalIa Dakka old port; Aden's urban transport network (especially at the Crater Intersection), and through better traffic management in general. Furthermore, urban infrastructure, such as the rehabilitation of the Tawahi market has significantly upgraded the quality of physical environment for sellers and buyers of basic food products, along with food safety and sanitation standards.

104. The impact of the project on the institutional side can be observed through the enhanced ability of Aden's Local Economic Development Department. LEDD's staff is now taking lead in the gradual implementation of Aden's urban strategy, which aims at making Aden's city the regional pole of economic growth. For instance, part of LEDD's local economic development strategy has been the implementation of an Investor Service Center. This initiative has already initiated mobilization of private and public capitals (equivalent to US$260,000) through the model ofPPPs in support Aden's economic growth.

105. The quantification of the net benefits of the investments indicates that overall ERR for the Program is about 80 percent. This robust outcome is based on the representative sample of Program investments in urban infrastructure, for which an economic evaluation was feasible, represents about 32.1 percent of Program's total investment cost, and more than half (54.2%) of investments in urban infrastructure. Considering that the sample includes a broad range of economic rates of return, it may be argued that the ERRs for the Program, as a whole, range

-31-

between 10 and 83 percent, making them economically acceptable. This is illustrated below in Table 1 below.

106. The net economic benefits for each of these investments were computed as a difference between the cash-flows of costs and benefits, 'without' and 'with' the Program. Such cash-flows were discounted using a 10 percent rate. Also, a sensitivity analysis was carried out to examine a scenario with benefits lower than 25 percent. Furthermore, taking into account that cost used in the analysis was in fact the actual cost (Le., after project implementation), there. was no need to consider a scenario with a potentially higher cost. The economic analysis, for each investment, converted financial prices into economic prices in order to correct for distortions in prices due to market imperfections. This was done by applying standard conversion factor (SCF) of 0.9. Taxes and duties were removed from financial prices as these were not considered real costs in the economy but rather a transfer of financial resources from private to public sector.

TABLE 1 ANALYZED INVESTMENTS: SUMMARY

ERR INVESTMENTS COST ERR NPV 25% or Lower

Benefit

US$ Millions % US$ 000 % 1 Tawahi District Market 1.18 10.0 202.7 7.0 2 Crater Intersection 1.12 68.0 5,764.0 52.0 3 Sirah Fish Market 1.20 23.0 673.9 15.4 4 Al Durain Industrial Area 5.61 83.1 32,479.9 66.6

Total Investment 9.11 - - -Program as a whole 79.7 38.7 63.5

107. The subsequent sections include results of economic evaluation for the representative investments of Program's economic performance.

1. Rehabilitation of Tawahi Market

108. Situation without the Project: The physical condition of the Tawahi market, similar to other public markets in the city of Aden, was in an extreme state of deterioration. A large number of sellers had relocated to the streets adjacent to the market because of the reluctance of many buyers to enter the market, among other reasons. Situation was further aggravated by the unsanitary conditions inside the market which were creating public health hazard.

109. Situation with the Project: The entire market was redesigned and fully rehabilitated. Its design h~s been tailored to the specific needs of specific products, considering the specific climate conditions of Aden. It provides stalls and stores for 115 sellers as well as offices for the administration. Services, such as public lighting, security, electricity and water supply, as well as sanitary facilities have been upgraded to higher standards.

110. Economic Costs: The economic costs include the investment cost and operation and maintenance (O&M) costs. The capital cost refers to the actual cost of the Tawahi market, after completion, which amounted to US$I.18 million. The cost for operation and maintenance (O&M) has been estimated at 1 % of the capital cost. The estimation of O&M refers to the incremental or net cost, 'which results from the comparison of O&M 'without' and 'with' the project. The additional cost of O&M is necessary in order to permit the assumption that the expected base­case benefits of the project will be actually realized.

-32-

Ill. Economic Benefits: The net economic benefits of rehabilitating district food markets are fairly modest. This is usually the case considering rehabilitations, though needed badly do not significantly impact the real economy. For instance, market's employment generation and market's sales may remain very much at same levels before and after rehabilitation. This result is often reflected in fairly low ERRs and NPV s.

112. In fact, in the rehabilitation of Tawahi market the number of merchants (115 before the project) has remained the same after project completion. The volume of sales, which might be expected to increase (at least marginally), is still unknown since the newly rehabilitated market just began operations, as this report was being prepared. Concluding, the market space, and the quality of market space are the greatest contribution to the economy, which is reflected in the greater rental values of the market stalls and stores (Table 3). The rental values can only be achieved if monthly rents of market stalls and stores are open to the offers of all potential sellers. Without this openness of entry, and of considering the willingness to pay for market spaces, the benefits of the investment could not be realized.

