BHUTANSECOND URBAN DEVELOPMENT PROJECT (Cr. 4744-BT & Cr. 543 1-BT)

Implementation Support Mission: February 5-20, 2017Aide-Memoire

I. An IDA implementation support mission (the Mission) visited Bhutan during February 5-20, 2017to review the status of implementation of the Bhutan Second Urban Development Project (BUDP2). TheMission' held discussions with: concerned officials of the Ministry of Works and Human Settlement(MoWHS) and the Ministry of Finance (MoF) of the Royal Government of Bhutan (RGoB); the Thimphu,Phuentsholing, Gelephu, and Samdrup Jongkhar thromdes; consultants; and contractors. The Mission alsovisited project sites in northern Thimphu as well as Phuentsholing Thromde. [A list of officials met by themission is attached as Annex 1.]

2. The Mission would like to thank the Royal Government and officials of the concerned agencies forthe cooperation and courtesies extended. This aide-memoire reflects the mission's findings andrecommendations; a draft of the aide memoire was discussed at a wrap-up meeting chaired by the Secretary,MoWHS on February 17, 2016. The aide-memoire will be disclosed to the public, as agreed at the wrap-upmeeting.

Overall Project Status

3. The table below summarizes the status of the project.

Summary of Project Status

Key Project Data Current Ratings and Flags

Effectiveness Date 08/24/2010 Development Moderately SatisfactoryObjectives

08/13/2014 (AF)

Closing Date 06/30/2019 Implementation Moderately UnsatisfactoryProgress

Project Age 79 months Problem Flags None

% Disbursed 77.52% (original Cr.)

12.47% (for AF Cr.)

38.93% (combined)

4. Likelihood of Achieving the PDO, There continues to be steady, albeit slow, progress towardsachieving the targets for various outcome and intermediate indicators (see Annex 2: Results Monitoring

'The mission was comprised of: Zahed H. Khan (Senior Urban Specialist), Paul Kriss (Lead Urban Specialist), RamaKrishnan Venkateswaran (Lead Financial Management Specialist), Tashi Tenzing (Senior Water Supply Engineer),Savinay Grover (Senior Financial Management Specialist), Md. Akhtar Zaman (Social Safeguards Specialist), andMs. Tenzin Lhaden (Economist),

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Table). Subject to timely action on the various matters discussed below, project activities are expected tobe completed by Credit closing. In view of this, achievement of the PDO continues to be rated ModeratelySatisfactory (MS).

5. Overall Implementation Progress (IP). Implementation of key project activities has progressedwell since the July 2016 mission: civil works in Langjophakha have been completed and civil works for theLower Taba LAP are now being implemented. The first contract for the central water supply scheme wassigned in mid-February. The Royal Government had earlier informed the Bank that the extra $5 million(provided under the Additional Financing) would be utilized for two primary roads in Jungshina-Pamtshoand Hejo-Samteling LAPs and the timelines for the design and procurement for these schemes were agreedduring the mission. Overall, implementation of various activities are on the right track, but some actionsare still pending under Component 1. As such, the rating for overall implementation progress is beingretained as Moderately Unsatisfactory. The paragraphs below summarize the status of implementation ofproject components; more details are provided in Annex 3.

6. Component 1: Municipal Finance and Management. Computerization of tax records, watercollection charges and asset registers is nearing completion in Thimphu and the computerized system isbeing used for the billing and collection of property tax and water charges. In accordance with the ActionPlan agreed during the previous mission, Phuentsholing Thromde has constituted a task force to expeditethe digitization of track records, and the task of digitizing records is progressing well. PhuentsholingThromde will start testing the upgraded system to send invoices to taxpayers latest by April 30, 2017 orafter 50 percent of the tax records have been digitized, whichever occurs first.

7. Thimphu thromde has already published and uploaded the Thromde Performance report, whilePhuentsholing thromde is well advanced in the preparation of its performance reports. Preparation of annualfinancial statements using the computerized accounting system needs to be completed for the past financialyear and targeted training and capacity support needs to be provided to the Thromdes through the project'sCapacity Building component. In view of the apparent trouble-shooting support required, the Missionagreed in principle that the Annual Maintenance Contract (AMC) with the current vendor firm mayextended for another year.

8. Procurement for rolling out the Component I activities to Gelephu and Samdrup Jongkharthromdeshas been expedited by the PPD (MoWHS). As such, Component-I Action Plan would be revised by PPD,MoWHS based on the findings and recommendations of this mission.

9. Given that several actions are still pending, the rating for this component continues to beModerately Unsatisfactory (MU).

10. Component 2: Thimphu Northern Area Development. Implementation of Component-2schemes has improved, with steady progress in the implementation of on-going civil works. TheLangjophakha LAP civil works contract has been completed and was handed over on September 9, 2016.The Lower Taba LAP civil works contract was signed on July 27, 2016 and works are ongoingsatisfactorily; the contractor has met the first milestone. The contract for the first package for the centralwater supply scheme was signed and, following payments of compensation and requisite clearances, theconstruction is expected to commence soon. Meanwhile, the notice inviting tenders for the second contractpackage has been issued and the contract award is expected to be completed by early June.

