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The World Bank

FOR OFFICLAL USE ONlY

;il CRUF-0I CqE CoPy

k.eport No :P- 59361---"- Type: (PR)

Aulhor: F A CQNUH. B. RepatNo.P-592Ex t .:' 4194 R>on:JAO 160XS3 Dept *: A#-?f-)

MORANDUN AND RECOMMDATION

OF THE

PR.SIDEi4T OF TME

INTEATIONAL DEVLOPmENT ASSOCIATIO

TO TM

EECTIVE DIRECTORS

ON A

PROPOSED CREDIT

IN AN AMOUNT OF SDR 14.6 MILLION

TO

THE REPUBLIC OF KEA

FOR AN

EMERGENCy DROUGHT RECOVER PROJECT

FEBRUARY 2, 1993

his docament has a restricted distibution and may be used by recipients only in the performance ofth officiaduties. Its contents may not otherwise be disclosed w0ithout World Bank authorization.

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CURRENCY EQUIVALENTS

Cunfency Unit Kenya Shilling (KSh)KSh 20 5 Kenya Pound (KL)lUS$1 - KSh 35 (at appraisal)

WEIGHTS AND MEASURES

Metric Systemha = hectarekm = kilometer

ABBREVIATIONS AND ACRONYMS

AO Accounting Offic4rASAL Arid and Semi-Arid LandsCBK Central Bank of KenyaCBPP Contagious Bovine Pleeurop moniaCG Consultative GroupCPP Caprine PteuropneumoniaDDC District Development CommitteeDDRSG District Drought Recovery Steering GroupDRP Dlrught Recovery ProgammDVO District Veteinary OfficerDVS Departmnn t of Veteriary SericeDWE District Water EngineerDWO District Wors OfficerERD Extemal Resources Division of TreayFAO Food and Agriculture Organization of the United NationsICB Intenational Competitive BiddingLCB Local Competitive BiddingLSD Lumpy Skin DiseaseMOH Minisfty of HealthMOPW Ministry of Public WorsMOLRRWD Ministry of Land Reclamation, Regional and Water DevelopmentNGO Non-Goverment OrganizationNORAD Norwegian Aid AgencyNWCEPC National Water Conservation and Pipeline CorporationOP Office of the PresidentPMG Paymaster GenadPMU Project Management UnitSDA Special Dollar AccomtSOE Statement of ExpenditureSPA Special Program for AfrcaSRT Special Recovery TeamUN DMT United Nations Disaster Management TeamUNHCR United Nations High Commioner for RefugeesUNICEF United Nations International Children's FundWFP World Food Program

GOVERNMENT FISCAL YEAR

July 1 - June 30

FOR OMCIAL USE ONLY

KENYA

EMERGENCY DROUGHT RECOVERY PROJECT

CREDIT AND PROJECT SUMMARY

Borrowe: Republic of Kenya

Amount: SDR 14.6 million (US$20 million equivalent)

Terms: Standard IDA, with 40 years maturity

Ftnancing Plan: USmilion

Government of Kenya 2.30IDA - Propose Credit 20.00IDA - Amendments to Existing

Credits 7.25

TOTAL 255

Economic Rate of Return: Not applicable

Staff Appraisal Report: None

Map: IBRD No. 24305

This report is based on the findings of an Apprais Mission which visited Kenya in November-December, 1992coqrising Messr. B. Falconer (Senior Financial Analyst and mission leader), 0. Pathmanah (Chief, AricultreSection, Nairobi), A. Bolar (consulant, Financial Analyst), Z. Hasan (consultant, Infrastructue Specialist), LKalren (Water Engineer, Regional Water and Sanitation Group, Nairbi), P. Saint-Ange (consultant, AgriculturaEconomist), J. Fox (consutant, Chief Technical Advisor, Pastoralist Watet Project) and Ms. C. Jones (OpeationsAnalyst). Contributions to the appraisal mission were also made by Messrs. G. Schulbtburg (Chief, Regional Walerand Sanitation Group, Nairobi), J. Twyford (consltant, Agrculture and Livestock Specialist), M. Mbungu(Prurement Officer, Nairobi), and S. Bhatahrya (Procurement Officer). Mr. S. O'Brien (Chief of the ResidentMission, Nairobi) attended a number of meetings and provided guidace to the mission's work. The project documentswere reviewed by an Ad-hoc Advisory Group comprising Messrs./Mss. A. Kreimer (ENVPR), A. Hanlb (AFIIN), M.Pommier (CODOP), A. Rajaram (AF2CO) and E. Adu (LEGAF). Ms. S. Ganguly and Mr. F. Colaqo are themanaging Division Chief and the Deprtment Dirctor, respectively, for the operation.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTVE DIRECTORSON A PROPOSED CREDIT

TO THE REPUBLIC OF KENYAFOR AN EMERGENCY DROUGHT RECOVERY PROJECT

1. This memorandum and recommendation on a proposed Credit to the Republic of Kenya for SDR14.6 million (US$20 million equivalent) to help finance an Emergency Drought Recovery Project issubmitted for approval. The Credit would be on standard IDA terms with 40 ye-s maturity.

2. Background on the Drought Situation. Kenya is currently suffering from the aftermath of asevere drought. The country on average has experienced less than normal rainfall over a two year period.The severity if the drought has been felt mainly in the arid and semi-arid lands (ASAL), which constitute80 percent of the land area and are inhabited by about 30 percent of the population (around 7.5 millionpeople, of whom about 4 million depend on agriculture and 3.5 million on livestock, including about onemillion nomads). The ASAL poplations are among the most vulnerable in terms of their ability to procurefood during disasters. They are also among the most disadvantaged in terms of their access to Governmentprovided services. The severity of the drought appears to have seriously undermined the traditional copingmethods of these communities. The prolonged failure of rains has critically affected food production asfamers use plantng seed for food. Destruction of pastures ad drying up of water holes have resulted Uilivestock losses, with average mortality rates of about 25 percent. As a result, malnutrition, particularlyamong young children, is widespread, as pastoralists are denied milk and the ability to purchase othersources of food. Access to safe water has declined drastically and the resulting high incidence of water-borne and other disemses is putting pressure on the already limited local health care services. The situationhas been aggravated by an influx of refugees and many years of inadequate investment in public

rastructure. It is estimated that about two million people, including 500,000 refugees from countries tothe north and east, are now at risk.

3. All the evidence points to the probability that the adverse impact of the drought will be long-lasting.Ihe lack of rain, coupled with poor production incentives, has resulted in unfavorable harvests of the maincereal, maize. Maize stocks have reached an historic low, and the deficit is being met by imports. Totalcereal imports for 1992-93 are estimated at one million tons, of which food aid would probably need to beabout 500,000 tons.

4. The Government's response to the crisis, though initially slow, has now improved and criticalinstitutional mechanisms have been put into place to deal with problems both at the national and districtlevels under the mandate of the Office of the President. However, Government's ability to address issues offood imports and recovery assistance are restricted by foreign exchange and budgetary constraints.Consequeny, critical efforts, maily financed by NGOs and donors, are under way to mitigate at least theinitia adverse consequences of the drought by establishing feeding programs and relief activities. In manyparts of the ASAL areas the local populations are almost totally dependent on relief agencies and programsfor their basic survival. More critically, their ability to regain their economic livelihood even in the adventof favorable rains has been almost totally eroded. Unless a sensible and sustinable recovery program is putinto place, the affected ASAL populations will not be able to break away from their current state ofimpoverishment.

5. ProJect Objectives: The proposed project would fund specific components of the Government'soverall Drought Recovery Program (DIRP), prepared with assistance from UNDP in cooperation with theUN Disaster Management Team (UN DM1), to assist the ASAL populations affected by the drought tobegin a sustainable recovery process. The DRP details the overall concepul framework, sectoralinvestments, priority districts and management arrangements. It also sets out the immediate productive

2

needs (through April 1993) and the intermediary investment needs (through October 1994). The DRP,estmated base cost US$85 million, also provides donors with a framework for additional coordinatedinvestments. Some of the project investments would lay the foundation for future interventions in thelonger-term ASAL project scheduled for appraisal in FY94. The main objectives of the proposed projectare: (i) to alleviate the impact of the current drought through measures to regenerate productive capacity inagriculture and livestock production for the ASAL populations, improve water supply and basic healthservices, and provide access to and within the arid districts of Mandera, Marsabit and Turkana; and (ii) toassist in enhancing institutional capacity at the district level to deal with drought. The long term objective isto begin the process of tackling the underlying causes which make ASAL populations increasinglyvulnerable to drought situations.

6. Project Description: The following criteria were used in determining the components to beconsidered for financing: (a) ability to target a package of investments to benefit victims of the drought; (b)implementable within current operational ;onstraints and within a project period of 24 months; and (c)responsive to the Government's DRP and incremental to ongoing and planned Government and donorassistance. The project would support a package of productive interventions (in agriculture and livestock)covering all the ASAL districts, and a further package (for water supply, rural road rehabilitation, healthservices and drought managment/environment) targeted primarily in the three arid districts of Mandera,Marsabit and Turkana to rehabilitate existing structures. These actions would also support possible futureinterventions in the ASAL project. It would also finance the institutional structure for projectimplementation. The project would have the following components, to be financed from the proposed IDACredit, amendments to existing IDA Credits and by the Government of Kenya (para. 7):

(a) Agriculture Inputs: Supply of packages of seed and fertilizer, and a limited number ofhand tools, for free distribution to farmers in the ASAL districts in time for the 1993 longrains planting. The project would provide financing for the following, including transport tothe project area: 15,000 tons of fertilizer; maize, sorghum, beans, cowpeas and vegetableseeds; and about 80,000 hoes and pangas (base cost US$7.5 million).

(b) lIvestock: Provision of vaccines, typanocidal drugs, clinical drugs, vaccination equipmentand other consumable and operatng costs associated with carrying out vaccination andanimal treatment programs in ten ASAL districts to improve the general level of health ofthe surviving animal populations (base cost US$2.5 miliion).

(c) Drought Manag_m t: The project would finance operating costs, training, short-termtechnical assistance, vehicles and office equipment to assist in seting up a system of droughtmanagement at the district level to help Government prepare for drought, minimize theeffects and prevent droughts from turning into famines (base cost US$1.8 million).

(d) Environent: The project would provide operating costs, materials and supplies, andtraining and short-term technical assistance to test different approaches to resource basepreservation, such as water point protection, seed plots, revegetation, mini-spate diversionsand range extension (base cost US$0.85 million).

(e) Infrastrut Rehabilitation of about 420 km. of critical roads; technical assistance for (i)preparation of bid documents and supervision of the road contracts, and (ii) three studies oncommunications and other infrastructure requirements; spare parts for rehabilitation ofvehicles and equipment; and camping equipment (base cost US$7.5 million).

3

(f) Water: Rehabilitation of existing water facilities in the three focus districts and in TanaRiver; capacity building (including training of community groups in management of watersources and rehabilitation of vehicles, plant and equipment); and provision of three watertankers to meet temporary water transportation needs (base cost US$5.15 million).

(g) Health: Provision of drugs and medical supplies, as well as vehicles and equipment;rehabilitation of buildings, vehicles and equipment; operating costs; and training tostrengthen the capacity of the health services in the .hree focus districts and in Tana River(base cost US$2.0 million).

(h) Inplementation: The project would finance the establishment of a Project ManagementUnit (PMU), including staffing, short-term technical assistance, vehicles, office equipmentand operating expenses (base cost US$1.1 million).

7. Project Finaning: The total project cost of US$29.55 million, net of duties and taxes, would befinanced from a new IDA Credit of US$20 million, amendments to existing IDA Credits totalling US$7.25million, and a contribution of 10 percent of the new project cost (US$2.3 million equivalent) in localcurrency from the Government of Kenya through the provision of seed. A breakdown of costs and thefinancing plan are shown in Schedule A. Amounts and methods of procurement, and the disbursementschedule, are shown in Schedule B. A timetable of key processing events and the Status of Bank GroupOperations in Kenya are given in Schedules C and D, respectively. The Technical Annex and a map arealso attached. The appraisal mission reviewed existing IDA-supported operations in Kenya withGovernment to estimate the amounts that could be reallocated for immediate emergency assistanPs for theprovision of fertlizer, hand tools, requirements for the animal vaccination campaign and the establishmentof the PMU. The components to be funded from the amended Credits fall within the broad objectives setout in those Credits (para. 89 of Technical Annex). Procurement has been initiated from the proceeds ofthe existing amended IDA Credits. The project is expected to be completed by March 31, 1995.