113. Economic Rate of Return: For the purposes of this evaluation, and in order to estimate of the ERR, the economic rental value of the market stall has been quantified, and has been measured by the difference between the total rents 'without' and 'with' rehabilitation. The ERR, assuming a scenario of competitive rents, is 10 percent (Table 2). On the other hand, a sensitivity analysis was conducted for the scenario of lower benefits, which is equivalent to the case of subsidized rents (i.e., those market rents below the private sector rents for comparable retail activities). The results in this case indicate that the ERR drops to 7%; while the NPV which was positive (US$207,700), turns out to be negative (-$25,100), under the subsidized rents.

114. The result strongly suggests the direction in which the market rent policy needs to move. That is, in order to ensure: (i) sustainability in O&M, (ii) a fair competition (i.e., a leveled playing field) with comparable small retail activities in the private sector, and (iii) an economic rate of return greater than the opportunity cost of capital, market rents need to be set at competitive levels.

2. Crater Urban Traffic Intersection

115. Situation without the Project: The over-crowdedness at this traffic junction, and the lack of effective traffic management and control was causing significant delays creating real threat to pedestrians compromising their safety. Serious accidents occurred at this intersection, including casualties, some of them fatal. In general, the situation was characterized by severe congestion and delays of motor-vehicles -- including heavy trucks, buses, taxis, private cars, and motorcycles. The most evident urban economic cost of the situation was the substantial wait time due to daily

. traffic jams, severely affecting overall urban productivity.

116. The situation was evaluated at two peak hours (the morning and the afternoon rush-hours) when the passengers were experiencing daily traffic jams of about 30 minutes. Without the project this situation would have worsen as the current flow oftraffic will keep on growing38.

38 Aden's urban population has been growing faster than Yemen's population -- i.e., 3.77% versus a national average for Yemen of3.0%.

-33-

117. The situation with the project: The result has been significant savings in wait time for all types of motor-vehicles. The situation with the project has not only practically eliminated the severe traffic congestion, but also, drastically reduced, if not practically eliminated, the daily accidents, with corresponding savings in accidents related costs, including less casualties and losses of human life. The average number of monthly accidents at this intersection dropped from six (6) in 2003 to zero in 2008. Though, all these benefits are recognized, the economic analysis has focused on benefits directly related to time-savings, for which their economic value could be quantified with current available data.

118. Based on the technical studies carried out on traffic flows to measure the demand for urban transport infrastructure in Aden, it was possible to estimate the average wait time at this intersection. The wait time has been measured in terms of vehicles per minute and the opportunity cost of time, which has been quantified in terms of urban residents' daily earnings - as reflected in their wages and salaries. The actual benefits of this new infrastructure began in calendar year 2006, and its economic benefits have been evaluated for a 15 year period.

119. Economic Cost: The total cost of the Crater intersection includes the investment cost on this intersection, and the O&M costs associated with new infrastructure. The actual investment cost in financial terms has been reported at US$1.12 million. Physical and price contingencies were covered through the standard reserved funds for any of these events.

120. The O&M cost of traffic intersection have been estimated at 3% of the investment cost. Financial costs were converted in economic cost applying the standard conversion factor. The details of the flow of economic costs for this investment are illustrated in the statistical Annex.

12l. Economic Benefits: Typically, fairly significant economic benefits arise from traffic intersections; and in general from improvements to a city's roads and street transport network. This impact has been expected in Aden at the intersection in Crater. The most important of these benefits, as mentioned above, refers to time savings. This direct benefit accrues to passengers in terms of lesser wait-time, which enhances urban productivity as a whole, and it was possible to quantify it with the information available.

122. Time Savings Methodology: The calculation is based on the difference between passengers' wait time 'without' and 'with' project for the expected yearly traffic flows. The annual streams of savings were calculated on the basis of the value of time (VOT). The estimates ofVOT (Table 5) were based on the daily wage rate in the economy (YR 731.9), and took into account two different population groups for passengers: (i) economically active passengers (EAP), and (ii) non­economically active passengers (NEAP) such as children, dependant adults, students, retirees, and the elderly.

123. It was estimated that about 50% of the passengers in public buses (equivalent to 12.6% of the vehicles) may be considered as economically active population. For private cars, which represent 36.4% of the universe of motor-vehicles, it is assumed one (1) EAP per vehicle. The same assumption, of one (1) EAP has been made for motorcycles that are equivalent to 5.6% of the motor-vehicles. In addition, for commercial pick-ups and similar vehicles transporting products, which constitute 45.4% of all motor-vehicles, two (2) EA passengers per vehicle are assumed. Furthermore, it has been estimated by traffic counts that on average 15,908 vehicles use the Crater intersection of Aden on a daily basis.