11. As the Project closes in two years and three months, implementation needs to be carried outaccording to the schedule. The environmental clearance for the Central Water Supply Scheme needs to beexpedited so that the works can commence soon and the construction of the intake structure is completedduring the dry season. Meanwhile, during the mission, a timeline has been agreed upon to prepare the

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detailed designs for the proposed two primary roads in Jungshina-Pamtsho and Hejo-Samteling LAPs, withthe contract(s) to be awarded by end-October 2017.

12. In this context, MoHWS and Thimphu Thromde need to focus urgently on improving inter-agencyand intra-agency coordination among the concerned departments in order to ensure better communicationand proper involvement of the Thromde O&M staff during construction of the facilities. The thromdes andrelated organizations need to plan for providing effective O&M training; training courses can be conductedunder Component 3. It was agreed that as a first step to identify possible systemic ways of improving watersupply and sewerage services in Thimphu thromde, a diagnostic study would be undertaken soon,

13. Taking the above factors into account, Component 2 is rated as Moderately Satisfactory (MS)

14. Component 3: Capacity Building. Only a few courses/programs were conducted in FY2015-16and the budget allocation for FY2016-17 has been reduced. The requisite training for personnel involvedin operating and maintaining new plants and systems in Thimphu Thromde has been overlooked in utilizingthe released budget. A needs assessment should be undertaken immediately to identify appropriate trainingand skill development courses for relevant personnel over the two remaining years of the project and thatthe capacity building program should be finalized by the Coordination Committee at MoWHS by May 31,2017. There has been good progress, however, in policy implementation support activities undertaken bythe Department of Human Settlement (DHS) of the MoWHS funded under the Additional Financing. Draftsof the Spatial Planning Act and Standards and the National Human Settlement Strategy have been finalizedby the consultants and are awaiting review and approval by the relevant bodies.

15. Additional funds are urgently needed and MoF should now release the remaining allocation for thiscomponent which it had on hold five years ago. Taking all factors into account, implementation of thiscomponent is rated moderately satisfactory.

Project Management

16, Coordination of the Project and its three components needs to be further strengthened at MoWHS(DES, DHS, and PPD) as project implementation, especially for Component 1, enters a crucial stage in allfour thromdes. Project management has improved in respect of contract management and constructionsupervision for civil works, as well as for municipal reforms and management, especially in ThimphuThromde. However, more focus is required on operations and maintenance of the newly constructedinfrastructure; thromde O&M staff should be involved, along with the PIU, during construction and theO&M period of the contractor. While project monitoring and reporting has improved, MoWHS shouldfocus on monitoring the Results Framework indicators in coordination with the thromdes, and present themin the Progress Reports.

Financial Management

17. Financial management is rated 'Satisfactory', while FM risk remains 'Moderate'. InterimUnaudited Financial Reports (IUFRs) for the quarter ending December 31, 2016 are acceptable to the Bank.The project audit report for FY2015-16 was received prior to the due date of December 31, 2016. A responseto the Bank's audit review letter is expected latest by March 31, 2017. Savings, if any, from the IDA Creditswill be determined during the next mission once the contracts for the large civil works packages areawarded.

Procurement

18. Procurement performance of the Project is rated Satisfactory, Procurement activities are in linewith the procurement plan. The updated procurement plan for Thimphu Thromde was approved throughSTEP on February 13, 2017. [The Procurement Plan of the Project is attached as Annex 4.] The use ofSTEP has improved the efficiency and transparency.

19, In October 2016 the Bank has approved the 'Alternate Procurement Arrangement' (APA) forThimphu Thromde, which is the first approved APA in the World Bank, BUDP2 will be restructured toinclude APA provisions in the Financing Agreements; the restructuring is expected to be finalized by end-June 2017. The Mission is of the view that Thimphu Thromde may initiate procurement for the twoproposed primary roads packages using the national procurement system as advance procurement action;once the restructuring is approved, these packages will be ready to be awarded.

Safeguards

20. Environment. PPD MoWHS, in consultation with the Environment Unit of Thimphu Thromde, ismonitoring implementation of the environmental management plan (EMP), including workers' health andsafety issues, waste management, and spraying of water around construction sites. The Thromde and theministry will submit ajoint monitoring report on compliance with the Safeguard Diagnostic Review (SCD)by March 31, 2017. The quarterly monitoring report (QMR) on environmental management (to be preparedjointly by the PPD, MoWHS and the Environment Unit of Thimphu Thromde) will be submitted to theBank by April 14, 2017.

21. Social. Implementation of the RAP for the Lower Taba LAP under the Additional Financing hasalmost been completed; one title-holder and a tenant remain to be paid. The Social Impact ManagementPlan (SIMP) for the central water supply scheme pipeline under the Additional Financing is ready forimplementation. In view of the slow implementation of the RAP and lack of follow-up on in-house capacitybuilding on social safeguards issues (including regularization of the Sociologist/social safeguards positionin Thimphu Thromde and related data management) implementation of Social Safeguards continues to berated Moderately Satisfactory.