8. Project Implemtation: The proposed project would be implemented under the National FamineRelief Coordinatin Committee in the Office of the President (OP), which is chaired by the Secretary to theCabinet and Head of the Public Service. A Special Recovery Team (SRT), with representatives from theOP, Treasury, Office of the Vice President and Ministry of Planning and National Development, and theChairnmn of the UN DMT would be responsible for overall planning, coordination and monitoring. AProject Management Unit (PMU) onsisting of senior representatives from the concerned line ministries,OP, and representatives of participating donors would be established. The PMU would have overallresponsibility for realizing the DRP and project objectives and outputs, as well as promoting institutionalcapacity for ASAL development. The PMU would have a Secretariat consisting of a management team(p,roject coordinator, deputy project coordinator, technical advisor, procurement and finance officers andfour district coordinators) charged with operationalizing implementation of the project. The projectcoordinator would also serve as the secretary of the SRT.

9. The district coordinators would liaise with existing drought relief agencies through the DistrictDevelopment Committee, but would report directly to the project coordinator. The district focs for projectimplementation would be the District Drought Recovery Steering Group (DDRSG), which is a sub-committee of the District Development Committee. The DDRSG would be strengthened by the participationof community representatves, NGOs and relevant donors, as well as line ministries, and would be chairedby the district coordinator.

10. Lessons Learned: The project has drawn on experience with other recent emergency operations.Ihe main lessons, which have been incorporated into the project design, while keeping the project in line

4

with the overall strategies for each sector, are: (a) the project is part of a comprehensive Governmentrecovey program being assisted by other donors; Ob) investments are targeted to v.ctims of the drought; (c)Government organizational structures have been adapted to overcome bureaucratic delays and be responsiveto the ned for fast disbursement and implemcntation; and (d) early procurement has been initiated.

11. Ratonal for IDA Involvement: The Kenya Government's ability to cope with the drought hasbeen severely constained by the current fragile macroeconomic situation and the limixed budgetaryresources available to mount a meaningfil recovery program. Other donor support to date has been mainlytargeted at relief; IDA would provide some of the necessary resources to deal with the recovery process,and it is expWected that others will funi additional components of the DRP. The proposed project meets thecriteria for emergency lending, r4mely the need to focus on recovery, the temporary nature of theemergency, the necessity of short and medium tenn actions, and prospects for mitigating the impact offture emergencies. The project also offers scope for testing drought mitigation approaches prior to theproposed ASAL project scheduled for appraisal in FY94, and for strengthening the district-level institutioralcapacity to cope with drought. The project is consistent with the Country Assistance Strategy discussed bythe Board on December 8, 1992 in the context of the Parastatal Reform and Privatization TechnicalAssistance Project.

12. Issues and Actions: The appraisal mission reached agreement with Government on institutionalargents (including the payment mechanism) to ensure timely implementation of the project. Duringnegotitions, agreement was reached on the implementation plan for each of the components, includingdetailed district health and water action plans, and the items to be included in a mid-term review to becarried out by January 31, 1994. The OP would monitor distribution of the seeds and provide IDA with areport detaiing distbution by district. Appointment of the key members of the PMU (project coordinator,tcnical advisor, procement officer and fiance officer) and the distribution of seeds would beconditions of Credit effectveness.

13. Faivfr - I iW Aspects: The drought has had an adverse enviromental impact on the fragileASAL areas, exacbated in some places by an influx of refugees putting further pressure on water facilitiesand rangelands. While the complexities of sound environmental management of these areas cannot beaddresd by any short-term intervention, the design of the DRP and the IDA-supported project seeks toincorporate mitigatory actions within the various components being funded. The water action plan wouldset out details of proposed interventions to ensure that due attention is given to appropriate rehabditation andupgrading and construction of more environmentally sound and more easily maintained water facilities suchas sballow wells and roof catchments. Similarly, the roads component would be designed to prevent erosionand restore natural water courses. The project also includes a small environment component to providerangeland management and other envionmeintal support (para. 6).

14. Program Objecve Categories: The project would address poverty alleviation by assistin thedrought-stricken populaions in the ASAL areas to regain their livelihoods. Provision of agricultural andother input (including drugs and vaccines), together with improved drinking water sources for humans andanias, would improve the food security and health status of the beneficiary populations. The projectwould contribute to the environmently sustainable use of the ASAL areas by structuring the recoveryprogram to ensure com=muty awareness and laying the foundation for fiture interventions.

15. Benefits: Short-term benefits would arise from restoring the ability of some of the ASALpopulations to regain their economic livelihood, with the ancillary benefit of freeing up resources to therelief agencies to provide assistance to the chronically food insecure. The repair to water and healthfcilities would relieve suffering, not only from the lack of drinking water, but also from disease resultingfrom polluted water supplies and other main illnesse. In addition, in the event of favorable rains, the

5

project would facilitate the rapid recovery of agricultural production. The long-term benefits would be toincrease the resilience of human and livestock populations to cope with drought; to strengthen Government'scapacity to deal with drought; and to lay the foundation for longer-term developmr-nt in the targeteddistricts.

16. RIsks: Ihe main risk would be the contnuation of drought conditions in the ASAL areas. In sucha stuation, additional project focus would need to be given to activities such as repair of water sources tomitigate some of the adverse consequences. A second risk would be the late arrival of goods and supplies,given the project's two-year tme horizon. This risk has been minimized by: (a) utilizing funds reallocatedfrom other Credits to enable early start-up; (b) initiating at appraisal the key procuremen: actions; and (c)providing the Government with appropriate technical assistance to manage specific contracts. There is asecurity risk in parts of the project area, particularly the northernmost regions; given the special attentionGovent is paying to security, this risk is cansidered acceptable. There is a risk, too, that the districtsto be covered, which are the most isolated In the country and have suffered from years of neglect, lack theinstitutional capacity to manage the project intventions. The project would address this risk by helping tostrengthen the district structures.

17. Re dation. I am satisfied that the proposed Credit would comply with the Articles ofAgreement of the Association, and I recommend that the Execuive Directors approve the proposed Credit.

Lewis T. PrestonPresident

AtacmentsWashington, D. C.Februay 2, 1993

6

SCHEDULE A

KENYA - EMERGENCY DROUGHT RECOVERY PROJECT

EN s rRAM ODST AND FINANCING PLAN

SUMMY OF PROJECT COST (USMLLION)

COMFONENTS COST F U N D I N G

IDA IDA TOTAL GOK TOTALPROP- AMEND- IDAOSED MENTS 1CREDIT

AGRICULTURE 7.50 0.70 4.50 5.20 2.30 7.50

LIVESK 2.50 - 2.50 2.50 - 2.50

DROUGHTMANAGEMENT 2.65 2.65 - 2.65 - 2.65

INPRASTRUCTURE 7.50 7.50 - 7.50 - 7.50

WATER 5.15 5.15 - 5.15 - 5.15

IEALTH 2.00 2.00 - 2.00 - 2.00

ROJECT MANAGEMENT 1.10 0.85 0.25 1.10 - 1.10

TOTAL RASE LINE COST 28.A 1185 7.2 26.10 2.30 28.40

CONTINGENCES 1.15 1.15 - 1.15 - 1.15

TOTAL PROJIEC COST 29.55 20.00 7.25 27.25 2.30 29.55

1/ Ftom Cr. 1758-KE (Anima Health Serve - US$2.5 m); Cr. 1974-KE (Ruml Serca Design - US$2.75 m); nd Cr. 2199-KE(Second Nationa Agicuhund Extension - US$2 m).

FINANCING PLAN US$ MILLION

Government of Kenya 2.30IDA - Proposed Credit 20.00IDA - Amendments to existing

Credits 7.25

TOTAL 29.55

7

SCHEDULE BPate 1 of 2

KENYA - EMERGENCY DROUGHT RECOVERY PROJECT

=1mmuRmEN MhTHODS (US$MILLION}

CATECORY ICB LCB OTHERS TOTAL

0.0 AGRICULTURE- INPUTS - 0.70 0.70

1.0 DROUGIHT MANAGEMENT

1.1 CIVL WORKS1.1.1 Buildnag Materad 0.40 - - 0.401.1.2 Coatntion - 0.30 - 0.3012 GOODS1.2.1 VahIftEqipmeziSpar 0.6S - - 0.651.3 CONSULTANTS SERVICES - - 0.30 0.301.4 TRAiNING - - 0.10 0.101.5 MISCBLLANEOUSIS.I. Staff and OpeaingCots - - 0.95 0.9S

2.0 INRASR UCTURE

2.1 ROAD WORXS 7.20 - - 7.202.2 EQUIPMENT/SPARES 0.3S - 0.10 0.4523 CONSULTANT SERVCES - - 0.50 0.50

3.0 WATER

3.1 CIVIL WORKS - 0.50 1.6S 2.153.2 VEHCLEMQUAIPENTISPAREs 2.35 - 0.15 2.5033 CONSULTANT SERV - - 0.10 0.103.4 TRAINWN - - 0.30 0.303.5 MISCELLANEOUS3.5.1 Staff and Operaft Code OA. 0.45

4.0 HEALTH

4.1 CVIL WORKS - 0.55 - O0SS4.2 GOODS4.2.1 Vd&bdgqu*ipnSpa 0.70 0.10 - 0.804.2 D2uD/dhdoal SuppH;e 0.40 0.05 - 0.4S43 TRAN - - 0.15 0.154.4 MISCELLANBOUS4.4.1 Operting Cosa - - 0.15 0.15

5.0 PROJECT MANAGEMENT

5.1 STAFF AND OPERATING COSTS - - 0.60 0.605.2 CONSULTANT SERVICES - - 0.25 0.25

TOTAL INCLUDING CONTINGENCIES 12.05 2.0 5.75 20.00

8

SCHEDULE BPage 2 of 2

DiSBURSEMENT SCHEDULE

Credit Category Amount of Credit Expenditure to beinanced (USS Million) Financed (Percent)

Agicultare-Inputs 0.70 100%

Drought Managnent- Proection and Rebabilitation of District

Facilities and Envimnment ProtectionWodks 0.70 100%

- Vehicles & Equipment 0.60 100%

- TeAhnicod Assistance and Training 0.40 100%

- Stiff and Operating Costs 0.95 100%

Ilnfrastuctwe- Road Work 6.55 100%

- Spares r Equipment and Vehicles 0.45 100%

= Technicd Assistance 0.50 100%

water- Rabilitaton of Born Holes,

Pans and Das 2.10 100%

Equipmet and Spres 2.00 100%

- Technical Asstance and Tnining 0.35 100%

- Vdhicles 0.30 100%- Staff and Opeting Costs 0.40 100%

- Rehabilitation of Medical Failities 0.55 100%

- Vehicles/Equipment 0.75 100%

- Dnrgs and Medical Supplies 0.40 100%

- Taining 0.15 100%

- Operatig Cost 0.15 100%

projectawemn- Staff and Oprating Cods 0.60 100%

- Technical Assistame 0.25 100%

Unalocated 1.15 100%

TOTAL

ESTIMTED MDA DBURSEMENTS (US$ miOion):

IDA aiscalYear 93 94

Anal 0.7 9.8 9.5

Cumulative 0.7 10.5 20.0

9

SCHEDULE C

KENYA

EMERGENCY DROUGHf RECOVERY PROJECT

TIMETABLE OF KEY PROJECT PROCESSING EVENTS

(a) Time taken to prepare: Six weeks

(b) Prepared by: Government, UN DMT, IDA staff

(c) First IDA mission: October 5, 1992

(d) Appraisal mission departure: November 23, 1992

(e) Negotiations: January 20, 1993

(') Planned date of effectiveness: April 1, 1993

(g) List of relevant PCRs: None

10

Schedule DPage 1 of 3

STATUS OF BANK GROUP OPERATIONS IN KENYA.. .. ...... ....... ...... ......... .......