-34-

125. In order to determine time savings following has been assumed: (i) working day of 6 hours, (ii) 20 working days per month, and (iii) an average monthly income of US$6S.33 to economically active passengers. Based on this monthly income, the adjusted hourly Income level for Aden's urban passengers has been calculated as: [(US$S20112)/20)]/6 = US$0.56]. Furthermore, it should be noted that Yemen's average yearly income is based on the purchasing power parity (PPP) methodology. The computation of EA passengers and the respective time savings are included in the statistical Annex.

126. Economic Rate of Return (ERR): The ERR is 6S% which, as expected, is fairly high considering that this is the most important traffic intersection in Aden City -- in terms of its highest volume of traffic flows. A sensitivity analysis was performed under the scenario of lower benefits in 25 percent (Le., a lower value of time). The result shows (Table 4) that the ERR is still relatively high (52%). The NPV, in consistency with the above results, is positive and fairly high (US$5.7 million). Based on these robust economic indicators the investment in the urban traffic intersection was economically acceptable.

3. Sirah Fish Market

127. Situation without the Project: The situation without the-project was characterized primarily by the extremely limited and rudimentary market area, the severe unsanitary conditions (such as, absence of hygienic facilities for fish-cutting and display, no sewage or drainage infrastructure, and unavailability of public bathroom facilities), as well as very limited overhead-shelter from the sun, poor public facility for market management, and local government revenue streams limited only to fish sales transactions.

12S. Most fishermen and fish sellers, who operated under these physical environmental conditions, represent the poorest strata of Aden's society, where the catching and selling offish is a subsistence economic activity. However, physical proximity of Sirah Island and other touristic sites, such as the coastal beach and park areas, has provided vital market access to higher-end consumers.

129. The. most evident economic implication of the situation without the project was the substantial constraint to the economic growth of this market - Le., limited increase in both fish sales, and in direct and indirect employment generation - as well as limitation in the reduction of the economic costs associated with illnesses due to unsanitary conditions -- which were also posing a public health hazard.

130. The upgrading of Sirah Fish Market was identified as a priority investment by Aden's City Development Strategy Team in 2003. Consultations with Sirah Local District Council (LDC) confirmed this priority and gradually Sirah's LDC took increasing ownership of the project, particularly in representing it to the fishermen and fish sellers. Investment in the Sirah Fish Market anticipated an important local economic growth effect in this urban cluster.

131. The situation with the project: Sirah Fish Market Rehabilitation has transformed the economy of the local district. The physical conditions of the market have been substantially improved. Market covered-area was increased by 7- fold (from 35 m2 to 260 m2) and market access has been significantly enhanced. The market's physical area has increased from 365 m2 to 610m2. After project completion, fish sellers have doubled (from 40 to SO). Private investment in the surrounding area has taken off - new buildings are under construction and private investments in amenities have improved - practically creating a new destination in the city. Outsourced

-35-

management to private sector has ensured good operation and management of the Fish Market, and is yielding revenue to the city and the governorate - directed through Aden's LEDD.

132. The upgrading of the market's facilities has resulted in substantial increase in fish sales, employment opportunities in the area (through new and small private shops and restaurants), outdoor recreational activities, as well as a reduction in illnesses due to new sanitation. Space to accommodate existing and new fish sellers and fishennen has substantially increased. New fish­cutting and display areas as well as drainage/sanitation services have been installed. Overall improvement in the sanitary conditions such as the installation of public bathrooms has substantially reduced illnesses. Outsourcing services to the Fishennen's Association to manage and maintain this facility has improved the market's O&M. Local Government revenue has been enhanced by US$1500 equivalent of monthly fees paid by Fishennan' s Association.

133. Economic Costs: The O&M cost of the market area, without the project was estimated in the equivalent of average-yearly-income (YR145,612) for four (4) workers, at 2005 prices. This result was converted to US$ applying FY'05 exchange rate ofYR191. On the other hand, O&M with the project was estimated in the equivalent to 1 % of the actual investment cost of US$I.2 million. The total net cost (the incremental cost) comes from the difference between the scenarios 'with' and 'without' the Program. In order to compute the ERR the financial costs were adjusted by the standard conversion factor of 0.90.

134. Economic Benefits: Though, all the economic benefits of the Sirah market (as described above under in the situation 'with' the project) are recognized, the economic analysis has focused primarily in the direct benefits in tenns of new employment for fishennen (100 new fishennen) and new fish-sellers (40 new fish sellers), for which their average yearly income was easily quantifiable. For other direct benefits, such as reduction in illnesses no infonnation was readily available. Therefore, the estimated ERR for the Fish Market may be considered as a conservative indicator of the overall economic benefits of this investment.

135. Economic Rate of Return (ERR): The ERR for the Fish Market is 23% (Table 6), which is substantially above the opportunity cost of capital, estimated at 10%. As expected, based on the result of the ERR, which is greater than the discount rate, the NPV is positive (US$673,900), which indicates that the Fish Market, based on its own economic merits, may be considered as an acceptable economic investment.