22. Central Water Supply Scheme (CWSS). All the affected land-owners, except nine absenteelandowners, have agreed with the Thromde to accept the compensation package. The Thromde willconduct the SIMP disclosure meeting with the affected land owners in Kabesa village and sign the MoUsand make the payments of compensation by the second week of March 2017. The Thromde will continueits efforts to find the absentee owners and keep the compensation amounts due to them ready for paymentwhenever they turn up. It will also stablish a Grievance Redress Mechanism (GRM) as described in theSIMP and keep it functional at sites with effect from the date of first payment of compensation; a reportwill be furnished to the Bank by March 31, 2017.

23. Development ofPrimary Roads in Jungshina-Pamisho and Hejo-Samteling. The Thromde plans tourgently engage an individual consultant to conduct the social impact assessment of the two primary roadsin Jungshina-Pamtsho and Hejo-Samteling areas based on the TOR for the consultant agreed with the Bank.Thimphu Throide agreed with the Bank to complete the social assessment of these roads and preparationof the SIMP and share them with the Bank for clearance by end-, May 2017.

24. Occupational Health and Safety (OHS). Thimphu Thromde agreed to design OHS training forworkers in Lower Taba and conduct a training seminar during the first week of March 2017; the Bankwould be informed on completion of the training seminar. Project progress reports would also cover OHScompliance management at work sites.

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25. Labor Management at Work Site. Thimphu Thromde will ensure that the contractor at Lower TabaLAP develops a Labor Management Plan (and include it in the EMP/ECP) to avoid situations of labourinflux 2 The 56 skilled and unskilled laborers working in the Lower Taba LAP site (of whom 19 are fromNepal and India) are not expected to pose any threat to the local population. However, the Thromde wouldcontinue to monitor labour management by the contractor and will provide the Bank regular progress reportson these aspects.

26. The mission would reiterate that Thimphu Thromde needs to take urgent steps to engage asociologist for social management, including safeguards, completion of pending payments, implementationof SIMP, and monitoring OHS and labour management at sites. The need for this position at the Thromdefor monitoring social safeguards issues has been pointed out by the Bank over five years and it is a matterof concern that there has been no action for a sustainable solution in this regard has been forthcoming.

Agreed Actions

27. The table below summarizes salient agreed actions for the project components. The nextimplementation support mission will be undertaken tentatively during July 2017 while, if and as required,brief technical support missions may be scheduled in the interim period.

Component-]

No. Actions to be undertaken Responsible Dates (as agreedNo. Actions to be undertaken agency with mission)

I Preparation of financial statements (basic cash Thimphu and April 30, 2017accounting of receipts and payments) for FYs Phuentsholing2014-2015 & 2015-2016 Thromdes

2 Preparation of Performance Reports of TT and PT TT & PT April 30, 2017for calendar years 2015 and 2016

3 Complete preparations of digitized Asset Registers TT & PT April 30, 2017for Thimphu Thromde and PhuentsholingThromde until end of 2016

4 Procure computers, peripherals and equipment for PPD, MoWHS June 30, 2017Gelephu and Samdrup Jongkhar Thromdes

5 Complete the procurement processes for the MFM PPD, MoWHS June 30, 2017consultancy for Gelephu and Samdrup Jomgkhar

6 Assessment/evaluation of implementation of TT, PT and July 31, 2017Revenue Management System and digitized Asset PPD/MoWHSRegisters in Thimphu and Phuentsholing

Component-2

Actions to be undertaken Responsible Dates (as agreedNo. agency with mission)

1 Call for bids for second contract of central water TT/DES February 15, 2017supply scheme

2 The rapid migration to and settlement of workers and followers in the project area is called labourinflux, and under certain conditions, it can affect project areas negatively in terms of public infrastructure,utilities, housing, sustainable resource management and social dynamics.

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2 Receive proposals from bidders and bid opening TT April 7, 20173 Bid evaluation & presentation to award committee TT/DES April 30, 20174 Forward award recommendation to World Bank DES May 15. 20175 No-objection from the World Bank World Bank May 25, 20176 Bid award and acceptance letter TT May 31, 2017

Component-3

No. Actions to be undertaken Responsible Dates (as agreed* agency with mission)

I Finalization of training and capacity building Coordination May 31, 2017program covering the next two years Committee,

PPD MoWH4S

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Annex 1List of Officials Met

1. Lyonpo Dorji Choden, Honorable Minister, Ministry of Works and Human Settlement2. Mr. Phuntsho Wangdi, Secretary, Ministry of Works and Human Settlement (MoWHS)3. Mr. Kinlay Dorjee, Thrompon, Thimphu Thromde (TT)4. Mr. Lekzang Dorji, Director, DMA, Ministry of Finance5. Mr. Tenzin, Director, Department of Engineering Services (DES), MoWHS6. Ms. Dorji Wangmo, Chief, Policy and Planning Division, MoWHS7. Mr. Passang Dorji, Executive Secretary, Thimphu Thromde8. Mr. Mahesh Pradhan, Project Manager, BUDP2, MoWHS9. Mr. Pekar Rabgay, PMU, Thimphu Thromde10. Ms. Chimi Pem, Program Officer, DMA, Ministry of Finance11. Mr. Tshering Dorji, Sr. PO, PPD, MoWHS