A. STATEMENT OF BANK LOANS AND IDA CREDITS(as of December 30. 1992)

---NS1i illion) ---(Less Cancellations)

Undis-Credit No. Year Borrower Purpose Bank IDA bursed.............. ....... ............ ...... ........... .... ..... ---- --- ------

Forty-five (45) Loans and fifty (50) credits fully disbursed 928.41 968.49Of which SECALs, SALs amd Program Loans/Credits: a/

Cr.0990-0 1980 Kenya Struct. AdJ. Credit 55.00Cr.1276-0 1983 Kenya Struct. AdJ. Credit II 70.00Cr.A021-0 1986 Kenya Agricutture Sector 40.00Cr.1717-O 1986 Kenya Agriculture Sector 20.00Cr.A036-0 1988 Kenya Industrial Sector Operation 10.00Cr.1927-O 1988 Kenya Industrial Sector Operation 102.00Cr.1927-1 1988 Kenya Industrial Sector Operation 53.70Cr.2049-0 1989 Kenya Financial Sector operation 120.00Cr.2049-1 1990 Kenya Financial Sector Operation 44.00Cr.2049-2 1991 Kenya Financial Sect. Oper. 67.30Ln.2190-0 1983 Kenya Structural AdJ. Credit 11 60.90

Cr.12380 1982 Kenya Population 11 23.00 0.94Cr.13900 1983 Kenya Secondary Towns 22.00 10.57Cr.FO170 1984 Kenya Second Highway Sector 40.00 7.89Cr.1673G 1986 Kenya Sixth Education 37.50 18.40Cr.16750 1986 Kenya Petroleum Explor. Tech. Assist. 6.00 1.04Cr.17180 1986 Kenya Agrie. Sector Management 11.50 0.96Cr.17580 1987 Kenya Animal Health Services 15.00 11.52Cr. 18200 1987 Kenya Second Railway 28.00 6.34Cr.13490 1988 Kenya Nat. Agriculture Research 19.60 11.54Cr.19040 1988 Kenya Population III 12.20 8.97Cr.19730 1989 Kenya Geothermal Development 40.70 12.65Cr.19740 1989 Kenya Rural Servicos Design 20.80 15.13Cr.20580 1990 Kenya TA 5.00 4.22Cr.20600 1990 Kenya Third Nairobi Water Suppl. Proj 64.80 42.42Cr.20620 1990 Kenya Coffee 11 46.80 34.52Cr.21110 1990 Kenya Population IV 35.00 31.39Cr.21470 1990 Kenya TA-DFI Res/Exp. Prom 6.00 4.79Cr.21970 b/ 1991 Kenya Export Development 100.00 43.21Cr.21980 1991 Kenya Forestry Development 19.90 17.37Cr.21990 1991 Kenya Agr. Matt. Ext. 11 24.90 21.65Cr.22040 b/ 1991 Kenya Agric. Sector Adjust. 11 41.52 7.10Cr.21971 bI 1992 Kenya Export Development 49.20 51.28Cr.22950 b/ 1992 Kenya Education Sect. Adj. Cr. 100.00 68.74Cr.23090 1992 Kenya Universities 55.00 52.97Cr.23100 1992 Kenya Health Rehabilitation 31.00 26.39Cr.23330 1m Kenya Moobasa Water II Eng. 43.20 39.73Cr.23340 1992 Kenya Wildlife Services Pr. 60.50 57.83Cr.22951 b/ 1993 Kenya Education Sector AdJ. Cr. 52.14 51.72Cr.24400 c/ 1993 Kenya Parastatal Reform TA 23.32 22.14Cr.24450 1993 Kenya Agric. Sect. Mngt. 1 19.40 18.97Ln.24090 1984 Kenya Second Highway Sector 5.00 3.31

Total 933.41 2022.47 705.70of which repaid 501.94 31.79

Total held by Dank & IDA 431.47 1990.68

Amount sold 11.74of which repaid 11.74

Totat undisbursed 705.70

a/ Approved after FY80b/ SAL, SECAL or Program Loan/Creditc/ Not yet effective.

11

Schedule DPage 2 of 3

B. STATEMENT OF IFC INVESTMENTS IN KENYA(as of December 30, 1992)

Amount in US$ Nillion

Fiscal ...................

Year Obligor Type of Business Loan Equity Total,,,,,,,.. ...... ... .... ........ .... ...... . ....

1991 AEF-KALAA Agric. Whotesale & Retail 0.53 0.16 0.68

1992 AEF-Wood Complex Mfg. of Wood & Cork Products 0.40 0.00 0.40

1982 Bamburi Cement Cement Lime & Plaster 4.43 0.00 4.43

1984, 1980 DFCK DFC, Mfg Pupl Paper A Paperboard 5.07 1.31 6.38

1982 DTK Merchant Banks 0.00 0.80 0.80

1986 EBP Restaurants and Hotels 3.67 0.00 3.67

1982 IPS (K) Venture Capital Companies 0.00 0.55 0.55

1987, 1988, IPS (K)-AL Venture Capital Coopanies 0.00 2.82 2.82

1989, 990, 1991, 19921981 KDFC Sm. & Ned. Scale Enterprises 5.00 0.00 5.00

1967, 1968,1973, 1992 Kenya Hotel Restaurants and Hotels 5.16 0.75 5.91

1984 LIK Tanneries & Leather Finishing 2.12 0.60 2.71

1986 Madhupaper Mfg. Pulp Paper & Paperboard 37.16 1.97 39.12

1986 Oil Crop Nfg. Vegetables & Animal Ot 9.65 2.14 11.79

1970, 1974, Pan African Mfg. Pulp Paper & Paperboard 40.74 6.27 47.01

1977, 1979, Weaving, Hotels & Restaurants1981, 1988, 19901976, 1985 Rivatex Spinning, Weaving & Finishing 8.16 3.35 11.51

1977 SNSIE - KE Small & Med. Scale Enterprises 2.00 0.00 2.00

1983 TETRA PAK Nfg. Containers & Boxes 2.17 0.37 2.54

1972 TPS (Kenya) Tourism Services 2.42 0.05 2.47

Total Gross Comuitments 128.68 21.14 149.79

Less: repayments, cancellations,exchange adjustments, writeoffs,terminations and sales 105.68 11.65 117.33

Total Comnitments now hetd by IFC 23.00 9.49 32.46

Total Undisbursed 0.40 0.67 1.07

Total Outstanding IFC 22.60 8.82 31.39

ken2edl.wkk01-25-93

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Schedule DPage 3 of 3

Disbursement Issues

1. Overall, disbursements of the 24 active investment projects in the Kenya protfolio areabout the same as anticipated under the disbursement profile for such projects, although for thelast two years actual disbursements have lagged by 21 percent in FY91 and 24 percent in FY92.

2. Two projects financed prior to FY84 (Cr. 1238-KE, Population TI and Cr. 1390-KE,Secondary Towns) closed on December 31, 1990 but are still showing up in the Schedule Dbecause of delays in reconciling the balance under the special accounts.

3. Regarding the Sixth Education Project (1986), which is generally progressing well, themain source of delay has been the slow tendering and contract award procedures relating to one ofthe project components. Slow disbursements on the Animal Health Services Project (1987) aredue in part to the restructuring of the project (which will henceforth provide services through theprivate, rather than the public, sector); and in part to IDA being the financier of last resort underthis cofinanced project (hence the IDA funds are disbursed last).

4. Counterpart funding issues and implementation issues in general will be reviewed with theGovernment during, respectively, a Public Expenditure Review and a Country ImplementationReview, both of which are scheduled for the second half of FY93.

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TECHNICAL ANNEX

PART k: ECONOMIC ISSUES

A. Background

1. Trends. After the expansionist period of the late 1970s, fuelled by high coffee and tearevenues, Kenya has experienced a number of economic crises and a considerable redirection inits economic growth. Increases in oil prices and a decline in Kenya's terms of trade, combinedwith the current recession and the pertinent drought of 1984, and later the 1991 drought which isstill on-going, have resulted in severe pressure on the Government budget. With the loweconomic growth rates projected for the coming years, tight budgets will be a key element in alldevelopment planning. As a result, Kenya is facing a constrained macroeconomic situation, adifficult fiscal position, weak balance of payments and increasing inflationary pressures.

2. The slow growth of the economy in the last ten years has meant that Governmentrevenues have not been increasing in relation to expenditure needs and the Government facesserious constraints in financing the budget. Ordinary revenues, which used to be around 25percent of GDP in the early 1980s, had fallen to 22 percent by 1984 but stabilized at 23 percentin 1989/90. Deficits of past years will also have a continuing impact on Government's growingobligations to service its debt, with debt service cuting into total resources available forrecurrent expenditures. Budgetary deficits and the borrowings to finance them will have to berestrained further as a result of increasing debt service payments. The targets laid down imply thatthese should be reduced to 2 percent of GDP.

3. These trends in financial stringency have had important repercussions in the use ofGovernment resources. First, the share of investments as seen in the development budget hasbeen substntially reduced from 32 percent of the total budget in 1980/81 to 25 percent in1986/87 and in 1991 stood at 7 percent. As a resut, the available budgetary resources fordevelopment have been spread thinly across a large number of projects intead of beingconcentrated on the more important productive and/or emergency high prioriy ones.

4. Second, funds available for the operation and maintenance of existig services,inc re and facilities through the recurrent vote have also been declining. This decline inopertg funds has been further aggravated by the increasing share allocated to salaries becauseof increases of the mumbers employed in Government Ministries. Consequently, few resourcesare left for operadtg expenditures, leading to a situation where most employees sit arounddrawing salaries, but unable to provide efficient services to the public. Ways need to be foundnot only to make more funds available for the provision of essent services and operation andmaintenaee of exist facilities, but perhap more importaty, for support to activities whichrequire litle input from Govement services - community/group managed projects are a case inpoint.

S. As total Govenment expenditures will be constrained, any new investments in the ASALareas wil have to be finaneed through prioritzation of ministry expenditur and/or additionalresources from donors.

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6. The Government is faced with a major challenge. It is clear that economic and financialmanagement has to be strengthened considerably and that the Government has to undertake afundamental restructuring of the economy. This challenge is particularly evident in theagricultural sector. Kenya's population is predominantly rural (85 percent) and the economydepends fundamentally on agriculture. Agriculture's contribution to GDP (nearly 30 percent),and export earnings (about 65 percent) highlight the importance of this sector to the economy as awhole.

7. Impact of the Drought. Recent performance of the agriculture sector has beendisappointing and in particular 1991 proved to be a difficult year. The growth rate in its realvalue added fell from 4.4 percent in 1988 to 3.4 percent in 1990 and to a negative 1. 1 percent in1991. The unsatisfactory performance of the sector, despite increases in producer prices, was toa large part due to late, insufficient and unevenly distributed rains. The weather conditions weregenerally unfavorable to farming, discouraging farmers from expanding areas under mostprincipal crops.

8. Drought in Kenya during 1991 and 1992 has weakened the ability of people in manydistricts to cope and recover from such tragedy. The severity of the drought was mainly felt inthe ASAL, which consttte 80 percent of the land area of the country and are inhabited by about30 percent of the population. The ASAL poputation, consisting of about 7.5 million people ofwhom about 4 million depend on agriculture and 3.5 million on livestock (including about 1million nomads), are among the most vulnerable in terms of their ability to procure food duringdisasters and are also among the most disadvantaged in terms of their access to Governmentprovided services. This situation has been aggravated by the civil war in Ethiopia and Somalia,and many years of inadequate investment in public infrastructure. The result is that nearly twomillion people in northern Kenya have been exposed to severe famine and loss of livelihood.