4. Upgrading of AI Durain Industrial Area

136. Situation without the project: The industrial area, at appraisal, was facing significant limitations of basic physical infrastructure, which had become a critical constraint for further development of the economic activities it was trying to serve. Some examples could illustrate this situation: (i) most of the transport infrastructure of roads and streets was practically undeveloped; transport was based on dirt roads that were in extremely poor conditions with numerous potholes and undefined horizontal alignment or road edges; (ii) the area was connected to the public electricity network, but was facing frequent power cuts especially during the summer season, disrupting industrial activities; on the other hand, electricity subscribers were facing high monthly fees; and (iii) parts of the industrial area's sewage collection system was operated by gravity, interrupted by sewer lines that were frequently blocked with solid waste compounded by the deterioration of this old system. The sewer system was practically non-functional, which had also become a public health hazard.

-36-

137. Situation with the Project: The most important roads and streets were built and paved in order to eliminate physical and environmental constraints, expanding the use of industrial urban area. The drainage and sewerage systems were rebuilt. Main roads were provided with public lighting and sidewalks. The economic impact on the area was quickly captured. The number of jobs in this industrial zone has increased from 2,500 in 2003 to 19,750 in 2010. The number of non-residential establishment has also increased from 106 to 165. The area covered by industrial activities has expanded from 6.28 ha to 20.86 ha. Land in commercial use has expanded from 1.68 ha to 2.81 ha. Considering these results, the economic analysis of the Al Durain investment has considered the benefits due to the appreciation of land values. Employment benefits are mostly attributed to the private investments.

13 8. Economic Costs: The industrial zone was the largest urban investment of the Program. The main objective of this investment was to provide basic services of physical infrastructure to trigger/induce private investment in industrialized activities and promote local economic growth. Its actual cost amounted to US$5.61 million, equivalent to 41.9% of the total urban investments under Component 1. The net cost of O&M of this infrastructure has been estimated at 12% of the total capital cost.

139. Economic Benefits: The direct and indirect economic benefits of the rehabilitation of Al Durain Industrial Area are the largest, as compare to the rest of the urban investment of the Program. The main overall direct benefit attributable to the investment of Program has been reflected on the actual appreciation of land values; while the indirect benefits are mainly the impact of private investment on local economic growth. This is measured, among other indicators, by the significant increase in employment in this industrial zone. The evaluation of the economic rate of return, however, focuses on the direct benefits on land values. These benefits have accrued to about 37.9 hectares of improved land sites (Table 8).

140. Economic Rate of Return (ERR): An economic analysis 'with' and 'without' the project was undertaken (Table 7). The Economic rate of return of this investment is 83.1 percent; and the net present value at 10 percent discount rate is positive (US$32.4 million). Sensitivity analysis was undertaken to evaluate the impact of a lower benefits on the best case scenario. Assuming the unlikely event that direct total benefits could be 25% lower, resulted in an ERR of 66.6 percent and a positive NPV of US$23.1 million, still indicating a fairly robust outcome of the economic merits of this project.

-37-

Year

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

TABLE 2 ECONOMIC ANALYSIS

T A WAHl DISTRICT MARKET

Lower Rents

Cost with Pro'ect Benefits with Project

Annual Gross Net Capital O&M Total Market Economic Economic

Cost Added Cost Number Rent in Benefits Benefits (US$OOO) (US$OOO) (US$OOO) of Sellers US$OOO US$OOO (US$OOO)

1,180.0 0.0 1,180.0 115.0 11.5 10.8 -1169.2

11.8 11.8 115.0 73.5 69.1 57.3

11.8 11.8 115.0 73.5 69.1 57.3

11.8 11.8 115.0 110.2 103.6 91.8

11.8 11.8 115.0 110.2 103.6 91.8

11.8 11.8 115.0 110.2 103.6 91.8

11.8 11.8 115.0 110.2 103.6 91.8

11.8 11.8 115.0 110.2 103.6 91.8

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

11.8 11.8 115.0 146.9 138.1 126.3

ERR = 7.26%

NPV= ($25.1 )

-38-

Market Rents

Gross Net Economic Economic Benefits Benefits US$ 000 (US$OOO)

0.8 -1169.2

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

138.1 126.3

ERR = 10%

NPV= $202.7

TABLE 3

TAW AHI MARKET RE~TS WITHOUT AND WITH THE PROJECT

Rents at 75% of Rents at 100% of # of Stands commercial rents commercial rents

I Vegetables 16 202,500 270,000

3 Fish Stand 25 210,000 280,000

4 Meat Stand 12 195,000 260,000

5 Qat Stand 2 495,000 660,000

6 Qat Stand 17 225,000 300,000

7 Slaughter house I 22,500 30,000

8 Variety of Shops 0 525,000 700,000

9 Variety of Shops 18 - -10 Variety of Shops 15 - -11 Variety of Shops 1 - -12 Bakery (Oven) 1 - -13 Chicken 3 - -14 Small Bath room 1 37,500 50,000

15 Large Bath room 1 52,500 70,000

Monthly Rents in YR 115 1,965,000 2,620,000

Yearly Rents in YR 23,580,000 31,440,000

Yearly Rents in US$ 110,187 146,916 Source: Computation for this study based on number of stands/shops and rents provided by Ministry of Public Works (MoPW) and Tawahi's Market Administration.