12. Ms. Sonam Desel, DCEO, PPD, MoWHS13. Mr. Tashi Penjor, Department of Human Settlement (DHS), MoWHS14. Ms. Dechen Yangden, Chief Engineer, Water & Sanitation Division, DES, MoWHS15. Ms. Sonam Euden, Project Accountant, BUDP2, MoWHS16. Mr. Geley Norbu, Chief Urban Planner, Thimphu Thromde17. Mr. Ashok Sunwar, Project Engineer, Thilphu Thromde18. Mr. Karsang, Water supply Consultant, PMU/TT19. Mr. Omapati Luitel, IT Officer, Thimphu Thromde20. Mr. Udesh Chhetri, Sr. Accounts Officer, Thimphu Thromde

21. Mr. Uttar Kumar Rai, Thrompon, Phuentsholing Thromde22. Mr. Wangchuk Thaye, Executive Secretary, Phuentsholing Thromde23. Mr. Ugyen, Urban Planner, Pheuntsholing Thromde24. Mr. Sherab Tenzin, Sr. Survey Engineer, Phuentsholing Thromde25. Mr. Phuntsho Wangdi, Asst. Planning Officer, Phuentsholing Thromde26. Mr. Ashis Subha, Asst. Procurement Officer, Phuentsholing Thromde27. Ms. Sangay Dema, ICT Technical Associate, Phuentsholing Thromde

28. Mr. Tikaram Kafley, Gelephu Thrompon29. Mr. Pema, Executive Secretary, Gelephu Thromde

30. Mr. Karma Sherab Topgyel, Samdrup Jongkhar Thrompon31. Mr. Minjur Dorji, Executive Secretary, Samdrup Jongkha

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ANNEX 2Results Monitoring Table

(Revised with figures for end-December 2016)

See below.

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Year 2012 Year 2013 Vear 201 Year I'ear Dec 16Outcome Indicator Baseline r 201ual Target 4Atual ActuaL June June Comments

2. Number of buildingpermits issued for

• Dechenchholing 30 40 52 75 54 100 58 62 70 72• Langjophakha 45 55 59 65 61 75 68 73 80 83• Taba 0 0 0 0 0 0 0 7 21 23

3. Number of householdswith new piped waterconnections 0 100 0 200 200 250 246 252 260 260

" Dechenchholing 0 0 0 250 0 350 0 0 0 0" Langjophakha 0 0 0 0 0 0 0 0 0 0" Taba

4. Number of householdswith new sewerageconnections 0 100 0 200 0 250 21 73 75 76

• Dechenchholing 0 0 0 250 0 350 0 0 0 0" Langjophakha 0 0 0 0 0 0 0 0 0 0" Taba

IntermediateOutcome/OutputIndicators

360 391 391 Bhutanese2. Number of staff trained 0 50 201 75 239 100 Architecture

1.2 Guidelinestraining underAF

5. No. of newly servicedplots for construction

" Dechenchholing 0 179 0 179 0 179 0 179 179 179* Langjophakha 0 121 0 121 0 121 0 0 0 0" Taba 0 0 0 0 0 0 0 0 0 0

6, Kilometer of internal Water reservoitroads constructed 0.63 km,

" Dechenchholing 0 6.3 2.0 6.3 6.55 6.3 6.55 6.55 6.55 6.55 India house" Langjophakha 0 0 0 0 0 5.8 0 3.3 3.5 3.97 junction" Taba 0 0 0 0 0 0 0 0 0 0 0 .31 km

Resurfacing1.43km

7. Kilometer of new road-side footpathconstructed 0 5 5 10 9.18 10 9.18 9.18 918 9.18

• Dechenchholing 0 0 0 0 0 6.5 0 1.0 .8 1.8• Langiophakha 0 0 0 0 0 0 0 0 0

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*_Taba8. Kilometer of new off-

road footpathconstructed 0 0.4 0.4 0.4 0.62 04 0.62 0.62 0.62 .62* Dechenchholing 0 0 0 0 0 1.5 0 0 0 0

* Langjophakha 0 0 0 0 0 0 0 0 0 0* Taba

9. Kilometer of road-sidedrains constructed* Dechenchholing 0 4.8 4.8 6 6.89 6 6.89 6.89 6.89 6.89* Langjophakha 0 0 0 0 0 4.3 0 3.0 3.5 3.5*Taba 0 0 0 0 0 0 0 0 0 0

10. Kilometer of waterpipelines constructed* Dechenchholing 0 0 0 5 9.02 5 9.02 9.02 9.02 9.02* Langjophakha 0 0 0 0 0 4 0 3.5 3.5 3.5*Taba 0 0 0 0 0 0 0 0 0

11. Kilometer of sewagepipelines constructed* Dechenchboling 0 0 0 5 9.24 8.75 9.24 9.24 9.24 9.24* Langiophaklia 0 0 0 0 0 4.3 0 2.5 3.0 3.0*Taba 0 0 0 0 0 0 0 0 0 0

12. No. of water treatmentplants 0 0 0 1 0 1 1 1 1 1* Dechenchholing 0 0 0 0 0 1 0 0 0 0* Langjophakha 0 0 0 0 0 0 0 0 0 0* Taba

13. No. of seweragetreatment plants* Dechenchholing 0 0 0 1 0 1 1 1 1 1* Langjophakha 0 0 0 0 0 1 0 0 0 1*Taba 0 0 0 0 0 0 0 0 0

Note: Allfigures are cinulative except for s no (1)

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Annex 3Implementation Status of Project Components

The Project consists of three components, both under the original Credit as well as its Additional Financing.A summary of these components, the rating for each, along with the current status of implementation andnext steps going forward are given below:

Component 1: Municipal Finance and Management

3.1 Overall, with several pending actions remaining, even with recent progress towards implementationof activities in the four thromdes, the component-I is rated as Moderately Unsatisfactory.