9. The overall effect is that there have been substantial declines in the output of mostsgricultura products. Given their lack of resources, a majority of farmers in the ASAL area willbe unable to purchase in the short term necessary agricultural inputs such as planting seed,fertilizer and chemicals. The prolonged drcught has resulted in families using planting seed forfood and now few reserves remain other than in high potential areas or in pockets within mediumpotential areas. As a result, aggregate cereal output, which has fallen by 18 percent in 1990,declined furter by 14 percent in 1991. Overall maize production is etimated to have fallen from29.2 million bags in the 1989/90 agricultural year to 25.4 million bags in 1990/91 and further to22.1 million bags in 1991/92. Maize stocks are at present at a historically low level and thedeficit is being met by imports. Other major agricultura produce which recorded decreases inoutput included coffee, milk and sugar which dropped by 22, 8 and 2 percent, respectively.Also, the volume of exports of horticulural produce declined by 10 percent.

10. The 1991 long rains (March - June) were generally poor in many parts of the country.The short rains (October - December 1991) were also unfavorable for agricultural production andthe accumulated rainfall for the season indicates that 18 out of 22 stations (with representative andcontinuous records) experienced deficits. In November 1992, a total of 26 districts (some outsidethe ASAL area) have been identified by the Ministry of Agriculture, LAvestock Development andMarketing as requlring assistance for essential cropping inputs before the long rains plantingseason commencing in March 1993. Temporary relief was also provided for input supply for theshort rains planting season which commenced in late October 1992.

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11. Ihe vulnerability of catte to pasture availability during the prolonged dry weather(particularly in the ASAL areas) forced farmers to sell a significant portion of their herd. As aresult, total cattle slaughters in the country rose by over 10 and 17 percent, respectively, in 1990and 1991 to 969 thousand head. Over the same period, the combined slaughter of sheep andgoats Increased by 21 and 12 percent, respectively. However, due to the incapacity to marketlarge numbers of surplus cattle when drought occurs there are significant income losses both tothe stock owners and the country.

12. Traditional nomadic grazing systems take advantage of pasture and browse aroundtemporary water points during the wet season and then move their animal to areas with permanentwater supply during the dry season. The lowering of the water table and the drying-up ofwaterholes has resulted in an Increasing reliance on more permanent waterpoints: deepwaterholes; boreholes and springs. The congregation of groups of animals around permanentwater points and for extended dry periods results in range degradation. The destruction ofpastures and drying up of water holes have resulted in cattle losses with mortality rates on averagein the arid zones of about 25 percent through end-September 1992. Recent estimates place this ashigh as 40 percent. Based on livestock losses during the current drought this has been calculatedto be two billion Kenya shillings or US$57 million. Livestock deaths are continuing to increase atan alarming rate in many areas as diseases at epidemic levels take hold.

13. Marketing of most commodities declined and thus reduced the supply of agricultural rawmeras (milk, beverages, tobacco) which resulted in a slump in growth of manufacturing outputIn 1991. Reduced eamings resulted in a decline in input use in maize, beans, and wheat cropsthereby causing a furither reduction in the output of these commodities which then led to ashortage of these ess ftods.

14. Malnutrition, particularly among young children, is widespread. Most of the childrenwho are under-nourished come from the ASAL districts. There has been a drastic drop in thenutrition status of pastoraists denied of milk and ability to purchase non-pastoral sources of foodand hence becoming dependent on relief foods. The large drop in livestock prices as livestockmarkets are flooded with an over-supply of poor conditioned animals reduces pastoral householdincomes and diminishes their purchasing power. This results in the impoverishment of thepastoral households and slowing down of all sectors of the local economy. In urn this leads tocrowding of towns and trading cents resulting in poor hygienic conditions and requiring morelong-term dependency on relief.

15. The FAO/WFP Crop and Food Supply Assessment mission has estimated that twomillion people, including 500,000 refugees from countries in the north and east, are now at risk.Total cereal Imports for 1992/93 are estimated at one million tons, of which food aid wouldprobably need to be about 500,000 tons. Delayed recognition, by the Government and theinrational community, of the scale of the impending famine in parts of the ASAL, resulted in ameager "pipeline of food and other forms of assistance to drought affected parts of Kenya.

16. Access to safe drinking water for the rural households has declined drastically asevidenced by the high incidence of water-borne diseases. There has been increased incidence ofdiardoeal diseases, acute respiraory infections, tuberculosis, and eye infections resulting in extrapressure on the already limited local health care services.

17. Given the centrality of agriculture and agricultural trade to the Kenyan economy,improvement in the management of this sector must become a top priority. The agricultural

16

sector's vulnerability to adverse weather conditions appears to be increasing. Ihis can be partlyattributed to increased use of marginal land for crop production and the encroachment on watercatchment areas. It would take important administrative and technical effort to supportappropriate contingency action plans. The challenge is further compounded by the fact that aworsening situation would lead to a deterioration of the already limited potential of the land andwater resources. The livestock sector represents tha backbone of the ASAL economy.Improvements to range management and the preservation of the resource base are critical to theability of communities to survive periods of protracted droughts in these areas. There are alsoneeds for community education and participation in environment initiatives.

B. Bank Response

18. Drought Strategy. Drought is a regular feature in the arid and semi-arid areas. Untilrecently the local population had been able to cope with the drought and managed to practice asustainable farming system. The advent of two decades of strong population growth, sparseattention to community participation in development, and moreover the severity of the currentprolonged drought have all contributed to undermine the traditional coping methods and weakenedthe capacity of rural communities to recover. Urban centers such as Wajir and Mandera clearlyshow growth patterns associated with the inability of the rral populations to recover after severedrought. These towns are also not managed to provide economic alternatives to pastoralism orrainfed cropping, nor to provide social services that would assist in recovery after severe drought.Community participation in the identification of their priorities and needs in tackling drought is animportant step in building an understanding of mechanisms to approach drought and handling ofthe environment in general.

19. Any drought strategy has to be part and parcel of the ASAL program. A number ofpolicies which are of direct concern to achieve the overall objectives of ASAL development areto: halt land degradation and increase agricultural production; achieve a calculated degree ofswurity of food supply in these areas; and improve the quality of life of the ASAL people.

20. It is fully recognized that ASALs will not be capable of complete self-sufficiency inagriculura products, except if the bleakest subsistence conditions would be acceptable.Consequently, the agricultural economy of ASALs must be linked to other areas as markets foreventual surplus production of specific items and sources of needed foods and agricultural inputs,as well as other consumer goods. Since Kenya cannot afford to subsidize large populations in herASALs an economic balance between high and low potential areas is necessary.

21. The objective of the ASAL program can thus be summarized to be the improvement ofthe social and economic well-being of the inhabitants of the ASAL areas through development ofthe areas' productive potential, creation of income-earning opportuities and provision of basicneeds. Ihe program is intended to be integral in nature and to tap local human resources forneeds identification, program formulation and implementation. Specific objectives include: (a)development of human resources; (b) exploitation of produ&ctive potential; (c) resourceconservation; and (d) integration of ASAL areas in the nitional economy.

22. The project is consistent with the Country Assistance Strategy discussed by the Board onDecember 8, 1992 in the context of the Parastatal Reform and Privatization Technical AssistanceProject. The proposed project is appropriate to achievement of economic recovery from thedrought in the ASAL areas.

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PART UI: SECTOR STRATEGIES

23. To moet the overall objectives of ASAL development a number of policies for differentsectors exist.

Agriculture and ivestock

24. The Kenyan economy continues to be dominated by agriculture, and rapid growth of thissector figures prominently in the Government's overall economic strategy. The performance ofthe agriculture sector since independence has been better than the average for Sub-Saharan Africa.Nevertheless, the agricultural growth rate of 3.5 percent per annum during the 1980s has not beensufficient to keep up with the high population growth of close to 4 percent per annum.Consequedy, it has proved difficult to raise per capita income levels and protect the naturalr.aource base. The situation has worsened recently as Kenya's agricultural performance declinedsharply; estimates indicate that the agricultural growth rate in 1991 was negative and theprognosis for 1992 is not much better. The sector's vulnerability to adverse weather conditionsalso appears to have increased. Given this situation, it would take a major managerial andtechnical effort, underpinned by an appropriate policy framework, to raise the agricultural growthrate.

25. Kenya's agricultural sector has been strong in the past and the potential exists for thissector to grow at 4 percent per annum. However, the recent performance of the sector is beingseverely constrained primarily by structural inadequacies characterized by an inappropriate policyenvironment. Externly these include reduced public investment in the sector, inappropriatepublic service incentive structures, cumbersome regulatory and procedural systems, as well asdepressed world prices for some important crops. Internally, the sector is characterized by weakstrategic management structures and managerial capabilities. The sector has responded onlysluggishly to dramatic changes in the international agricultural market and to the tightening fiscalsituation in Kenya. This is particularly evidenced by the continued domination of the sector by anumber of poorly managed, inefficient and loss making public sector marketing and distributioninstituions. Together these constraints merge to produce a non-competitive market apparatus andinadequate producer incentives that are critically influencing the decision of farmers and otheragricultr organizations to develop the sector.

26. The Government has recognized that a major overhaul of the policy framework and theincentive structure is urgently needed, along with the encouragement of a more competitivemarketing structure with increased participation of the private sector in all aspects of marketingand distribution of agricultural commodities. There is also a growing commensurate realizationthat to encourage greater private initiative it is necessary to reduce the involvement of parastatalsin the sector. In addition, the Government has also recognized that its capacity to manage thesector, to make critical policy and operational decisions in a coherent and integrated manner in achanging policy and operational framework and to identify and to effectively provide key servicesto farmers needs to be strengthened. Given the magnitude of the challenge, it is clear thatstrengthening both the Government's financial and managerial capacity to develop the agriculturalsector would be a relatively long term effort.

27. Given the above, the Government's financial and managerial capacity to deal with thespecific problems associated with the development of the ASAL areas is limited at present.Nevertheless, the Government is in the process of developing a long term integrated program for

18

developing the ASAL districts. Significant progress has been made in formulating an ASALpolicy and developing ASAL district enviroment action plans. The Govermnent has alsoprepared a Food Security Action Plan and a Drougbt Contingency Action Plan. These endeavorshave assisted the Government to at least partially respond to the drought related crisis over thepast few months. However, the magnitude and effectiveness of the response was severelyconstrained primarily by the lack of financial resources and to some extent by inadequate capacityto deal with such major emergency. An ASAL project is scheduled for appraisal in FY94.

Health

28. The Government's major health objective is to provide health services within easy reachof Kenyans by the turn of the century, with emphasis on preventive, promotive and rehabilitativeservices while not ignoring curative services. In order to achieve this, the Government basevolved and is currently pursuing implementation of the following major policies: (i) to incresecoverage and improve accessibility of health services with active community participation; (ii) toconsolidate fi-ther urban and rural curative services; (iii) to further expand and consolidatematernal and child health and family planning mrvices in order to reduce morbidity, mortality andfertility; (iv) to strengthen the Ministry of Health (MOH) management capabilities at all levels;(v) to improve inter-sectoral collaboration with other Ministries, municipalities and NMOs; and(vi) to expand alternative mechanisms for financing health care programs, including cost recoveryand improvements to the National Hospital Insurance Fund.

29. To address the broad range of issues facing the sector, key elements of the Government'sstrategy will be to increase budgetary allocations to preventive/promotive and primary healthservices while attempting to improve management, drug procurement and the refer system, anddeveloping and implementing an effective public health sector investment progrm. TheGovernment's overall strategy and policies for the health sector are appropriate. Since nosignificant increase in public spending on health can be expected over the short to medium term,sustahiable improvements in the quality and coverage of health services will only be possiblethrough a more efficient allocation and management of existing resources, as well as theimplementation of effective and equitable cost-sharing policies. With an appropriate policyframework in place, attention will need to focus on implementation capacity within Government,especially MOH. In this respect, Government efforts will need to concentrate on: (i) reallocationof resources in line with priorities placed on preventive/promotive and rural health services; (ii)implementation of user-charge policies and improvements in health insurance; (iii) improving theefficiency of the health system, especially curative services; and (iv) strengthening planning andadministration of the system.