-39-

Year

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

TABLE 4 ECONOMIC EVALUATION

CRATER ROADS INTERSECTION

Investment Total Gross Cost O&M Cost Benefits

(US$OOO) (US$OOO) (US$OOO) (US$OOO)

0 0 0 0

1120 0 1120 0

33.6 33.6 733

33.6 33.6 775

33.6 33.6 820

33.6 33.6 868

33.6 33.6 918

33.6 33.6 971

33.6 33.6 1028

33.6 33.6 1087

33.6 33.6 1150

33.6 33.6 1217

33.6 33.6 1288

33.6 33.6 1362

33.6 33.6 1441

33.6 33.6 1525

33.6 33.6 1613

EIRR=

NPV=

-40-

Net VOT Benefits Lower

(US$OOO) 25%

0 0

-1120 -1120

699 516

742 548

787 582

834 617

884 655

938 695

994 737

1054 782

1117 829

1183 879

1254 932

1329 988

1408 1047

1491 1110

1580 1176

68% 52.0%

5,764 4,011

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

2021

TABLES

ECONOMIC EVALUATION OF THE CRATER INTERSECTION Monetary Value of Time Savings (VOT)

Total Daily Daily Waiting waiting cost of Yearly

vehicles Number of time for all time for all daily Cost of Yearly using the passengers passengers passengers waiting waiting Time Crater per day at in minutes in days per time in time in Savings

intersection Intersection per day day (US$OOO) (US$OOO) (US$)

12000 30000 450000 938 3206 769500 692550 12696 31740 476100 992 3392 814131 732718 13432 33581 503714 1049 3589 861351 775216 14211 35529 532929 1110 3797 911309 820178 15036 37589 563839 1175 4017 964165 867748 15908 39769 596542 1243 4250 1020086 918078 16830 42076 631141 1315 4497 1079251 971326 17807 44516 667747 1391 4758 1141848 1027663 18839 47098 706477 1472 5034 1208075 1087268 19932 49830 747452 1557 5326 1278144 1150329 21088 52720 790805 1648 5634 1352276 1217048 22311 55778 836671 1743 5961 1430708 1287637 23605 59013 885198 1844 6307 1513689 1362320 24974 62436 936540 1951 6673 1601483 1441335 26423 66057 990859 2064 7060 1694369 1524932 27955 69889 1048329 2184 7469 1792642 1613378

29577 73942 1109132 2311 7903 1896616 1706954 Source: Computed for thiS report.

-41-

Yearly Time

Savings (US$OOO)

693

733 775 820 868 918 971 1028 1087 1150 1217 1288 1362 1441 1525 1613

1707

COSTS

With Project

Capital FISCAL Cost O&M YEAR US$ (000) US$ (000)

2010 1,200 0

2011 0 12.0

2012 0 12.0

2013 0 12.0

2014 0 12.0

2015 0 12.0

2016 0 12.0

2017 0 12.0

2018 0 12.0

2019 0 12.0

2020 0 12.0

2021 0 12.0

2022 0 12.0

2023 0 12.0

2024 0 12.0

2025 0 12.0

2026 0 12.0

2027 0 12.0

2028 0 12.0

2029 0 12.0

2030 0 12.0

2031 0 12.0

2032 0 12.0

2033 0 12.0

2034 0 12.0

TABLE 6

ECONOMIC EVALUATION SIRAH FISH MARKET

BENEFITS

With Project

Fishermen Sellers Total Net Total Total Total Benefits

Cost Income Income w/.P. US$ (000) US$ 000 US$OOO US$ 000

1,200.0 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

9 342.3 147.0 489.3

ERR =

NPV=

-42-

Sensitivity Analysis

Net Economic Benefit (B- Net

C) 25% less Benefits US$ (000) benefits US$ (000)

-970.0 172.5 -1027.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

221.0 172.5 163.5

22.6% ERR = 15.4%

669.7 NPV= 218.8

Capital Cost

Year (US$OOO)