3.2 Under the original Credit, this component (US$ 1.5 million) aimed at strengthening theinstitutional systems and processes of the two thromdes (city corporations) ofThimphu and Phuemntsholingto enable them to function effectively as efficient, transparent, and accountable urban local governmentscapable of providing urban services in a sustainable manner. The support for the city-specific reformmeasures comprise of two broad areas, namely: (i) strengthening the local revenue policies and localadministrative systems and processes of Thimphu CC and Phuentsholing CC; and (ii) strengtheningexpenditure management systems and financial management systems and processes of TCC and PCC.

3.3 The mission found that the computerization of tax records, water collection charges and assetregisters is nearing completion in Thimphu, and that the computerized system is being used for the billingand collection of property tax and water charges. In accordance with the Action Plan agreed during theprevious mission, Phuentsholing Thromde has constituted a task force to expedite the digitization of trackrecords and the task of digitizing records is progressing well. The mission agreed with counterparts atPhuentsholing Thromde to start testing the system to send invoices to taxpayers latest by April 30, 2017 orafter fifty percent of the tax records have been digitized, whichever occurs first. Both Thimphu andPhuentsholing thromdes are well advanced in the preparation of the Thromde Performance Reports, withThimphu having already published the report on its website. At the same time, the preparation of annualfinancial statements using the computerized accounting system needs to be completed for the past financialyear, and the mission recommended that targeted training and capacity support be provided to Thromdesthrough the Capacity Building component of the project to accomplish this task. Meanwhile, given theapparent trouble-shooting support required, the mission agreed in principle that the Annual MaintenanceContract (AMC) with the current vendor firm may extended for another year.

3.4 Under the Additional Financing (US$ 0.7 million), the above-mentioned municipal finance andmanagement improvements introduced in Thimphu and Phuemtsholing thromdes would be extended to thetwo other thromdes - Gelephu and Samdrup Jongkhar. The support for similar activities would includeasset registration and digitization and upgraded accounting re-engineered business processes. Theprocurement process for rolling out the Component activities to Gelephu and Samdrup Jhonkhar is currentlyunderway and it is expected that the implementation of activities can start latest by July 1, 2017. The revisedaction plan for implementing the component activities is given below:

Component 1: Municipal Finance and ManagementWork Plan (Revised)

Scope of Work Activity Description Expected Deadline Remarks

1. Municipal Formal communication and identification of By end-July/early CompletedFinance and focal officers in the Gelephu Thromde (GT) AugustManagement and Samdrup Jongkhar Thromde (SJT)

Visit GT and SJT to review the need By mid/end-August Completedassessment undertaken by E&Y LLP, and 2016

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discuss the process of implementation of themunicipal finance and management reforms

Finalization of the Thromde Accounting March 31,2017Manual (TAM) and the Thromde BudgetManual (TBM) including getting theendorsement of Ministry of Finance and RoyalAudit AuthorityOrganize targeted training programs on TAM April 30,2017 To be done withand TBM for the Accounting and Budget Staff RIMof Thromdes along with training in Tally..Preparation of financial statements (basic cash April 30,2017accounting of receipts and payments) for FYs2014-2015 & 2015-2016Preparation of performance reports of TT and April 30,2017Phuentsholing Thromde (PT) for 2015 and2016 calendar yearsConduct trainings on municipal finance and Till end of June Training plan tomanagement for staff Thromdes (and Ministry) 2017 (for FY 2016- be separately

2017) prepared afterdiscussing withthe RIM

Complete the procurement processes for June 30,2017MFM consultancy services for GT and SJTInformation Security Protocols and Procedures June 30,2017for Thromdes to be developedIT working group to be formed by PPD April 30,2017including representatives from MoWHS ITunit and Thromdes

2. Implementation Procurement of AMC August 2016 Completedof Revenue Undertake need assessment for computers and August or CompletedManagement peripherals and equipment for GT and SJT September 2016System (RMS) Complete the preparation of the Asset Register April 30,2017 For TT and PTand Digitized of TT and PT till end of year 2016Asset Register -(DAR) PT to start field testing of the Revenue April 30,2017

Management System by sending invoices to taxpayers based on the records digitized

Complete the procurement process for the April 30,2017digitization of RMS and Asset Register in GTand SJTInitiate operationalization of RMS and DAR in July 2017GT and SJTProcure computers, peripherals and equipmentfor GT and SJT the actual

adaptation andimplementationof RMS and

______________DAR begin3. Other tasks Quarterly project monitoring and evaluation End of eveiy quarter Inputs from

related to o n(update result indicators) e Throndes

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Component I of Undertake an assessment/evaluation of the July 2017BUDP-2 implementation of municipal finance andimplementation management reforms and the implementation

of RMS and DAR in TT and PT:Design evaluationDesign and draft questionnaireOnsite review and assessment

Component 2: Thimphu Northern Area Development3.5 Implementation of Component-2 schemes has improved, with steady progress in theimplementation of on-going civil works as well as on procurements since the previous mission. As such,this component is rated as moderately satisfactory (MS).