30. An important principle underlying the introduction of user charges is that they willgenerate additional resources for the sector. In this way, additional resources within the sectorcan be used to meet allocative and efficiency objectives. District Medical Officers and theDistrict Health Management Tean will be responsible for allocating additional resources in linewith epidemiological and district priorities. A critical issue will be the ability of district managersto allocate resources effectively and efficiently. The weakness of the current district plans and thelack of accurate management and financial information will limit the capacity of district plannersto effectively implement overall policies.

Infrastucture

31. Most of Kenya's rural areas are poorly served by all-weather roads. During the last twoyears the influx of refugees and heavy vehicles deployed for relief operations have accelerated the

19

deterioration process of earth and gravel roads in the drought affected areas. The greatdifficulties in making available relief supplies by road poses a great cost to agencies who have torevert to expensive air transport. The implicit higher costs of relief which the Government andother agencies incur results in a reduced supply of essential goods, public health supplies, andfood. This poses a serious threat to public health and the well being of the ASAL dwellers. Inthe arid areas no road development work of any significance is in progress nor in the pipeline.

32. Government focus has been maWiy on rehabilitation of both bitumen and gravel roadswhich have been confined to high potential areas. Future socio-economic development of therural areas in particular the ASAL will have to be based on marketing of livestock products fromand the transport of consumer goods to these districts. As such, Government attention would beon (J) restoring access from the districts to high potential areas of the country by improvingmarketing routes for trucking for the inflow and outflow of goods and services, (ii) selecteddistrict roads connecting major population centers, for transport of food, farm inputs and otherservices, (iii) roads providing easier access to better range lands with a hope of reducingpressures on poor and marginal range conditions.

33. The Ministry of Public Works (MOPW) has been responsible for the construction andmainance of all classified roads in the country through their District Works Officers (DWOs)and the District Development Committees (DDCs). The existing capacities at the districts havebeen insufficient to cope with the increasing volume of road maintenance. As a consequence mostearh and gravel roads (which constitute about 91 percent of the network) are inaccessible duringthe rainy season, isolating most districts from the rest of the country. The MOPW states thatowing to financial constraints, road maience operations have been limited and consequentlymost earth/gravel roads become inaccessible during wet conditions. Current Government budgetallocations for road maintenance have been far from adequate and as per MOPW estimates, wereonly 14 percen of the benchmark requirements for the most essential road maintenance activities,excluding labor. The low level of Government's budget allocation and their increasing overheadshave restricted the optimal maintenace of the road network (an average of US$250 per km perannum for all classified roads of which over 60 percent is utilized for District and HQadministrtion). The MOPW would have to address the need for reducing its wage billconsiderably to provide an even spread of the available resources and review other cost sharing orrevenue raising alternatives.

Water

34. At present the Ministry of Land Reclamation, Regional and Water Development(MOLRRWD) has overall responsibility for the water sector, with regulatory and policy makingauthority as well as responsibility for nationwide and multi-district water project planning andimplementation. At the district level the office of the District Water Engineer (DWE) acts as themain arm of the MOLRRWD. Under the District Focus for Rural Development Policy of 1983,the District offices are vested with responsibility for planning, monitoring and implementation ofall water projects and programs within the geographical boundaries of the District. The NationalWater Conservation and Pipeline Corporation (NWCPC), a parastatal organization, wasestablished in 1988 to operate piped urban and rural water schemes on a commercial basisalthough their operations in the ASAL are limited. In addition, some municipal schemes are stilloperated by municipal councils under the Ministry of Local Government.

35. Availability of water resources in the ASAL is highly problematic. In almost half of thearea, average rainfall is less than 300 mm per annum. It is estimated that in Kenya as a whole,

20

15 percent of the rural and 78 percent of the urban population have access to improved watersupplies. The corresponding figures for the ASAL are not known but can be assumed to be wellbelow the national average. Given the importance of water for the development of the ASALconsiderable efforts have been made in the past to construct water systems in these areas, theselargely consisting of diesel or electric powered piped water systems and boreholes. Run-offcatchment dams and pans have also been constructed forming a vital source of water particularlyfor livestock. However, a large proportion of existing water systems no longer function whilstmany dams and pans are silting up, holding less and less water for increasingly shorter timespans.

36. There are several reasons for the above problems. Many of the systems were constructed15 to 25 years ago and are reaching the end of their design life. Furthermore most of the systemsare serving significantly higher numbers of users than they were originally designed for, leadingto rapid deterioration and subsequent breakdowns. Above all problems have arisen as a result ofpoor operational support and inadequate or non-existent maintenance. This in turn stems largelyfrom a lack of funds and organizational capability at the district government level where fewresources are available to cover day to day eperational costs or to replace ageing equipment andvehicles. Also the dispersed nature of rural settlements and water points makes it costly andlogistically difficult to monitor the operation of such schemes, and to take timely measures whenbreakdowns occur.

37. These problems have induced the Government to revise their approach to the sector.Cost-sharing, whereby users are required to contribute to operation and maintenance costs, isbeing increasingly encouraged. However, this has not yet been widely enforced in the ASAL.Users not only tend to perceive public water systems as being the responsibility of theGovernment, but there is reluctance to make any kind of financial contribution when the servicesprovided continue to be unreliable or non-existent. In order to improve operation and maintenanceand thus ensure greater reliability, the policy of the Government is to increasingly devolve actalmanagement of water systems to the level of communities themselves with the MOLRRWDassuming a regulatory and facilitating role. However, it has proved difficult to persuadecommunities to assume responsibility for facilities on which they were not consulted at the time ofconstruction. ITus there is now a renewed recognition of the need to involve communities fully inthe planning stages of any construction or rehabilitation of water points so as to instill a sense ofownership and responsibility for the systems that are installed. There is also a recognition of theneed to promote the use of technologies that communities can manage and sustain in the long termwith minimum external support.

38. High concentrations of livestock around a limited number of water points has resulted inovergrazing of pasture lands around these points. Ibis in turn has led to an increased awarenessof the need for the development of environmental protection approaches as an integral p xt ofwater supply design and that the planning, implementing and managing of water for domestic,livestock and food/fodder production needs to be carried out in an integrated manner. This alsorequires close collaboration between the many actors involved in water supply development.Recent positive action at district level to this end has been the coordinating initiative ofMOLRRWD to more efficiently meet the water development needs of the ASAL. Measures havebeen taken in some districts to establish coordinating units at district level gathering allparticipants including MOLRRWD, line ministries, NGOs and others working within the sector toensure proper linkages and complementarity in the implementation of activities in the watersector.

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PART III: THE PROJECT

A. Detaled Project Description

39. An IDA mission visited Kenya between November 22 and December 10, 1992 inresponse to the request of the Government of Kenya for assistance with an Emergency DroughtRecovery Ptoject. A Credit and Project Summary is provided at the beginning of this report.There is no Staff Appraisal Report. Negotiations were held in Nairobi January 20-22, 1993. TheKenya delegation was led by Mr. W. K. K. Kimalat, Permanent Secretary in the Office of thePresident.

40. Project Objectives. The proposed project would fund specific components of the DRPand would have two main objectives: ff) to alleviate the impact of the current drought throughmeasures which will start to regenerate productive capacity in agriculture and livestock productionfor the ASAL populations, and to improve water supply and basic health services, and provideaccess to and within the arid districts of Mandera, Marsabit and Turkana; and Oi) to assist inenhancing institutional capacity at the district level to deal with drought. The long-term objectiveis to begin the process of taclding the underlying causes which make ASAL populationsIncreasingly vulnerable to drought situations.

41. Components. The following criteria were used in determining the components: (i)ability to target a package of investments to benefit victims of the drought; (ii) implementablewithin the current operational constraints and within a project period of 24 months; and (iii) be inresponse to the DRP and be incremental to ongoing and planned Govermnent and donorassistance. ITe project has six main components: (i) agriculture, (ii) livestock, (iii) droughtmanagement, including environment, (iv) water supply, (v) road rehabilitation and (vi) health.

42. Project Ares The ASAL area is composed of two agro-ecological zones: arid and semi-arid. In the arid zones, population densities are low, water resources scarce, rangelands degradedand nomadic pastoralism predominates. The arid zones encompass the districts of Mandera,Wajir, Ga issa, Marsabit, Turkana, Isiolo, Tana River and Samburu. The semi-arid zones havehigher population densities and agro-pastoralism is the main way of life. The districts in this zoneare: Baringo, Laikipia, West Pokot, Iharaka Nithi, Kitui, Machakos, Makueni and Nakurm. Itshould be noted, nowever, that other districts of Kenya not u sually classified as ASAL areas havebeen affected by drought. The project area is defined as the ASAL districts, with special attentionbeing given to the three arid districts of Mandera, Marsabit and Turkana for an integratedpackage of interventions for water, health and road rehabilitation. Tana River, which hasreceived little assistance to date, will also be assisted to build its institutional capacity.

43. Agricuiture. The objective of the agricultural component is to ensure availability ofseasonal inputs for the 1993 planting season. The impact of two successive years of drought hasdepleted seed supply. It has been estimated by the Ministry of Agriculture, LivestockDevelopment and Marketing that about 500,000 farm families in the ASAL areas will needassistance. The packge envisaged, for free distribution, would consist of seed, fertilizer andchemicals to plant an area of about half a hectare and would cost an estimated US$29. A limitednumber of hand tools would also be made available. The total requirements for these targetedfarmers in the ASAL areas are some 10,000 tons of maize, sorghum, beans, cowpeas andvegetable seeds; 24,000 tons of fertilizer; 400 tons of pesticides; and 80,000 sets of hoes and

22

pangas. FAO is providing assistance through the UN DMT in the coordination of possible donorinterventions.

44. The components, estimated base cost US$7.5 million equivalent, would be financed fromamendments to existing IDA Credits (US$4.5 million), from the proposed IDA Credit (US$0.7million) and by the Government of Kenya (local currency equivalent of US$2.3 million).

(a) Provision of 15,000 tons of fertilizer and transport to the project area(US$4.5 million).

(b) Provision of hand tools and transport to the project area (US$0.7 million).

(c) Provision of maize, sorghum, beans, cowpeas and vegetable seeds andtransport to the project area (US$2.3 million).

45. Distribution, based on need, would be the responsibility of the District Famine ReliefCommittees. Ihis method was used successfully for a smaller distribution during the short rainsin 1992. The Office of the President (OP) would monitor the distribution of the seeds andprovide IDA with a report detailing distribution by district. The project would finmce the cost ofthis work. The distribution of seeds would be a condition of effectiveness (para. 99).

46. Livestock. The prolonged failure of rains has severely impacted on the livestockpopulations in many of the ASAL districts in Kenya. Destruction of pastures and the drying upof water holes have resulted in substantial livestock losses. Conservative estimates indicatelivestock mortality rates through the end of September 1992 of about 25 percent for catte, 20percent for sheep and 10 percent for goats in the six arid districts of Turkana, Marsabit,Mandera, Wajir, Garissa and Tana River. Recent estimates point to an increasing trend of losses,eecially among cattle, with estimates as high as 40 percent.

47. The drought has also resulted in the surviving livestock populations becomingprogressively weaker and increasingly susceptible to disease. The incidence of endemic andcontagious diseases such as Contagious Bovine Pleuropneumonia (CBPP), Rinderpest, CaprinePleuropneumonia (CPP) and Lumpy Skin Disease (LSD) has progressively increased in spite ofefforts by the Department of Veterinary Services (DVS) to conduct a vaccination campaign. Inaddition, the drought has also severely weakened the ability of the cattle population to resisttrypanosomiasis, leading to an increase in the incidence of that disease. Ihe DVS' efforts havebeen hampered by the lack of vaccines, trypanocidal drugs, other clinical drugs and resources tomount and maintain an effective animal health campaign. A major first step in assisting therecovery process of ASAL populations dependent on livestock is to improve the general level ofhealth of the surviving animal populations, both to prevent further losses due to disease and toincrease their productivity.

48. The project would finance the purchase of vaccines, trypanocidal drugs, clinical drugs,vaccination equipment and other consumable and operating costs associated with carrying outvaccination and animal treatment programs in the districts of Mandera, Marsabit, Turkana, Wajir,Garissa, Tana River, Isiolo, Samburu, Baringo and Laikipia.