2005 5,610.00

2006

2007

2008

2009

2010

2011

2012

2013

TABLE 7

ECONOMIC EVALUATION Upgrading of AI Durain's Industrial Area

COST Benefits

Net Adj. Net Gross Economic Economic

O&M Total Cost Benefits Benefits Benefits (US$OOO) (US$OOO) (US$OOO) (US$OOO) (US$OOO)

0.0 5,610.0 (5,610.0) (5,610.0)

673.2 673.2 3,784 3,110.6 2,799.5

673.2 673.2 5,676 5,002.5 4,502.2

673.2 673.2 7,568 6,894.4 6,204.9

673.2 673.2 9,459 8,786.2 . 7,907.6

673.2 673.2 9,459 8,786.2 7,907.6

673.2 673.2 15,136 14,462.7 13,016.4

673.2 673.2 15,136 14,462.7 13,016.4

673.2 673.2 15,136 14,462.7 13,016.4

ERR = 83.07%

NPV= $32,479.9

-43-

25% Lower

Benefits (US$OOO)

-5610.0

2099.6

3376.7

4653.7

5930.7

5930.7

9762.3

9762.3

9762.3

66.60%

$23,085

Year

2005

2006

2007

2008

2009

2010

2011

2012

2013

Industrial Estate Estimate Total of Net

Number Area of Benefited

Hectares ha.

63.24 37.9

63.24 37.9

63.24 37.9

63.24 37.9

63.24 37.9

63.24 37.9

63.24 37.9

63.24 37.9

63.24 37.9

TABLES

APRECIATION OF LAND VALUES Aden City: AI Durain's Industrial Estate

Average Market Average Price value of

Estimate Price per sqm Industrial ofsqm in per sqm with land Industrial without Project without

Area Project increase Project m2 (US$) (US$) (US$OOO)

379,440 99.72 99.72 37,837.8

379,440 99.72 109.69 37,837.8

379,440 99.72 114.68 37,837.8

379,440 99.72 119.66 37,837.8

379,440 99.72 124.65 37,837.8

379,440 99.72 124.65 37,837.8

379,440 99.72 139.61 37,837.8

379,440 99.72 139.61 37,837.8

379,440 99.72 139.61 37,837.8 Source: Computed for this report.

-44-

Gross Market Benefits Due value of to

Industrial Appreciation land with of Land Project Values

(US$OOO) (US$OOO)

37,837.8 -41,621.5 3,784

43,513.4 5,676

45,405.3 7,568

47,297.2 9,459

47,297.2 9,459

52,973.6 15,136

52,973.6 15,136

52,973.6 15,136

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty Lending/Supervision Laila AI-Hamad Sr. Social Dev. Specialist MNSSO Social Development Nada M. A. AI-Hamalawy Voice Secondee MNSED Project Support Meskerem Brhane Sr. Urban Spec. EASIN Urban Development John Bryant Collier Operations Officer AFTWR Operational Support Adama Coulibaly Sr. Operations Officer MNCSA Operational Support Ahmed A. R. Eiweida Country Sector Coordinator ECSSD Urban Dev. Ayman Ibrahim E1-Guindy Procurement Specialist MNAPR Procurement Akram A. H. EI-Shorbagi Sr. FMS MNAFM FMS Tiguist Fisseha Consultant LCSUW Project Support Maged Mahmoud Hamed Sr. Environmental Spec. MNSEN Environment Susan Hassan Hameed Program Assistant MNCYE Project Support Ghada Ahmed W. Ismail Voice Secondee MNSED Project Support Stephen George Karam Lead Urban Economist ECSS6 Urban Dev. Ali Khamis Sr. Operations Officer MNSUR 'Operational Support Comelis Kruk Consultant AFTTR 'Operational Support Catherine Lynch Young Professional YPP Urban Development Josephine Masanque Sr. FMS OPCFM FMS Madhu Raghunath Urban Specialist MNSUR Urban Radha Raju Finance Analyst CTRDM Disbursements Omar M. Razzaz Country Manager MNCA2 Overall Coordination Deepali Tewari Sr. Mun. Dev. Specialist MNSUR Municipal Dev. Sameh Naguib Wahba Sr. Urban Specialist LCSUW Urban Azeb Yideru Program Assistant MNSSD Project Support Mario Antonio Zelaya .Consultant MNSSD Project Support

Maya EI-Azzazi Program Assistant MNSSD Project Support ICR Richard James Operations Consultant MNSSD Primary Author

Barjor Mehta Senior Urban Specialist AFTUW Peer Reviewer Balakrishna M. ParameswaranSenior Urban Specialist SASDU Peer Reviewer

-45-

(b) Staff Time and Cost

Staff Time and Cost (Bank Budget Only)

usn Thousands Stage of Project Cycle

No. of staff (including

weeks travel and consultant costs)

Lending FYOO 0.36

FYOI 7 29.46 FY02 38 187.65 FY03 33 133.54 FY04 0.72

FY05 0.00

FY06 0.00

FY07 0.00

FY08 0.00

Total: 79 351.73

SupervisionlICR FYOO 0.00

FYOI 0.00

FY02 0.00

FY03 8 31.41 FY04 30 95.18 FY05 32 100.13 FY06 29 103.73 FY07 36 159.29 FY08 33 139.09 FY09 8 0.00

Total: 176 628.83

-46-

Annex 5. Beneficiary Survey Results

141. No beneficiary assessment was carried out at project closure as it was not considered good use of scarce IDA resources. Salient benefits are highlighted in section 3.6 above.