Langiophakha LAP3.6 Since the last mission, Langjophakha LAP civil works has been completed and the site was handedover to the Thromde on September 9, 2016.

Langiophakha Wastewater Treatment Plant3.7 The wastewater treatment plant (WWTP) works at Langjopakha are substantially completed exceptfor some minor finishing works. During the site visit, the mission was informed that very few households(five or so??) have connected to the sewer system but, at a recent meeting with the Thrompon, thecommunity has committed to connect. The contractor has planned to test and commission the WWTP onFebruary 17, 2017. Learning from the experience of Dechencholing, the Project and Thimphu Thromdewould be advised to ensure that majority (if not all) households are connected to the system prior to testingthe WWTP, as testing the plant at full capacity is desirable. Further, to take full advantage of having itsstaff trained to take over the O&M of the plant before the contractor's three year O&M expires, the Thromdeneeds to assign dedicated O&M staff to work with/be trained by the contractor. The mission is of the viewthat a repeat of the experience of Dechencholing LAP treatment plant would not be desirable. As such, themission recommends that a 'war footing' campaign be launched immediately to have the Langjophakhahouseholds connected to the sewer system. Regarding Thimphu Thromde to formalize the decisionregarding connecting 12 plots to the wastewater treatment plant that cannot be connected by gravity flow,the mission was informed that as new development in this low lying area has not really picked up, aboutfour existing households will have septic tanks and, once the area is developed with more houses, ThimphuThromde will cater to this area with its own resources.

3.8 Lower Taba LAP. The civil works package in Lower Taba is now under implementation. This 30-months milestone-based contract will end mid-February 2019. The works are ongoing satisfactorily, bothin terms of time and quality; the contractor achieved its first milestone on February 6, 2017 but was yet tosubmit a request for payments.

3.9 Lower Taba Wastewater Treatment Plant. The site previously selected to construct the IMLDsewage treatment plant is at Lower Taba and the quarters for the WWTP plant construction is included inthe Lower Taba LAP civil works contract. Meanwhile, Thimphu Thromde has proposed to move the TabaWWTP to a new location below the river, in Jungshina- Pamtsho and Hejo-Samteling LAPs. Thenew site is located approximately 1.5 to 2 kilometers downstream of the CDCL bridge constructionsite. The minutes of meeting outlining the pros and cons of this change in location was sharedwith the Bank. The Bank team reviewed the minutes and also visited the proposed new site and was of theview that the choice is not straightforward. It would require a thorough study to establish the technical,environmental and social feasibility of the merit of this new site over the existing one. Given thecomplexities and the limited time before the project closes and, as the pros and cons in the minutes of the

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internal meeting seems to indicate, the building of the WWTP at the original Lower Taba site is a betterchoice; at least, as Lower Taba will have a treatment plant constructed within the ongoing contract underthe proceeds of the Credit.

Central Water Supply SchemeThis has two packages, Package VI and VII, as below:

3.10 Construction of Intake, Transmission fom Dodena to Taba and Trunk Lines and DistributionReservoirs (Package VI): Since the previous technical mission (September 2016), progress has been madeon the Central Water Supply Scheme, albeit slower than the timeline agreed during the earlier the July2016 mission. The contract for this package has been awarded to the lowest evaluated JV of M/s FINE Inc.and Nima Construction Company, Ltd. for a total amount of Nu 229.1 million (some 7.4% lower than theestimated cost). The letter of acceptance has been issued and the contract is to be signed this week. Thedisclosure of the Social Impact Management Plan (SIMP) and signing of the MOU with the affected plotowners in Kushenphu - Kabesa area has been planned for the first week of March 2017. [Subsequently, theMOUs were signed later in March 2017.] Once the MoU is signed and a copy of the same is forwardedto the Thimphu Dzongkhag Administration for issuance of the Dzongkhag AdministrativeApproval (DAA). Only after NCC receives a copy of the DAA, it will issue environmentalclearance, which is required for the contractor to start work. Therefore, the PIU/TT/MOHWSshould ensure no delays in the above-mentioned process. The construction of the intake structureat Dodena must commence and be completed during the dry season. The mission recommends thatthe PIU/TT review the contractor's implementation schedule monitor progress against the agreed schedule.

3.11 10 MLD Water Treatment Plant (Package VII): While the transmission main (from the intake tothe raw water reservoir) is designed to carry 15 MLD, the treatment plant capacity is 10 MLD, which hasbeen increased from 7.5 MLD. The PIU has completed the preparation of the SBD and has obtained no-objections including from the Bank. The bids are being called and the processing schedule for the bids ispresented in the table below; according to which contract award in May 31, 2017.