49. The components, estimated base cost US$2.5 million equivalent, would be financed fromamendments to existing IDA Credits.

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(a) Provision of vaccines, trypanocidal and clinical drugs, vaccinationequipment and other veterinary supplies (US$2.2 million).

Qb) Operating costs for the campaigns (US$0.3 million).

50. The animal health component would be implemented by the DVS, using its own staff.Vaccination teams would be established in each of the targeted districts. Each team would consistof a veterinary officer, four animal health assistants and two drivers. Two campaigns, each of 60days, would be conducted In each district. The trypanocidal and clinical drugs would bedistributed to the District Veterinary Officer's (DVO) office. The DVO would be responsible fororganizing and carrying out the animal treatment programs. The district coordinator would workwith the DVO in deciding priority areas for carrying out the animal health programs.

51. Drought Mangement. The Government has recognized the importance of having anInstitutional framework for management of droughts which ensures a capacity to secure theavailability of foodstuffs and the speedy recovery from the adverse effects of drought. Thedistricts and local communities should be mobilized within this framework to manage specificdrought management activities like food for work, livestock for work, identification of householdsfor restocking, and participation in the recommendations stemming from analyses of climatic andeconomic data

52. Infmation and district data on such indicators as crop performance, market surveys,rainfal, livestock and pasture conditions and household performance would be continuouslycollected and analyzed. This data would form the basis for a drought monitoring system whichwould be used to generate operational options to assist food security objectives. The droughtmanagement component should also be seen as a part of a longer term program which wouldeventually dovetail into the ASAL project.

53. Within the three districts selected (Mandera, Marsabit and Turkana) for establishing thedrought management system, strengthening is needed through the appoinent and training of thedistrict coordinators to provide coordination of the activities of the line ministries and to liaiseeffectively with the district commissioner and the PMU (para. 82). The project would finance sixman months of short-term technical assistance to facilitate project implementation and to assist inthe training of key staff. Short-erm special local training and seminars for district coordinatorsand allowances for staff of line ministries involved In the implementation of the program wouldalso be financed. A local management and training consultant or institute would train project staffand community leaders in data collection, drought monitoring, famine relief, administrationconcepts and methods. To support project financial accountability, an accounts clerk positionwould be created in each district, under the supervision of the finance manager in the PMU. Inaddition, each district would be provided with four vehicles, five motorcycles, and rehabilitationand refurnishing of houses and offices for incumbent staff. Various types of equipment(computers, radio telecommunication systems, photcopiers), contract staff and field tripallowances would also be financed under the project. A limited program would also beimple_mte in Tana River.

54. Evfronmnent. Preservation of the resource base is critical to the ability of communitiesto survive periods of droughts. The aim of this component is to test different approaches to theprotection of water points and the establishment of grass seed bulking plots in areas of poorrangeland so as to relieve pressure on the range resources. In addition, a limited program ofmini-spate diversion for collection and spreading of water would be constructed with the objective

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of increasing the availability of livestock fodder. Support would also be provided for livestockextension at the district level.

55. Water point protection - Financial support for labor and fencing materials would beprovided to 36 selected temporary surface water dams/pans to enclose an average area of onehectare. Fencing would prevent or limnit access and depending on particular sites water would bepumped and piped to troughs outside the protected area. Concrete wall protection of appropriatesites would also be tested.

56. Seed plots - Within the identified areas of poor rangeland condition, in each district tensites would be selected for establishing grass seed propagation plots. Approximately one hectarewould be securely fenced on the windward side of open degraded areas and over sowed withindigenous perennial grass seed including a mixture of Cenchrus, Leptothrium, Chrysopogon,Dactyloctenium, Enteropogon and Sporobolus spp. A source for this seed would be the Griftupastoral training center in Wajir District. Apart from the initial fencing and introduction of seed,these plots would then be essentially maintenance free.

57. Mini-spate Divesions - Seven sites for mini-spate diversion of seasonal surface flows(four in Turkana (in Lokitaung, Kakuma and Turkwell Divisions) and one each in Mandera,Marsabit and Tana River) would be selected with appropriate guidance from short-term technicalassistance. Ihe feasibility study previously conducted by NORAD in Turkana would be used asthe basis and short-erm national technical assistance would be funded to lay out the contours andidentify areas to be installed. Costs of tools, labor and field allowances for supervision would befianced under the project.

58. Range Extension - Support would be provided at divisional level to enable greater fieldmobility range of extension officers. Two four wheel drive vehicles would be rehabilitated ineach district and provided with fuel and vehicle operating expenses to enable livestock extensionofficers more regular access to communities involved in component activities and to increaseextension capability into other areas. Range extension activities would be monitored by thedistict coordinators to ensure coordination in delivery of messages.

59. Other environmental support would also be provided for revegetation, woodlands andenvironmental education. Revegetadon and woodlands support would be in the form of supplyingnecessary nursery materials and fencing to enable degenerated areas around water points andtowns to be planted with fast growing trees and shrubs. The cost of community labor for fencingand seedling production would be met by the project, with the cost of labor for planting being thecommunity's contribution. In association with the communities, three water points in each districtwould be selected by the district enviroment officer. One town community per district wouldalso be selected to have areas fenced and allowed to regenerate naturally. Also, three towncommunities would be selected for support to fence areas close to town for establishment ofwoodlands.

60. Environment Education - The aim would be to conduct seminars in each of the fourdistrics to create community awareness for the environment and train district officers in rapidrural appraisal techniques. The project would meet the cost of transport and accommodation ofresource persons, local consultants and seminar costs for participants.

61. The Drought Management and Environment components, estimated base cost US$2.65million equivalent, would be financed from the proposed IDA Credit.

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(a) Protection and rehabilitation of district buildings and development ofenvironmental works (US$0.7 million).

(b) Provision of vehicles and equipment (US$0.6 million).

(c) Provision of training and short term technical assistance (US$0.3 million).

(d) Operating expenses for transport and field allowances (US$1.05 million).

62. Infrasructure. During the last two years the influx of refugees and heavy vehiclesdeployed for relief operations has accelerated the deterioration process of earth and gravel roadsin the drought affected areas. The existing capacities of the districts have been insufficient tocope with the increasing volume of road maintenance. As a consequence most earth and gravelroads (which constitute about 90 percent of the network) are inaccessible during the rainy season,Isolating most districts from the rest of the country. Field visits have confirmed that over 70percent of the classified roads in the arid districts are in need of repair and rehabilitation.

63. The infrastructure component of the project would finance limited critical roadrebabilitation (421 kn) of earth and gravel roads in the three selected districts of Mandera,Marsabit and Turkana to facilitate recovery from the effects of the recent drought. The mainfocus would be on (i) restoring access from the districts to high potential areas of the country byimproving marketing routes for trucking for the inflow and outflow of goods and services, (ii)selected district roads connecting major population centers, for transport of food, farm inputs andother services, (iii) roads providing easier access to better rangelands with a hope of reducingpressures on poor and marginal range conditions - linkage with the water component of theproject would be established.

64. To assist in restoring road maintenance capacity at the district level the project wouldalso finance the rehabilitation of selected unserviceable equipment and purchase of spare partssuch as tires and tubes and fast moving items. This would reduce pressure on the already lowlevel of fiunding by Government and could result in a larger proportion of the allocation beingutilized for operation of the road maintenance equipment. Owing to long distances the roadmantenance units have to travel, provision has been made for the purchase of basic campingmaterls so that travel time and costs could be reduced to a minimum.

65. The project would also finance three studies to evaluate additional infrastructurerequirements in the ASAL districts. These would include (i) telecommunication improvements,(ii) other infrastructure requirements, such as storage facilities at divisional level, primary,secondary and technical schools, dispensaries and hospitals, airstrips, market places,slaughterhouses, etc; and (iii) an in-house study by MOPW to evaluate road rehabilitation needsin the ASAL districts.

66. The components, estimated base cost US$7.5 million equivalent, would be financed fromthe proposed IDA Credit.

(a) Three private contracts for road rehabilitation (US$ 6.55 million).

(b) Provision of spare parts for rehabilitation of vehicles and equipment, andcamping equipment (US$0.45 million).

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(c) Preparation of work and supervision bid documents and the supervision ofthe three contracts, and studies for communications, other infrastructurerequirements and road rehabilitation needs in the ASAL districts (US$0.50million).

67. Water. The prolonged drought and the influx of refugees and livestock fromneighboring countries have significantly increased the pressure on water supply facilities, mainlyboreholes, in the northern arid areas which has led to a serious level of breakdowns. The focusof the project would therefore initially be to alleviate the water shortage by rehabilitating existing(mainly permanent) water facilities in the three most drought affected districts of Mandera,Marsabit and Turkana. In addition support would be provided through the project to strengthenthe capacities of the MOLRRWD and community groups, and to carry out a limited program inTana River.

68. Besides rehabilitating boreholes, development of new water sources would focus on, forexample, construction and upgrading of traditional shallow wells and roof and rock catchmentsystems which would be both more environmentally sound and also constitute a technology choicemore appropriate to the Govermnent policy of handing over operation and maintenance of waterfacilities to community groups. In line with Government policies, significant consideration wouldbe given to training of community groups to manage water sources. Similar support would alsobe provided to NGOs active in the districts. Further capacity building under the project vwouldaddress MOLRRWD needs as regards rehabilitation of vehicles and some plant and equipment toenable them to assist water facility users in maintaining the facilities.

69. All three districts rely on boreholes as the main permanent water source. Traditionalshalow wells are largely under-developed. The Daua Parma river in Manderm, along theEthiopian border, including boreholes serves the Mandera/Rhamu area. The best potential forgroundwater exploitation, including shallow wells, is in the eastern Finno-El Wak area. InMarsabit shallow wells can be developed in the alluvial sediments of seasonal rivers. Althoughpans and dams constitute an important water resource in some parts of the district the potential islimited due to permeable substratum. In Turkana, where there has only been limited donorassistance in recent years, the potential for shallow well development is to be found mainly in thebasins of the Kerio and Turkwell rivers.

70. Detailed action plans have been prepared for each district. They contain information onthe objectives, strategy, ongoing activities in the district, outputs, and the program of work andits implementation, as well as details on contracts to be undertaken by NGOs, private contractorsand MOLRRWD. These action plans were agreed upon at negotiations.

71. Capacity building support would also be provided to the r.maining four priority districts(Garissa, Isiolo, Samburu and Wajir) by rehabilitating MOLRRWD vehicles, plant and equipmentat a cost of US$0.1 million per district and the provision of three water tankers to initially meettemporary water needs and to assist the various works to be carried out in the project area.

72. The components, estimated base cost US$5.15 million equivalent, would be financedfrom the proposed IDA Credit.

(a) Rehabilitation of boreholes, pans and dams (US$2.1 million).

(b) Provision of equipment for rehabilitation works, spare parts andrehabilitation of existing vehicles and equipment (US$2.0 million).

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(c) Technical assistance, training and community-based operations (US$0.35million).

(d) Provision of three water tankers (US$ 0.3 million).

(e) Operating expenses, including transport costs (US$0.4 million).

73. The link between the central PMU and the District Development Committee will bethrough the district coordinator (para. 83). This coordinator would, in dealing with the watercomponent, work closely with the DWE and the district water coordinating unit. ImplementationwIll be carried out pardy through the DWE's staff and pardy through contracting. For thesuccess of the project it is imperative that the community groups are involved in both planningand implementation as they have vast experience and knowledge about the needs and priorities asregards water. Many community groups have also shown significant willingness to contribute bothin cash and in kind to the development and operation and maintenance of the water points.

74. Health. The drought has placed an increasing strain on the basic health services in theASAL areas. This has been exacerbated in certain border districts by the influx of refugees. UNorganizations, NCGOs and church groups are significant contributors to the nrual and urban healthservice. Constraints in Government funds are a major reason for the declining service.However, there are a number of insttutional problems due to the remoteness of these areas fromNairobi, which also discourages continuity of service of medical staff.