-47-

Annex 6. Stakeholder Workshop Report and Results

N/A

-48-

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

Republic of Yemen Ministry of Planning and International Cooperation

Port Cities Development Program Cr. 3729-RY

Implementation Completion

Project Review from the Borrower's Perspective

At IDA's request, the National Coordination Unit (NCU) assisted in the Project exercise of the implementation Completion Report (lCR) from the Borrower's perspective. The IDA mission provided guidelines on the preparation of the (lCR) and sample reports of recent missions. The NCU reviewed its records, and discussed with IDA mission the additional information required.

During implementation period, IDA supervision missions visited the country on average once every six months. The missions visited the construction sites, reviewed equipment and furniture lists, held meetings with and advised NCU on Project execution, evaluated performance of the consultants and advised on IDA's procedures.

In general IDA was responsive to the changes proposed by the Government during implementation. Moreover, IDA used supervision missions to engage the Government in major sectorial policy dialogues.

Project Preparation and Implementation:-

Preparation

During preparation and appraisal, the Borrower performance was rated satisfactory. The Government was strongly committed to the goals of the project and to the participatory process in the project preparation

Implementation ..

The project was executed largely as agreed during negotiations. Most of the civil works and delivery of equipment and furniture were completed behind the original closing date (June 30, 2007).The facilities provided to the project institutions are satisfactory and appropriate equipment and furniture provided are generally of the right type and of high quality. They were satisfactory installed and are well used.

Extension of the closing date

The effectiveness date of the project was July 14, 2003. The project closing date was extended twice. The first extension was for one and a half years from June 30, 2007 to December 31, 2008

-49-

and the second extension was for another one and a half years from December 31, 2008 to June

30,2010.

Amendments to the Development Credit Agreement

The Development Credit Agreement was amended twice, first on April 8, 2004 to split the

original category No.4 into two new separate categories. Category No.4 for Incremental Operating Expenditures for Local Economic Development Department (LEED), and Category No.5 for Incremental Operating Costs for the National Coordination Unit (NCU) as well as a new

additional Category No.6 for Training and Workshops.

Furthermore, the scope of Component No.3 of the project was expencled from Aden to include the two other port cities, Hodeidah and Mukalla, and the responsibility for the implementation of different components was modified, transferring more responsibility to the NCU than planned at Appraisal. The implementation of the entire project was effectively done by the NCU.

In June 2007 the project closing date was extended to December 31,2008. Proceeds allocated for works from SDR 10.8m to SDR 8.08 m were revised downwards, and allocation for Consultants

Category was increased from SDR 4.57m to SDR 7.2m In June 2010 a reallocation of Credit proceeds was done just before the closing date as follows:

Category 1 Works Category 2 Goods & Equipment Category 3 Consultant Services

Project Cost Estimate

from SDR 8.08m to SDR 7.90m from SDR l.37m to SDR 1.40m from SDR 7.26m to SDR 8.17m

The total project cost at signing the credit was SDR 17.70 m which is currently valued US$ 27.82

m (due to exchange rate fluctuations). Out of this amount, an amount of US$ 26.01 m has been disbursed. The remaining fund in the credit at closing is US$ 1.72m which represents 6.18 %.

Lessons Learned

The following key lessons can be drawn from this project implementation experience. (J) The experience with the project requires the importance of the following:

• An appropriate design. • The needfor close cooperation between local agencies and IDA.

• The value of effective PMU; and

• The benefit that can be gainedfromflexibility during implementation. (2) It is preferable that the project management should include some of those who participated in

the preparation of the project. (3) Communities should be involved at the early stage of the project. through an adequate

structure to assist in planning. supporting and implementing their roles and responsibilities. (4) The project timetable should be more realistic in order to avoid implementation delays

beyond the original closing date.