No. Description of action Responsible Agreed with Febagency 2017mission

1 Call for bids TT/DES February 15, 20172 Receive proposals from bidders and bid opening TT March 31, 20173 Bid evaluation & presentation to award committee TT/DES April 30, 2017

4 Forward award recommendation to World Bank DES May 15. 20175 No-objection from the World Bank World Bank May 25, 20176 Bid award and acceptance letter TT May 31, 2017

3.12 Field Visit Observations. During this mission, the team visited Dechencholing Water and SewageTreatment Plants, Langjophakha LAP, Lower Taba LAP, and the Central Water Supply Intake Structuresites and saw the proposed pipeline alignment. The mission was very concerned to note the lack of seriousattention given to the O&M of the treatment plants at Dechencholing. The office/laboratory facilities of thewater treatment plant were not accessible as these were locked (because the caretaker had gone to attend anaudit-related meeting, as the mission was informed). The pumps at the water treatment plant were found tobe leaking. At the sewage treatment plant, the assigned staff were present; however, a visual inspection ofthe treated effluent appeared that the treatment plant was not functioning properly. The caretaker informedthat this happens at the start of the plant and goes away once the plant is heated. The last laboratory test ofthe effluent was done a week earlier, on January 31, 2017 and the results showed the values for BOD, COD,

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PH, Turbidity and Fecal Coliform well within the permissible limits. It was also noted that one of theinfluent meters was out of order. Thimphu Thromde has decided to call the contractor who built thetreatment to attend to such problems and train the O&M staff.

3.13 The lack of intra-division coordination within Thimphu Thromde is a matter of concern. Forexample, while the PlU claims to have handed over the "as built drawings" of the completed infrastructureto the Customer Services Section of Thromde, the water supply and sewerage divisions, in-charge of O&Mof the facilities, appear not to be aware of this. As several bigger water and sewerage facilities are beingbuilt, the mission recommends that the, Thromde's O&M staff should be involved, along with the PIU,during construction and the O&M period of the contractor.

3.14 Way forward: The mission notes with concern that earlier recommendation to assign additionalengineers to the Project team at the Thimphu Thromde have not yet been followed up. Given that the Creditclosing date is about two years away, any delay in implementation may adversely affect the final rating ofthe BUDP2 and hence impact the future World Bank engagement in the sector. The mission recommendsthat MoWHS/Thimphu Thromde make immediate arrangements to provide additional support to the PIUas needed to ensure (i) timely completion of ongoing works to specified quality by rigorous monitoring;and (ii) to resolve any pending/emerging issues, such as seeking environmental and social clearances,through proper and timely coordination.

Component 3: Capacity Building3.15 Implementation of this component continues to be rated moderately satisfactory, with continuedprogress on the policy-related activities (under additional Financing). But the mission noted with concernthat very few training courses/programs were conducted in 2016-17 and there has been little progress withthe reduced budget allocation in FY2016-17 (although a couple of foreign 'study tours' were undertaken).

3.16 The mission would like to emphasize that, with only two years and three months remaining untilCredit closing, it is now critical that a needs assessments be undertaken immediately to identify appropriatetraining and skill development courses for relevant personnel over the two remaining years of the project.These in-country training courses can be developed and administered at the CST, Phuentsholing and RIM,Thimphu as was done before. As such, the mission recommends that the capacity building program coveringthe next two years should be finalized by the Coordination Committee at MoWHS by May 31, 2017

3.17 Under the BUDP2 Additional Financing, this component provides for Policy ImplementationSupport for a couple of activities which are being undertaken by the Department for Human Settlement(DHS), MoWHS. These are:a Spatial Planning Act and Spatial Planning Standards: Following rounds of consultations, the'Final Draft' was prepared for further discussion. The mission was informed that the draft Act is now withthe Cabinet for their views, comments and suggestions, following which it would be reviewed by theAttorney General. The bill will be then sent to the Parliament in November 2017. For the Spatial PlanningStandards, the final draft has been completed and stakeholder workshops will be held in different regions.b. National Human Settlement Strategy: The draft of the National Human Settlement Strategy (NHSS)has also been finalized by the consultants (Crisil Risk Infrastructure Solution, India) incorporating variouscomments and suggestions from stakeholders. Subsequently, regional consultations workshops will beorganized and it is expected the National Human Settlement Strategy will be finalized June 2017,

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Annex 4PROCUREMENT PLAN

Project implementing Agencies:

This project will be implemented by the following agencies: (i) Thimphu Thromde (TT); (ii)Department of Engineering Services, Ministry of Works and Human Settlement (MoWHS); (iii)Department of Human Settlement, MoWHS; (iv) PPD, MoWHS; (iv) Phuentsholing Thromde; (v) GelephuThromde; and (vi) Samdrup Jongkhar Thromde

Period covered by this procurement plan: July 2015 to June 2017

L Goods and Works and non-consydting services.

1. Prior Review Threshold: Procurement Decisions subject to Prior Review by the Bank as stated inAppendix 1 to the Guidelines for Procurement: Guidelines and prior review threshold will bedetermined by the Procurement Specialist /Procurement Accredited Staff based on the assessmentof the implementing agency's capacity.