75. The objective of the intervention would be: (i) to strengthen the capacity of the healthservices in the three districts of Mandera, Marsabit and Turkana, and (ii) to provide focus to dealwith the main illnesses of malaria, diarrhea and respiratory tract diseases. A limited capacitybuilding program would also be started in Tana River and a project monitoring mechanismestablished by MOH. Preventive, as well as curative, focus would be given.

76. The project would fund rehabilitation of buildings, equipment and vehicles; additionalequipment and vehicles; drugs and medical supplies; vector control and non pharmaceuticalsupplies. On the job training and training of community groups would also be supported.Detailed action plans have been prepared for each of the three districts and Tana River; these setout the objectives, strategy, outputs, ongoing activities of others in the district, the program,separate project inventory and accounts of supplies and distribution by location, implementationarrangements and a summary of the interventions and cost. These action plans were agreed uponat negotiations.

77. The components, estimated base cost US$2.0 million equivalent, would be financed fromthe proposed IDA Credit.

(a) Provision of vehicles and equipment (US$0.75 million).

(b) Provision of drugs and medical supplies (US$0.40 million).

(c) Training (US$0.15 million).

(d) Rehabilitation of buildings (US$0.55 million).

(e) Operating expenses (US$0.15 million).

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78. Projed Managanent Unit. The PMU secretariat would be the central implementationunit (para. 82) and would be situated in separate offices. It would be staffed with senior localcontract staff (project coordinatot, deputy project coordinator, finance manager, procurementofficer and support staff) and an internationally recruited advisor. Provision has been made forshort term technical assistance for monitoring as well as adequate transport, office equipment andassociated operational support.

79. The components, estimated base cost US$1.1 million equivalent, would be financed fromthe proposed IDA Credit (US$0.85 millon) and amendments to existing IDA Credits (US$0.25million).

(a) Provision of vehicles and equipment (US$0.20 million)

(b) Operating costs, including contract staff, office expenses and air charter(US$0.65 million).

(c) Technical assistance and training (US$0.25 million).

B. INSTITUTIONAL ARRANGEMENTS

80. lmplementation. The objective of the project is drought recovery and as such astructure is required which allows marimum efficiency of implementation while working withinthe Government framework to ensure continuity of operations after the end of the project period.

81. The organogram (Appendix I) indicates both the existing Government structures relatingto drought relief and management and the agreed project implemenaion structure. The projectwould be implemented under the National Famine Relief Coordinating Committee in the Office ofthe President (OP), which is chaired by the Secretary to the Cabinet and Head of the PublicService. A Special Recovery Team (SRI) consisting of representatives of the OP, Treasury,Office of the Vice-President and Ministry of Planning and National Development (Head of RuralPlanning Development), and the Chairman of the UN DMT would be responsible for overallplanning, coordination and monitoring, and would give policy guidance to the PMU.

82. The PMU would have overall responsibility for realizing the DRP and project objectivesand outputs. It would also assist in promoting institutional capacity for the longer-termframework of ASAL development. It would be composed of senior representatives of theconcerned line ministries, OP, and representatives of participating donors. The PMU would havea Secretariat headed by a project coordinator, together with a deputy project coordinator,procurement and finance officers and four district coordinators. Three of the district coordinatorswould be based in the main focus districts (Mandera, Marsabit and Turkana), and the fourth inTana River where the main emphasis would be on capacity building. Tle deputy projectcoordinator would support field activities in the other four arid districts. A technical advisor,who would be an international specialist in arid and semi-arid lands, would also be recruited as amember of the PMU Secretariat and would assist the project coordinator in implementation of theproject. The project coordinator would also serve as secretary of the SRT. Appointment of thePMU Secretariat management team (project coordinator, technical advisor, procurement officerand finance officer) would be a condition of effectiveness (para. 99).

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83. At the district level the district coordinator, reporting directly to the project coordinator,would provide the focal point for project activities. The district coordinator would act asChairman of the District Drought Recovery Steering Group (DDRSG), which is a sub-committeeof the District Development Committee. The DDRSG would consist of representatives from thepardcipating line ministries, relevant donors, NGOs and community representatives and wouldassume responsibility for coordination of project activities and other drought developmentprograms in the district.

84. The PMU Secretariat would be supported with office equipment, transport andcommunications, and supported with secretarial staff. Each district coordinator would beequipped with transport and communication facilities and supported by a secretary and accountsclerk.

85. Payment Mechanism. The payment mechanism described below is in addition to thedirect payment system already operating for other IDA-funded projects and deals primarily withdistrict level payments.

86. The project cost would be voted under a separate account head under the OP. Fundswould be administered by the Accounting Officer (AO) in the OP. An off-shore Special DollarAccount (SDA) would be established, to be used for overseas payments and reimbursement oflocal expenses. A separate Paymaster General (PMG) Account would also be opened to facilitateremittances to the districts.

87. The district coordinators would incur expenditure against authorizations to incurexpenditures issued to them and submit original documents to the district treasury for payment(retaining a copy for records). The district accountant would arrange payment, analyze theexpenditure under budget heads and submit weekly reimbursement claims to the PMG along withcopies of paid vouchers and supporting documents. The PMG would process the claims andforward them to the Extn Resources Division (ERD) in Treasury who would arrange totransfer the amount payable from the PMG account to the exchequer account every week. ERDwould also arrange for replenishment of the PMG account from the off-shore SDA every twoweeks. This system would ensure payments to districts on sight immediately on receipt of weeklyclaims by the PMG. At the OP, the AO would incur expenditures as per normal Governmentprocedures and submit special exchequer requisitions through ERD to seek transfers from thePMG account. District coordinators would send copies of paid vouchers and supportingdocuments to the PMU along with a monthly summary of accounts. The PMU would maintainbooks of accouns and prepare reports for Government and donors, and certification of statementsof expenditure.

88. The actual operation of the above payment mechanism would be reviewed by IDA threemonths from the date of Credit effectiveness and suitably modified, if necessary, in consultationwith Government. At the time of the mid-term review, a more comprehensive evaluation of thepayment mechanism would be made by IDA (para. 96).

89. FInacing Plan. The proposed project would be financed as follows:IUS$ Mllion

Government of Kenya 2.30IDA - Proposed Credit 20.00IDA - Amendments to Existing Credits 7.25

TOTAL 2=.

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The amounts from the IDA Credits which have been amended are US$2.5 million from theAnimal Health Services Project (Cr. 1758-KE); US$2.75 million from the Rural Services DesignProJect (Cr. 1974-KE); and US$2.0 million from the Second National Agricultural ExtensionProject (Cr. 2199-XE). The components to be funded fall within the objectives of the respectiveCredits: (i) Cr. 1758-KE, to Improve effective delivery of animal health services; (ii) Cr. 1974-KE, to resolve constraints to agricultural development; and (iii) Cr. 2199-KE, to increaseproductivity and incomes of smallholder farmers. Government would finance the total seedprocurement as its 10 percent contribution to the project (para. 44). The Credit would finance100 percent of all the other expenditures net of duties and taxes. All items specifically for theproject would be exempt from customs duties and taxes. No physical contingencies have beenincluded and price contingencies (US$1.15 million) represent about 6 percent of the base cost.The project would be implemented over a two-year period.

Procurement

90. All procurement of goods, works and services would be in accordance with World BankProcurement Guidelines; consultants would be recruited in accordance with World BankGuidelines on Use of Consultants. Bank's sample bidding documents for good, works andconsultants would be used. Procurement methods are summarized in Schedule B and includeprice contingencies. About 70 percent of total procurement would follow InternationalCompetitive Bidding (ICB) procedures. Procurement of civil works, esfimated at US$1.65million, covering those project components which are labor intensive and scattered in remotelocations and for which NGOs and certain international agencies like UNICEF have set up theiroperating units, would be by shopping procedures . Foreign firms would not be interested inihese works. Because of the emergency nature of the project, procurement activities would haveto be completed as soon as possible. The project provides for agricultural inputs (certain handtools and other small accessories for farmers) and equipment and spares for support to otherentities to be procured under Local Competitive Bidding (LCB) and local shopping procedures inaggregate amount not to exceed US$0.85 million and US$0.15 million, respectively. Details ofconsultants contracts and other specific procurement activities and procedures are described foreach component in the following summary:

Agriculture (US$0.7 mUilion). The agriculture component of the project would fund theimportation and distribution of hand tools and small amounts of other inputs. Due to the need forurgent supply and farmer requirements for locally available tools, these would be procured byLCB. Adequate local competition exists.

Drought Managent and Environment (US$2.7 mllion). The total cost includes US$0.9million for the environment sub-component which would be implemented under the supervision ofdistrict coordinators in association with line ministries. Construction of fencing around waterpoints and other small works of rehabilitation of housing estimated at US$0.3 million would beprocured by LCB where adequate local competition exists. Building and fencing materials(US$0.4 million) and vehicles and equipment (US$0.65 million) would be procured by the PMUusing ICB procedures and supplied to the disticts. The services of local and foreign Consultantsestimated to cost US$0.30 million, would be arranged under World Bank Guidelines on Use ofConsultants. Training cost of US$0.1 million would be incurred based on the training programapproved by IDA.

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Infrastrucure (US$8.15 million). The infrastructure component of the project would fundIhnited critical road rehabilitation of classified earth and gravel roads in three packages (US$7.2million). Tle bidding documents, to be issued under ICB, would allow the prospective bidders tobid for any one or all packages. Provision has been made for appointment of a consulting firmfor the preparation of design and supervision bidding documents and to carry out constructionsupervision and other related services (estimated at US$0.5 million). MOPW will assist the PMUin the management of this component. Camping equipment for use of the supervision team wouldalso be provided. In order to rehabilitate existing road maintenance equipment available in theMinistry, provision has been made for supply of essential spares, including tires, tubes andbatteries. While general items like tires, tubes and batteries would be procured under ICB,spares of proprietary nature would be purchased using single source suppliers, up to a totalamount not exceeding US$O.1 million. Tie road work is expected to be completed by March1995. Local consulting firms would be engaged under World Bank Guidelines on Use ofConsutants.

Water (US$5.5 million). The water component would include upgrading and rehabilitation ofboreholes, training local staff in the operation and maintenance of engines and pumps and inhandling boreholes, emergency repairs, rehabilitation of shallow wells, roof and rock catchmentsand pans. Provision is also made for support to MOLRRWD to rehabilitate the existingequipment used in the construction and ma_nenance of earth pans/dams. An action plan has beenprepared giving the detailed specifications and quantities of various inputs required, and details ofcivil works to be contracted in the four districts (para. 70). Provision is made for supply of threewater tankers to be procured under ICB to overcome the prevailing acute shortage of drinkingwater in the three focur districts. The PMU would arrange procurement and supply of equipmentspares to MOLRRWD, based on ihe action plan. Provision is also made for adequate training ofMOLRRWD staff at the district level by hiring the services of specialists and consultants. Themajor input supply would materialize in the first year of the project. A major part of civil worksat the district level would be undertaken during the second year of the project, partly throughDWE staff and pardy by contracting NGOs and/or private contractors.

Becase of the urgency and limited time for completion, it is expected that the bulk of therehabilitation program would be carried out by NGOs who have established their operating unitsin most districts in the ASAL area. They have the expertise and supporting facilities to completethe work on a time bound basis. Thus rehabilitation work in respect of boreholes, pans and damswould be by local shopping procedures for a total value not to exceed US$1.65 million. Eachcontract is not exected to exceed US$40,000 equivalent. NGOs would be selected by shortlistingprocedures. Consultant firms would be engaged under World Bank Guidelines on Use ofConsultants at an estimated cost of US$0.1 million to prepare specifications and detailed plans forrehabilitation work. Training cost of US$0.30 million would be incurred based on the annatraiing program approved by IDA.

Health (US$2.1 million). The project would fund rehabilitation of building, equipment, vehiclesand spares, drugs and medical supplies, vector control and non-pharmaceutical supplies.Equipment, vehicles and spares (US$0.7 million) and drugs and medical supplies (US$0.4million) would be procured by the PMU using ICB procedures and supplied to the districts. Alimited number of single items of equipment (US$0.1 million) and reagents (US$0.05 million)would be procured by LCB. Rehabilitation of buildings would consist of a number of small andscattered contra not suitable for ICB and would be let under LCB (US$0.55 million). On-the-job training of community groups would also be supportd.