-50-

Annex 8. Comments of Co-financiers and Other Partners/Stakeholders

-51-

Annex 9. List of Supporting Documents

1. Project Appraisal Document (Report No. 25226-YEM), December 18,2002 2. Back to Office Reports and Aide-Memoires January 2003 through June 2010 3. Project Status Reports/Implementation Status Reports March 2003 through May 2010 4. Sixth Quality at Entry Assessment (QEA6) Report, June 18, 2003 5. Mid Term Review Report, December 5, 2005 6. Development Credit Agreement Report No. 3729-YEM 7. Aden Local Economic Development Department. City Economic Development: The

"Agency" Question (Power Point). LEDD: Aden, Yemen. May 14,2008. 8. Local Economic Development Department. Aden City Development Strategy. Overview of

AI Durin Industrial Estate (Power Point). LEDD: Aden, Yemen (Undated). 9. Local Economic Development Department. Aden City Development Strategy. Overview of

Crater Intersection Project (Power Point). LEDD: Aden, Yemen (Undated). 10. Local Economic Development Department. Governor of Aden, Decree 63 of2002:

Establishment LEDD. (Power Point). LEDD: Aden, Yemen (Undated). 11. Port Cities Development Program. Aden City Development Strategy. Overview of Sirah

Bay & Fish Market (PowerPoint). LEDD: Aden, Yemen (Undated).

-52-

AL-AL-MAHRATMAHRAT

HADRAMOUTHADRAMOUT

SHABWASHABWA

ABYANABYAN

TAIZTAIZ

DHAMARDHAMAR

AL-AL-DHALE'EDHALE'E

MARIBMARIB

AL-JOWFAL-JOWF

SANA'ASANA'A

AMRANAMRAN

SAADAHSAADAH

HAJJAHHAJJAH

AL-BEIDAAL-BEIDA

LAHEJLAHEJ

IBBIBB

(3227 m)(3227 m)

(3199 m)(3199 m)

M a h r a t M t n s .

Rammlatt aas Saabb''ataayn DDeesseer t

Ha d r a m a u t

HuthHuth-¸

RidaRida

At TurbahAt Turbah

HaribHaribNuqubNuqub

NisabNisab

Al HuwaymiAl Huwaymi

Al GhurafAl Ghuraf

HawraHawra

ThamudThamud

ZamakhZamakh

ShabwahShabwah

SanawSanaw

HabarutHabarut

Mar’aytMar’ayt

IbbIbb

LahejLahej

AtaqAtaq

MaribMarib

Al HazmAl Hazm

AmranAmran

TaizTaiz

DhamarDhamar

HajjahHajjah

Al BeidaAl Beida

Al Dhale'eAl Dhale'e

SaadahSaadah

Al MahwitAl Mahwit SANAASANAA

RAIMHRAIMH

AL MAHWIT AL MAHWIT

HODEIDAHHODEIDAH

Huth-¸Maydi

Al Luhayyah

Rida

At TurbahMocha

AtTurbah

HaribNuqub

Shaqra

Nisab

Al Huwaymi

Al Ghuraf

Hawra

Qalansiyah Qadub

Nishtun

Thamud

Zamakh

Shabwah

Damqawt

Ahwar

Sanaw

Bir Ali

Salif

Shihr

Qishn

Sayhut

Habarut

Mar’ayt

Ibb

Aden

Lahej

Ataq

Marib

Al Hazm

Amran

Taiz

Dhamar

Hajjah

Al Beida

Al Dhale'e

Al Hodeidah

Saadah

Al Mahwit

Zinjibar

Al Mukalla

Al Ghaydah

Al Gabain

SANAA

AL-MAHRAT

HADRAMOUT

SHABWA

ABYAN

ADEN

TAIZ

DHAMAR

AL-DHALE'E

MARIB

AL-JOWF

SANA'A

AMRAN

HODEIDAH

SAADAH

HAJJAH

AL-BEIDA

LAHEJ

AL MAHWIT

IBB

RAIMH

(HADRAMOUT GOVERNORATE)

ERITREA

DJIBOUTI

ETH.

S A U D I A R A B I A

O M A N

SOMALIA

Gulf of Aden

R e d S e a

To Abha

To Mirbat

To Thamarit

Socotra

The BrothersDarsaSamha'Abd al Kuri

M a h r a t M t n s .

Ramlat as Sab'atayn Deser t

Ha d r a m o u t

(3227 m)

(3199 m)

42ºE 44ºE

42ºE 44ºE

20ºN20ºN

18ºN

16ºN

14ºN

12ºN

16ºN

14ºN

12ºN

46ºE 48ºE 50ºE 52ºE 54ºE

46ºE 48ºE 50ºE 52ºE 54ºE

REP. OFYEMEN

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 50 100

0 50 100 Miles

150 Kilometers

IBRD 37822R

DEC

EMBER 2010

REPUBLIC OF YEMEN

PORT CITIESDEVELOPMENT PROGRAM

PROJECT PORT CITIES

CITIES AND TOWNS

GOVERNORATE CAPITALS

NATIONAL CAPITAL

MAIN ROADS

GOVERNORATE BOUNDARIES

INTERNATIONAL BOUNDARIES