Procurement Method Threshold Prior ReviewThreshold

1. ICB and LIB (Goods) USD > 200,000 USD >200,0002. NCB (Goods) USD > 30,000 <200,000 USD >100,0003. ICB (Works) USD > 1,000,000 USD >1,000,0004. NCB (Works) USD > 30000 < 1, 000,000 USD >200,0005. Shopping USD <30,000 Post review6. Direct Contract All All

II. Selection of Consultants

1. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated inAppendix 1 to the Guidelines Selection and Employment of Consultants:

Selection Method Prior Review Threshold Comment1. Consulting Firm USD > 200,0002. Individual USD > 50,0003 Sole Source Selection All

I. WORKS

1 2 3 4 5 6 7

Estimated Review by ExpectedSE.no Contract (Description) cost (Nu in Prcuremen Bank Bid Comments

million) o Method (Prior/Post) OpeningDate

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I Construction of Urban Infrastructure in 136.0 ICB Prior - CompletedLangjophakha LAP (Under

BUDP-2)2 Construction of Wastewater Treatment 23.60 NCB Post - Completed

Plant at Langjophakha LAP (UnderBUDP-2)

3 Construction of Urban Infi-astructure in 241.61 ICB Prior - AwardedLower Taba LAP on 04 Aug

2016(Under AF)

4 Construction of Water intake, Transmission 270.0 ICB Prior - Awardedmains from Dodena to Taba and on 17 Febdistribution reservoirs. 2017

(Under AF)5 Construction of 10.0 MLD capacity Water 242.0 ICB Prior April 2017 SBD under

Treatment Plant at Taba: Design and Build preparationmodel (Under AF)

6 Construction of Wastewater Treatment 23.586 NCB Post Aug 2017 SBD underPlant at Taba LAP preparation

(Under AF)

Note: The works proposed under Additional IDA allocation for Hejo-Samteling and JunghsinaLAPs under Thimphu Thromde (Comp.2) are not included at this stage.

II. GOODS

1 2 3 4 5 6 7

Estimated Review by ExpectedSI.n Contract (Description) Costte Procurement Bank Bid Comments0 million) Method (Prior/Post) Opening

Date1 Supply of Laptop & Printer(l no. each) 0.13 Shopping Post - For

PMU/DES2 Supply of Digital Cameras (2 nos) 0.12 Shopping Post For

PMU/DES3 Supply of Road Sweeping Machine (for 5.90 NCB Prior For TT

TT)4 Supply of JCB Backhoe Loader (For PT) 3.00 Shopping / Prior For PT

NCB5 Procurement of Plotter (AO) for PT 1.50 Shopping Post For PT

6 Supply of 2 nos. sitting bench (Dewans) 0.03 Direct - ForPMU/DES

(as perannual

quotations)

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III. CONSULTANCY SERVICES

1 2 3 4 5 6 7

Selection Review by Services toSl.no Description of Assignment Estimated Cost Method Bank be Remarks

(Prior/Post) completedI Local Consultant (Water) for Design Nu.3.34 m Individual Post 30. 04. 2018 Mr. Karsang

and Supervision Works under Norbu,Thimphu Thromde (component: 2) Bhutanese

2 Local Consultant (Sewerage) for Nu,2.66 m Individual Post 30. 04. Mr. PemaDesign and Supervision Works under 2018 Choda,Thimphu Thromde (component: 2 ) Bhutanese

3 Local Consultant (Roads) for Design Nu.3.23 m Individual Post 30. 04. 2018 Mr. Pemaand Supervision Works under Tshering,Thimphu Thromde (component: 2) Bhutanese

4 Technician for water (local) for TT Nu.0.95m Individual Post 30. 01. 2018 Mr. LakhaBir Rai

5 Technician for sewerage (local) for Nu.0.95 m Individual Post 30. 01. 2018 Ms. KinleyTT Wangmo

6 Technician for roads (local) for TT Nu.0.95 m Individual Post 30. 01,2018 Mr. TsheringJordan

7 Local Consultant-Sociologist-For - Individual Post Nov/Dec Recruited inPipeline alignment and Water Intake 2016 Aug 2016at Dodena under TT (Mr. Saroj

Nepal)8 Preparation and implementation of US$ 0.50 m QCBS Prior 30.06.2017 From

Human Settlement Strategy Additional(Comp.3/AF) Financing.

Awarded toM/s CRISIL.India

9 Preparation of Planning Act & US$ 0.15m QCBS Prior 30.06.2017 FromStandards (Comp.3/AF) Additional

Financing.Awarded toM/s Keios srl,Italy

10 Annual Maintenance Contract Nu. 1.4 in Direct Post 30.06.2017 Awarded to i-(Municipal Finance for Thimphu & technologies,Phuentsholing Thromdes) - ThimphuComp.1/BUDP-2 . I

Note: Consultancy services will be shortly be secured under Component 1: Municipal Financeand Management (ofthe Additional Financing) for Gelephu and Sandrup Jongkhar thromdes andthe Plan will be updated then.

Zahed H. KhanM:\WBOD E&P\ZKHAN\BHUTAN, etc3UDP2-Feb 2017-Draft AideM Rev-032717,docx3/28/2017 3:33:00 PM

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