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Project Mnageent (US$0.83 million). The PMU would be the principal implementing body.The PMU Secretariat team would consist of a project coordinator, deputy project coordinator,procurement manager, financial manager, technical advisor and a team of supporting staff. ThePMU would implement various components of the project through the district coordinatorsstationed in the four districts. The PMU Secretariat would be responsible for procurement,financial management and supply and stores management of the project, as well as preparation ofvarious documents and seeking approvals through the Government and the Bank. Provision hasbeen made for appropriate office space for the PMU and for office equipment and supplies. Aradio communication network is also planned to improve communication between the districts andthe PMU. A fax machine would be provided to accelerate communication with internationalsuppliers. Tbe technical advisor would be an international expert, engaged either on secondmentfrom another international agency or appointed under World Bank Guidelines on Use ofConsultants. The other four senior staff of the PMU would be recruited through advertisementand would be remunerated on a special pay package applicable to 'Officer Consultant". Theselection of the technical advisor and senior staff would be done in consultation with IDA.

Training (US$035 mifion). Inmediately after the Credit is signed, the PMU would prepare anannual program for training activities for each project component, to be cleared with IDA, whichwould include the nature of training, estimated cost, personnel and place and period of training.

Review by the Bank. All ICB contracts and contracts for good and works estimated atUS$100,000 on more would be subject to IDA's prior review procedures. This would cover 85percent of the contracts under prior review category. Contracts below the above threshold wouldbe reviewed on selective basis 1 in 5. All consultant contracts above US$100,000 would besubject to prior review of IDA. Ihe PMU would monitor procurement and maintain records ofal procurement activities. Contract for selective reviews would be kept with the PMU.

91. Tedchinal Assistance The proposed project provides for technical assistance, primarilyshort term, of about 7 staff-years of expatriate services and 3 staff-years of local staff. Thirty-sixstaff-years of contract local personnel would also be hired. All specialists/consulting firms wouldbe hired under contracts on terms and conditions acceptable to IDA and in accordance with theBank Group's Guidelines for the Use of Consultants by World Bank Borrowers and the WorldBank as Executing Agency (August 1981).

92; Disbursements. Disbursements would be on the basis of 100 percent of total eligibleexpenditures. All disbursements would be requested in accordance with Bank guidelines andoperate under procedures acceptable to IDA. Disbursements would be fully documented exceptfor paymens for contracts less than US$100,000 equivalent, which would be disbursed on thebasis of statement of expenditure (SOEs). SOEs would be certified by the finance manager inthe PMU Secreiat and the ERD, who would confirm ta these are in agreement with the boolkof account. Supporting documentation would be retained and made available for review by theauditors and IDA supervision missions. An indicative schedule of disbursements is shown inSchedule B. Expenditures for agricultural inputs up to an amount of US$500,000 may bedisbursed retroactively against expenditures made since December 1, 1992. Expendituresfinanced retroactively must also conform to Bank procurement guidelines.

93. Special Account, As set out under the payment mechanism (para. 86) a separate SDAwould be established with an initial deposit of US$2.5 million. Payments to overseas suppliersand reimbursement of local payments would be made from this account. The SDA would bereplenished at least on a monthly basis and on the basis of doeumentary evidence to be provided

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to IDA by Government. Withdrawal applications above US$250,000 equivalent would besubmitted to IDA for direct payment.

94. Accounts and Audit. As set out in the payment mechanism (paras. 85-88) books ofaccount for the PMU and the districts would be maintained in accordance with sound andgenerally recognized accounting principles and practices satisfactory to IDA. The accounts wouldrecord expenditures under the different components of the program and also record the source offunding. An annual audit would be carried out by the Controller and Auditor General orindependent auditors acceptable to IDA and audit reports would be submitted within six monthsafter the end of each Government fiscal year. The audit reports would include a detailedstatement of the adequacy of the accounting system and internal controls, an independent opinionon the reliability of statements of expenditure as a basis for disbursements and an independentopinion on the operations of the SDA.

95. Reporting and Evaluation. Quarterly progress reports, in a format to be agreed, on theperformance of the project components would be prepared and submitted to IDA by the PMU.Contract awards, disbursement documents, quarterly reports, audited statements of account andIDA supervision reports would form the basis for monitoring project performance. A projectcompletion report prepared by the PMU Secretariat and endorsed by the SRT would be preparedand submitted to IDA within six months of the completion of the project.

96. Mid Tewm Review. The progress and impact of the program interventions would bejointly reviewed by the OP and IDA, not later than January 31, 1994. To facilitate this review,the PMU Secretariat, assisted by consultants, would prepare a mid-term report on theimplementation of the project by December 31, 1993. The review would evaluate: (i) theperformance of the agricultural inputs distribution for the 1993 planting season, including detailsof quantities delivered by district, and its impact on the agricultural production of those districts;(ii) details of the performance of the anima health vaccination program and an evaluation of itsimpact; (iii) progress of the drought management and environment components, together withrecommendations for possible design changes and/or financial reallocations of the sub-componens; (iv) progress on the water component as measured against the action plan, togetherwith recommendations for any alterations to the action plan for the second stage of programimplementation; (v) progress on the health component as measured against the action plan,together with recommendations for any alterations to the action plan for the second stage ofprogram implementation; (vi) progress on the roads rehabilitation component, including details ofthe three roads contracts, status of procurement of spares and equipment, provision for futuremaintenance of project-funded roads, and the status of the studies; (vii) a review of the centraland district organizational structures; (viii) a financial report on payments and commitments underthe program and an evaluation of the payment mechanism; and (ix) a overall assessment of thestatus of the recovery process in the ASAL areas. This review would form the basis forGovernment/IDA to assess what corrective action may need to be taken and whether anyreallocation between non performing and performing components is required. Assurances on thiswere obtained at negotiations (para. 99).

97. Environment hnpact. Two years of drought have already created an adverseenvironmental stress on the fragile ASAL areas. This has been exacerbated by an influx ofrefugees into the arid lands with adverse effect on the water facilities and rangelands. Any shortterm intervention cannot possibly address the complexities of sound enviromental management ofthese areas. However, the design of the DRP and the IDA-supported program seeks toincorporate mitigatory actions witiin the various components being funded. The teams preparing

34

the longer term ASAL development project are in the process of developing district environmentalaction plans and others have produced a range management handbook for a number of ariddistricts which provides detailed mapping and data on water and range resources. These andother reports have formed the basis for the small environxment component to support rangelandmanagement and other environmental interventions (paras. 54-61). The water action plan alsoses out details of proposed interventions to ensure that due attention is given to appropriaterehabilitation and upgrading and construction of more environmentally sound and more easilymaintained water facilities such as shallow wells and roof catchments.

98. The project does not call for the construction of prime new roads and no majorrealignment would be necessary. However, new gravel pits would have to be established, andwhere the eroded condition of the existing roads call for diversion, mitigatory actions will betaken to prevent fiuther erosion in the abandoned portions, to restore the site in the long run. Incollaboration with the water resources component, the gravel pits would be restored to water-pansor reservoirs. Where road sections have to be raised, the sides would be planted with grass toprevent erosion. Adequate side-ditches and run-offs would be constructed with scour-checkswhere necessary. Provision for drainage structures has also been made to restore natural watercourses.

C. AGREEENS 1REACHED AT NEGOTAUTIONS

99. Agreement on the following was reached during negotiations: (i) the action plan for thewater component (para. 70); (ii) the action plan for the health component (para. 76); and (iii) theitems to be addressed and the completion of a mid-term report by December 31, 1993 and itsreview by Government and IDA by January 31, 1994 (para. 96). Distribution of seeds andappointment of the key members of the PMU Secretariat (project coordinator, technical advisor,procurement officer and finance officer) would be conditions of Credit effectiveness (paras. 45and 82).

35

WORKING DOCUMENTS IN THE PROJECT FILE

1. The Drought Recovery Program, Kenya. Project Design. (Second Draft). December1992, including Annexes l-XI

2. Infrastructure Component

3. Summary of Project Costs and Cost Tables

4. Proposed Accounting Reports

KENYA EMEIRaENCY DKOUGOT REOVEIW PROJECTIMPLEMENATION STRUCTURE

EXISTING GOVERNMENT STRUCTURE DROUGHT EOOVERY PRJECr SRCTUE

OFFICE OF THE PFtESIDENT

DISTRC0T FOCUS NATIONAL NATIONAL FAMINE RtELIEF

FOR RURAL FAMINE COORtDINATION COMMITTEE

DEV'ELOPMENT RELIEF CHAIRMAN (READ OF CML SER\tlCE)

CIAL ERY TEAM

t P TRE;ASURY |UN DMT|

PROJECT MANAOEMENT UNITLINE MINISTRES, OP ANDREPRESENTATIVES OF PARTICIPATINGDONORS

UNE~~~ ~ITRO COORDINAiEB ADVISOROVR CORIAtR

DEVELOPMENT

DEP. NPCPROCUREMENT FINANCE

AL.L DISTRC

DONoRS STEERING (CHAIRMAN OF DDRSG)

GROUP , (DRO

Xs

S U D A N r

EMERGENCY DROUGHT RECOVERY PROJECTPROJECT DISTRICTS

Aw'~~~ .. ETHIOPIA

Z 2 E : ' \s ~~~~~~~~~~~~~E T H I O P I A ,.

UIJRKANAA MADERA

Lodwr/

E A T ER WAJR

Usw G A N DA , X V a X \; / X N O A |ISOMALIA

A vElroo (N 0 R T

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SVAK IIIOLO t > \ w '

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PROJECT DISTRICTS

o.oom.LE 40U S 1_/

T orN carom, C 0 A4m INOIAN

.4ZAOIAm,.l. z_4 i 'C~ NUF

W 000*0 EASTERN POOVINCO~~~~~~~~CEA

WErn MR A=ADIAAV

o0AO4ZOA PIWR .A,n

eIonyo.OA,AEwrr_ ra,.

rr *AtOf/ARGA ( A F R ~I C A <>IA ---- J*tlmtn/art

CENTRAL PFOINOIN k ,< .

40 ... ---- ,MOMA 0 Citiso ad, A.-K t ... -Tmk- - o.ads

Iho,:onoki.on..*,.o 0 rn.nILOHTERSO 40 , 60 20 120Th b=!. p,.d. _Mn cudrbtdWd IILES rC S sO mof .

m Op dow hc.on p* .4Th. Wool Bonk OoopW. or 0

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S U D A N .SUDANe

EMERGENCY DROUGHT RECOVERY PROJECT// EPROJECT DISTRICTS

,1~~~~~~~~~~~~~~~~~~-

TURKANAANDR

o' ) R X,,3 *\. ,. I '

MARSARET [I A

E A T ER WAJIR iU GANDA

L@v L y ff E Y X - . ) - J ... 'O RTHj SOMALIA

*A N5 N - SAMBURU I

/~~~~~~~~~~~~~~- E t R N

4 GIkail -~~~~~~ tNYP tORI MBLD~RISS

0 A2fA \1 K/EF IT| EA.NA RiVER

OCEAN

,oep hone 9o.y tv .ot .o~hL yI[, foe \ * -- -

WMPROVINCE DISTRICT 4, KJR°CO A Tg>fDA

,OUNN,I NORTH SAilTRN FROVINO!&8 \ }

DlC" VA W ( E 40 00 t00

Th onnneo ndodthe 5ood tVNCE on *o i -PO beioee

eOPdO80^* MAIAA F R I C A T h.d be --Gionl onp 3iawb

CENTRALFPnVt d. ..

-4- t 9 . .. - EJ)UAA O cini. OnD faai 4,~ ~ ~~~~~~~~~~~~~~~~~~~~~.... .<KWALE A _tnmk rwni5

;~~~~~~~.WdSWZ KILMEM0 A0 so 120 MO.sX w*0 Railroads

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